The formation and establishment of Teva Pharmaceutical Industry can be backdated to 1901 when started to operate as a wholesale distributor of drugs with its base in Jerusalem. The successful formation of the company was facilitated by the fact that there were readily available pharmaceutical professionals who were capable of doing research. These entailed emigrants from the Nazi Germany who moved to the British controlled Palestine where the established small pharmaceutical production lines.
Teva Pharmaceutical Industry started as a company manufacturing generic drugs; the manufacture of generic drugs actually is the core business of Teva Pharmaceutical Industry. However, the company has diversified its products and now is involved in the manufacture of innovative pharmaceutical drugs, branded products and biosimilars and niche products which it supplies to different end users. Teva grew fast to become the first company in Israel to become a multinational corporation; because of this, it became very vital to Israel’s nascent economy and was the main source of drug supply to the entire population of Israel (Khanna, Palepu & Madras, 2010, p.1).
Teva Pharmaceutical Industry has grown and developed its portfolio through aggressive acquisitions and mergers. The company has been acquiring big corporations thereby eliminating its stiff competitors. This process has helped the company to penetrate new markets where its products had never reached but dominated by its acquired company’s products. Moreover, through the acquisitions, Teva has been able to expand both its domestic and international operations; the expansion has enabled it to produce in large scale thereby letting it enjoy economies of scale and hence staying ahead of its existing competitors within the pharmaceutical industry.
Teva Pharmaceutical Industry has a variety of approaches it can use to ensure it remains top in the industry. Most importantly, the company must ensure that its research and development activities are enhanced to facilitate the rate of innovation and introduction of new products in the market. again, the company has to ensure that its human resources are well taken care of; the policies of its human resource management must remain compliant to international labour laws in order to reduce the rate of employee turn over and also retain the best productive workers. To ensure the company has highly competent workers, it should establish research training centres in every region of its operations so as to train its own research scientists who will understand the uniqueness of the company’s production lines. It is important that the company continues to develop the current markets for its existing products, especially the generic drugs, and also focus on developing new products for new market segments.
Teva Pharmaceutical Industry is one of the world’s most renowned pharmaceutical corporations dealing in the manufacturing of generic drugs. The company is headquartered in Israel. The company grew rapidly within the domestic market before expanding its manufacturing operations to overseas countries; these overseas countries include those in the West and the Europe. Even though Teva Pharmaceutical Industry has sufficient technological know-how and resources to expand its production, a larger part of its growth has been due to its aggressive merger with other pharmaceutical companies coupled with acquisitions. Its market capitalization has greatly increased due to this strategy. In order to remain highly competitive in the industry, the company has since diversified its productions to cover innovative pharmaceutical products, branded and it continues to develop new products through research and development.
It was in the year 1935 that Kuver and Friedlander formed Teva. The company operated as a private company until 1951 when it went public. By 1976, the company had amalgamated with Assia and Zari; this resulted into the establishment of Teva Pharmaceutical Industries. In the Israel’s pharmaceutical industry, the company emerges top in ranking. Approximately 80% of Teva’s sales are achieved outside the home market although the company has market dominance within the home market. The firm scoops more than half (60 %) of its sales from North America. It also garnered 19 % from Europe (in 2001).
Teva has acquired a leading position in the (generic drug) industry. This has been facilitated by the fact that it since its inception it has been aggressively engaged in development of new generic drugs coupled with strategic acquisition. Teva Pharmaceutical Industries managed to strengthen its domestic position and in the beginning of 1980s, it started to expand to other international regions where it found business opportunities and new markets for its growing products; even in the foreign markets, the company has managed to position its products to compete favourably with other generic drugs from competitor companies.
Strategic approach for Teva Pharmaceutical Industry
The strategic vision of Teva Pharmaceutical Industry is deeply in the vibrant requirement of the diversified international customers who include pharmaceutical retailers, patients, physicians and insurers amongst others. In order to succeed both at local and international level, Teva has put high value on its international human resources; it takes care of the employees in a globally consistent organizational culture. This helps to drive the vision of making the world as a whole to be a healthy place. In its strategic future operations, Teva Pharmaceutical Industry will strive to increase its international coverage and still remaining sensitive to the demands of its products within the domestic market. This process will be driven by perpetual production and supply of high quality pharmaceutical products in all of its regions of operations.
