PHARMACEUTICAL INDUSTRY

Introduction

Overview of the Industry

The pharmaceutical industry has enjoyed great prosperity as nineteen-ninety-eight marked another
stellar year for the industry. Profits stayed in a sharp up-trend as 28 of the 37 stocks in the industry
beat the Standard & Poor's 500 Index, which rose by 26.7%. The pharmaceutical industry includes
establishments primarily engaged in manufacturing, fabricating, and processing medicinal
substances into finished pharmaceuticals for human and veterinary use. Ethical brand name drugs,
generic products, and nonprescription or over-the-counter medication constitute the pharmaceutical
industry sub-sector.

Strong and consistent growth in the mid-single digits is expected in the global pharmaceutical
market over the next 5 years. Worldwide sales are estimated to reach $335 billion in 1999, up from
1998 sales of $310 billion. Key factors driving this projected growth include long life expectancies,
strong demographic expansion in older segments of the population, a rising standard of living in
developing countries and large untreated populations, such as persons with elevated cholesterol
levels. Increases in life expectancies create more health problems. As the world's population ages,
the demand for pharmaceuticals increases. The elderly are the single largest group of users of
prescription drugs.

Another major factor fueling the continued growth of the industry is the introduction of
breakthrough drugs. The new products are especially in the areas of heart disease, cancer, arthritis,
diabetes and HIV. Another trend is the development of quality of life products, which help to keep
people looking and feeling young.

The pharmaceutical industry has a history of mergers, acquisitions, and buyouts that are not limited
by national boundaries. Joint ventures with small drug discovery companies and research institutions
have become popular as a way to access new technologies. In the early 1990's, the mergers were
primarily driven by a desire to cut cost. In the late 1990's research and development opportunities
appear to be the driving force. The pharmaceutical industry is one of the most research-oriented
sectors in the U.S. economy. R&D outlays in 1998 are expected to equal 20% of total industry
revenues, compared with 15.9% in 1990 and 11.7% in 1980.

The industry experienced a more industry-friendly environment in 1997, which helped the growth of
the market. Food and Drug Administration approval times are now shorter than in the past years,
and the number of the approved drugs is on the rise. After several years of a relatively stable pricing
environment, prescription drug-makers have also recently being increasing prices.

Overview of Four Companies.

I. Abbott
II. Abbott Laboratories principle business are pharmaceuticals, nutritional, hospital products,
diagnostics and chemical and agricultural products. Abbott serves customers in more than
130 countries through out the world and has a workforce of more than 56,000 employees
worldwide. Abbott's mission statement is "To improve lives by providing cost-effective
health care products and services"(5). Headquartered in north suburban Chicago, Abbot
discovers, develops, manufactures, and markets health care products all over the world.
 Abbott's CEO, Miles D. White has been in office for two years, and he has helped the
company reach record sales in 1998 of $12.5 billion, up 5% from 1997. Net earnings
increased 11.4% to $2.3 billion, and earnings per share rose 12.7 percent to $1.51. This
marked Abbott's 26th consecutive year of double-digit growth in earnings per share. In
December 1998, the board also declared the 300th consecutive dividend to be paid by Abbott
since 1924.

Abbott's strategy is to remain competitive, by expanding and continuing to develop

innovative products that will deliver better health care. They also want to focus on internally
developed products, external collaborations, and well-targeted acquisitions that possess
similar financial discipline. Abbot is committed to discovering, developing and marketing
innovative drugs that improve human health. Abbott also strives to increase value for their
shareholders, in order to keep investing heavily in science and technology.

III. Eli Lilly

IV. Eli Lilly is a global research based-based pharmaceutical corporation dedicated to create and
deliver health care solutions to enable people to live healthier and more active lives. Lilly
focuses in one single segment of the market by producing life-science products. Lilly's total
sales rose in 1998 to $9.2 billion from $7.9 billion in 1997, a 16 percent increase. Net
income also experienced a significant increase to $2.1 billion, and earnings per share
increased by 4% to $1.91. Lilly is based out Indianapolis, Indiana, and it employs 29,000
people around the world. Lilly's CEO, Sidney Taurel, divides their mission in to four parts:
"Ensure that all internal and external stakeholders have the information resources..., to
support Lilly's innovation strategy, to provide health care solutions, and to build shareholder
value"(4). Lilly's five main products are Zyprexa, Prozac, Evista, Gemzar, and ReoPro; they
generated 2.4 billion in sales and aided to 93% of the growth in the sales.

Lilly has two main strategies for growth: "discovering, acquiring, and developing promising
candidates; and to realize their full potential in the global marketplace. In 1998 for its first
strategy, Lilly increased its R&D investments by 27%, to $1.7 billion. For the second
strategy Lilly expanded sales forces in key markets and increased their direct consumer
advertising in the United States. Lilly's does face some challenges on the upcoming years,
such as the expirations of their U.S. Prozac patents. Once generic competition for Prozac
comes into the market sometime in the year 2001, Prozac will very likely be out of the
market. Lilly must pursue the development of new antidepressants in order to stay
competitive in this market.

