FDA Regulatory Impact on Competitive Forces
In Diagram 3 below, Prof. Porter depicts the five forces that in his model drive the industry dynamics. Those five forces include:
The threat that new companies will enter the market
The threat that new products will become substitutes for the marketed products
The bargaining power of suppliers
The bargaining power of customers
The competitive rivalry within the industry itself.
The degrees of those threats and powers determine the ability of the company to earn a profit. With regard to the threat that new companies will enter the market, Prof. Porter identifies several barriers to entry, and one of them is government policy or regulation.
Assessing the five competitive forces, in some cases the analysis reveals some interesting opportunities. In diagram 3, again using an intensity map where darker yellow represents more competition, I suggest where I perceive the greatest sources of competition to reside for the medical device industry generally.
In the industries regulated by FDA, the greatest competition tends to be from established firms in the same industry. This is true for the simple reason that entering the regulated industry often requires a very significant investment to create the innovations and establish the manufacturing systems necessary to produce them, as well as considerable lead time to get through the FDA clearance or approval process. Thus the threat of new entrants is lower than the competition created by existing firms that have well-established systems in place for bringing new regulated products to market. Indeed a company’s ability to cope with the regulated environment becomes a key asset, determining competitive advantage.
There is an important limitation to this, however. Companies that follow the premarket clearance route, if they don’t have patent or other intellectual property protection for their products, might find that other established device companies can quickly follow them through the FDA clearance process. This is sometimes referred to as a first mover disadvantage. Further, the laws administered by the FDA do not create any private cause of action that an individual company can use to force competitors to abide by the law. FDA is solely responsible for enforcement of its laws, and if the agency isn’t paying attention or simply doesn’t have the needed resources, less reputable competitors might get away with taking shortcuts.
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