The success of Teva Pharmaceutical Industry is attributable to its hybrid business model. Due to the bottle-neck and fierce competition in the pharmaceutical industry worldwide, it has become important for pharmaceutical companies to diversify products in order to remain relevant in the industry’s market. The hybrid system in which a company diversifies its products is one of the reasons Teva has remained favourably competitive in the global pharmaceutical industry; the company has achieved this by engaging in the manufacture of generic and blockbuster products.
Besides, another success factor for the company is rapid globalization. With increasing technological innovations and inventions, the whole world has finally managed to become one global village where virtually everything can be accessed from any part of the world (Clark, 2003, p.180). This has enabled most business entities and corporations to go multinational; Teva Company has been one of the beneficiaries of globalization. Due to this, the company has established its operations in many foreign nations where its subsidiaries enjoy significant percentages of the market share. So the company has been able to succeed due to globalization and its ability to expand its operations to serve foreign markets.
Most importantly, since its formation, the company has been involved in series of acquisitions. It started by acquiring Zori company in 1963, and in 1968, it acquired Teva as the second acquisition. At the time of its acquisition, Teva was already listed in the stock of Tel Aviv. The company later participated in more acquisitions in major countries of its operations. Moreover, it sometimes works in partnership with other pharmaceutical companies in the development and manufacture of generic drugs. In a nut shell, the success of Teva is due to its adoption of different strategies and careful choice of market segments to operate in. For example, as a pharmaceutical company, the company relied so much on research that it finally became the Israel’s leading research institutions; it has been a place of scientists.
The kind of business Teva deals in requires many years of research and development and high financial input before the final products are released into the market; this is supported by Vaidya (2006, p.409). Economically, this is a very risky adventure as only few tested compounds ever pass the drug tests; this is indicated by the statistics showing that only one out of between 5,000 and 10,000 was approved as a workable drug. This means that for research done of compounds only between 0.01% and 0.02% become successful. However, the highly qualified research scientists are the most important assets of the company. This implies that research done with lots of precision and with sufficient resources increase the number of drugs approved for use in treatment (Khanna, Palepu & Madras, 2010, p.3).
Why Teva emerged in Israel
The pharmaceutical industry in Israel was not well developed and was dominated by the model of conglomeration; t his way, the domestic industry was gradually becoming an oligopoly industry and possibly could turn into a monopoly in view of possible increase in the rate of conglomeration. Economically, merges and conglomerations may result into a single monopoly or create oligopoly by allowing only few companies to operate in the industry (Stroux, 2004, p.173). The conglomeration did not allow competition to take place in the industry. The avoidance of the traditional conglomeration helped Teva to establish itself and position its products firmly in the market. So, the emergence of Teva Pharmaceutical Industry can be attributed to the weak system of competition that existed in the industry within the domestic market. Besides, looking at the trend of conglomeration within the industry, most pharmaceutical companies lost their identities before developing into multinational corporations. But for Teva, its avoidance of the traditional trend of conglomeration enabled it to stand and develop into an exemplary global company; this is the reason it became a multinational corporation. Since, the company holds a very important position with regards to Israel’s economic growth and development; it must get support from the government whose one of the main duties is to ensure that the business environment within the state is favourable for business growth and support scientific research and development.; moreover, the prospects of international expansion helped the business to focus far and wide in terms of its scope of operations.
The emergence of such a company in Israel can also be attributed to the fact that the population of Israel was highly enlightened at the time when they emigrated from Germany. Germany is credited as the birthplace of pharmaceutical industry (Khanna, Palepu & Madras, 2010, p. 7). The emigrants fleeing the Nazi Germany moved to Palestine, a British controlled territory, and established small drug manufacturing stands; among the stands was Teva. The implication of this was that such a company did not have to face the challenges of getting expertise. The emigrants were well equipped with sufficient scientific research and development knowledge from well equipped German universities. Besides, the emigrants had experience since they had been working in Germany as engineers, physicians and scientist researchers.