V. Merck & Co
VI. Merck is a global, research driven pharmaceutical company that discovers, develops,
manufactures, and markets a broad range of human and animal health products, directly
through joint ventures, and provides services through Merck-Medco Managed Care. Merck
is based in Whitehouse Station, NJ, and its CEO is Raymond V. Gilmartin. Merck's mission
is to: "Provide society with superior products and services, innovations and solutions that
satisfy customer needs and improve the quality of life; to provide employees with
challenging work and advancement opportunities, and to provide shareholders with superior
rate of return"(3).

Merck's major products include Vasotec, Prinivil, Mevacor, Pepcid and Prilosec; these
products accounted for 22% of worldwide human health sales in 1998. Unfortunately many
of these products will go off patent in the years 2000 and 2001, and this will seriously
hamper Merck's growth over the next 3 to 5 years. Total sales for Merck in 1998 were $26.9
 billion, a 14% increase compared to 1997, and net income increased to $5.2 billion from $4.6
billion in 1997.

Merck's strategy for growth is driven by six major components: discover important new
medicines through breakthrough research, demonstrate the value of their medicines to
patients, and to be the top-tier company in the health care industry. The other three
components are their operating priorities: maximize revenue growth through commitment to
research, to achieve the full potential of managed pharmaceutical care, and to preserve the
profitability of their core pharmaceutical business.

Pfizer Inc.

Pfizer Inc. is a major producer of health care, consumer and agricultural products; they focus
on discovering, developing, and bringing to market innovative medicines to enhance the
lives of humans and animals. Pfizer closed out 1998 on an extraordinarily strong note.
Worldwide revenues increased 23% to $13.5 billion, and net income rose by 26% to $3.3
billion. Fortune magazine named Pfizer one of the most admired companies in the world and
the world's most admired in the pharmaceutical industry. Also in January of 1999, Forbes
named Pfizer "Company of the Year". Some of the company's major products include
Norvasc, Zoloft, Zithromax, Lipitor, Viagra, Cardura and Ben-Gay. Pfizer headquarters is
located in New York, NY, and its CEO is William C. Steere, Jr. Mr. Steere states their
mission statement in a very simply way, "At Pfizer, life is our life's work"(2).

To fulfill this mission Pfizer focuses in four strategies, which have driven the company to be
among the best in the world. Their strategies are to deliver shareholders value, in the past 5
years Pfizer shares have generated a total return of more than 690%. They have narrowed
their focus to only produce what they do best, pharmaceutical products. They want to enable
people to live better lives, and research shows that more than 17 million people around the
world turn to Pfizer every day to help them live healthier. Another strategy is to build
powerful partnerships in order to come up with breakthrough medicines. Pfizer has more
than 70 new product candidates in development, and nearly all of its major medicines are #1
or #2 in their categories.

Industry Analysis

VII. Dominant Economic Characteristics and Trends within the industry

VIII. The market size for pharmaceutical products in 1998 was $310 billion and expected to rise to
$335 billion in 1999. The market is divided between prescription-based and over-the-counter
medications. Approximately 60% of worldwide pharmaceutical sales is devoted to
prescription medications and 40% to over-the-counter medications. The majority of
worldwide sales is by companies based in the United States. With expected revenues of $140
billion in 1999, U.S. pharmaceutical companies will derive approximately 65% of their sales
from domestic operations and 35% of sales from foreign customers. The growth rate for
years 1994-1998 in domestic sales was 60% while sales abroad increased 61%. Since 1985,
pharmaceutical spending in the United States as a percentage of total health care
expenditures has risen from 4.9% to 7.2% in 1997.(6)

The pharmaceutical industry ranks as the number one industry in the world in terms of return
on assets, return on revenue and number three in terms of return on equity for year 1997
among Fortune 500 companies. Among the 14 pharmaceutical companies in the Fortune 500
for 1997, Merck was ranked 1st, Pfizer 5th, Abbot 6th, and Eli Lilly 7th in terms of
revenues.

The prescription drug industry consists of hundreds of companies around the world. During
1997, U.S. sales were primarily dominated by 10 large corporations which accounted for
53% of domestic market sales. Approximately 36% of research and development is
conducted by U.S. pharmaceutical companies followed by Japan with 19% of worldwide
research. Of 152 new drugs introduced into the world market between 1975 and 1994, 45%
were introduced by American companies, 14% by British companies and 9% by Swiss firms
with the balance divided among corporations around the world. U.S. firms lead in their
ability to patent their innovations, globalize products, and develop new products through
biotechnological research.

The United States accounts for 40% of worldwide pharmaceutical sales, Europe 32% and
Japan 24%. Other areas of the world account for 4% of sales and this segment of the market
is expected to rise as pharmaceutical companies expand their sales in developing countries.
(6) Although the United States is the biggest consumer of pharmaceutical products, it spends
less on pharmaceuticals as a share of total healthcare expenditures than most industrialized
nations. U.S. spending per capita ranks fourth in the world behind Japan, France and
Belgium. For pharmaceutical spending as a percentage of gross domestic product, France
leads with 1.7%, Japan with 1.5%, and the U.S. with 1.1%. Daily U.S. per capita spending
for pharmaceutical products in 1997 was $0.64 as compared with daily per capita spending
for alcohol of $0.91, $1.07 for telephone service, $2.84 for clothing, $7.94 for food and
$8.45 for housing.(13)

The over-the-counter category of pharmaceutical sales has nearly doubled since 1987. This is
due to an increasing effort by manufacturers to increase advertising aimed at consumers with
an emphasis on product information and self-medicating information. During 1997, the over-
the-counter market had domestic sales of $16.6 billion.

