PESTEL analysis of the pharmaceutical industry
This detailed PESTEL analysis of the pharmaceutical industry explores some of the macro factors that have influences on the pharmaceutical industry in a number of countries, particularly, the UK, Canada, Australia, the USA, China, and India. The global pharmaceutical industry is abosolutely massive which was valued at about 1.25 trillion U.S. dollars in 2019 (Mikulic, 2020). It is one of the most profitable industries in many countries.
Political factors that influence the pharmaceutical industry
Politics and government institutions impact on the pharmaceutical industry, particularly, in the areas of safety standards, certifications, and relevant laws. Therefore, pharmaceutical companies in many countries spend a massive amount of money every year and use lobbyists to influence the political discourse.
It goes without saying that the pharmaceutical industry is facing a tough political scrutiny globally. Likewise, geo-political factors affect it dearly as well. For instance, most of the pharmaceutical products used in the USA are made in countries such as China and India. A lot of ingredients for those products come from these counties as well. This shows that any dispute between China and the USA may have significant impact on the industry. Many analysts argue that China’s strategy of lowering costs may make the business of many global pharmaceutical companies very difficult.
Economic factors that influence the pharmaceutical industry
The global pharmaceutical industry is dominated by a small number of large corporations. Some of the top players are Pfizer, Roche, AstraZeneca, Shanghai Pharmaceuticals, GlaxoSmithKline, Johnson & Johnson, Novartis, Merck, AbbVie, Sanofi, Bristol-Myers Squibb, BAYER, and Sun Pharmaceutical Industries Limited. These companies are so dominant in some countries that it is extremely difficult for newcomers to enter the market.
Developing a new pharmaceutical product (drug) costs around $985 million. Previously, it used to go over $2.7 billion in some cases. This shows how much financial might a pharmaceutical company needs to have to play in this arena. No wonder why some of these companies are cutting down on their production costs to generate more profits! It should be mentioned there are growing demands for affordable pharmaceutical products from different walks of life around the world.
Social factors that influence the pharmaceutical industry
Exploring social factors is the next stage in the PESTEL analysis of the pharmaceutical industry. Ageing population is a common feature in many countries particularly, in the USA, the UK, the EU, Australia, Canada, and Japan. While it has social concerns, it offers opportunities for pharmaceutical companies to come up with new products aimed at elderly population. Likewise, certain health conditions such as obesity, and stress have increased the sales of a lot of pharmaceutical products.
However, the world has witnessed some social developments that may reduce the demands for pharmaceutical products. For instance, many people now use plant-based home remedies to deal with everyday health conditions (BBC, 2021). Likewise, health awareness, regular physical exercise, and yoga have also been helpful for many people to deal with some conditions without needing to take pharmaceutical products.
Technological factors that influence the pharmaceutical industry
Technological developments create new opportunities for the pharmaceutical industry. Communication methods are rapidly changing in many countries. For instance, telephone and WhatsApp calls are often used in the UK and many other countries for doctor to patient communications.
Technology helps pharmaceutical companies reduce costs and enhance efficiency by reducing manual inputs. Likewise, artificial intelligence and big data are changing many things rapidly. ‘Robot doctors’ advising people without human intervention is also a possibility.
Environmental factors that influence the pharmaceutical industry
The global medical tourism industry is expected to reach $30 billion 2025. Over 300,000 U.S. residents go abroad each year for health care. Surely medical tourism impacts on the environment to some extent as people mostly travel by airlines.
Likewise, remnants of many pharmaceutical products used by humans and animals find their way into oceans, rivers, ponds, lakes and even drinking water which can endanger human and marine life and have harmful effects on the wider environment. Therefore, pharmaceutical companies need to explore how to reduce the impact of their products on the environment.
Legal factors that influence the pharmaceutical industry
The pharmaceutical industry comes under a variety of regulatory restrictions. For instance, some of the pharmaceutical products have both exclusivity and patent protection while others may have just one or neither. Pearl (2017) argues that patent protection grants the pharmaceutical industry a monopoly, regardless of what the consequences are for humans.
Failure to abide by the regulations cost companies dearly. For instance, a number of companies such as GlaxoSmithKline, Pfizer, and Johnson & Johnson were fined billions of dollars in the past for overpricing, underpaying rebate obligations, and other pricing offenses.
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Last update: 12 February 2021
BBC (2021) Herbs, available at: https://www.bbc.co.uk/programmes/b00jhprs (accessed 10 February 2021)
Mikulic, M. (2020) Pharmaceutical market: worldwide revenue 2001-2019, available at: https://www.statista.com/statistics/263102/pharmaceutical-market-worldwide-revenue-since-2001/ (accessed 10 February 2021)
Pearl, R. (2017) Why patent protection in the drug industry is out of control, available at: https://www.forbes.com/sites/robertpearl/2017/01/19/why-patent-protection-in-the-drug-industry-is-out-of-control/ (accessed 11 February 2021)
Author: Joe David
Joe David has years of experience both in the UK and abroad. He writes regularly online on a variety of topics. He has a keen interest in business, hospitality and tourism management.