Question

large firms and smaller entrepreneurial firms play different roles in business and society and can often -produce the best results by partnering with each other rather than acting as adversaries. The pharmaceu- tical industry is an excellent example of how this works. Tt is well-known that barriers to entry in the pharma- ceutical industry are high. The average new product takes between 10 and 15 years from dişcovery to commercial sale. The process of discovering, testing, obtaining approval, manufacturing, and marketing a new drug long and expensive. How, then, dø blotech start-ups make it? The answer is that few biotech firms actually take their products to market. Here's how it works. CNISH Biotech firms specialize in discovering and patenting new drugs-it's what they're good at. In most cases, how- ever, they have neither the money nor the know-how to bring the products to market. In contrast, the large drug companies, such as Johnson & Johnson, Pfizer, and Often, but not always, what happens is this. The biotech( firms discover and patent new drugs, and the Targer drug Merck, specialize in developing and marketing drugs and providing information to doctors about them. It's what they are good at. But these companies typically don't have the depth of scientific talent and the entrepreneurial zeal that the small biotech firms do. These two types firms need one another to be as successful as possible. companies develop them and bring them to market

Biotech firms earn money through this arrangement by Ticensing or selling their patent-protected discoveries to the larger companies or by partnering with them in some revenue-sharing way. The large drug companies make money by selling the products to consumers. ee The most compelling partnership arrangements are those that help entrepreneurial firms focus on what they do best, which is typically innovation, and that allow them to tap into their partners' complementary strengths and resources. te Questions for Critical Thinking

1. In your opinion, what factors in the business ts environment encourage firms to partner to commpete?

2. What risks do small firms face when partnering with large, successful companies? What risks do large companies take when they rely on small firms as a source of innovation? large Small ; smoll- targe.

3.How might government policies affect partnering actions between small and large firms in the pharmaceutical industry?

4. If you worked for an entrepreneurial venture, what would you want to know about a large firm before recommending that your firm form a partnership with that large, established company?

Answer 1

Introduction

With rapid development of the world around us, partnerships among various companies is increasingly becoming a necessity for survival and growth in the industry. Big companies have the added advantage of market knowledge and are capable of delivering products to the end customer primarily because of their superior exposure and tie ups with supply chain elements, along with the fact that they have higher capital availability for supporting activities such as financing, marketing, sales etc.

In the case study the importance of having this relationship between small biotech firms which are just emerging but have sufficient knowledge on new products and old well-established companies has been indicated.

Case Specifics

Part (A)

Factors in the Business Environment that encourage partnerships are as follows: -

(1) Level of Competition: -

If the level of competition in the market place is already very high, it prevents smaller companies from directly entering the business. It takes a considerable amount of time for them to be able to create brand value and by the time that happens, competitors are ready with alternative products of similar quality. This causes losses for smaller firms if they do not enter into agreements with larger counterparts.

(2) Investment Required: -

If the level of investment required to enter and cater to all needs of the market are relatively on the higher side, then in that case it is better for smaller companies to form tie ups with bigger ones. This helps them in becoming profitable without having to pump in large sums of money at a nascent stage in the industry and create issues for themselves.

(3) Sources of Finance: -

What prevents small companies from entering into large scale business is the fact that they often lack the financial power which bigger firms have. In developed countries numerous angel investors and banks grant loans to start-up firms which have even just entered the industry if they believe that the idea is good enough and may see long term sales.

If the sources of finance are relatively limited, it is better that tie ups can take place as they allow for easier transition of smaller firms in the industry

(4) Level of Risk: -

If the level of risk in the industry is relatively higher, then in that case it is advisable for smaller firms to come in partnership or liaison with bigger ones. This is because profit sharing becomes a viable option as compared to being liquidated in a couple of years.

(5) Market Level: -

If the markets are well developed and informed and the consumer acts rationally, they would prefer buying from both small and big players alike depending upon the quality of the product than the branding or advertisements. In this situation only can small companies thrive without the need of bigger ones failing which the exact opposite must be followed for survival and growth respectively.

Question 2)

Smaller bio tech firms primarily gain from the fact that they develop new products and developments which can help them achieve a name for themselves in the industry. When they partner with bigger firms, they have to share a part of their profits and at times this is the biggest trade-off for them. On the other hand, they also are subject to harsh conditions in payments at times and the bigger firms may develop similar technology themselves that the services of the small counterpart are not required.

On the contrary for a big company, their brand value and connect with people is what matters most. It is easier for a small company to make an error but a bigger firm has everything to lose. When a big company in the pharma industry comes in liaison with a smaller one it is important for them that the testing on the final product remains concrete such that it does not hinder the growth of the smaller counterpart respectively.

Question (3)

Government policies largely impact the pharma industry in a way that it keeps a minimum requirement of capital reserves to maintain viable operations in the country. This funding can be in the form of angel investors or loanable funds which can be used in various stages of production. Small companies lack this source of funding and are thus often not able to do all of the production process by themselves. The bigger ones on the other hand do not need to show this and are self-reliant.

This promotes engaging in contracts and to some extent also favours larger companies which regularly engage in tactics such as mergers and acquisitions to reduce their competition in the marketplace.

Other factors such as government subsidies to smaller industries which produce necessary drugs or engage in development of new technologies is also a major factor which effects their partnering actions.

Question 4)

The fore most thing to remember when engaging in partnership with larger corporations is their history for making payments. The history tells us how future actions of the player may be shaped. For smaller companies’ availability of capital is critical for growth and survival. This is required for numerous activities ranging from development of products to research etc. A history of failure or delayed payments thus is of foremost importance as an entrepreneur.

Further, other factors such as price offered or bargain and supply chain and availability of funds are additional items which need to be kept in mind. The image of the company in the eyes of the customers, the level of competition and the future prospects are other things to be considered.