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Proposal for Live Case


Proposed Organization: Abbott Laboratories
Team Members:
Abdul Muqeet
Arsalan Javaid Sadiq
Muhammad Hassan Anwar
Hira Asim
Mahwish Danish
Shaher Bano
Sumaiya Lakhani
Course:
Corporate Strategy (fall 2014, MBA Morning - Main)
Course Facilitator:
PROF. DR. Mahnaz Fatima

Dec 20, 2014

Tentative Table of Contents


Abbott Introduction ...2
Organizational Structure3
Financial Analysis..........................................4
Vision Statement Analysis.7
Mission Statement Analysis7
Industry Overview..8
External Environmental Analysis9
Porter's Five Forces Model.12
Internal Environmental Analysis13
Minor Problems...17
Major Problems..21
Strategic alternatives and choices22
Appendices..............24
Abbott Financials ...24
GSK Financials.. 25
Sanofi Aventis Financials.. 27
Profit Margins 29
Market Share...30
Interview Schedule 31
Summary 33
EFE and CPM Matrics...34
IFE Matrix .34
BCG Matrix ...36
Statement of contribution.38

Abbott Introduction
Abbott is a global, broad-based health care company devoted to discovering new medicines, new
technologies and new ways to manage health. The head-quarter is based in north suburban
Chicago. With the presence in more than 150 countries round the globe, it is world recognized
healthcare business which has strong core values of honesty, integrity and fairness.
Abbott Pakistan
Abbott Pakistan is a recognized name in the field of healthcare business in Pakistan. The
company is part of the global healthcare corporation of Abbott Laboratories, Chicago, USA.
Engaged in the pharmaceutical business since 1948, the company is listed on Karachi, Lahore
and Islamabad stock exchanges.
The Vision
To be the most admired Health Company in Pakistan.
The Mission
To deliver consistently superior products and services which contribute significantly to improve
the quality of life for the consumers.
Core Values
The core values of honesty, integrity and fairness describe a standard behavior expected of every
Abbot employee.

Organizational Structure
The organizational structure of Abbott Pakistan is based on two key entities; these entities are
autonomous in nature with respect to decision making and reporting hierarchy.

One of these entities is responsible operations and is led by the Operations Director. All
operations related to the procurement, storage, usage of raw materials and the production process
are governed under this entity. Under operations director, there are two key divisions i.e.
regulatory affairs and procurement. This operations entity sells its produce to the second entity
and maintains its own profit and Loss statement; this practice encourages accountability within
the operations entity.

The other entity as led by the managing director governs finance, marketing, sales and
distribution and Human Resources. Both of the entity leaders coordinate accordingly and reports
directly to the Singapore Regional Head Office. Further to this classification, decision making is
linked with the product categories as well.

DirectorMarketing&
SalesDirector
HR
Director
Strat
Naseem
Akhtar
ShahRukh
Ma
Dr. Sarmad
Maqbool

In appendix, exhibit 01 corporate structure business units and committees reflect the business
units strategy implemented at Abbott under this functional hierarchy. It reflects employees are
Manager Finance
Head of Sales
Shaukhat Shah
MG
Jaffer Ashraf
Marketingroles.
Manager
working
on products
domain
while
working
on Procurement
functional
It leads to the matrix structure of
Compliance
MGR
Manager
HR
Muhammad Raza

Nadir Ishaq

Irshad
Khan
Adeel
Ahmed

the organization for Abbott.

Logistics

Regional Sales Managers

The matrix structure groups employees by both function and product. This structure can combine
the best of both separate structures. A matrix organization frequently uses teams of employees to

District Sales Manager

accomplish work, in order to take advantage of the strengths, as well as make up for the
Field Executives

weaknesses, of functional and decentralized forms.


Financial analysis
In the following analysis, the period under review is between the years 2009 and 2013 (both
years inclusive). We will delve into the cross functional financial analysis of Abbott which is
going to be compared with other major players of the industry such as GSK and Sanofi Aventis.
Sales figure for Abbott almost doubled from Rs.8.45bn in 2009 to Rs.17.217bn in 2013. Average
year-on-year sales growth rate over the period under study is 19.42%. When we breakdown these
sales figures, there are 4 different segments. Though all the segments posted profit in 2013 and
2012, pharmaceutical segment remained dominant primarily because of rising middle class
incomes and growing influence of pharmacists in patients choice. On the other hand, average
year-on-year sales growth for GSK was lower at 13.66% with its pharmaceutical and consumer

health care divisions being at the forefront. But Sanofi Aventis had been a bit closer in terms of
average sales growth rate which was approximately 17% with its pharmaceutical segment being
the frontrunner.
Although Abbotts sales figures were on the rise, gross profit margins didnt show much
fluctuation, mainly because of price controls imposed by the Pakistan government while COGS
kept on increasing in line with unit sales. Similar problem was being faced by GSK, where gross
profit margin had slightly reduced from 26.1% in 2012 to 24.7% in 2013, owing to significant
increase in the cost incurred by its production department e.g. increase in raw material prices
etc. However, there was an opposite trend at Sanofi Aventis where the gross margin increased
from 24% in 2009 to 30% in 2013 primarily because of better cost management due to
improvement in efficiency measures.
From 2009 to 2012, average year-on-year growth rate in selling and distribution expenses at
Abbott was 19.35%, but in 2013 it was 11.7%. Same sort of trend can be observed in its
administration expenses. The general increase in administration expenses can partly be explained
by widening manufacturing base and ever-increasing sales which must have prompted the HR
department to hire more people. Administration expenses at Sanofi were increasing as well
because of higher staff costs due to inflation and increase in headcount. However, its growth rate
was 14%, lower than that of Abbott. The same expense head for GSK was very volatile over the
study period so we couldnt ascertain any trend for the company.
On the other hand, GSKs marketing department can be considered as relatively more aggressive
than that of Abbott since the average growth rate of its selling and distribution expenses during
the period under study is 23%. The same for Sanofi Aventis is 15% thus signaling that its
marketing department is the least active of all the three companies.