Rivalry among competitors is intense as brand recognition has become increasingly

important as an approach to capturing market share. Companies are increasing advertising
budgets to promote the therapeutic benefits of their drugs in an effort to differentiate their
products from competitors. Many existing pharmaceutical compounds are standardized
formulations that vary little in efficacy among manufacturers. The search for a differentiated
product that will lead to blockbuster sales is one reason R & D, advertising and sales force
budgets have increased in recent years.

Research and development expenditures are currently 19.6% of total industry revenues
versus 4% of sales for the average U.S. manufacturing industry. Approximately a third of R
& D expenditures are allocated to promising drug compounds in clinical human trials. Phase
I, II, and III account for 26% of R & D expenses while phase IV after product introduction
trials account for 5.8%. Process development consumes 10% of research expenses, 41% is
allocated to pre-clinical functions, 11.8% goes towards extraction of chemical compounds
for evaluation, and toxicology and safety account for 5.4%. New products are allocated
aproximately 80% of total R & D expenditures with the balance going towards improvement
of existing products.(13)

Risk is high in the pharmaceutical industry as expenditures for research and development for
each drug typically last through a period of 10 to 15 years before a compound makes it to the
market. FDA approvals generally take 16 months which is down from 32 months in 1987. It
is very unlikely that a compound developed by a pharmaceutical company will ever be used
in the retail market. Only 1 in 5000 compounds will eventually be sold and less than one
third of all marketed drugs will provide a return to recoup R & D expenditures. The average
costs associated with bringing a drug to market is $500 million while the product life of a
prescription drug averages 10 years.

The majority of pharmaceutical distribution is through wholesalers with hospitals, managed

care organizations and retail pharmacies as the biggest customers. Direct sales to physicians,
retailers, hospitals and others accounts for approximately 30% of distribution. Bulk
purchasing practices have given large buyers considerable buying power as hospitals and
managed care organizations continue to seeks reductions in expenses.

There are several underlying trends in the world that are contributing to the demand for
pharmaceutical drugs. The aging of the baby boom generation and increasing life expectancy
rates are expected to increase the demand for prescription drugs over the next 25 years. The
number of people between 45 and 64 years old will increase 41% by 2015. Given the rise in
age population and life expectancy rates around the world and the level of pharmaceutical
use by aging individuals, growth in the industry should remain in an upward trend.

Increases in advertising budgets have increased overall demand for pharmaceutical products.
Total direct-to-the-consumer (DTC) advertising in 1998 was $1.3 billion, up from $163
million in 1993. Total advertising expenditures during the first half of 1998 was $3.1 billion
with 80% targeted towards physicians and 20% towards DTC in the form print media and
television advertisements. The increase in advertisments is a response by the industry to the
greater degree of influence consumers have in the choice of their pharmaceutical treatments.
(6)

General Economic Conditions Affecting the Industry

The pharmaceutical industry is relatively immune from the effects of economic cycles.
Demand for the industry's product remains constant in up and down economic cycles as
market demand is a function of the overall health of the population. However the
globalization of the pharmaceutical industry increases the risk associated with foreign
investments and exchange rates. The firms in this industry seek to minimize risks by using
hedging practices such as foreign currency forward-exchange contracts, borrowing in foreign
markets, and using currency swaps.

Porter Model

Rivalry among competitive sellers- This is a strong force as competition has increased
among the major players in this industry. Standardized formulations of drug compounds
have increased price competition in categories such as the hypertensive and coronary care
market. Differentiation strategies have been focused on alternative use research for drug
formulations in an effort to increase the product life of individual pharmaceutical products
and extend their use to treatment of other diseases. Niche market concentrations have been
used to provide higher returns by some competitors but the majority of manufacturers have
an extensive assortment of products to offer users. Recent price increases across the board
for all manufacturers have put pressures on companies to derive greater profits through the
implementation of operating efficiencies in an effort to increase profit margins.
 Firms in other industries offering substitute products- A strong force affecting branded
pharmaceutical products is the increasing demand for generic pharmaceuticals as a way to
contain cost. In 1997, 44% of all prescriptions written were for prescription drugs with that
figure expected to increase to 66% by 2003. Generic drug companies do not have the costs
associated with research and development. As a result, generic drugs typically sell for retail
prices 60-90% below branded prices.

Porter 5-Forces Model

Potential New Entrants- This is a weak competitive force. The pharmaceutical market in the
United States is among the highest ranking in terms of barriers to entry. The cost associated
with years of research and development, government regulatory compliance and risk
associated with the industry discourages new entrants from entering the market.

Buyers- This is a moderate competitive force. Recent pressure has been put on
pharmaceutical manufacturers to contain price increase. The power of large bulk buyers such
as managed care organizations and hospitals has had some pressure on manufactures to
contain costs. However, recent price increases in alternatives such as generic drugs have
reduced buyer's bargaining leverage.Branded pharmaceuticals continue to be a cost-effective
treatment.

