The Rise of India’s Drug Industry
Saint Leo University
MBA-575 Case Study 1
Dr. FelsenMay 23, 2018
Student Signature: Thomas Blakely Spell
The pharmaceutical industry is ranked first in the country of India and is growing daily with the capabilities growing in drug technology and the manufacture. “The pharmaceutical industry is worth $3.1 billion and is growing rate of 14% per year (Indian Pharmaceutical Industry, 2018, para. 2).” The product of this industry is anything from headache pills to antibiotics and cardiac compounds. In this paper I will be discussing the history and background of the Indian pharmaceutical market, how might the United States companies as well as the consumers benefit from the rise and accomplishments of the Indian pharmaceutical industry, who might be losing out as a result with the recent rise of the Indian pharmaceutical industry, are the benefits from trade with the Indian pharmaceutical sector outweighing the losses, and what international trade theories best explains the rise of the India as a major exporter of pharmaceuticals (Hill, 2015, p. 188).
The Rise of India’s Drug Industry
In the 1970’s, India’s pharmaceutical industry was almost unknown. Today it is one of the biggest and fastest growing pharmaceutical industries in the world with continuous development. The production volume is ranked 4th in the world in the pharmaceutical market (Greene, 2007, pg. 1). With a value of $5.3 billion in the year 2005, India’s pharmaceutical industry is now worth $550 billion (Greene, 2007, p. 1). After being nonexistent for 30 years, India’s pharmaceutical market has a reputation of producing low cost and high quality medications. In the years of 2002-2005, India saw a 14% increase annually making the pharmaceutical industry one of the fastest growing parts of the economy of India.
In 1995, the time that India became part of the World Trade Organization (WTO) the value of India’s pharmaceutical industry was at $600 million (Greene, 2007, p. 1). This value had grown to over $3.7 billion by 2005. India also was responsible for 61% of the turnover of the pharmaceutical industry as well. India’s Pharmaceutical industry is responsible for 22% of generic drugs worldwide and offer 60,000 different medications.
In the 1970’s, with the expertise of India’s drug producers became experts in increasing the sales of cheaper formulations of some of the world’s most expensive and top selling patent protected drugs. “In January of 2005, India amended their pharmaceutical governed laws to bring them in compliance of the World Trade Organization (WTO) TRIPS agreement (TRIPS Agrement (as amended on 23 January 2017, 2018).” India’s is no longer able to market and manufacture reverse-engineered drugs that are patented by international drug producers. Many of India’s best pharmaceutical companies had to replace the lost of sales due to the TRIP’s compliance had to increase exports of their generic drugs to the Western Europe and the United States. These producers also had to enter into agreements in research and development (R&D), acquisitions and mergers, and align themselves with other international pharmaceutical organizations.
The Benefits of the Indian Pharmaceutical Industry Versus the Losses
India currently is the largest supplier of generic medicines. The companies leading the way for India are Cadila Healthcare, Glenmark, Ranbaxy, Lupin, Sun Pharma and Dr. Reddy’s Laboratories. These companies receive close to $5 billion per year from the U.S. in sales (Dey, 2014, para. 8). That’s about 10% of the U.S.’s sales that are medicines. After signing the World Trade Organization (WTO) agreement, India stopped the sales of counterfeit products. This kept India from the Western counterparts from creating a stronger connection and partnership. Western companies have not been packaging, outsourcing, and manufacturing as much because they are using India to do these things instead. The United States benefits from the generic medicine businesses from India by outsourcing the manufacturing and also the packaging of the pharmaceuticals. Before the signing of the World Trade Organization (WTO) agreement, India was allowed to only sell and produce generic medication (Hill, 2015, p.188). This gave India an advantage over their competition in the pharmaceutical industry. By having this advantage, this makes India the expert in the production of generic medication. With the U.S. outsourcing to India, the United States is enabled to reduce the pricing for the medications. Cheaper manufacturing for the United States is a great benefit for the U.S. and India because it has increased employment for Inia as well as keeping labor costs down for the U.S.
