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It is important to understand the reasons why GSK undertook the merger in 2000 as this is essential for analysing whether it was a success or not. This report will look at the merger and decide using the works of Porter and Prahalad and Hamel the motives for the merger. It will be argued that the merger was carried out to use the work of Prahalad and Hamel in order to make research and development the core competency of GSK. It will argue that this is the case using three tests that Prahalad and Hamel put forward to help in identifying a core competency, as this was successful the ideas of Porter and activity mapping can be rejected as the decision to focus on research and development does not relate to all five forces that porter put forward.

The second part of the report looks at GSK's performance post merger and therefore a good understanding of the merger helps answer the question. The expectations that Garnier had were met to a certain extent with earnings growing by 21% in the fourth quarter. Despite this growth however it is not guaranteed than the growth in earnings will continue in 2005, GSK will face intense competition from generic rivals such as Novartis, and has recently suffered production problems which has led to some drugs being withdrawn from sale. Despite the problems that it has faced it does still have a strong product portfolio though there is a shortage of major drug launches in 2005, the confidence created by predicted blockbusters such as Cervarix will create a fell good factor around the company that could have a positive affect on sales. Despite the problems that GSK face there is still opportunities open to them such as markets like China where they have had little activity until this year, and with a strong back catalogue of drugs including 12 drugs will sales over Ð'Ј500 million they are well positioned to experience continued growth throughout 2005.

If the two firms had merged in order to improve their position in the products market then they could be following Porter's model and gaining a competitive advantage based on not only the products that they currently have and marketing them effectively but by changing the make up of the industry, porter argues that you have to cope with and ideally change the rules in firms behaviour. This report will argue conversely that the merger took place in order to follow the theories of Prahald and Hamel.

If we believe that they undertook the merger to take advantage of their core competencies based on the work of Prahald and Hamel then they were looking to improve the collective learning in the organization, especially in order to coordinate diverse production skills and integrate multiple streams of new technology.

It could be argued that the merger took place in order to improve the research and development capabilities of the new firm, with the pharmaceutical industry changing dramatically over recent years in the face of

"Generics eating away at its lucrative franchises, GSK is counting on the future output of its research and development prowess to combat growth losses" (Mirasol 2003, p.11)

The two firms therefore made a conscious decision to merge in order to stave of competition from generic drug makers who were becoming increasingly active at the time. A core competency can be highlighted by three tests firstly it provides potential access to wide variety of markets, which hopefully improved research and development will allow the new firm to move into new markets in particular the vaccines market where up until 2000 there had been no sales. The move into new markets could be hampered by the fall in research and development output that has persisted as in 1980 $2billion was spent on research and development with 35 new drugs being approved by the food and drug administration, by 2000 the level of spending was $26billion however only 35 new drugs were approved by the food and drug administration (Sunday Telegraph 5/12 04.) Therefore without the merger it could be argued that neither of the two firms would have been able to commit to such levels of spending and consequently the chances of moving into new markets would have been limited without drastic changes to the research and development set up.

The second test is makes significant contribution to end user value, and this means that the customer is receiving superior products that perform better than previous products but cost nearly same as the previous products, a good example for this created from the merger was the aids franchise

"It's nice to do things to win, but for me the Wellcome deal laid the foundations for our aids franchise" (The times 4/4/05)

John Coombe the former chief financial officer highlights how the merger allowed the firm to move into an area where end user value will be increased without little chance of increasing prices due to sales of HIV drugs being mainly aimed at third world nations.

However it is becoming increasingly difficult to improve end user value without charging higher prices as with such intense competition from generic drug makers who can offer cheaper versions of drugs many big Pharma companies are continually being seen as pariahs, preying on a vulnerable public(FT 10/06/02) as a result in order to improve end user value companies are under immense pressure to offer new drugs which offer increased value to users and this can be achieved through effective research and development.

The third test is that it is difficult for competitors to imitate, and firms can protect their products through patents though this obviously has time limits, the solution could be too improve current products in order to stave of completion from rivals. Paxil and wellbutrin two anti-depressant drugs that GSK faced immense competition from generic rivals when their patents expired where improved and Paxil has now been re-launched as Paxil CR which is now under patent, so despite being a middle range product thanks to strong research and development the drug can be improved and sales of $827 million were expected for this year (New York Times 2/03/05) which is a strong performance.

Therefore the merger it could be argued aimed to completely overhaul the research and development process and at the same time cut costs of the research and development activities, they set a target of Ð'Ј750million over three years and reached this target within a year, and savings over the three year period could now reach Ð'Ј1.8billion (4th reference quote) this would highlight the importance now placed on research development as it is focusing a lot of its resources and strategies around this area. The shift towards research and development and the emergence of this area as arguably the core competency is highlighted by the continued