1. What kind of multiproduct strategy is Novartis following? Explain.
Novartis acquisition in eye care company Alcon Inc. is an example of Related Diversification Multiproduct Strategy due to the fact that Novartis and Alcon both perform their business in health care industry. In addition, Novartis prescription drug make up 60% of the total sales indicate that company is operating in moderate to high level of diversification. The acquisition of Alcon Inc. establishes a related link between Novartis prescription drug and Alcon’s eye care product.Even though, Novartis was already operating in eye contact lens through its Ciba contact lens brand, but only 60% of its total sales were coming from prescription drug business.
That suggest only limited link exist between these two businesses. Being a fourth largest drug maker, Novartis also deals in with other drug such as Diovan for blood pressure, Gleevec for certain kind of cancers and Trileptal for epilepsy, but only its Ciba contact lens and Alcon’s glaucoma creates a related link, and thus only limit link exit between them. .
Why did Novartis diversify into the eye care business? Global prescription drug sales have flagged in recent years as insurers and state health-care system attempts to cut cost and increasingly demand that patients take cheaper generic drug instead of brand name. Drug companies have had a hard time discovering new drugs and bringing them to the market. Novartis dominant part of business comes from prescription drug is also affected by the increasing demand of generic drug.The primary reason for Novartis diversify into the eye care business by acquiring Alcon Inc. is to improve its performance.
Novartis has achieved new profitability growth with the acquisition of Alcon, CEO Deniel Vasella believes that “eye care is a less crowded market with less competition than other medical markets and has much more potential for growth in emerging markets in Asia and elsewhere. Combined with the aging population, these factors create a huge growth opportunity. Novartis has also reduced the risk of being involved with products that are in declining sales in recent years. Alcon is less vulnerable to price regulation than Novartis’ prescription drug business.
That’s because a sizeable portion of its customers pay out of pocket for over-the-counter products and procedures such as laser eye surgery. In contrast, sales of prescriptions drugs depend upon the willingness of cost-constrained governments and insurers to pay. Strategically it makes sense to diversify into other health-care areas to stabilize earnings and reduce the risks,” says Koch. Senior pharmaceuticals analyst in Zurich.By acquiring Alcon, Novartis can save cost and share some of its resource and activities between the two businesses and thus may create economies of scope. Alcon has become the second largest division within Novartis. Ciba Vision and selected Novartis ophthalmic medicines are integrated into Alcon, formed an organization with more than $8. billion in sales covering over 70 percent of the eye care segment.
Novartis transferred their core competencies by combining Alcon’s in-depth scientific knowledge of eye disease and clinical experience with the broad-based research capabilities and resources of Novartis. This has allowed Novartis to expand its commitment to research and development activities in eye care with the goal of increasing new product discovery and development productivity to generate differentiated products which will give Novartis a competitive advantage and accelerate growth.The merger has allowed Alcon to benefit from Novartis’s global commercial capabilities across multiple healthcare product categories. This includes market access capabilities that has leverage Alcon’s growth around the world, such as enhanced market access for advanced technology. The combined company has positioned itself to capture growth and market share in all geographic markets, especially in emerging markets where there is high growth potential.