Suppliers- The concentration of the majority of industry sales among 10 large

pharmaceutical companies has decreased the bargaining power of suppliers. The
pharmaceutical industry is a major customer of the chemical industry. The chemical industry
has an incentive to maintain competitive pricing practices which enhance the
competitiveness of the major player's products in the pharmaceutical industry.

IX. Industry Prospects and Overall Attractiveness

The industry will benefit from the aging population and increasing life expectancy rates throughout
the world , and an increase in the potential number of candidates for pharmaceutical use. Increasing
emphasis on health standards around the world and on the cost-benefit relationship of
pharmaceutical use will further increase the demand for the industry. The industry is attractive with
operating profit margins exceeding 30% which is approximately twice the S & P Industrial Index,
and net earnings as a percentage of sales averaging 17.9% versus 5.4% for general industry over the
last 5 years. Pharmaceutical corporations have lower interest expenses, raw materials costs, tax rates
and general and administrative cost as a percentage of sales when compared with most industries.
Overall the pharmaceutical industry is very attractive with above-average profitability.(6)

Performance Analysis

Total industry sales have been increasing steadily for the last 5 years. In 1998, the pharmaceutical
industry had sales of $124,609.4 million in the US. From 1994 through 1997 sales were $77,611.1
million, $91,039.0, $101,580, and $110,848.1 million, respectively.(13) Industry sales growth have
grown by 60% over the last five years and the trend is expected to continue in 1999.

Industry sales growth for each year has also increased for the last five years. The greatest sales
growth realized was 1995 with 17.3% growth from the previous year. The second greatest growth
was in 1998, with sales growth of 12.41%, 1996 had a sales growth of 11.57% and 1997 with
9.12%. The least growth realized was in 1994, with only a 3.4% growth from the previous year.
Industry net profits have also been steadily rising along with sales. In 1997, the industry had net
profits of $21,985 million, up $2,899 million from 1996. Overall the pharmaceutical industry sales
growth is strong and is likely to continue, especially with the innovation of new drugs in the future.

The profitability ratio for the pharmaceutical companies looks good compared to the industry
average. The average gross margin for the four companies was: Pfizer with 81.88%, Abbott with
62.65%, Lilly with 78.12% and Merck with 61.84%. The gross margin for the companies were quite
stable and there were no dramatic changes in the gross margin during the past five years. The
industry had an average return on asset (ROA) of 10.96% for years 1993 through 1997. Abbott,
Merck, and Pfizer were above the industry average with 17.64%, 14.4%, and 11.6%, respectively.
Lilly had the lowest percentage compared to the other companies and the industry, its average ROA
was only 4.4%. The average return on equity (ROE) for the industry was 24.4%. Abbott, Merck, and
Pfizer were above the industry average with averages of 24.4%, 38.9%, and 29.1% respectively.
Lilly’s ROE was below the industry with 10.7%. (10)

Comparing the liquidity ratios with the companies and the industry, we see that all four companies
were below the industry average of 1.63 for current ratio and 1.11 for quick ratio. The current ratios
for Abbott, Lilly, Merck and Pfizer were 1.001, 1.27, 1.48, and 1.29, respectively.

The industry had an average debt to asset ratio of 55.1 and debt to equity ratio of 123.185. All four
companies were close to the industry average however, Lilly and Pfizer were slightly above. One
reason was in 1994 both companies carried some debt and had trouble liquidating their assets.

They had an average fixed asset turnover of 1.47 and total asset turnover of .77. Abbott and Pfizer
was more efficient in utilizing its plant and equipment compared to the other companies. On the
other hand, Merck and Lilly were not. They were below the industry averages.

Merck had the highest earnings per share given to their shareholders compared to the other
companies. In 1997, Merck had earnings of $3.83 while Abbott had $1.08, and Pfizer with $1.21.
All four companies had steady increases in earnings except for Lilly, their earnings fell to a –$3.50.
There were many factors that contributed to Lilly’s low earnings but the main factor was their write
down of their PCS subsidiary.

Recommendations

1.Continue to seek intellectual property rights protection in developing nations. Protecting the
pharmaceutical property rights will eliminate copy-cat drugs and lost profits in those countries.

2.Given the increase in life expectancy, continue to pursue research in pharmaceutical products,
which enhance the quality of life for the aging population. These products such as wrinkle creams,
hair loss prevention products, and early prevention pills for Alzheimer disease will be in high
demand.

3.Expand awareness of pharmaceutical benefits in less developed regions, such as South America,
China and India. As of 1998, 96% of pharmaceutical global sales are concentrated in three main
regions U.S., Europe and Japan. Global awareness of pharmaceutical benefits will produce
opportunities for the pharmaceutical industry to expand.

Investment Evaluation

The pharmaceutical industry has a below-average sensitivity to the state of the economy. This
industry will tend to outperform others when the economy eventually enters a recession. Stocks of
major pharmaceutical companies tend to have betas lower than the market portfolio due to lower
average market risks. The stocks of Abbott, Pfizer, Lilly, and Merck all have betas of less than one.