How Teva set apart from its competitors in Israel
One of the most common way through which Teva Pharma has set itself apart from its competitors in Israel is through aggressive acquisition. Teva Pharm, since its inception, has focused more on acquisition rather than conglomeration. This has enabled it to acquire its competitors and make them part of its expansive operations. Since 1984, the company started by acquiring Zori pharmaceutical company in 1963 and subsequently, by 1976, it had also acquire Assia. The aggressive acquisitions and mergers have made Teva Pharmaceutical Industries to stay above its existing competitors in Israel. One of the advantages Teva Pharmaceutical Industry enjoyed by merging and acquiring other company is that it can now penetrated the market segments dominated by its former competitors. Moreover, it has experienced increased market capitalization thereby giving it an edge over its major domestic competitors. The company’s production capacity is the highest in Israel, as well as other parts of the world. It has been focusing on expanding its capacity in order to take advantage of the growing market for its products; this has subsequently enabled it to enjoy higher profit margins than its domestic competitors.
Due to its large size and large scale operations, Teva Pharmaceutical Industry is able to purchase its required raw materials in bulk. The bulk purchase of raw materials makes it spend less on production than its competitors do. Consequently, it produces low cost drugs and distributes them at relatively cheaper prices than those of the competitors. The fact that Teva was the first Israel’s multinational corporations gave it an edge over other companies. Its operations both domestically and internationally have camouflaged it from harsh economic conditions that may arise in home country. This implies, unlike its competitors in the domestic market, any economic slow down that may arise in Israel is not likely to adversely affect its operations due to its international investments. In a nut shell, Teva Pharmaceutical Industry enjoys economies of scale and is able to operate at relatively lower cost than its competitors in Israel; corporations with economies of scale operate at lower cost than small companies that do not enjoy the same (Kiggundu, 2002, P.116).
Market development is the most important concern for the Teva Pharmaceutical Industry. The company depends so much on the size of its market and sales volume for its profit margins. It is therefore important that it concentrates on expanding its markets to accommodate its increasing product volume. One of the most profitable products in the pharmaceutical industry is the generic drugs. It is important to note that the cost of generic drugs are produced at low cost and therefore sold at cheap prices. The developing nations are potential for new markets for generic drugs since most people in those nations cannot afford the expensive branded drugs. The company should focus on producing more generic drugs and penetrate more markets mostly situated in the third world countries. Generics drugs still have large market potential and Teva Company should focus and concentrate some of its efforts in developing new markets for generic drugs. The company should also focus on developing its generic market already existing in developing countries like the United States of America and other European countries. For instance, the company has captured only 18% of the American generic market (Khanna, Palepu & Madras, 2010, p.12). The company should come up with strategies on how to increase its generic market share in the United States and other European nations. The need to further develop generic drug market is reinforced by the fact that the demands for generic drugs has been on the increase and is likely to reach an international value of between $135 and $150 billion in the year 2015.
The company has already diversified its products and supplies them to different markets throughout the world. However, its main emphasis is on the production of generic drugs. This has made it perform relatively poorly in the production of its other related products. For that reason, it is important that the company aggressively involve itself in developing new market segments for its niche products and biosimilars. The market for these products have not been properly developed due to the reason that it just acquired Ivax and reorganized its internal functions in which it set up a split line division to centre on the manufacturing of niche products; such products are like drugs for hospitals and respiration. The biosimilars product is a highly potential growth area for Teva Pharmaceutical Industry.
The market for this type of products is not well developed; hence, the company should focus on its expansion. Notably, since its acquisition of Ivax, and its subsequent internal restructuring, Teva Pharmaceutical Industry has not given much attention in the production of biosimilars products. This, therefore, remains a growth area with large market potential. It is then be profitable for the company to increase its biosimilars products and come up with market expansion strategies for the products. This will contribute immensely to the Teva’s total revenue alongside other product lines like generic drugs and niche products.
