Merck Co Inc. is one of the oldest pharmaceutical companies in the world. For more than a century, the company has been investing in vaccines and medicines against many diseases. Currently, the company is enjoying high-profit margins. The Porter’s five-force model is a strategic management tool that helps identify the industry in which a company operates, in terms of attractiveness through profit potential (Dess, McNamara, Eisner, & Lee, 2019). Porter’s five-force model will be used to determine the competitive environment of the healthcare industry in which Merck Co. Inc. operates in.
Threat of New Entrants (Low)
It is quite difficult for new entrants to achieve the economies of scale in the healthcare industry. This makes it easier for companies like Merck Co Inc. to produce large quantities of products so that they can have a cost advantage. Also, the capital requirements for new entrants are high based on research and development costs. These factors make the threat of new entrants a weaker force within the industry which Merck Co Inc. operates.
Bargaining Power of Suppliers (Low)
The numbers of suppliers in the healthcare industry are many compared to buyers. This means that the suppliers have limited control over prices; thus, the bargaining power of suppliers a weak force in the industry that Merck Co Inc. operates in (Dess et al., 2019). The products these suppliers provide are standardized and less differentiated. This makes it easier for buyers like Merck Co Inc. to change its suppliers.
Bargaining Power of Buyers (High)
The number of buyers in the industry in which Merck Co Inc. operates is more than the suppliers. This means that the buyers have limited supplier to choose from and have control over prices. Since the income of the buyers within the industry is low, there is pressure to purchase at low prices. This makes the buying power of buyers a strong force within the industry in which Merck Co Inc. operates.
Threat of Substitute Products or Services (Low)
There are few substitute products available in the industry in which Merck Co Inc. operates. This means that there is no maximum profit that a company can earn in the industry in which Merck Co Inc. operates. Therefore, the threat of substitute products is a weak force within this industry.
Rivalry among Existing Firms (Low)
There are very few competitors in the industry in which Merck Co Inc. operate in Most of the competitors are already established firms such as Pfizer and Astra Zeneca (Dess et al., 2019). This means that no competitor in the industry will change its strategy without being unnoticed. Therefore, the rivalry among existing companies is a weak force within the industry.
Conclusively, based on the information on Merck Co Inc. five forces analysis, the strategic planners can understand how different factors affect the profitability of the industry. Each of the five forces in the model help strategic planners understands the inherent potential within an industry. Notably, a strong force means limited profits, and a weak force means higher profits.
Dess, G. G., McNamara, G., Eisner, A. B., & Lee, S. H. (2019). Strategic Management: Creating Competitive Advantages. McGraw-Hill Education.