Merck has several patents expiring in the near future, which could significantly affect future
earnings. Although Merck has a consistent upward trend in earnings and dividend payments, the
lack of patent protection for some of its major products may leave the company in a position unable
to continue market dominance. With an outstanding product line and patent protection, we have
chosen Pfizer as the best investment among our four companies. Pfizer has a P/E of 43 times
earnings versus an industry average of 30 reflecting investor's willingness to pay a premium for
Pfizer's earnings.

Pfizer has the largest sales force in the industry consisting of 14,500 sales representatives worldwide
exceeding industry leader Merck's 12,600. With drugs such as Viagra and Lipitor, Pfizer is gaining
on the market share currently held by Merck. During 1998, Pfizer's market capitalization rose 70%
placing Pfizer among the world's 10 most valuable companies. Pfizer has consistently raised
dividends for 32 consecutive years. During the last five years Pfizer has rewarded its shareholders
with a total return of 690% reflecting reinvested dividends and capital gains. An investment of
$10,000 in 1993 would be worth $79,140 as of December 31, 1998, assuming dividend
reinvestment.(7)

Bibliography
1. http://www.stockmaster.com
2. Pfizer 1998 Annual Report, http://www.pfizer.com
3. Merck 1998 Annual Report, http://www.merck.com
4. Lilly 1998 Annual Report, http://www.lilly.com
5. Abbott 1998 Annual Report, http://www.abbott.com
6. Standard & Poor Industry Surveys, Healthcare: Pharmaceuticals, December 17, 1998.
7. Why Pfizer is So Hot, David Stipp, FORTUNE Magazine, May 11, 1998.
8. Inside the Fortune 500, FORTUNE Magazine, April 27, 1998.
9. Valueline
10. Compustat
11. http://yahoo.com
12. Wall Street Journal
13. Pharmaceutical Research Manufacturing Association, http://www.phrma.org

Barriers to Entry in the Global Industry

Like many industries, any new entrant into the pharmaceutical sector will be faced with various "hurdles" that
have been previously erected by already established businesses and by national and international standards and
regulations. These include, but are not limited to:

:: economies of scale - manufacturing, R&D, marketing, sales

:: distribution product differentiation - established products, brands and relationships
:: capital requirements and financial resources
:: access to distribution channels: preferred arrangements
:: regulatory policy: patents, regulatory standards
:: switching costs - employee retraining, new equipment, technical assistance

The barriers to entry are extremely high in the pharmaceutical industry. Many of the top firms have "significant
manufacturing capabilities that are hard to replicate". Also, they have extensive patents that guarantee the
protection of their products while they defend their brands with large marketing budgets. Since any emerging
pharmaceutical company can expect a sharp retaliation from the established competitors in the pharmaceutical
industry, the overall threat of entry into the global marketplace is relatively low in comparison to other
international industries.

The largest factors that influence the success of many pharmaceutical companies are capital requirements and
financial resources, regulatory policies, and research and development. All three of these factors can influence
one another and a lapse in one area can be disastrous for the future of the company.

Introduction

Abbott Laboratories Ltd. Are has the market value of being among the 50

companies in the United States and has been recognized around the world with

expansions covering almost the 7 continents and distributes to 130 countries worldwide.

In retrospection, Abbott was founded by Dr. , considered one of the founders of modern

pharmacy, because of his invention of the dosimetric granules through the use of an

alkaloid. Following the first few years of success in the business, Dr. shifted and extends

his research focus to synthetic medicines courtesy of Dr. as the one who gets to convince

Dr. to venture into the promising new field of growth. In 1915, from Company the

emergence of what is now known as the Abbott Laboratories.

With the reach heritage being in the business for more than a century, the men and

women behind Abbott have been constantly driven to a common goal, the advancement of

medical science to be able to help people in enriching healthier lives. Abbott Laboratories

Ltd. is a health care company with bases across the globe which aims to discover new

medicines, develop new technologies and alternatives to managed health. Abbott products

extend from being that of care to nutritional products and innovative laboratory diagnostics.

Further, Abbott’s sweeping products goes from catering health needs of infants up until to

the golden years. Indeed, the products of Abbott foster holistic approach towards giving

people a healthy living. For the fiscal year 2005, Abbott’s sales amounted to $22.3 billion
in which $1.8 billion has been allocated to the research and development which plays a

pivotal role in the continuing success of Abbott.

Main Part

Overview of Theories

- Core Competence: (1990)

The journal of (1990) is descriptive of the development and maintaining core

competence in a company. It explores the different leading companies core competences

and describes how these big time companies gets to engulf core competence in the

business world. It is said that in the short-run, the competitiveness of a company stems

from the attributes on price/performance of current products while in the long-run, the core

competence is spawned from coming up with innovative unlikely products stemming from

the building ability power at lower costs that is more hasten than that of the competitors.

There are four varying definition of core competence. First, denotes to the collective

learning in the organization. Second, competence spells involvement and deep

communication to working across the borders of the organization. Third, competence is

not diminishing in use wherein it is sort of like glue that binds the existing businesses.

Finally, there are three named test to gauge core competence in a company. They are the

provision of potential accessibility to a wide array of markets, the impeccable contribution

to the perceived customers’ benefits of end products and the distinction which is barely

susceptible to imitation.