Abbott did fairly well in terms of liquidity as its current ratio gradually increased from 2.03 in
2009 to 3.56 in 2013. Such improvement in working capital management is also reflected by a
reduction in operating cycle, which reduced from 62 days in 2009 to 52 days in 2013. Apart from
managing the operations, the companys liquidity has also been boosted by proper management
of funds by the investment committee e.g. surplus funds were invested in short-term bank
deposits. Improvement in working capital indicators didnt come as a result of the efforts of any
one department; it rather resulted from the integration of different departments falling under the
operations wing e.g. supply chain, procurement etc.
Same sort of trend can be observed at GSK, where the operating cycle time reduced from 119
days in 2009 to 82 days in 2013 due to improvements in the supply chain structure e.g.
improvement in receivable days and inventory turnover days. The company strived to improve
its working capital by investing its surplus funds in government securities and high credit-rating
bonds, a move almost similar to that of Abbott. Its current ratio remained stable above 2 but it
dropped to 1.9 in 2013, thus giving a reason to worry.
Claims on Abbotts improved liquidity get further credence from the companys cash flow
position. In 2009, end-of-year cash flow stood at nearly Rs.770M which gradually increased to
Rs.3.9bn in 2013. This increase was largely complemented by an increase in cash flow from
operations. On the other hand, outflow in investing cash flows increased from Rs181M in 2009
to Rs.690M in 2013. This increase is explained by the companys focus on investing in different
product lines. As a result, the manufacturing base is increasing and the manufacturing
department is now handling 196 stock keeping units.
With respect to liquidity, GSK was lagging behind Abbott during the period under study, because
a lot of its cash was tied-up in its inventory in order to enhance the production departments

manufacturing capacity. As a result, there was a significant decrease of nearly Rs. 1 billion in its
operating cash flow in 2013. Its operating cash flow continued to fluctuate and there was a
downward trend in its end-of-year cash flow.
But Sanofi seems to be hit by liquidity problems the most, since its cash flows have always
remained negative throughout the period under study. Of all the three companies, its current
ratio had remained the lowest and fluctuated between 1 and 1.4. Unlike Abbott and GSK,
Sanofis capital expenditure was funded by external sources as a result of which they had high
finance cost. However, there is a positive side to this picture as well. Investing cash flows have
been negative because the company was investing in new projects in order to expand its product
mix so that revenues are enhanced in the long run. This resolve can be reflected from the gradual
increase in the companys stock-in-trade over the years, which must be the reason behind the
gradual hike in the companys inventory handling cost.
Vision Statement Analysis
The statement incorporates crisp language and a futuristic tone. The desired future state as
expressed in the vision statement appears too concise; this thing may affect the statements
capability to influence the employees. However the desired future state to become the most
admired health care company; shows concern for all stake holders (such as employees,
community, customers, share holders etc) which is a very positive sign for an organization.
Mission Statement Analysis
Abbotts mission is To deliver consistently superior products and services which contribute
significantly to improving the quality of life for consumers.

The first part of the mission statement is customer-centric and promises all users superior quality.
It explains the nature of the products that Abbott is offering to its consumers. The statement is
clear and concise in mentioning its primary stakeholders. The general philosophy is not clearly
mentioned but is implied in the statement since the company is aspiring to improve the life of all
the people that consume its products. Self-concept is also implied in the companys emphasis on
quality and health care.
The statement, however, does not specify a clear geographical region or the kind of technology
that is being used by the company to ensure its products are of superior quality. The statements
lack any concern for public image and employees. It does not mention concern for the
environment or the community at large and does not specify how it is contributing to the lives of
its employees.
Industry Overview
The pharmaceutical business in Pakistan is right now assessed at roughly US $ 2.0 billion
according to IMS December 2013, MAT. The offer of MNCs as far as quality is 41.5% as
contrasted with the national organizations' offer of 58.5%. This is characteristic of the becoming
foot shaped impression of nearby organizations as a few MNCS scale back operations because of
absence of pragmatic administrative environment, regulatory and pricing system. Pakistan's
pharmaceutical/nourishment market developed by nearly 14.7% in 2013 (IMS Dec 2013, MAT).
Abbott accomplished a development of 15.4% solidifying its position as the second biggest
pharmaceutical organization in Pakistan. Abbott Pakistan's accomplished a piece of the pie of
6.6% according to IMS (Dec 2013, MAT) in the pharmaceutical and nutrition market (2012 piece
of the pie: 6.5%)

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External Environmental Analysis


Political and Legal Factors
Ministry of Health and Drug Regulation Authority of Pakistan controls every aspect of product
launch and distribution in the market imposing strict price controls. Due to patent laws, MNCs
cannot replicate the practices of local companies. These local companies do not rely on research
in their product formulation process ultimately imitating the products of MNCs at lower price
and inferior quality. On the other hand, Abbott and other MNCs have strict internal Quality
Assurance and Quality control audits followed by bi-availability studies before a product is
launched in to the market. This process takes an average of 15-18 months. Abbotts product that
is yet to be launched in the third quarter of 2015 has been delayed due to the patent law approval
process. Local companies turn a deaf ear to such laws and are able to push their product in the
market promptly thus obtaining a market share of 13.4% as opposed to MNCs that are standing
at 8.5% (2) currently. (See Exhibit 5)
Technological Factors
Technological advancements in the industry have enabled many companies to indulge in R&D
However Abbott Pakistan has no such facility because of Pakistans weak reputation around the
world. Capital expenditure on equipment is weighed against the return on investment. The
installment of machinery for new product development is undertaken on the basis of how much
revenue it will contribute to. With the depreciating Rupee value costs supersede sales. As a
result, the cost driver overshadows a technological innovative idea put across by individuals
working in the pharmaceutical industry.

