Crafting Organizational Strategy

This article discusses the macro-environmental trends affecting Teva Pharmaceuticals Industries Limited, the strategic methods chosen by Teva, drivers for internationalization, and how Teva's international strategy changed after 2011. It also provides an analysis of Teva's market entry modes and the Bartlett & Ghoshal model.

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Crafting organizational strategy
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Introduction
Teva Pharmaceuticals Industries Limited is an international pharmaceutical company
which specializes in in the marketing, production and development of proprietary and generic
branded pharmaceuticals and active pharmaceutical ingredients. The company is among the top
20 pharmaceutical organizations worldwide. The paper aims at discussing the macro-
environmental trends affecting the organization, the strategic methods chosen by Teva, drivers
for internationalization and why Teva’s strategy for internationalization changed after 2011.
A short analysis of how macro-environmental trends and industry conditions have
impacted the ‘pharma’ sector in the 21st Century
Economic
Growth in the pharmaceutical sector is linked with the growth in GDP. A higher growth
rate in the major markets such as the USA market enhances the sale force and assists in
increasing the volume of sales. Opportunities: The development of technology may alter the
economic factor which results to a decline in the rate of employment and an increase in the
demand for professionals. Threat: The pharmaceutical industry growth may be turned down by
the turning down of the economic condition.
Social
Opportunities: An ageing population implies that there is high demand for medicine. In
addition, population growth also results to an increased demand for medicine. Threat: Providing
health cover to employees results to an increasing health cost to the company thus declining the
competitive power of the business. In addition, the insurance funding system has the potential to
provide the latest innovation, but is unable to share the benefits of the population increase.

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Technological
Opportunities: Re-development and increase innovation can make people live a longer
life. Therefore, a rise in technology may result to an increase in the population and an increase in
the demand for more medicine. In addition, high technology results to the manufacture of high
quality medicine. Threat: The expenditure on research and development rises significantly thus
leading to high costs particularly in biotechnology. Additionally, the traditional R&D
organization is outdated due to the swift technological growth.
Environmental
Opportunities: Nowadays, the environmental problems has increased which has resulted
to people falling ill occasionally due to environmental pollution, especially water and air
pollution. Therefore, people rely on the developed medicine for cure. Threat: A polluted
environment increases the risk of ill health of people leading them to rely on the pharmaceutical
industry for cure. Therefore, institutions have to invest on more research for the provision of
current medicine to people. In addition, a failure in research may lead to a loss of investment.
Legal
Opportunities: The regulation by governments may result in an increased consumer
confidence. In addition, the patent system helps in the protection of the original brand of
medicine for the prediction of the generic medicine attack. Threat: Some generic products having
the same healing effect may be developed resulting to competition with the patented medicine.
Furthermore, harmful medicine may result to the death of patients thus resulting to a large
financial loss to the organization.

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Porter’s 5 Forces Analysis for Teva Pharmaceutical Industries Limited
Threats of New Entrants
New companies joining the drug manufacturers industry pressurize Teva Pharmaceuticals
Limited through new ways of doing things and innovation. In addition, strategies used by new
entrants include new value propositions, cost reductions and a lower pricing strategy. To
safeguard its competitive edge, Teva has to build effective barriers and manage all the
challenges.
Bargaining Power of Suppliers
Suppliers are in a dominant position and therefore lead to a decline on the margins in
which Teva Pharmaceutical Limited can earn in regards to profits. The suppliers who are most
powerful in the healthcare industry use their bargaining power for the extraction of high prices
from the buyers. The result is a low profitability for manufacturers of drug.
Bargaining Power of Buyers
The demand by buyers to purchase the best services and products available at Teva
Pharmaceutical Industries Limited at very low prices has brought about low benefits to the firm.
The limited and influential customer base of Teva Pharmaceutical Industries Limited, has given
its customers higher bargaining power and abilities to demand for reduction of prices and
production of new products and services for them.
Threat of Substitute Products or Services
Introduction of new products and services which meet diversified needs of a client causes
a reduction in profits in an industry. For instance, storage hardware drives have substitute
services like Google Drive services and Dropbox. When a substitute product or service provides