Teva Pharmaceutical Industry has also concerned itself with innovative pharmaceuticals. This has enabled it to create a new line of products in its portfolio. Its first innovative product is Copaxone which has been ranked as the top drug for the treatment of sclerosis. This implies that Teva stands a great chance to earn more revenues from manufacture of Copaxone and selling the products to new markets. The company should concentrate its efforts on developing more innovative pharmaceutical products and differentiating them for new market segments. Besides Copaxone drugs, the company has also come up with another innovative pharmaceutical product known as Azilect which is used in the treatment of Parkinson’s disease. It is important to note that through innovative pharmaceutical products, Teva is set to gain more revenues; due to this, it will be important for the company to thoroughly develop more market segments for the innovative products. In order to succeed with innovative pharmaceutical products, the company requires to increase its research and development activities in order to ensure that it satisfy the new markets it is to develop for the products.
Teva Pharmaceutical Industry has been focusing on wholesale marketing for its diversified products. To make it grow more rapidly, it will be important for the company to make inroads into retail market segments. In this case, the company should focus on reducing the number of supply agents in its supply chain. This can be done by establishing few appointed agents to help supply products to end users. This will have the effects of reducing the prices of the company’s products and hence create more demands. The fact is that reducing the gap between the end users and the manufacturers will reduce the cost of purchasing the products on the side of the consumers. This will lead to increased demand and hence increased sale for the company’s new and existing products.
With its expanded operations and possession of large capital base, it will be viable for Teva Pharmaceutical Industry to explore the branded products market. Besides generic and other lines of products, Teva will benefits even more from expanding its productions to cover branded products and use them to access new markets which are, especially, present in the Western and European nations. This will definitely lead to increased revenues for the company. However, the amount of revenue increment will depend on the cost of producing the branded products and the rate of stock turn over for the branded products.
Approaches to deal with Teva
Teva Pharmaceutical Industry has used the approach of acquisition and merger since its time of inception. This approach has remained relevant to its current situation. In fact, it is notable that the company has achieved tremendous growth through the strategy of series of acquisition and merger. The acquisition strategy has helped the company to penetrate more market segments with its products. Acquisitions and merger has further helped the company to tame some of its fierce competitors thereby gaining access to their former market segments. In addition, the acquired companies have enabled Teva Pharmaceutical Industry to expand in terms of size and operations thereby giving it the opportunity to enjoy economies of scale and also an edge over its other competitors. Therefore, it is still appropriate for the company to pursue the strategy of acquisition and merger as one of the main channels of penetrating new markets and expanding operations, besides conquering its competitors.
Since there are many competitors in the market already, it will be important for Teva Pharmaceutical Industry to focus on expanding to new markets where competitors have not yet accessed. With its large scale production, Teva Pharm is capable of penetrating more market segments as compared to its competitors whose production capacities are not comparable to Teva’s. The main targets for market expansion should be the newly developing nations; in this case, the company should focus in supplying generic products to the nations.
The process of researching, developing and producing a working drug is time consuming and costly. Some times the whole process can have negative financial impact on the company. To ensure the company does not take insurmountable financial risks, it will be important for the company to enter into strategic partnership with research institutions such as universities and other pharmaceutics institutions. This will be appropriate where drugs being developed require large amount of resources input. The participating entities, including Teva Pharmaceutical Industry, will have spread the risks involved in t he whole process and hence reduce the chances of facing unnecessary financial challenges. However, it will still be important for Teva to strengthen its research and development in order to remain top of others in the industry.
Intellectual innovation is one of the most important components of Teva’s growth and development success. In order to prevent its competitors from infringing into its new innovations, it is crucial that Teva establishes more of its centre and localize them in countries of its operations. These centres should be charged with the responsibilities of patenting Teva’s new innovations and product developments in every region of operations. This will protect the company’s intellectual property for its exclusive benefits during the production process. The centres should also serve as points to initiate partnerships with respective countries of operations on behalf of Teva Pharmaceutical Industries.
