GSK Economics
EC229 Economics of Strategy
Introduction
1. GlaxoSmithKline (GSK) is a global healthcare company specialized in the research, development, manufacturing and marketing of pharmaceutical and consumer health-related products. The company has operations in 120 countries, with products being sold in over
150 countries. (Description)
2. As a dominant player in the pharmaceutical industry, GSK operates in an oligopolistic market. It is highly cash generative, with increased sales growth and shareholder returns.
(Oligopoly)
3. Its main competitor is American pharmaceutical giant, Pfizer. Financially, GSK is not the best performer (with $108 bn compared to Pfizer’s $161 bn), but it manages to differentiate itself, which is the key to success in an oligopoly, through a number of strategies which we will explore in this paper. (Pfizer)
Vulnerability
1. Business vulnerability is the ‘hurt’ done to business costs and profits by external events; it increases average total costs, thus reducing profits. (Definition)
2. Type 1 vulnerability is the extent to which the magnitude of fixed costs will affect the strength of the company. It is represented by the firm’s SRATC curve, which is affected by the scale of fixed costs. (Type 1 definition)
3. In GSK’s case, the fixed costs are immense, however, due to economies of scale and vast amounts of specialization, GSK’s operations are likely to be somewhere near the bottom of the SRATC curve. (GSK)
4. This type of vulnerability may be offset by Increasing Returns to Labour. Although investment in labour is a quasi-fixed cost for firms in the short run, it amortises in the long run and becomes a valuable asset to GSK. (IRL)
1. Type 2 vulnerability is the extent to which the firm is exposed to macroeconomic shocks, and is determined by the external brought in costs. (Type 2 definition)
2. As many pharmaceutical products are formed through a cracking process of crude oil, the volatility in oil prices in
Introduction
1. GlaxoSmithKline (GSK) is a global healthcare company specialized in the research, development, manufacturing and marketing of pharmaceutical and consumer health-related products. The company has operations in 120 countries, with products being sold in over
150 countries. (Description)
2. As a dominant player in the pharmaceutical industry, GSK operates in an oligopolistic market. It is highly cash generative, with increased sales growth and shareholder returns.
(Oligopoly)
3. Its main competitor is American pharmaceutical giant, Pfizer. Financially, GSK is not the best performer (with $108 bn compared to Pfizer’s $161 bn), but it manages to differentiate itself, which is the key to success in an oligopoly, through a number of strategies which we will explore in this paper. (Pfizer)
Vulnerability
1. Business vulnerability is the ‘hurt’ done to business costs and profits by external events; it increases average total costs, thus reducing profits. (Definition)
2. Type 1 vulnerability is the extent to which the magnitude of fixed costs will affect the strength of the company. It is represented by the firm’s SRATC curve, which is affected by the scale of fixed costs. (Type 1 definition)
3. In GSK’s case, the fixed costs are immense, however, due to economies of scale and vast amounts of specialization, GSK’s operations are likely to be somewhere near the bottom of the SRATC curve. (GSK)
4. This type of vulnerability may be offset by Increasing Returns to Labour. Although investment in labour is a quasi-fixed cost for firms in the short run, it amortises in the long run and becomes a valuable asset to GSK. (IRL)
1. Type 2 vulnerability is the extent to which the firm is exposed to macroeconomic shocks, and is determined by the external brought in costs. (Type 2 definition)
2. As many pharmaceutical products are formed through a cracking process of crude oil, the volatility in oil prices in