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Social Factors
Abbotts mission statement reflects the dire need of consumers looking for an improved quality
of life. The increasing aging population offers a range of opportunities and threats to the
pharmaceutical industry. The trick will be to capitalize on the opportunities. There is also the
problem of the increasing obesity amongst the population and its associated health risks. Patients
and home care takers are becoming more informed. Their expectations have changed and they
have become more demanding. Public activism has also increased through the harnessing of new
social networking technologies.
Economic Factors Including Opportunities and Threats for Abbott Pakistan
In light of the current economic and market trends of rising middle class incomes, consumer
reliance on trusted brands and influence of pharmacists in patients choice of treatments
supporting higher use of branded treatments, Abbotts sales has increased by 12% followed by
launch of three new line extensions in 2013. According to Dr. Sarmad Maqbool, Director
Marketing and Strategy EPD, a projection of these trends in 2014 promises a set of opportunities
for Abbott that may help the company in becoming the largest pharmaceutical player in the
industry.
The economic and market trends in the nutritions division including high birth rates, expanding
economy and growing awareness of the role of nutrition in wellness have shown a sales growth
by 26%. These trends have led to cost reductions by efficient inventory management. The
implications of these trends lie in the form of another opportunity for Abbott to become a market
leader in the nutritions division

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As far as the diagnostics division is concerned, the key economic and market trends comprise of
aging population with an increasing emphasis on the use of in vitro testing in diagnosis and
disease prevention. Abbott capitalized on this opportunity by launching new Architect EBV panel
which provides correct infection staging to patients. Emphasizing on the diabetes care, Abbott
must innovate to introduce blood-glucose monitoring because of high incidence of diabetes in
Pakistan.
The organization stays powerless against energy price escalation, inflation and depreciation of
Pak Rupee. Higher fuel and energy costs are of specific concern to the business. Because of
absence of a transparent pricing mechanism the negligible adhoc pricing adjustments are not
conductive to the development of the pharmaceutical business.
The Drug Regulatory Authority is of utmost importance for the pharmaceutical business. The
foundation of a self-sufficient Drug Regulatory Authority to manage the assembling, stockpiling,
conveyance, import and advertisement of medications is a welcome step. The pharmaceutical
business trusts that the Authority will give solid backing to the business in tending to its long
exceptional issues. The infringement of Intellectual Property Rights exists to be a pending issue.
Strict actions should be undertaken to discourage both piracy and counterfeit. Compelling usage
of such rights will ensure buyers, and also the business.
Competitive Analysis

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In the strategic map, Abbott ranks high on price and quality. MNCs charge a higher price for
their higher quality products. Local companies offer a medium range of both price and quality.
Counterfeit drugs are obviously the lowest both in terms of price and quality.
Porters Five Force Model:
According to numerous economic studies; it has been affirmed that different industries can
sustain different levels of profitability; part of this difference is explained by the industry
structure.
Competitive Intensity
Pharmaceutical companies are competing on the basis of quality, cost, product range and
research and development. Time to market also appears to be a critical contesting factor in the
pharmaceutical industry, considering the limited cover provided by patents and taking in to
account the discovery, development and clinical trial time period.
Bargaining Power of Suppliers
The bargaining power of suppliers is a rather marginal force in the pharmaceutical industry. The
large pharmaceuticals companies are usually vertically integrated backwards and as such do not
face strong threats from suppliers. For the majority of pharmaceutical products, raw materials
supply is not a bottleneck.
Bargaining Power of Customers
Given the nature of the product, it is a sensitive issue for
customers to switch from one product to another; perception of
reliability towards a specific brand makes the switching difficult

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on the customers end. One the other hand, presence of product substitutes offered by a large
number of pharmaceutical companies drags the bargaining power of customers to a moderate
level.
Threat of New Entrant
Strong Research and Development appears to be the primary threat for new entrants. Every
pharmaceutical company in Pakistan is making efforts to improve their R n D department.
Threat of Substitutes
Threat of substitutes does not appear to be as severe an issue in the pharmaceutical industry.
However, in the Pakistani scenario; constantly increasing prices of branded products are making
this threat serious due to limited purchasing power of customers.
Internal Environmental Analysis

Human Resources
The company claims to be a learning organization; where the employees are continuously
attempting to learn new things and apply what they learn to improve product or service quality.
The company pays heavy emphasis on the training and development needs of its employees
through high leverage training program. This program is linked to the organizations strategic
goals and objectives, supported by the top management and is compared or benchmarked to
programs in other organizations. The identification of training need and the subsequent training
evaluation is aided through a performance management system. The employee turnover rate is
impressively low and can be attributed to the training and development efforts along with the
above market compensation rate. Abbot considers its human resources as one of its strengths.
When inducting people for any position, Abbot gives preference to the best talent available; be it

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within the organization or outside; no preference is given to existing employees except for the
reason that the position under consideration could significantly benefit from an individuals prior
experience with the organization. The employee morale appears satisfactory. However; the
organizational values as endorsed by the corporate office does not seem to be ingrained in the
organizational culture. The values; despite being displayed at various spots in the office are
considered impractical and of little relevance by the employees when conducting their day to day
activities. The management on the other hand seems unaware of this gap; which could prove to
be a potential challenge for the company in coming years.
Strategic Planning
The company does not seem to practice strategic management. The top management seems well
aware with the concept of strategic planning; however in practice this process is heavily
influenced with marketing and sales objectives; and so for this reason does not fulfills the criteria
of a balanced strategy. The company follows an inside-out approach where the strategy making
process starts with the forecasting exercise performed by Sales and Marketing departments. A lot
of emphasis is paid on this exercise so as to come up with as reliable number as possible; since
any inconsistency between demand and productions could seriously affect the profitability of
operations. The top management is very clear that it wants the company to be demand driven
rather than production driven. Development of monthly forecasts involves review of the next
three months forecasts and the next 24 months forecasts. Once the marketing and sales
department develops their forecasts, these figures are presented for review to the finance
department; who job is to review the top and bottom line and suggest the best product mix which
could result in high profit levels. Once the product mix is adjusted; the demand plan is handed
over to a department (ADS) which is responsible for ensuring the final delivery of the products.

