Teva Pharmaceutical Industries: Case Study
Teva Pharmaceutical Industries is an Israeli pharmaceutical multinational company. The firm was founded in 1901 in Jerusalem as a small-scale wholesale drug business but expanded to be a leader in the sector (Khanna, Palepu, and Madras 7). In essence, the company develops, produces, and commercializes pharmaceutical products. The primary manufacturing and marketing facilities are located in Israel, North America, and Europe. Teva enjoys a worldwide market presence through its network of subsidiaries. Apart from geographic diversification, the company also offers a broad range of products in two categories. First, its human pharmaceutical segment produces drugs in both therapeutics and sterile dosage forms. Secondly, the Active Pharmaceutical ingredients are produced and distributed to other parts of the world. Therefore, the discussion will examine international practices and strategies concerning the company’s operations worldwide.
Teva Pharmaceutical Limited has accumulated valuable experience as it grew from Israel’s domestic enterprise to a world leader in generic medication. In fact, the company is considered a gold standard entity in Israel. Specifically, the organization is regarded as the first largest public company and the pioneer multinational entity in Israel. Having avoided the conglomeration as many of Israel’s businesses did in the mid-20th century, the company applied unique strategies leading to increased profits. For instance, it was able to raise sufficient capital for expansion upon its listing on the Tel Aviv Stock Exchange in 1968. Consequently, Teva exploited the local market and later expanded to other countries in Europe and the United States. The revenue earned grew from about $91 million in 1985 to about $8.5 billion in 2006 (Khanna, Palepu, and Madras 1). Particularly, the significant growth has also been driven by the acquisition strategy in which the company has successfully taken over the operations and resources of potential competitors in the industry. For instance, in 2005, Teva acquired Ivax, a top global generic pharmaceutical at $7.4 billion. Subsequently, the company filed 20% more prescriptions than the Pfizer Company, which was the high maximum in the industry. Besides, Teva controlled more than 20% of the generics market in the USA, became a leader in Western Europe, and had its products sold in the fast-growing market in Europe and South America.
The Opportunities for Teva in the Global Marketplaces
Teva’s management team must be aware of the possibilities in the target markets to develop relevant strategies. In addition to the domestic marketplace, the company largely depends on opportunities in foreign countries, including the U.S. and Europe. Particularly, the U.S proposes the strongest market for the company and the supply of drugs. As a matter of fact, the country was the first one to embrace unbranded generics upon the adoption of the Hatch-Waxman Act of 1984 (Khanna, Palepu, and Madras 4). Having been recognized by the law, it implies that companies such as Teva can operate in the market with fewer policy or political barriers. Compelled by their confidence in the law, Americans largely support the generics market players making the marketing process an easy affair.
In Europe, the market for generics differs from one country to the other. In fact, the United Kingdom and the Netherlands are relatively more attractive markets in this region. However, the markets are largely similar to the U.S. setup regarding policy and structure. Indeed, pharmacists are free to substitute the generics for innovative drugs at their discretion. In addition, the friendly environment is an opportunity for companies such as Teva to maximize the sales and income earned. As such, the two countries are expected to record continuous growth in the market for generics. For instance, in the U.K., the market for generics was $2.9 billion in 2004, which was expected to grow to $5.6 billion in 2008 (Khanna, Palepu, and Madras 4). Hence, the growth at that rate indicates that competitive companies in the industry have the resultant opportunity to have their revenues and income on an upward trend.
Apart from the markets in the U.S and the United Kingdom, Teva Pharmaceuticals has considerable opportunities in developing remote markets. Importantly, markets such as Latin America, East Europe, Russia, and China are largely unexploited. By and large, the governments in these countries are continuously accepting generics as a strategy to enhance higher quality care to the citizens. For example, in 2004, the penetration rate for the generics in Poland, Lithuania, and Hungary was 87%, 73%, and 50%, respectively (Khanna, Palepu, and Madras 5). Additionally, most of the aforementioned countries are increasingly strengthening their economies by enhancing the purchasing power of their nations. Consequently, the demand for pharmaceutical products, especially generics, improves in the world market.
The Unique Challenges Facing Teva in the Global Economy
In reality, a company operating in the global environment has a wider opportunity to report enhanced sales due to the extensive markets. Nevertheless, the benefits are not easily realized because the organization has to face and overcome unique challenges (Smith 126). The first challenge is the financial risks brought by the fluctuations in exchange rates. For instance, the recent depreciation of the British Pound implies that Teva’s revenue from exports to the United Kingdom would be relatively low in New Israeli Sheqel (NIS).