In every corporate organization, human resources are as important as the core business of the organization. It is the human resources who are the actual drivers of core businesses of an organization. This applies to Teva Pharmaceutical Industries. The company to succeed, it has to be focused on giving its employees the best. Due to its global nature, the company has international employees from varied national cultures. Treating them well, therefore, may involve being sensitive to such diversities. Providing employees with favourable working environment gives them motivation to commit themselves and be loyal to the company; the employees virtually own the company and work for it as if they are the actual owners of the company. The result of this will be less employee turn over or sustained company’s intellectual property. Besides, it will be appropriate for the company to establish pharmaceutical training centres through the regions of its operation. These centres should offer training in research and developments in the pharmaceutical industries. Through this strategy, the company will be able to get qualified research scientists without hiring from outside. It will also be able to train its research scientists at low costs according to its own unique needs; this will also assist in readily getting qualified employees without necessarily transporting them from one region to another unless it is necessary.
The generic drugs are still as effective today as they used to be when they were first introduced into the market. Since then, other pharmaceutical companies operating both locally and abroad have introduced alternative drugs that perform the same treatment as Teva’s generic products. In this case, the Teva’s products face stiff competition in the market industry. In order to ensure the products still remain top in the market industry, the company to focus on re-branding the products as a strategy to reintroduce them into the market. The re-branded products can also be used to penetrate new market segments; this will be a form of innovation in which the company will not have to send more of its finances than it does on developing completely new products. What is more is that re-branding will serve as a repositioning strategy for the company’s products which readily introduced into the market.
Teva Pharmaceutical Industry is well established in the international market, and the emphasis placed on the international operations may likely overshadow its operations in the domestic market. It will therefore important for the company to be more focused in developing its domestic market since it serves a very large population of Israelis. In this case, the company should have an exclusive division for local industry to ensure that the services it offers to the home citizens remains as high as those in foreign regions of operations.
The life of a business corporation revolves around its production and end users. The more the end users a corporation has for its products the higher the rate of its stock turn over. In view of this, Teva Pharmaceutical Industry will benefit a lot from concentrating its substantial efforts to building and sustaining customer loyalty. Building customer loyalty will ensure that the company has regular customers for both its existing and yet to be developed products. Establishing customer loyalty should include the use of special discounts for certain amount of purchases, special rates on regular clients; the regular clients should also be given special rates each they make referrals and use of appropriate market mix that available to the company at affordable costs.
Vulnerability of Teva Pharmaceutical Industry
Teva Pharmaceutical Industry has been a successful company since it was formed. It has managed to overcome several challenges which have majorly been economic in nature. However, like any other multinational corporations, it is still vulnerable to certain adverse situation. Although Israel has never been affected adversely by economic slump, the effects have possible dangerous effects on its economy; with respect to this, Teva Pharmaceutical Industry is vulnerable to challenges arising due to economic slowdown. Economic slow down may be due to credit crunch in which there are no sufficient finances available to corporate organizations in the form of loans. This implies that in such situations the company is not likely to get sufficient credit or financials to the run both of its expansion and acquisition operations. Besides, the company also faces economic challenges in relation to currency fluctuations. This comes as a result of the currencies of some regions of its operations being weak and vulnerable to global inflations.
Looking at the company’s performance in 2006, it is clearly evident that despite the fact that Teva has been performing financially well, it is still vulnerable to market forces; during the 2006, the stock plunged by 30% (Khanna, Palepu & Madras, 2010, p.1). This reduced the company’s market capitalization by a substantial margin, and it took long to recover from the shock. The company remains exposed to a repeat of the same experience due to its high risk taking strategy. Nonetheless, going by the past performances registered by the company, such adverse effects are likely to be minimal depending on how early warnings are detected and quick actions implemented.
However, the future of the company still remain bright since there are potential markets that have not been fully exploited; for instance, the developing nations still provide huge market potential for the generic drugs which forms the core business of Teva Pharmaceutical Industry. With its well established research division and the current technological development, the company has the ability to overcome the potential challenges and use its market lead to penetrate markets that have become difficult for its competitors to access due to cost of production; it can be able to establish its production lines in such markets due to its financial advantages.
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