- Resourced-based View: (1998)

Two themes about marketing strategy in the 1990’s dominates, among the two is

the resource-based view (RBV) of the firm. The RBV seeks to expound on the firms

sustainability of competitive advantage which are drawn from RBV’s two main approaches.

First, is the resource-based approach that emphasized on the rent earning capability of

internal scarce resources ( 1993). Second, is the dynamic capabilities approach that looks

into how resources and capabilities are being developed in the context of the firm which in

turn, stresses the need for external market orientation to achieve competitive success. The

contention of resource-based theorists suggests that for strategy to be sustainable it has

the apparent need to be etched in the resources and capabilities of the firm.

In this journal, it discusses two fundamental approaches in the creation of

advantage over competitor ( 1980, 1985) through cost leadership and differentiation. Cost

leadership evokes firms to seek similar attractive offerings to the market without

necessarily lowering internal cost while in differentiation, it tries to make the offerings

distinctive and diverse in the market-place such that the distinctiveness would provide add-

on value to customers and ( 1993) persuades customers to buy brought about by the

modifications in the offering.

In lieu to the quest in gaining competitive advantage, the positioning of the firm in

the marketplace is vital. There are seven named positioning in which firms must consider

and constantly work on to find themselves having the best positioning as possible. First,
the competitive positioning pertains to the firms’ choice of occupancy that in line with the

combination of a chosen target and the differential advantage it seeks to create.

Additionally, (1996) suggested three main ways in competitive positioning, variety

positioning, needs-based positioning and the access-based. Second, the price positioning,

particularly the offering of low-price positioning wherein, it requires keeping close eyes to

the incurring of costs. Third is the quality positioning and has been followed by innovation

positioning, service positioning, benefit positioning and the tailored positioning accordingly.

- Market-focused Resources, Competitive Positioning and Firm Performance: . (2001)

This journal produces a theoretical model that incorporates the relationship

between three variables namely, market-focused resources, competitive positioning and

firm performance. Further, it explores two central issues for marketing strategy, the

establishment of competitive positioning, in which a firm chooses to position itself or its

products as central to the creation of marketing strategy and how can these position be

defended against possible imitation from the competitors. An in-depth analysis as to how

positions are created can be found in the strategic management literatures. With the aim

to have that competitive edge, several topologies of resources has been proposed,

stressing that intangibles ( 1993; . 1992) are most likely to meet the conditions necessary

to generate advantage. Additionally, there appears to be an emerging consensus that a

resource-advantage theory of competition is effective in explaining firm diversity and

performance heterogeneity ( 1996). Whereas, the sustainability or defense of that

advantage is perceived to be achievable through deployment of protective mechanisms

aims to preserve and protect that advantage. Several typical isolating mechanisms are

causal ambiguity, path dependency, economics and legal barriers. The proposed model
has two starting points; one is the formulation of marketing strategies wherein it advocates

an external orientation to the development of strategy by providing emphasis on the market

environment and second, is the firm and organizational resources.

- Capabilities Approach to Market-driven Organizations: (1994)

The journal of (1994) tackles the capabilities approach to strategy that

characterizes market driven organizations. As defined by (1994), capabilities are complex

bundles of skills and collective learning, exercised through organizational processes that

ensure superior coordination of functional activities. It is noted that companies that are

better equipped to initiate responsiveness to pertinent market requirements and sense of

anticipating ability to the altering conditions are likely to indulge long-run competitive

advantage and superior profitability. Market orientation represents superior skills in

understanding and satisfying customers (1990). The principal features are a set of beliefs

that puts the customer’s interest first (. 1993), the ability of the organization to generate,

disseminate, and use superior information about customers and competitors ( 1992) and

the coordinated applications of inter-functional resources to the creations of superior

customer value ( 1990; 1988b). Moreover, the supporting propositions that a market

orientations is positively associated with superior performance ((. 1993; 1992; 1990; 1992)

The emerging capabilities approach otherwise called as the resourced-based

theories, in terms of strategy, offers a new perspective in market orientation where in seeks

to identify the sources of defensible competitive positions distinctively such that it would be
resistant to imitation. Further, the approach cites two related advantages: assets and the

capabilities. To contrast both advantages, according to (1989), capabilities differ from

assets such that it cannot be quantify by monetary value and are so deeply embedded in

the organization routines and practices that is not susceptible to imitation or

interchangeable.

The competitive forces approach (1980) and the related entry deterrence approach

(1990), which have been the dominant paradigms in the strategy field ( (1991), have a

different answer as to how superior performance can be achieved. These approaches put

the emphasis on the intensity of competition in the industry and market segment that

determines the profit potential. The firm seeks a position in an attractive market that it can

defend against competitors.

In contrast, the capabilities approach serves as a locator of the sources of

defensible competitive position in the distinctive, hard-to-duplicate resources that

encompasses the integrations of assets and capabilities the firm has gradually developed

( 1987; . 1991). Thus, management’s task is to determine how best to improve and exploit

these firm-specific resources (1992), although in times of turbulence the challenge of

developing new capabilities comes to the fore ( 1991; 1984)

An emphasis on building distinctive capabilities or competencies can be found in

(1957) and (1959) and is featured in the strengths and weaknesses component of the

early business policy frameworks ( 1969). Distinctive capabilities refer to the upholding of

market position that is invaluable and unmatchable and in which consistently sets a

superior performance. Moreover, distinctive capabilities are robust and can be used in

different ways to speed the firm’s adoption to environmental change ( 1991; 1990).

