Environmental Analysis

Introduction

In the United states, one can find many industrial sectors. McKesson Pharmaceuticals is found within the healthcare sector. The company distributes much needed drugs to doctor’s offices, hospital, and pharmacies throughout the United States. This paper will look at the how the industry is affected by GDP and the nation’s inflation rates over a five year period.

By looking at the charts below for the healthcare industry, one can determine the changes which have occurred within the industry from the years 2003 - 2007. When looking at the nation’s GDP, one can see the healthcare sector has increased approximately five times faster than the nation’s GDP. By looking at the two factors, it can be determined that the increase is due to people spending more money on healthcare than other sectors of the economy. When looking at inflation, the charts show healthcare has not increased as significantly greater than the national inflation rate. With this information, one can deduce healthcare is being driven by the rise in the nation’s inflation rate.

GDP (%) 2003 2004 2005 2006 2007

National 2.51 3.64 3.07 2.87 2.19

Healthcare 15.80 15.90 16.00 16.00 15.80

Inflation 2003 2004 2005 2006 2007

National 106.838 109.689 113.401 117.481 120.836

Healthcare 111.9 114.4 117.1 121.3 122.958

The pharmaceutical industry is faced with several challenges in order to stay in business and succeed. With much uncertainty within this sector, the environment has become more complicated. One challenge for this industry is “the earnings of the pharmaceutical industry are being increasingly squeezed between pricing constraints due to government policies and generic competition” (Piachaud, 2002). Another challenge is that research and development costs are increasing “due to increasing legislative requirements and growing technological sophistication” (Piachuad, 2002). With the two aforementioned challenges, a third challenge emerges pressuring the pharmaceutical industry’s earnings, forcing the industry to “adopt a number of cost containment measures in addition to those pertaining to the safety and efficacy of drugs. The need to demonstrate 'value' to the consumer has now become imperative” (Puachuad, 2002).

The industry can also find several opportunities within itself to be able to expand and prosper. Right now, because of the challenges above, pharmaceutical companies need “to be able to reverse the decline of their profit margins, it is important that an atmosphere of acceptance be created among customers concerning the value of drugs rather than of their costs” (Puachuad, 2002). Customers must be convinced that costs can be reduced through integrated approaches and cost management. A second opportunity is for firms to remain competitive within the industry. Firms know that in order to be a driving force and stay on top in the market, the firm must “take away as much market share as possible from rivals” (Puachuad, 2002). This action creates much competition within the industry allowing the company “to meet the needs of cost-conscious, powerful and sophisticated customers in the most effective manner. Competition between companies has steadily evolved from simply having the ability to innovate” (Puachuad, 2002). Although not thought of as an opportunity at first, the