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The production department finally responds to the ADS department after reviewing the demand
plan and suggests any changes required as restrained by the existing production capacity. The
inside-out approach to strategic planning process can be illustrated as:

Productio
n

Sales &
Marketing

Finan
ce

Production
The production unit which is also known as EPO (Ethical Production Organization) is an
autonomous part of the organization; it comprises of a number of sub-divisions. One of the most
important jobs of the EPO is Quality Analysis and Quality Control; where each product is tested
at different points in time over the period of its claimed shelf life before being launched in the
market. This is the reason why the average time-to-market for products offered by the company
is 18 months. This time is significantly high in comparison to what local companies take in
bringing a new product in the market. Abbott takes great pride in such a stringent process of
Quality Assurance which ensures the highest quality of its products and leads to a loyal customer
base; both of which are important strengths of the company. However; at the same time the
longer time-to-market duration puts the company at disadvantage when competing with the local

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pharmaceuticals; who mostly duplicates the product formulas of multi-national companies and
introduces their products in the market early severely affecting the profits of MNCs.

Research and Development


The company does not have a RnD function in Pakistan. In top management view; the research
performed in a developing country like Pakistan does not hold credibility and so the company
does not undertake any such activity. The fact can also be seen as a weakness on the part of the
company; and one of the reasons why the company is trying to capitalize on its existing products
which are fairly mature. The lack of RnD activities in Pakistan has restrained the companys
ability to understand the needs of the local markets and introducing new products accordingly.
Sales
This department plays a very important role in setting up of the organizational goals and so
heavily influences the organizational strategy. The current CEO of the company also comes from
sales background. However; the previous CEOs came from diverse backgrounds like accounts
and marketing so any specific trend is not observed. The key performance indicators for sales
team are defined only in terms of sales volume. The unique thing about sales department is that
that it follows strict hierarchal promotions; which means when it comes to filling up a position in
sales; the company looks for a suitable candidate from within the department. This practice
encourages the sales personnel to work hard and keep up their morale which is very important

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for the job. Also; the sales personnel are equipped with adequate literature on the products along
with a sales pitch which makes them effective.
Marketing
The marketing department also plays a very important role in strategy making process. However;
the department is constantly faced with the challenge of promoting very mature products; some
of the companys products are as old as 40 years. Although the company enjoys excellent brand
recognition in the local market; the lack of new products in the portfolio makes it difficult for the
marketing personnel to keep the brand fresh and alive in the minds of consumers.
Abbotts competitive advantage:

Market Share
Product Quality
Customer Loyalty
Technological Know how
Control over Suppliers and Distributors

Minor Problems in Abbott

Bureaucratic Structure:

For every decision to be taken in Pakistan it has to be approved from the head office in Chicago.
This shows that a bureaucratic structure is being followed within Abbott. This vertical integration
of the organization results in long response time for any decision to be taken. These delays
hamper the implementation process, which results in financial losses. Moreover since all the
important decisions are taken at higher level, subordinates feel left out from the organizations
affairs. They become hesitant to take responsibility and fail to relate to the vision and mission of

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the organization. This dis-association with the mission and vision of the company results in the
lack of empowerment of the employees and lack of ownership on part of the staff of Abbott.

Generic Drug Competition:

Abbott also has to face competition from generic drug companies. As the patent of the original
drug expires, these generic companies present replicas claiming them to be the perfect substitute
of the branded drugs. This substitution of drugs proves a threat to the revenues of the branded
pharmaceutical companies as they are forced to drop the prices of the innovative drugs. To tackle
this issue, like other pharmaceutical companies such as GSK, Abbott also highlights the next
generation products. These products mostly are the follow on products for existing ones. Thus
they try to reduce this generic drug competition by informing the consumer about the upcoming
follow on products for the existing ones. Abbott also tries to tackle this issue by focusing on the
strengths of the products which are in pipeline. However to develop innovative products
frequently or at the expiry of every patent of the drug is not easy.

Unethical Practices of Competitors:

Abbott also has to face the issue of unethical practices followed by its competitors. When drug
inspectors of Ministry of Health (MOH) go for inspection to local companies, they are bribed to
give favorable reports about local companies and NoC S is awarded to them. But Abbott does
not indulge in such practices as they follow a code of conduct. Unethical practices followed by
the competitors results in increased market share. Abbott is unable to compete to such unethical
practices and faces low profit margins.

Me Too Drug Competition:

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A drug developed with unique benefits, may not have direct substitute, and gives company a
monopoly in the sub-market. In this situation the competing company introduces the compound
having similar benefits to the already launched drug. These Me Too drugs increases competition
in the market for the company and reduces its pricing power. To tackle this issue, Abbott, like
other pharmaceutical companies, look towards the govt. for regulating prices as price war is the
basis of this competition.

High Import prices

Depreciation of rupee is raising the prices of import of raw materials. This means eventual
increase in drug prices which, on the other hand, are controlled by the govt. This means erosion
of profit margins. This issue is faced by all the pharmaceutical companies who demand govt. to
take economy friendly measures to tackle the issue of rupee depreciation.

High Turnover

Abbott faces the challenge of high employee turnover particularly in the department of sales
and marketing. This shows a lack of inspiration and organizational association on part of the
workers. High employee turnover results in the loss of the training cost.

Lack of Local Research Facility

Abbott Pakistan is dependent upon parent company in US for research and development
activities due to lack of local research facilities. This results in the stagnation of innovative
activities within Pakistan. The lack of research is present in other MNCs also operating in
Pakistan. The main reason for lack of research is that govt. does not support it. Even if

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pharmaceutical companies do some research, they cannot start commercial production of a drug
until govt. registers it, which they do not. In Pakistan pharmaceuticals lack required resources as
well to conduct research.

.Poor Demand Forecasting and Production Function

Abbott Pakistan works closely with a list of approved suppliers with a tight safety stock of raw
materials. Although a sales & operations meeting is held intermittently, there seems to be lack of
communication between demand forecasting and production functions thereby affecting the
supply chain of the company.

