With the ever-disruptive internet shaking up industries of all kinds, no one has had to change their ways more than oligopolies that have run our lands for hundreds of years. These corporations include giants such as Coca-Cola (NYSE:KO) or GlaxoSmithKline (NYSE:GSK), which have adapted well so far by focusing on the consumer, developing HR methods, and refining the supply-chain with technology.
One thing that has become ever more apparent, however, is the sudden increase in partnerships, particularly from GSK, which is a competent example of a global corporation and is considered forward thinking, modern and adaptable. What has changed to allow GSK to remain in this position of success?
From secrecy to partnerships
In times before the internet, corporations had secrets. Patents were utilized, and documents were locked up, recipes were sought after, and information was valuable. With the increasingly difficult and expensive patent enforcement procedures, information is no longer as valuable, and the game has changed from quantity of knowledge to speed of development. For many older corporations without technologically based business models, this was not a fight they could win due to rigid management or systems. However, for forward-thinking, technologically based corporations run by inspirational CEOs (like Elon Musk) or hip companies with fresh, new ideas, the transition has been easy and natural. For new companies, there are no secrets; it's all about sharing, partners, and allies.
GSK teamed with McLaren, Medidata (NASDAQ:MDSO), Novartis (NYSE:NVS), Alcon, Google (GOOG, GOOGL), Galvani, Siemens (OTCPK:SIEGY), the British National Health Service, Barclays (NYSE:BCS), Neurostim, Sanofi (NYSE:SNY) and Onduo, through Verily. These are only a few, and these partnerships are so vital for the future of the corporation. You'll notice these partners are all working within the bullet points below: technology, R&D, and global headquarters.
GSK is in the pharmaceutical industry, which I personally believe to be the most valuable industry for the long-term investor, also the Pharmaceutical industry was the most profitable of 2015, which is a massive bonus. Since the 1880's Pharma has been in charge of marketing, production and development, researching and contributing to society to keep disease at bay; there will always be a need for pharmaceuticals.
What we essentially have is an industry that was worth one trillion USD in 2014, mainly from the USA but with China catching up fast. This is an industry that benefits directly from recent technological changes. Other industries may suffer, or companies may go out of business, perhaps experience rallies when they want to cut-out employees for being expensive, but pharmaceuticals will always be safe; no one will stand in the way of their own health, and the consensus is that in medicine, if it can be automated it should be, as time is a primary resource.
In 2014, global sales went over the $1 trillion USD boundary for the first time, and in 2020 global spending on medical goods is predicted to reach $1.4 trillion USD . What changed?
Digitalizing a corporation is intensely complex, and includes adaptive business models and a different strategic direction. Any company that has transitioned from traditional hierarchy to digitalized, in my books, is pretty impressive, and will be around for some time (sustainability points). 63% of pharmaceutical companies believe that defined strategic digitalization is vital, however, 29% do not believe they have the resources to execute it. The reason for this is that most companies don't have, or will ever have, the tremendous amount of resources required for true digitalization. Massive revenues, highly skilled workforce and management that understands technological benefits is a rarity, leaving us with the conclusion that the only way to do this is through effective partnerships. This is what GSK has done.
These partnerships result in a better Risk Vs Speed analysis, fewer competitors (more allies) and a global corporate sharing of information. Baum theorized in 2004 that top pharmaceutical companies are built, and those who invest in intellectual and explicit knowledge, as well as the raw materials and functional assets, will stand the test of time. Investing in people means larger expansion and more group experience, and in an industry such as pharma, knowledge really is power.
What did GSK do during the crash?
- They invested in technology
- They invested in R&D
- They sold globally
This means, in turn, improving their supply-chain and storing data, improving efficacy of their products, and not being reliant on one currency. GSK didn't suffer so much in the crash, as they were doing business globally, exports, expanding the service offers and investing in resources when other companies were suffering. They had global partners, and a crash in one area did not affect them. Then they released the global platform ''GSK direct'', and electronically sold globally (we will go over this more later). This type of strategic thinking is incredibly impressive and puts GSK today as one of the top competitors still today.
This moves forwards towards the consumers, who require more and more in-depth information, not just about medication but about every product that exists. Reviews, specs, costs, time to receive, reactions, studies; all things that would have been there before, but not in massive depth, and not easily accessible. The desire for this information also makes the consumer more demanding regarding productivity, wanting to see progress by the day on new products, but also kind humane gestures to the third world; something GSK is also very good at.
While these are all reasonable expectations today for the industry as a whole, they are not reasonable expectations for one company.
This induces a sharing of resources, massive pooling and mergers and acquisitions. Teaming up to build massive platforms for increased inter-corporation communication, which is indeed what GSK did with 'GSK Direct' and what potentially, should be done industry wide. Platforms like BGI Easy Genomics and MRC dementia platforms show medical tools that work like Software, that are artificially intelligent, and can analyze big data and results to build more effective customer results. Not only does it improve the results, but it provides a better communication platform between partners, and means that once competitors are now working together, rather than against one another.
What do all of these elements mean together?
So we have a corporation that has survived poor markets through social innovation, and has not been intimidated by partnerships. This also goes together with innovation of manufacturing. In 2013, £200 million GBP was invested by GSK to support medical manufacturing innovation, which goes alongside improving capabilities and in-house technological experience. This developed Revlar Ellipta, Augmentin and sterilisation technology, and capabilities of website design and global platforms for ease of sales.
A buyer controlled platform increases sales, and creates capabilities that not many larger corporations would be so keen to invest in.
''…That's why collaborating with other businesses, organisations and academics is a fundamental part of our business strategy. We are committed to working with partners to deliver innovative new medicines, vaccines and consumer healthcare products. "
(on partnerships with GSK, 2016)
2017 investment advice
Look in more depth at the larger conglomerates that are accumulating assets and resources through partnerships, and are not shying away from the technological disruption. Corporations that lose money today on technological research and development are more than likely the conglomerates with a high market share tomorrow.
GSK is a fantastic long-term investment in itself. Customer-orientated design, innovation, investment, and research indicates a future-based strategy, and improvement of capabilities today means sustainability tomorrow.
- Do more research on companies that have/have not digitalised their business model. If they have not digitalised but are attempting to develop digitally, they will not likely be successful.
- Look into the companies that were successful directly after the financial crash (around 2010); notice patterns in their resource expenditure and partnership efforts.
- Even if you aren't into pharma, do more research. The whole industry moves like a wild animal, and it's the best investment you'll make long-term.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.