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a commercial strategy that is unique from the current products of the industry the threat of such
products is very intense.
Rivalry among the Existing Competitors
High competition from other drug manufactures is one of the key factors that has caused
reduction in overall long term profits for Teva Pharmaceutical Industries Limited. This extreme
rivalry in the industry has led to decline of prices hence low benefits for Teva Pharmaceutical
Industries Limited.
Analysis of the strategic directions followed, and strategic methods chosen, by Teva over
the course of the case study and a summary of the findings, the rationale for choosing
M&A rather than organic methods or growth via alliances and joint-ventures
In 1976, the organization officially became Teva Pharmaceutical Industries Limited, after
several consolidations with the Israeli home markets. According to research conducted by
Yedidia, Almor and Benyamini (2012 p.78) on “A comparative anatomy of two cross-border
acquisitions by Teva Pharmaceutical Industries” in “Advances in mergers and acquisitions”
appointment of Eli Hurvitz saw the company’s revenue growing from $30m to $16bn in the year
2010 through a focus on generic pharmaceuticals. As portrayed in the pestle analysis, Hurvitz
identified an opportunity for increase in the demand for generic medicine in Europe and the
USA. Collaborations with various departments of Israeli University in the 1980’s which resulted
to expansion strategy in mid-1990’s through the manufacture of Copaxone leading to high profits
in 2015. The main focus of the expansion strategy was to reduce financial costs on the
companies that had been acquired. Kimes (2014 p.1) indicates that after the appointment of
Shlomo Yanai as the company’s CEO in 2007, the strategy adopted was diversification strategy.
In 2011, Teva implemented the internalization strategy by acquiring Cephalon (Teva, 2011 p.1).

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The plan was to acquire generic competitor companies and to diversify the product
portfolio into over-the-counter drugs to replace Copaxone which was already aging. M&A was
important to the company as compared to joint ventures and alliances since it enabled the
company to be ahead of competitors. In addition, mergers and acquisitions increased the
company’s product base as the company became larger. For example, the purchase of the
Allergan’s generic business for $40.5bn enhanced the company’s competitive position. The
acquisition of Allergan’s generic business would lead to sustained and significant creation of
value for the company’s stakeholders.
Table: Summary of Teva’s Strategic Direction
Period Observation Strategic Direction Strategic Method
1976 the organization
officially became Teva
Pharmaceutical
Industries Limited
consolidations several
consolidations with
the Israeli home
markets
Mid 1990’s high profits
reduced financial costs
expansion strategy the manufacture of
Copaxone
2007 Change of leadership Diversification
strategy
the appointment of
Shlomo Yanai
2010 company’s revenue
growing from $30m to
$16bn
specification focus on generic
pharmaceuticals
2011 acquisitions Internalization
strategy
acquisition of
Cephalon

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The drivers for internationalization that have underpinned Teva’s rapid growth in the 21st
Century and brief on Teva’s selection of markets and market entry modes
Through the analysis of the Yip’s framework, Teva Pharmaceutical Industry Limited is
globalized. However, few pressures exist which lean towards the company’s local
responsiveness. Teva’s market drivers are somehow enhanced in regards to globalization. A
great similarity of consumer tastes and needs exists due to the homogenous nature of medicine.
To excel in its globalization strategy, the company has put in place distribution channels that are
diverse, whereby it goes through various hospitals and physicians to sell its medicine including
advertising directly to the consumer. In addition, the company has engaged in minimum
transferable marketing. Every country has different regulations, although similar tactics can be
applied across hospitals.
Furthermore, government drivers affect local responsiveness greatly. Favorable trade
policies are missing since some countries protect patents heavily while others favor generic
medicine to keep healthcare costs low. Moreover, the regulation on marketing is not common in
that some countries allow the marketing of generic drugs while others ensure that generic drugs
operate as ‘branded generics’ thus resulting to higher costs in sales. The patent laws also differ in
each country resulting to competitive drivers highly favoring globalization. Generally, the
generic drugs industry is highly competitive with intense R&D for Teva Pharmaceutical Industry
Limited. Therefore, the aspect results to cost drivers pushing Teva towards global integration due
to the ease for new companies to venture into the pharmaceutical industry (Mylan, 2015 p.1).
Teva’s selection of mergers and acquisitions as a market entry mode was strategic to the business