Misuse of Clara Abbott

Clara Abbott, NGO for Abbott employees only, is misused by those who do not need financial
assistance and get it by submitting fake cases. These fake cases have resulted in the cancellation
of certain benefits which could have been utilized by the genuine needy cases. Thus misuse of
Clara by some has created difficulty for other deserving employees of Abbott.

Over Rated Unionized Staff

Unionized staff is over rated as compared to other pharmaceutical companies like GSK. They are
given freedom to raise voice for their rights and demands, of which they take undue advantage
by putting forward such demands as to reserve seats for their children in the company, even if
they do not fall on merit .They go on strike if their demands are not met and hamper production
process. Management of Abbott tackles such demands by the process of negotiations.

Shortage of Active Principle Ingredients

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Abbott faces the problem of shortage of certain ingredients used in the preparation of some
drugs. For example Arinac is composed of Pseudoephedrine and Ibuprofen. The government
imposes a quota on the acquisition of Pseudoephedrine as it is a controlled narcotic component.
Abbotts quota is on the verge of extinction which can lead to a shortage of one of its leading
products in the market. Abbott tries to tackle this issue by introducing a new drug in the market
but this is not the desired solution as developing a new drug is not easy.

Grey Market Competition

Abbott also faces the problem of grey market importing from countries like Iran. This results in
robbing the legitimate profits of the pharmaceutical company and the loss of incentive to develop
new drugs. Abbott desires that Govt. take measures to control this unauthorized importation of
patented drugs.

Sudden Increase in Demand

When any natural calamity strikes the country, the demand for drugs immediately rises. Abbott
finds it difficult to cope with such gaps in the demand and supply of medicines. Abbott relates
this problem to the warehousing issues. Improvement of distribution system can solve the
demand and supply gap problem.

Other Issues

Like other pharmaceutical companies, Abbott also faces the problem of power breakdowns but
this issue can only be tackled by the Govt. Other issues like Abbott containers being parked due

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to the political chaos happening in the country, sit-ins and strikes also poses difficulty in the
smooth functioning of the company. But all these matters lay in the hands of Govt.
Major Problem
Abbott Pakistan is a reactive organization with a business model that lacks sustainability. It relies
only on the brufen range to generate revenues with a lack of innovation to develop new products
and introduce them in the market. This is because of the absence of a research facility in Pakistan
and its dependence on the mother company for approval of ideas because of which there is no
sense of ownership in the employees to want to take the organization forward. This results in a
complacent attitude towards wanting to increase market share through a new product range.
Strategic Alternatives

Abbott Pakistan should develop a small test lab as a pilot project so that employees have
a platform to research and develop new ideas and feel a greater sense of belonging in the
organization. Local employees would have a better understanding of the needs of the
local consumer and could therefore work on developing products that are more relevant
and viable. If Abbott Pakistan is given more control over product development, it may
result in newer products to compete with the products constantly being churned out by
local pharmaceutical companies. Formulation of new products would allow the company
to register these products at a higher mark up to earn more profits and help the business
be more sustainable. This is a practice commonly conducted by local companies since
they have a less formal structure to gain approvals to change formulations to update

products.
Employees who contribute to new product formulation or contribute ideas to streamline
processes should be recognized and appreciated so more employees are encouraged to

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show initiative. The champion approach should be followed to bring out people who may

have great ideas to take the company forward.


The company should focus on diversifying its non-pharmaceutical or general health
portfolio. Products in this category are not registered with the Ministry of Health and
therefore, often end up earning higher margins than their pharmaceutical counterparts.

Abbot Pakistans strategic choice should be to diversify its product portfolio to diversify risk and
cater to a larger market. Other pharmaceutical companies offer fast moving consumer goods like
Tang (Mondelz International.) and Horlicks (Glaxo Smith Kline) to diversify risk and gain
customer following. Non-pharmaceutical goods also have less regulations attached to them and
may be helpful in improving general health and creating public awareness.

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Appendices
Abbott Pakistan
Profitability
Gross profit
margin
Net profit
margin
EBITDA margin

Activity
Operating cycle
Inventory
turnover

Profit and Loss


account (in
000s)
Sales
Cost Of Sales
Gross Profit
Selling and
distribution
Administrative
expenses
Other income

2013
17,217,
258
10,595,
612
6,621,
646
2,471,4
04
366,93
8
273,05

2013
38.50
%
14.70
%
23.70
%

2012
37.50
%
13.70
%

201
3
52.3
9
4.08

2012
15,216,
253
9,513,4
25
5,702,
828
2,212,4
21
344,49
4
183,43

22%

2011
36%
12.70
%
20.50
%

2010
33.50
%
10.70
%
18.20
%

2009
27.50%
7.20%
12.80%

2012

2011

2010

2009

55.4

60.43

59.12

62.41

4.01

3.78

3.61

3.64

2011
12,946,
968
8,280,4
90
4,666,
478
1,894,3
90
295,82
3
142,46

2010
10,995,
701
7,308,6
63
3,687,
038
1,601,1
01
267,91
5
109,07

2009
8,450,
118
5,987,
872
2,462,
246
1,252,
810
201,94
3
141,89

26

Other operating
charges
Operating Profit
Other Income
EBIT
Finance Cost
Profit Before
Tax
Taxation
Profit After Tax

Balance Sheet
(in 000s)
Fixed Assets
Plant and
equipment
Intangible
Other non-current
assets
Current assets
Total Assets
Paid up capital
Capital reserves
Revenue reserves
Total Equity
Non-current
liabilities
Current Liabilities
Total Equity and
liabilities

Cash Flows (in


000s)

9
367,18
4
3,689,
179
273,05
9
3,962,
238
2,956
3,686,
223
1,157,3
74
2,528,
849

0
312,98
0
3,145,
913
183,43
0
3,329,
343
2,226
3,014,
137
924,04
2
2,090,
095

6
240,68
9
2,476,
265
142,46
8
2,618,
733
3,216
2,374,
826
730,24
0
1,644,
586

9
182,31
4
1,744,
787
109,07
9
1,853,
866
3,530
1,741,
257
564,31
3
1,176,
944

0
129,76
5
1,168,
622
141,89
0
1,310,
512
2,525
1,166,
097
340,42
1
825,6
76

2013

2012

2011

2010

2009

318373
5
41615

26291
54
58835

22980
62
76055

18775
96
-

16627
85
-

44064
7,898,5
90
11,168
,004
979,00
3
300,03
0
7,468,2
32
8,747,
265
203,56
2
2,420,7
39
11,168
,004