Further, there are two subparts of distinctive qualities that are equivalently important in
bringing in external realities to the attention of an organization. The market sensing

capability evaluates the capability of organization in determining continuously sense

changes in the marketplace and the pre-emptive anticipation of appropriate responses to

marketing actions wherein the process of market sensing follows the usual sequence of

information processing activities that organizations use to learn (1994; 1985; 1991; 1988;

1994). Customer-liking capability, on the other hand, comprises the skills, abilities and

processes evident in the achievement of collaborative customer relationship wherein, for

successful collaboration to occur it necessitates a high level of purposeful cooperation

aimed at maintaining a trading relationship over time ( 1988; 1988).

- Resource Advantage Theory: (1996)

R-A theory proposes that firms’ quest for superiority in the financial performance in

spite of the fact that all firms cannot be superior simultaneously, thus, in R-A competition it

necessitates dynamism. There are five assumptions in R-A theory namely: (1)

superior/inferior performance results from occupying marketplace positions of competitive

advantage/disadvantage which results from comparative advantage/disadvantage in the

resources. By resources, it refers to the tangible and intangible entities that are available

to firms that permit firms to efficiently or effectively produce market offerings that have a

value for market segments, (2) innovation plays a key role in R-A theory, whether proactive

or reactive innovation, such that it have recognition on the entrepreneurial skills of the

people and entrepreneurial capabilities of firms wherein it expresses clearly the competitive
processes which may in turn led to economic change, (3) R-A theory reveals that despite of

the absence of entrepreneurial firms that engages in proactive innovation, competition

dynamism would still ensure the market-based economic systems, (4) R-A theory not only

incorporates the higher-order learning ( 1996), it explicitly shows the competition processes

motivates both the proactive and reactive innovation and as to how the firms learn from the

competition process itself and (5) the theory highlighted managerial implications and so as

the important public policy issues relative to market-based economies. Overall, R-A is

perceived to five views, competition as an evolutionary process, the technology as a non-

rival and in part an exclusive resource in the process of production, innovation as an

outcome of competition processes, firms engulfing a rational expectation that superiority in

financial performance is due to innovations and that societal institutions either facilitates or

inhibits induced competition growth.

The Abbott Laboratories Ltd.

As Abbott Laboratories emerges, it had entered the period of growth that is

characterized by war (the World War II), strategic acquisitions and the quest for scientific

pursuits since companies at that time was also establishing themselves in the business just

like Abbott.

From the (1990) identification of core competence, Abbott Laboratories is indicative

of the three measures that falls into the context of core competence. First is the offering of

wide array of markets. In Abbott, they extremely have the competence in pharmaceuticals

and the advancement of medical science as having have had extended their products from
the continuum of care being that of medicines, from producing nutritional products, like

Ensure, and technology driven laboratory diagnostics that offers state-of-the-art medical

devices and pharmaceutical therapies. Moreover, Abbott is considered to be the global

leader in vitro diagnostics from which it evolved from immunodiagnostics as their

cornerstone. Second, the contribution to the perceived customer benefits of the end

products that is reflective of Abbott strong commitment to the advancement of science that

focuses in the areas of unmet medical needs such as the fields of laboratory and molecular

diagnostics that seeks for early detection for related medical conditions so that cure can be

given and prevention can incur. And lastly, it is the competence of Abbot’s R&D

organization that is works collaboratively together at high efficiency that is difficult to

imitate. Guided by the Abbott’s mission, the Global Pharmaceutical Research and

Development (GPRD) organization, works together collaboratively in constantly

discovering, developing innovative medicines to be marketed and aimed to improve the

unmet scientific needs and cure the ill-health of patients, as Abbott centers caring as the

foci of their work.

Abbott Laboratories would not be competitive if it has not placed itself in the right

position in the market. The competitive positioning, including the variety, needs-based

positioning and access-based positioning, all together greatly fits in to the diverse

characteristics of the people with different medical needs such that these people would be

inclined to spend money for the promotion of good health and the urge of staying healthy

as much as possible. The market of Abbott is extremely very rich since it is essentially all

the people from every walks of life and from all borders across the globe needs to have a

dose of pharmaceutical products to combat illnesses, diseases, or just plainly foster good

healthy living. Further, the innovative positioning of Abbott is where they stay almost

unbeatable. Across time, they have been the leaders in pharmaceutical business and
Abbott continually excels in coming up with innovative inventions. Abbott’s innovations in

medical products are seen from the diversified products, businesses and therapeutic areas

they have been offering such that respected Abbott scientists shares Abbott’s dedication

towards the common goal of the advancement of science to be able to provide healthier

lives to the people. Every Abbott scientist unquestionably and fervently seeks out new

innovative ways to come up with clinical solutions to come to terms with patients need. For

example, in the case of finding the cure for the HIV, Abbott may have not come up yet with

the proven cure for HIV but Abbott’s focus to this area is constantly gradually improving as

currently they are able to produce new and improved HIV medicines that minimize the