Two U.S. offices have been built in India to be able to make sure everything is complied with according to the Food and Drug Administration (FDA). The United States now has hundreds of factories in the country of India to produce pharmaceuticals for the U.S. This has benefitted the consumer with out of pocket expenses lowered, lower overall prices, and insurance costs lowered.
With the pharmaceutical market seems to have grown into many markets under one roof. The reconstruction of the pharmaceutical market has allowed for easy coordination through the obstacles that are important for global market segmentation while also being able to accommodate marketing and the value added sales as well. Pharmaceutical organizations while their operations are expanding into so many different countries have opted for value chain segmentation to help increase their presence globally. The rise of research and development as well as bio-technology has also affected the off shoring pharmaceutical market division which is benefiting Tax Payers and United States consumers. In the United States the costs of medical usually means high expenses but with companies in India exporting has helped with the high costs. The explanation for this is that it leaves Americans with more money in their pockets due to the declining of the prices for medication. This leaves India with a high increase in their export income that allows the citizens of India to be able to purchase more of the imports from the United States.
Who Lost Out on the Rise of the Indian Pharmaceutical IndustryWith the rise of the Indian pharmaceutical there was a lost in employment due to the services and manufacturing that India was doing for the U.S., Puerto Rico lost out as being a partner with the United States. This has also caused problems in the United States too. In the United States, prices are continuously dropping causing. In one quarter prices fell 8%. McKesson Corp, a major distributor that distributes annually $400 billion worth of pharmaceutical medication has been a company that has faced a lot of these impacts (Altsedter, 2017, para. 23).
There is a United States Department Investigation because of possible price collusion in the generic industry in the United States. This is happening because of the increase in prices of medication through the last several years. With this happening this is causing Indian players are able to gain market share with their deep discounts and this puts them in the position to challenge competitors to do the same. By India being able to do this, there is a possibility that the pharmaceutical market could be cut almost by 50% (Altsedter, 2017, para. 25).
The Benefits Outweigh the Losses
The pharmaceutical industry is one of the most profitable industries of all the industries in the economy that brings in a 15.8% return on equity in the United States (Pharmacy Services ; Retail Drugstore Industry, 2018). For companies and investor’s this is a very attractive in to trying to enter the pharmaceutical industry. The United States has a very large profit margin sitting at 16.7% (Pharmacy Services & Retail Drugstore Industry, 2018). The pharmaceutical industry is known for being profitable but has high investments and also can be costly to operate. With the cost of entering the industry being high, most of the time it is very difficult for an organization to leave the industry because of the specialization of the industry.
The number of companies and employees have increased constantly within the pharmaceutical industry. The constant growth that this industry is seeing is making it a much more competitive industry. In one decade from 2000-2010, the revenues of the pharmaceutical industry have tripled and also the number of organizations in the industry have gone from 700 companies to 2000 companies.
The United States pharmaceutical industry offers a lot of opportunities connected with its industry. The total revenue in sales for the United States was over $329 billion in 2010 alone (Side-FX The Drug Industry Influence on health care, 2018). That is over three times the amount the nearest competitor made that year. The United States boasts the three largest markets subsectors in the market. The three subsectors are over the counter, generic, and patented. India generates these drugs but is not considered the innovator because of the raw materials used and also the cheap labor that is provided by these companies. Because of these flaws, many companies have taken center stage in India. With this happening India does not have the status to be able to export to the key innovator. Before any of the drugs can be sold or marketed through the subsectors, they have to be approved by the Federal Drug Admission (FDA). The United States Federal Drug Admission (FDA) is the known as one of the most well developed agencies in the world. As a result, the United States Federal Drug Admission (FDA) appraisals on these products are held as a benchmark in many countries around the world. This means that being successful in the United States can have major consequences on a product’s worth in other nations around the world.
Although the reputation of the Federal Drug Administration is known for very strict policies, the United States has got rare advantages that competitor’s in foreign land do not have. The United States is allowed to use direct advertising to the consumer for prescription medications. This has made the marketing aspect very important for the United States to utilize because of the budgets that the United States has to use to advertise for their consumers. Another advantage that the United States has is the influence by politics. The United States is going through a lot of changes with policies that influence such matters as generic drugs, biosimilars, and universal healthcare that will have a major impact on the United States pharmaceutical industry.