54509
6,587,
364
9,329,
862
979,00
3
262,30
8
5,466,
083
6,707,
394
189,55
7
2,432,
911
9,329,
862

55449
4,975,
763
7,405,
329
979,00
3
223,24
7
3,983,
933
5,186,
183
165,21
9
2,053,
927
7,405,
329

56152
3,856,
673
5,790,
421
979,00
3
197,16
7
2,736,
369
3,912,
539
115,18
2
1,762,
700
5,790,
421

42606
3,259,
185
4,964,
576
979,00
3
173,85
3
2,085,
604
3,238,
460
119,62
7
1,606,
489
4,964,
576

2013

2012

2011

2010

2009

27

Operating activities
Investing activities
Financing activities
Cash flow over the
year
Beginning cash flow
Ending cash flow

24838
58
69049
1
68652
8
11068
39
27902
12
38970
51

25097
03
48563
0
68718
8
13368
85
14533
27
27902
12

17728
76
64380
0
49483
6
63424
0
81908
7
14533
27

91750
3
37478
5
49441
5
48303
77078
4
8190
87

107475
7
181200
117426
2
280705
105148
9
77078
4

GSK
Profitability
Gross profit
margin
EBITDA margin
Net profit
margin

Activity
Operating cycle
Inventory
turnover

Profit and Loss


account (in
millions)
Sales
Cost Of Sales
Gross Profit
Selling and
distribution
Administrative
expenses

201
3
24.7
%
9.2
%
4.2
%

2012

2011

2010

2009

26.1%

26.8%

25.7%

25.3%

11.7%

11.9%

12.2%

12%

5.7%

5.2%

5.6%

6.2%

20
13
82

2012
94

2011
93

2010
100

2009
119

3.3

3.1

3.1

3.1

2013
25,13
1
18,92
4
6,207

2012
23,15
0
17,10
8
6,042

2011
21,75
0
15,92
1
5,829

2010
18,91
6
14,05
5
4,861

2009
16,75
4
12,51
5
4,239

3,619

3,033

2,784

2,308

1,943

905

787

1,022

832

854

28
Other income
Other operating
charges
Operating Profit
Other Income
EBIT
Finance Cost
Profit Before Tax
Taxation
Profit After Tax

Balance Sheet (in


millions)
Fixed Assets
Plant and equipment
Intangible
Other non-current
assets
Current assets
Total Assets
Paid up capital
Capital reserves
Revenue reserves
Total Equity
Non-current liabilities
Current Liabilities
Total Equity and
liabilities

Cash Flows (in


millions)
Operating activities
Investing activities
Financing activities

402

324

457

397

469

151
1,935

185
2,361

196
2,284

170
1,948

151
1,759

1,935
151
1,784
754
1,030

2,361
46
2,315
995
1,320

2,284
44
2,240
1,088
1,153

1,948
19
1,929
870
1,059

1,759
50
1,709
670
1,039

2013

2012

2011

2010

2009

5973
956

5815
956

4794
956

4190
956

3830
956

87
10,9
23
12,2
12
2,89
5
8,45
4

99

94

85

242

9,382
12,10
1

9,617
11,56
9

9,661
11,33
2

9,403
11,08
5

2,632

2,393

1,964

1,707

8,763

8,595

8,836

8,887

11,39
5
706

10,98
8
581

10,80
0
532

10,59
4
491

4,151
12,10
1

3,881
11,56
9

3,560
11,33
2

3,347
11,08
5

2012
2057
-1167
-900

2011
127
-558
-782

2010
2433
-739
-849

2009
1348
-262
-1189

11,3
49
863
5,72
7
12,2
12

2013
1057
-285
-990

29
Cash flow over the
year
Beginning cash flow
Ending cash flow

-218
2316
2097

-10
2326
2316

-1213
3538
2326

845
2693
3538

-103
2725
2693

Sanofi Aventis
Profitability
Gross profit margin
EBIT margin
Net profit margin

Profit and Loss


account (in
000s)
Sales
Cost Of Sales
Gross Profit
Selling and
distribution
Administrative
expenses
Other income
Other operating
charges
Operating Profit
Other Income
EBIT
Finance Cost
Profit Before
Tax

2013
30.46%
8.79%
3.52%

2013
8,791,
590
6,113,
665
2,677,
925
1,458,
545
236,94
4

2012
30.47
%
10.07
%
5.65%

2011
26.69
%

2010
28.47
%

2009
24.18
%

7.04%
3.01%

8.63%
3.64%

5.71%
2.49%

40,505
249,54
5
773,3
96

2012
8,628,
385
5,998,
992
2,629,
393
1,567,
101
220,85
5
256,68
2
228,75
2
869,3
67

2011
7,619,
460
5,585,
930
2,033,
530
1,398,
922
190,08
5
163,86
8

2010
6,158,
295
4,404,
751
1,753,
544
1,094,
063
175,58
0
102,22
0

71,779
536,6
12

54,439
531,6
82

2009
6,725,
708
5,099,
109
1,626,
599
1,048,
283
152,70
7
101,12
6
142,66
4
384,0
71

773,3
96
233,18
8
540,2
08

869,3
67
159,00
1
710,3
66

536,6
12
113,19
6
423,4
16

531,6
82
130,04
1
401,6
41

384,0
71
131,01
2
253,0
59

30

Taxation
Profit After Tax

Balance Sheet
(in 000s)
Fixed Assets
Plant and
equipment
Intangible
Other non-current
assets
Current assets
Total Assets
Paid up capital
Capital reserves
Revenue reserves
Total Equity
Non-current
liabilities
Current Liabilities
Total Equity and
liabilities

Cash Flows (in


000s)