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since the company could capitalize on the already established customers of the acquired
companies to make more sales.
How and why Teva’s international strategy changed after 2011 with reference to the
Bartlett & Ghoshal model (of four international strategy types)
The Bartlett & Ghoshal Model indicates that internationalization is affected by global
integration and local responsiveness pressures. After 2011, the internalization strategy of Teva
changed through the acquisition of Cephalon, a research based pharmaceutical company which
saw the company’s profits increasing significantly (Kresge & Langreth, 2011 p.2). Further
research by Almor, Tarba and Benjamini (2009 p.33) on “Unmasking integration challenges:
The case of Biogal's acquisition by Teva Pharmaceutical Industries” in “International Studies of
Management & Organization” indicates that Teva’s primary focus was on the external
environmental factors which were impacting sales revenue. Acquisitions would ensure that Teva
is embedded into a wider network, thus giving the company traction in its competitiveness. As
far as Teva was concerned, acquiring Cephalon would increase its involvement internationally,
and equip it with more benefits since Cephalon boasted of a large research portfolio. The
acquisition also enhanced the Teva’s rationalization of international business thus being a
significant venture for the company as Cephalon had posted sales of $2.76bn in 2010.
Conclusion
From the perspective of business management, the Teva case study has shown how a firm
can create larger networks in which the company can be embedded and has provided indicators
of potential indicators of the company’s opportunities and threats, competitors and allies, and
finally potential acquisitors for the company. Continuously monitoring the acquired networks has
been significant to Teva Pharmaceutical Industry Limited as it has assisted in the identification

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of the organization’s external environment. In addition, the analysis is important as it would
assist in the identification of Teva’s opportunities and constraints arising from activities related
to proactive internationalization.
References

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Almor, T., Tarba, S.Y. and Benjamini, H., 2009. Unmasking integration challenges: The case of
Biogal's acquisition by Teva Pharmaceutical Industries. International Studies of Management &
Organization, 39(3), pp.32-52.
Kimes, 2014. Teva returns to roots after outside CEO faces ‘nuthouse’. Bloomberg, (1).
Retrieved from: https://www.bloomberg.com/news/articles/2014-03-04/teva-ceo-ouster-
exposing-nationalist-fault-line-for-israel-inc-, pp.1.
Kresge, N. & Langreth, R., 2011. Teva bets on stem cells, cancer in $6.2 billion bid for
Cephalon. Bloomberg, (1) pp.1-7.
Mylan, 2015. Mylan board unanimously rejects unsolicited expression of interest from Teva.
Press release, Prnewswire, (1). Retrieved from:
https://www.prnewswire.com/news-releases/mylan-board-unanimously-rejects-unsolicited-
expression-of-interest-from-teva-300072371.html, pp.1.
Teva, 2011. Teva completes acquisition of Cephalon. Bloomberg. Retrieved from:
https://www.tevapharm.com/news/teva_completes_acquisition_of_cephalon_10_11.aspx, pp.1.
Yedidia T., S., Almor, T. and Benyamini, H., 2012. A comparative anatomy of two cross-border
acquisitions by Teva Pharmaceutical Industries. In Advances in mergers and acquisitions (pp.
75-102). Emerald Group Publishing Limited.