Another area to look at to display the great scale of the United States market is figure the value of the pharmaceutical market on the state level. The Bureau of Economic Analysis used data from personal incomes to compare different states around the United States. Florida in comparison with Brazil consumes about the same amount of medication with Florida being $19.27 billion and Brazil being $20.95 billion. When comparing Illinois and the country of Russia, Illinois consumed $14.45 billion and Russia consumed $17.92 billion. Another comparison is the state of Pennsylvania being compared with the country of India. Pennsylvania consumed $13.64 billion and India consumed $13.37 billion. So the potential that the United States has is unbelievable according to this report.
International Trade Theory and the Rise of India’s Pharmaceuticals
By producing generic drugs, India has been able to have an advantage over their competition. After the production of generic drugs for a long time, India was considered the an expert in this business. There was an advantage of genetic drugs by India because of how efficient it was to produce comparing to other countries. Having an advantage to the production of a good by a country opens up an opportunity to specialize in the production of that good and then sell these goods to other countries that produce the same good.
According to the Heckscher-Ohlin Theory, the extent that a country may be blessed with different resources such as capital, land, and labor has a comparative advantage (Hill, 2015, p. 174). India had a national endowment to labor therefore that packaging and the production of drugs were conducted at lower costs. The U.S. has been a key importer for goods and services due to the lack of low cost labor.
According to the Product Life-Cycle Theory, just because a product is sold in the United States doesn’t necessarily mean that the product was produced in the United States (Hill, 2015, p. 175). A new product or good that may have been first introduced could have been manufactured in another country at a cheaper price and then exported to the United States to be sold.
Being able to understand a company or organization’s mission plan is the reason that they are able to be productive in a particular region. In the Global market there a several reasons why it is important to form a business relationship with the country of India. By using India to outsource your product you are automatically saving money. When referring to outsourcing there are a lot of different things to think about like infrastructure, business process outsourcing, web development and information technology, and medical transcription. With outsourcing maturing in the country of India, other countries are now starting to see the advantage. The outsourcing advantages that India has are the education system, government policies, and manpower. There are very talented students that are produced in India’s education system that that are experts and very proficient at system software and management systems. With India having the availability of so many educated and proficiently trained students and manpower, companies from all over the world look at India as a place to shift their support services. India’s software experts are able to take advantage of international scenarios due to their proficient and knowledgeable expertise to be able to communicate in important situations. Companies from around the world can take advantage of India’s manpower to be able to outsource certain talent in a specified area. The Indian government has taken many steps with companies around the world with the growth of outsourcing by giving incentives to these companies.
By conducting business in the country of India through outsourcing this provides companies with better services, shared risks, increased productivity, cost-effective services, increased efficiency, increased quality, reduced operating cost, and the opportunity and time for an organization to be able to focus on other needed aspects to make their company or organization better. In India the outsourcing companies use the newest technology, software, and the facilities to provide consumers around the world high level outsourcing solutions. By outsourcing in the country of India, organizations globally are being helped to achieve their mission as well as create wealth and provide consumer satisfaction.
Indian Pharmaceutical Industry. (2018). Retrieved from http://www.indianmirror.com/indian-industries/pharmaceutical.htmlDey, S. (2014). US generics benefit from pharma see-saw. Retrieved from https://www.business- standard.com
Hill, C. (2015). International Business: Competing in the Global Marketplace (10th ed.). New York, NY: McGraw Hill Education
Altstedter, A. (2017). With U.S. Generic Drug Market in Chaos, Indian Upstarts Rise. Retrieved from https://www.bloomberg.comGreene, W. (2007). The Emergence of India’s Pharmaceutical Industry and Implications for the U.S. Generic Drug Market. Retrieved from https://www.usitc.gov/publications/332/EC200705A.pdfPharmacy Services ;Retail Drugstore Industry. (2018). Retrieved from https://www.csimarket.comSide-FX The Drug Industry influence on health care. (2018). Retrieved from https://www.unifychiropractic.comTRIPS Agreement (as amended on 23 January 2017). (2018). Retrieved from https://www.wto.org