230,38
3
309,8
25

223,10
9
487,2
57

193,82
6
229,5
90

177,61
7
224,0
24

85,688
167,3
71

2013

2012

2011

2010

2009

18451
08
343

16281
73
38

15310
71
28188

14089
21
339

13933
47
114

11416
4,676,
088
6,532,
955
96,448
2,130,
165

13005
3,814,
491
5,455,
707
96,448
1,918,
933

16344
2,829,
950
4,405,
553
96,448
1,504,
887

15155
1,924,
012
3,348,
427
96,448
1,364,
955

8427
2,037,
205
3,439,
093
96,448
1,196,
001

2,226,
613
636,50
1
3,669,
841
6,532,
955

2,015,
381
156,28
3
3,284,
043
5,455,
707

1,601,
335
288,19
2
2,516,
026
4,405,
553

1,461,
403
518,20
7
1,368,
817
3,348,
427

1,292,
449

2010

2013

2012

2011

Operating activities

-351,726

-141,099

Investing activities

-446,255

-86,141

Financing activities

652,540

-273,626

Cash flow over the


year
Beginning cash flow

-145,441
-

-500,866
-912,630

-6,649
371,07
7
298,27
0
675,99
6
-

71,315
2,075,
329
3,439,
093

880,33
2
184,24
6

2009
233,21
2
245,21
4

-99,247

515,27
9

596,83
9
-

36,853
-

31

Ending cash flow

1,413,49
6
1,558,93
7

1,413,3
96

236,63
4
912,63
0

833,47
3
236,63
4

Gross profit margins


45.00%
40.00%
35.00%
30.00%
25.00%

Abbott

20.00%

GSK
Sanofi

15.00%
10.00%
5.00%
0.00%
2009

2010

2011

2012

2013

Net profit margins

870,32
6
833,47
3

32

16.00%
14.00%
12.00%
10.00%
Abbott

8.00%

GSK
Sanofi

6.00%
4.00%
2.00%
0.00%
2009

2010

2011

2012

2013

33

Market Share:

34

Interview Schedule:

Name of
Person
Designatio
n

Mr. Razi
Hassan
Assistant
Manager
Indirect
Purchase

Ms. Nazia
Hassan
Former
Production
Supervisor

Syed Feroze
Alam
Assistant
Financial
Controller

Zayed
Hussain
Supply Chain
Director,
materials
management

Dr. Sarmad
Maqbool
Director
Marketing &
Strategy

0300278726
8
Oct 28th,
2014

0302-5555030

Shahrah-e-Faisal
Office
Abbott
Laboratories
(Pakistan) Ltd.
8th Floor, Faysal
House, ST-02,
Shahrah-e-Faisal.
Karachi

1 hour

Former Intern
Production
GSK
Phone
number
Actual date
of meeting

(9221)38709525
Nov 4, 2014

03022767683

0215015472

Nov 9, 2014

Place of
meeting
Address

Landhi Office

Residence

Oct 30th, 2014


& Dec 12,
2014
Landhi Office

Abbott
Laboratories
(Pakistan)
Ltd. Landhi,
P.O Box
7229, Karachi
74400

Sunny Heights
apartment,
Block#10,
Gulshan-eIqbal, Karachi

Abbott
Laboratories
(Pakistan) Ltd.
Landhi, P.O
Box 7229,
Karachi
74400

3:00 PM

3:30 PM

Landhi
Office
Abbott
Laboratories
(Pakistan)
Ltd. Landhi,
P.O Box
7229,
Karachi
74400
10:00 AM

1 hour

50 min

1 hour

Time of
1:00 PM
meeting
Duration of 1 hour
Meeting

Summary of interviews:
Mr. Razi Hasan:

Following points were discussed in the meeting:

Seamless execution of MOUND model


Operations staff low incentive issues

Nov 7, 2014 &


Dec 17, 2014

3.30PM

35

Bureaucracy and lobbying of unionized staff


Misuse of CLARA foundation a charitable trust
Counterfeit products and misaligned product placement
Functional level strategies and the efficacy of their CI (Continuous improvement)
department

Ms. Nazia Hassan:

The meeting was focused more towards a former employees outlook of the company.

Information from strategic level meetings is shared with the lower level staff but some
points are kept hidden.
Operations staff is always on the toes and is busy generating innovative ideas to tackle
production problems
HR policies are streamlined
Sales & marketing functions are not well integrated with production and procurement
functions.
Trainings of employees are inferior as compared to GSK.

Mr. Feroze Alam:

Financial Planning process was the focal point of the meetings:

Major functions in the finance division are spread across main and city office
Brief walkthrough of the processes involved in the financial planning
Financial planning is done at the corporate/city office
Sales invoices are handled at the depots rather than sales dept.
BPCS system facilitates inter department integration

Mr. Zayed Hussain:

Organizational structure and culture discussed at large:

Traces of bureaucratic control are very visible


Every action needs a log chain of approvals mainly from Chicago
Fast track communication is an important component of companys success
Organizational structure is mainly divided in commercial and operations divisions.
Pharmaceutical division is the controlling division rest are guest divisions

Dr. Sarmad Maqbool:

Following points were discussed in the meetings:

36

The Direction of the company in the Short term


The direction of the company in the next 5 years Long range planning.
Competition from multinationals and local companies.
How Abbott is responding to the Local companies threat of generics products
(Counterfeits)
Overall effectiveness of the strategy in the Pakistani environment.
How do they respond to the external environment
Number of divisions they have
Minor problems

EFE Matrix & CPM Matrix


External Factors Evaluation - EFE Matrix
Opportunities
1
Population Growth Rate
2
Increasing Diseases
3
Customers Satisfaction for MNCs Health Products
4
Mergers/Acquisitions Opportunities
Increasing Customer Awareness for Medicines
5
Usage
Threats
1
Prevailing recessionary economic conditions
2
Increased demand of imported material
3
Counterfeiting in Drugs
4
Fluctuations in Exchange Rate
5
Homeopathic Medicines Usage
6
Government Regulations for Price Fixing
Total

