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Assess the ways in which specialisation might give a business, such as Pfizer, a competitive advantage when trading internationally. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Question 2
Assess the ways in which specialisation might give a business, such as Pfizer, a competitive advantage when trading internationally.
Worked Solution & Example Answer:Assess the ways in which specialisation might give a business, such as Pfizer, a competitive advantage when trading internationally. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Step 1
Specialisation and Competitive Advantage
Answer
Specialisation refers to a business concentrating on a specific range of products or services. For Pfizer, being a major player in the pharmaceutical sector means that it can leverage its expertise and resources effectively. The healthcare/pharmaceutical market, particularly noted for its concentration of multinationals, allows Pfizer to focus on extensive research and development (R&D) for specific drugs and treatments, which require a significant investment in specialist skills from its employees. This focus can lead to innovative products and better market positioning.
Furthermore, companies like Pfizer must potentially operate on a global scale to ensure sufficient revenue due to high R&D and labor costs. This dynamic means that they may not always compete directly with other companies in the same pharmaceutical market, thus gaining a competitive advantage by charging higher prices for their unique products in markets where they are the low-cost producers, such as in countries where production is cheaper.
Step 2
Vulnerability in Specialisation
Answer
However, specialization can also pose risks. For instance, a business like Pfizer may become vulnerable to sudden changes in market demand, particularly in niches they do not cover. This means that if there is a significant shift away from a specific health product that Pfizer is specialized in, they might miss out on profit opportunities in emerging health trends. This vulnerability underlines the necessity for diversification in practice, as excessive reliance on specialized markets can lead to potential losses.
Step 3
Research & Development Costs
Answer
The labor-intensive nature of R&D in pharmaceuticals means that costs can skyrocket, especially in a dynamic market. If these costs are not recovered—perhaps due to unsuccessful product development—this can negatively impact overall profitability. Hence, while a competitive advantage is present in specialized products, the cost structure also requires careful management to sustain competitive pricing.
Step 4
Broadening Focus to Minimize Risk
Answer
In challenging markets, it may benefit Pfizer to focus on mass-market products like painkillers, which can be produced at lower average costs compared to specialized products. Broadening their product scope can lead to resilience against market fluctuations, ensuring sustained competitive advantage. Overall, while specialization can grant a competitive edge through differentiation, businesses need to balance this with an awareness of market dynamics and costs to maintain their advantage.