Porter’s Five Forces Analysis of Abbott
Key Facts
| Name | Abbott Laboratories |
| Industry | Pharmaceutical, Health care |
| Founded | 1888 |
| Headquarters | Chicago, Illinois, Unites States |
| CEOs | Robert Ford |
| Revenues | USD 44.5B (CY2022) |
| Profit | USD 6.933B (CY2022) |
| Competitors | IDEXX Laboratories, Abaxis, Inc., Heska Corporation, GSK, Pfizer |
Company Overview
Abbott Laboratories is recognized as one of the most prominent names operating in the health care industry. The company is known for producing a wide range of health care products and deals in developing, discovering, manufacturing, and selling a diversified range of products, which includes diagnostic tests and systems, branded generic pharmaceuticals, and adult nutritional and pediatric products. The company is also known for offering several medical equipments as well including rhythm management, electrophysiology, heart failure, structural and vascular heart devices, and neuromodulator devices. Abbott is present globally in the healthcare industry. Abbott operates in more than 160 countries and employs around 113,000 people around the world (Drugwatch, 2022).
Abbott Laboratories reported revenues of USD 43.08 billion, up by 24% YoY as the company is keep growing by launching new products and an addition to it’s existing product portfolio. The growth in revenue translated into profit after taxation of USD 7.07 billion in CY21 as compared to USD 4.50 billion in CY20.
Porter’s Five Forces Analysis of Abbot Laboratories
Abbott Rivalry among Existing Competitors
- Perfect Market
The pharmaceutical industry is widely recognized as probably the most complicated sector operating globally to meet the demand of the growing ailments and population. The emergence of new technologies has put more pressure on businesses to innovate their operations and offerings with time. In this context, several institutions and firms have stepped into this industry to offer the growing supplies of drugs and medicines and gain brand image and high returns. Thus, it is resulting in high rivalry among the existing companies operating in the pharmaceutical industry. Some of the top competitors of Abbott Laboratories are GSK, Pfizer, Getz Pharma, and Sanofi.
- GSK
GSK is one of the leading science-led global pharmaceutical companies operating in the global market. The three core global businesses of GSK include the development and manufacturing of innovative pharmaceutical medicines, research, and consumer healthcare and vaccine products. The company has been consistent in its financial performance as it ends the year 2022 on a high by reaching full-year sales of £29.3 billion (GSK, 2023).
- Pfizer
Pfizer as another prominent name in the pharmaceutical industry is also showing strength in its financial performance. As mentioned in the report on Finance.yahoo (2022), the company has achieved a record $100.3 billion of total revenue in the year 2022.
Abbott Threat of New Entrants
- Economies of scale and R&D hinder new entrants
The threat of any new entrants in the pharmaceutical industry is very low. In the industry where Abbott laboratories operate, it is fairly complicated to obtain economies of scale, which makes it easier for those companies that are offering large capacitates to gain a cost advantage. Therefore, it makes the cost of production high for the new entrants. On the other hand, another aspect of product differentiation is considered as strong in the pharmaceutical industry, as many players in the industry sell differentiated products instead of standardized products. Hence, all these factors coupled with extensive capital requirements make the threat of new entrants weak in the pharmaceutical industry.
- Highly Regulated
Pharmaceutical businesses are commonly regarded as probably the most regulated and highly controversial business. The companies like Abbott laboratories with its strong presence in the global market is liable to comply with both international and country’s local regulations with respect to the privacy and safety. In this regard, the implications of such complicated regulations makes the threat of new entrant a weaker force that can affect the major companies like Abbott laboratories in the pharmaceutical industry.
Abbott Bargaining Power of Suppliers
- Availability of numerous suppliers
In the industry of pharmaceutical where Abbott laboratories operate, the number of suppliers is significantly high as compared to the number of buyers. This implies that suppliers in the pharmaceutical industry cannot control the prices, which decreases the supplier bargain power. Apart from that, the supplier’s offerings in the pharmaceutical industry are majorly standardized and less differentiated. Also, with low switching costs, it is easy for the companies like Abbott laboratories to switch to different suppliers.
- Supply Chain Disruptions post Russia Ukraine Conflict
Like any other industry, the biotech and pharmaceutical industries are beginning to face the repercussion of the events like Russia-Ukraine conflicts. The negative impact of the Russia-Ukraine conflict has been widely observed in the pharmaceutical industry, as it affects the company’s ability to continue its operations due to major disruptions in the supply chain network. Russia-Ukraine war has negatively affected millions of people. This has caused delays throughout drug development, risk of non-compliance for non-market products, and loss of business continuity.
Abbott Bargaining Power of Buyers
- Fewer options and product differentiation
The number of main operational companies is less than the number of suppliers in health care industry.
This implies that buyers have fewer options as there are few companies to choose from, thus buyers have less control over the prices. This is ultimately making the bargaining power of buyers less influencing. Product differentiation is another important factor that makes it difficult for buyers to identify an alternate company offering a specific product.
- Complex Pricing Mechanism
The pricing mechanism in the pharmaceutical industry is often considered much more complicated as compared with the pricing mechanism of any other industry. The core reason that is associated with the complexity of the pricing mechanism is the constant changes in raw materials, which makes it difficult to identify the price of the final product. The most common buyers are government organizations, the healthcare sector, or other institutes that operate in health-related segments. Since Abbott laboratories operate in an industry that offers lifesaving equipment and drugs, thus it gives limited power to the consumers.
Abbott Threat of Substitute Products or Services
- Distinctive products
The number of alternatives are available in less quantity in the pharmaceutical industry as it is highly research oriented industry. Moreover, there is less number of substitutes that are offered by low-profit earning industries. All these factors make this threat a weak force in the industry.
- High Switching Cost
As per the widely accepted view, there is a high switching cost associated with healthcare products because of high variations in the products. Thus, a high switching cost makes the threat of substitute products a weaker force that can influence Abbott laboratories.
References
- Abbott Investor, (2021). Annual Report, [Online], Available at: Annual Report
- Abbott, n.d. OUR HERITAGE. Available at: Abbott
- Companies Market Cap, (2023). Market capitalization of Abbott Laboratories (ABT) [Online], Available at : Companies Market Cap
- Drugwatch, (2022). Abbott Laboratories [Online], Available at: Drugwatch
- yahoo.com, 2022. Pfizer Inc. (PFE), [Online], Available at: Finance.yahoo.com
- Forbes, (2022). Abbott Laboratories, [Online], Available at: Forbes
- Global Data, (2022). Abbott Laboratories: Overview, [Online], Available at : Global Data
- GSK, (2023). GSK delivers strong performance, [Online], Available at: GSK
- Macrotrends, (2022). Abbott Laboratories Net Income 2010-2022 | ABT , [Online], Available at: Macrotrends
- Statista, (2022). Abbott Laboratories’ net earnings from 2006 to 2021, [Online], Available at: Statista
- Zippia, (2022). WHO OWNS ABBOTT LABORATORIES?, [Online], Available at: Zippia