Weight
0.07
0.15
0.10
0.08

Rating
4.00
3.00
4.00
3.00

Score
0.28
0.45
0.40
0.24

0.15

4.00

0.60

0.10
0.07
0.05
0.10
0.04
0.09
1.00

1.00
2.00
1.00
2.00
3.00
1.00

0.10
0.14
0.05
0.20
0.12
0.09
2.67

Competitive Profile Matrix


Critical
(CSFs)

Success

Factors

Product Quality
Price Competitiveness
Effective Sales & Distribution
Advertising
Location of Facilities
Financial Position

Weight
0.20
0.15
0.10
0.10
0.05
0.10

Abbott
Ratin
g
4
2
3
2
3
3

Scor
e
0.80
0.30
0.30
0.20
0.15
0.30

GSK
Ratin
g
4
3
3
3
2
3

Scor
e
0.80
0.45
0.30
0.30
0.10
0.30

Pfizer
Ratin
g
4
3
4
2
4
4

Scor
e
0.80
0.45
0.40
0.20
0.20
0.40

37

Market Share
Proprietory
and
Advantages
Breadth of Product Line

0.05

0.10

0.15

0.10

Patent

0.30
0.10
2
0.20 3
3
0.30
0.15
3
0.45 4
0.60
2
0.30
1.00
2.80
3.30
3.15
*Rating Values are as follows: 1=major weakness, 2=minor weakness, 3=minor strength,
4=major strength
Internal Environmental Analysis - INTERNAL FACTOR EVALUATION MATRIX
STRENGHTS

1.
2.
3.
4.
5.
6.
7.
8.
9.

Global presence
Strategic alliances and acquisitions
Diversified portfolio
High margins
Over 100 year experience
Marketing of Products
Innovation Leader
Strong brand name
Labor Turnover

WEIGH
T

RATIN
G

0.10
0.15
0.07
0.07
0.08
0.07
0.07
0.06
0.07

4
3
4
3
4
2
3
4
3

WEIGHTE
D
AVERAGE
0.40
0.45
0.28
0.21
0.32
0.14
0.21
0.24
0.21

0.05

0.10

0.05
0.05
0.06
0.05

2
2
2
2

0.10
0.10
0.12
0.10

WEAKNESSES
1. R & D investment not to the level of
competitors
2. Marketing expenses higher than competitors
3. Expiring patents
4. Declining market share
5. High Company Overheads
TOTAL

2.98

38

Corporate Structure:

BCG EVALUATION
Abbott Pakistan has four main business divisions i.e. pharmaceuticals, nutrition, diabetes care
and medical diagnostics which have diversified portfolio of products. These products can be
sorted out in different tiers w.r.t. the sort of business they are generating. A BCG analysis was
done in order to provide a summary after analyzing all four business units, their market share and
growth opportunities.
Stars
Pharmaceuticals business of Abbott has been categorized as the prime business division in
Pakistani market. This segment remained dominant primarily because of rising middle class

39

incomes and growing influence of pharmacists in patients choice. In this division, top selling
products of Abbott falls in like Brufen, Arinac, Surbex etc. Pharmaceutical business of Abbott is
characterized as high growth area as well as it enjoys the higher market share.
Cash Cow
Medical diagnostics segment is characterized as Cash Cows. Considering the nature of its
portfolio and strategic position in the Abbott, it is placed in a tier where its growth might not be
as high as other segments but has guaranteed huge market share. Today, its has some market
share but slow growth due to huge costs involved for procurement of these products and local
vendors provide the equipment in low costs. These products have been able to generate cash in
excess of the amount of cash needed to maintain the business.
Dog
Diabetes care business segment is characterized as Dog in case of Abbott Pakistan. Considering
the nature of their portfolio, it directly competes with famous diabetic care brand Accu-Chek and
local industry vendors etc. It has not been successful as compared to its competitors and was
considered as a failure in terms of Abbotts own portfolio.
Question Mark
Nutrition business segment has been categorized as a question mark in Pakistani industry where
lack of education about nutrition products is high. In product portfolio of nutrition business,
market share is low but growth is high as consumers trends are changing towards nutrition
medication. Abbott can capture this growth opportunity by capitalizing on its strength of high
financial muscle.

40

Contribution Statement
Name: Sumaiya Lakhani
Contribution
Major Problems, strategic alternatives, mission statement analysis
Report vetting
Interviewed Mr. Razi Hassan and Dr. Sarmad Maqbool - developed questions for the
interviews
Name: Hira Asim
Contribution

External Environmental Analysis


CS Level SWOT - Opportunities and Threats
Constructed interview schedule, formatting and editing of report
Interviewed Syed Feroze Alam and Dr. Sarmad Maqbool - developed questions for the
interviews

Name: Abdul Muqeet


Contribution
Introduction, Organizational Structure, BCG matrix
Contribution statement
Partially worked on EFE
Interviewed Mr. Zayed Hussain and Syed Feroze Alam - developed questions for the
interview
Name: Mahwish Danish
Contribution

Constructed Porters model


Internal environmental analysis
CS Level SWOT Strengths and Weaknesses
Interviewed Dr. Sarmad Maqbool & Mr Zayed Hussain - developed questions for the
interview

Name: Arsalan Javaid Sadiq


Contribution

Cross functional analysis (Abbott and GSK)


Appendices Re-cast financial statements and financial ratios (Abbott and GSK)

41

Interviewed Mr. Syed Feroze Alam & Mr Zayed Hussain - developed questions for the
interviews

Name: Hassan Anwar


Contribution

Financial analysis (Sanofi Aventis)


Recast financial statements (Sanofi Aventis)
Constructed IFE matrix
Interviewed Mr. Syed Feroze Alam, Mr. Zayed Hussain and Dr. Sarmad Maqbool developed questions for the interviews

Name: Shaher Bano Zaidi


Contribution

Minor problems
CPM and partially EFE Matrix
Graphs of net and gross margins
Interviewed Mr. Razi Hassan & Dr. Sarmad Maqbool and partially developed questions
for the interviews