Secondly, the differences in policies and legal frameworks in other countries are also considerable obstacles the entity faces. Notably, complying with the different requirements makes running the business difficult for the company because the strategies and approaches in marketing have to be various. As a result, the cost of promotion increases since similar systems may not be applied. For example, as the legal and policy frameworks in the United States, the UK, and the Netherlands seem friendly, the contrary situation is in Germany, France, Japan, and other areas (Khanna, Palepu, and Madras 4). In such countries, the market for generics is highly controlled, making it hard for the players such as Teva to exploit the market potential. Importantly, the legal and policy framework can change from time to time depending on the political orientations of the governments in power. As a result, the management must keep observing such changes to keep the operations and activities within acceptable limits.
It is worth noting that a business entity becomes successful when its primary markets remain strong and have the opportunity for expansion. The principal markets for Teva Pharmaceuticals include Israel, the United States, and Western Europe. However, these marketplaces are immensely saturated and mature; hence, the company has limited opportunities to expand its revenue and income. Consequently, the investment made over the years in the markets may no longer lead to commendable growth because of the challenges associated with the attempt to exploit opportunities in other economies.
Accordingly, the new entrants and traditional competition is other challenges faced by Teva Pharmaceuticals. In fact, new firms come up with better strategies and innovative products whose presence in the market reduces the market share of the pioneers. For instance, in 2005, Novartis acquired Hexal from Germany and Eon from the U.S., merging them into a generic firm known as Sandoz. Indeed, the new company gained synergy and became a top player in the generics industry (Khanna, Palepu, and Madras 14). Despite being the leader for a while, it is clear that Teva lost part of its market share to the new force. Notably, other new entrants from developing countries like China, India, and Eastern Europe are also increasing competition by challenging Teva and other companies. The bottom line is that since Teva Pharmaceuticals is a pioneer, the newcomers learn from its mistakes and strengths. Then they enter the market with better and more innovative products and marketing approaches.
Factors to Consider When Undertaking FDI
Foreign Direct Investment is a modern business undertaking in which entities interested in overseas markets allocate resources to exploit existing opportunities. In fact, investing in projects in other countries comes with a greater level of risk and complexity. As a result, it is important to consider the fundamental factors likely to affect the realization of the intended objectives. First, it is essential to review the security situations in the target market (Kevin, Chudnovsky and Ocampo 53). A market can have a huge potential, but the endeavor would be difficult to undertake if the firm’s resources and staff are not safeguarded from political unrest. In this case, Teva Pharmaceuticals should stop undertaking FDI. Additionally, the firm should consider the government’s policy on the production and consumption of generics. For instance, it would be irrational to undertake direct investment in countries where the products are not supported. Indeed, investing through FDI implies that the company’s operations will be undertaken in the target market using foreign infrastructure and labor. Therefore, it is important to consider the effectiveness of the systems and the availability of qualified individuals to work as employees. Lastly, it is paramount to consider the market size that will benefit after FDI is involved in the company’s investment strategy (Kevin, Chudnovsky, and Ocampo 52). In essence, the markets with large potential should be given priority over the firms with limited opportunity.
As can be seen, Teva Pharmaceuticals is highly challenged in its operations ranging from the saturation of its primary markets to increased competition. Consequently, the company should look for untapped opportunities in the rest of the world. As such, it is recommended that the entity should exploit potential markets through further expansion. For instance, there are huge and improving potential markets in Africa, Latin America, and Asia. Such markets are less exploited; therefore, they are viable complements that would assist in maintaining the commendable performance of the company in the future. Secondly, it is suggested that the company should continue expanding its market and improving its competence through mergers and acquisitions. In this case, the strategy will assist in building a stronger entity to face the production and marketing challenges.
As it is evident from the analysis, Teva Pharmaceuticals is a strong market player in the generics market. Particularly, the corporation has strong brand equity, while its market coverage is commendable. Ultimately, revenue and income growth over time indicate the effectiveness of the strategies adopted, particularly in international operations. However, the company is exposed to challenges due to policies in different countries, exchange rate fluctuations, and growing competition. In other words, expanding the operations to upcoming markets is a fundamental strategy to keep the performance at sustainable levels.
Gallagher, Kevin, Daniel Chudnovsky, and José A. Ocampo. Rethinking Foreign Investment for Sustainable Development: Lessons from Latin America. London: Anthem Press, 2009. Print.
Smith, Brian D. The Future of Pharma: Evolutionary Threats and Opportunities. Farnham, Surrey: Gower, 2011. Print.
Tarun Khanna, Krishna Palepu and Claudine Madras. Teva Pharmaceutical Industries, Ltd. Harvard Business School. 2010. 1-28. Print.