I would like to
discuss a concept called “Competitive Industry Forces” from week 2. In my
research in the Wall Street Journal articles, I found an interesting article
“The Real Reason CVS Wants to Buy Aetna? Amazon”. I am again surprised to see
that the retail giant Amazon is entering the pharmacy services industry. Amazon
is literally everywhere around the world and this decision of them entering
into pharmacy services is creating pressure among the major sellers in the
industry like CVS, Walgreens, Rite Aid Corp. etc.
According to the
article, CVS and its competitive rivals are under serious pressure to give a
counterattack to Amazon, if Amazon is entering into their turf. The stocks of
CVS and Walgreens fell after Amazon has obtained approval from the state
pharmaceutical boards to become a wholesale distributor of the industry. The
shares of CVS and Walgreens dropped 3% roughly according to the article. “Inter-firm
rivalry increases when there are lower barriers to entry, and it is easy for
new firms to enter the market and attempt to steal market share from the
existing companies.” (Saurbier, A. 2018)
According to a
person familiar with the matter, CVS management has worked on dozens of
strategies in which one of them is to acquire the major insurance giant Aetna Inc.
for $66 billion. The shares of Aetna have increased to 12% after Amazon’s
decision was brought out to enter into the pharmaceutical business. This could help
CVS to improve the ability to hit new deals that can tie drug prices to patient
outcomes. Considering the political
factors, the Federal Trade Commission has objected to many hospital
combinations including the Walgreens to scale back the planned takeover of Rite
Aid Inc. It has ended the agreement to buy all Rite Aid to only half of the
Executive Larry Merlo said the industry would “rise to any challenges from any
new entrant.” He noted several hurdles to entering the industry, including the
fact that most consumers opt against mail-order drugs, regulatory challenges
and the complexities of juggling physicians, pharmacists, and insurers.”
(Terlep, S., & Stevens, L. 2017)
I have read the
barriers to entry from the Week 2 from which I feel Amazon has a very few of
them. Amazon does not have barriers like
access to distribution, Brand identity, Government policy and Economies of
Scale. Rivalry detriments such as the industry growth, Corporate stakes, exit
barriers are also not really considered a threat to Amazon. However, Threat of
new entrants is one of the major force in the competitive industry which has to
be considered to operate the retail business by the strategic managers to
manage the new entrants. This will increase the strength of industry’s
& Stevens, L. (2017, Oct 27) The Real Reason CVS Wants to Buy Aetna?
Amazon. Wall Street Journal.
Retrieved from https://www.wsj.com/articles/the-real-reason-cvs-wants-to-buy-aetna-amazon-com-1509057307?mod=searchresults=1=4
Terlep, S., & Mathews, A, W. (2017, Oct 26) CVS Makes Blockbuster Aetna Bid.
Wall Street Journal.
Retrieved from https://www.wsj.com/articles/cvs-health-is-in-talks-to-buy-aetna-sources-1509047642
Saurbier, A. (2018,
Jan) Competitive Industry Forces.
Retrieved from https://moodle.walshcollege.edu/mod/url/view.php?id=484861