tendency for the immune system to be severe. Not only they are able to produce it, the

product availability of the HIV medicines are being distributed to government, health care

institutions and organizations worldwide via Abbott Access program, especially to the

developing countries that are less able to afford these medicines. Having have had

established that competitive edge for decades, it is assumed that Abbott Laboratories is

able to protect its advantage. Of the many protecting mechanisms employed by Abbott to

secure its competitive positioning, path dependency, where process would pass through

critical time dependent stages, is salient in the firm. For instance, in Abbott’s

pharmaceutical drug development group, their work is subdivided into four dependent

phases to ensure that the product is monitored. In phase 1 – 3, the group conducts clinical

research to the drug candidates to be able to assess their qualifications and act on the

plausible confounding variables, if any, thus, avoiding them. The last phase, after have had

go through to the drug candidates, to closely look on their safety and gather possible

valuable data if there coexists additional therapeutic indications.

The interesting challenging feature of capabilities approach by (1994) is the building

of distinctive capabilities of the firm. Marriot for instance, for many years now they have
been constantly chosen and preferred by customers as being the number one hotel in the

world in giving customer satisfaction. What accounts for Marriot’s reputation is that they

constantly seek to satisfy their costumers with the superb services and other intangibles

they incorporate to their service offerings. Abbott did just that, like that of a Marriott, but of

course, certainly in a different way. In this instance, we would illustrate the workforce

excellence of Abbott that is presumably to be one of intangible asset Abbott has. With

about 65,000 people employed, Abbott has earned the recognition as an employer of

choice from local, national and international level as they provide employees with a

workable environment to help Abbott people succeed with their endeavors with the

inclusion of programs for the employees that ranges from health care benefits,

convenience and wellness services and long-term retirement package. The passion for

turning science into caring proves to be an endearing commitment that place emphasis on

the value for life. Abbott’s “Promise for Life” statement signifies what Abbott in general

believes in, the value that they hold and thrive to deliver quality work outputs everyday for

Abbott’s stakeholders. Thus, is in itself is indeed distinctive of Abbott, a promise that goes

beyond mere accumulation of profit, but that is of putting importance to save and improve

lives for everybody. Nevertheless, Abbott falls into the context being that of a market-

driven firm because of Abbott’s ability to have the market sense capabilities a step ahead

from their competitors and have the anticipating ability to be responsive in the attraction

and retaining customers.

From the R-A theory perspective, Abbott stays to be in a competitive form as it

seeks to be superior in the financial performance through their inventions of innovative

products and sees the evolutionary process of competition as always competitive such that

they continually seek for the advancement of science in their own way to come to terms

with it. In 1980’s marks the expansion of specialization and expertise for Abbott in which
they divested other products to be able to concentrate on their strong point of excelling in

the quality of health care products in every stages of life. To name several Abbott’s areas

of expertise they are in anesthesia, animal health, anti-infectives, cardiovascular, diabetes

care, hematology, clinical chemistry, immunology, metabolics, neuroscience, molecular,

nutrition, oncology, pain care, renal care, spine and virology. Overall, they contribute to the

financial superiority of Abbott because the areas of expertise covers a wide-ranging

capabilities, from top to bottom of the human anatomy and the identification of the valuable

areas that needs medical attention. Abbott is able to utilize and explored, especially the

unmet medical areas which cues Abbott to produce products innovatively to the market

according to these needs. Nonetheless, aside from the established strategic positioning of

Abbott in the marketplace, it is from these unmet areas Abbott can gain an advantage and

such that they can generate financial assets in pursuance of being superior in the financial

performance.

Conclusion and Improvement Recommendation

This essay had explored on the four different views of how to be able to gain and

benefit from the acquisition of competitive advantage. From the different views of the

authors namely, (1990), (1998), (1994) and (1996), it has been seen that the Abbott

Laboratories Ltd. has incorporated the different means to have that competitive advantage,

which in turn, benefited the Abbott of staying top in the pharmaceutical business for many

years and in the future. Moreover, Abbott deeply understands the nature as to how

dynamic competition can be and the market world in general. A pioneer and master in

innovation by being a proactive innovator rather than a reactive innovator.

 It is seemingly hard to recommend improvements for Abbott as it has proven itself

to the world. As far as competitiveness is concerned, undoubtedly Abbott is able to come

to terms with that and possess promising capabilities for the sustenance and maintenance

in the future. Perhaps if required to give recommendation, it would be to a bit minimize in

the expenditure for the R&D organization even though it is understandable that the Abbott

relied on efficiency and effectiveness of Abbott’s R&D so that they would be able to invest

some of the money to some organizations in Abbott that needs improvement or support,

which in turn, they can benefit from, provided that it leads to the maximization of the other

resources. The overly focus on one aspect may limit the effective functioning of the other

aspect and brings in to the imbalance of the equilibrium of the firm or corporation.

Company Perspectives:

Abbott's vision is to be the world's premier health care company. Simply put, we want to be the
best--the best employer, the best health care supplier, the best business partner, the best investment
and the best neighbor.
While Abbott is broadly diversified, all of its thousands of products and people are dedicated to a
common mission: to improve lives by providing cost-effective health care products and services.