The Rise of the Indian Pharmaceutical Industry

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The development of pharmaceutical industry in India is one of the brightest histories of success in the world’s international trade relations. The country that used to be considered the outcast of drug production due to its cheap duplicates of patented drugs managed to change its approach so radically that it is now one of the most respectable and well-known producers of pharmaceutical goods. India’s natural and climate conditions, its talented citizens, and its desire to cooperate with the world’s companies made it a highly competitive player in the world’s pharmaceutical market. For the USA, cooperation with India has a number of benefits and limitations.

The major advantages are low labor cost, high quality, and affordability of the pharmaceutical products. The disadvantages are concerned with the reduction of the industry’s employment rate and decreased opportunities due to lower interconnectedness as compared to India’s. The country’s progress from the industry’s outsider to one or the most progressive market developers is remarkable. The main question to be addressed in the current paper is whether the advantages obtained from trade with Indian pharmaceutical industry outnumber the losses for the US and other countries.

Benefits for the USA from the Rise of the Indian Pharmaceutical Industry

The development of the Indian pharmaceutical industry has presented a number of benefits not only for the domestic market but also for foreign markets. For instance, there are several major conveniences due to cooperation with Indian pharmaceutical organizations for the US consumers, as well as pharmaceutical companies in the country.

Advantages for the US Pharmaceutical Companies

When Indian pharmaceutical organizations’ activity was restricted by the World Trade Organization’s Trade-Related Intellectual Property Rights (TRIPS) obligations in 1995, the country’s pharmaceutical industry had only two alternative: to develop and correspond to the law or to stop existing because no country would agree to cooperate with it (Mahajan, Nauriyal, & Singh, 2015). India chose the first option, and after a decade, its position in world’s pharmaceutical operations became rather stable and beneficial. What concerns its cooperation with the US, Indian contribution makes it possible for the American pharmaceutical companies to save on outsourcing and packaging (Hill, 2015).

By doing so, the US is able to decrease the costs and general pricing in the industry. Indian pharmaceutical industry does not violate the TRIPS regulations any longer, which makes it possible for the US companies to organize stable relationships with the Indian partners. Another advantage of TRIPS obligations is that due to them, India had to initiate its own research and development (R&D) activities in order not to face the risk of producing only off-patent drugs (Mahajan et al., 2015). Due to such changes, Indian pharmaceutical industry became more competitive, and the US companies found it more advantageous to work with it. R&D strength has a crucial impact on total factor productivity (15%) (Sharma, 2012). Moreover, output flexibility to R&D has raised, giving an opportunity to foreign partners, such as the US (Sharma, 2012).

Another considerable advantage for the US pharmaceutical organizations is that they were able to reduce the labor costs (Hill, 2015). The US Federal Drug Administration (FDA) initiated and supported the transition of several manufacturing companies to India. Further, two offices were opened there to control the manufacturing conformity and compliance with safety standards. FDA has approved of nearly one thousand plants in India to produce drugs to be sold in the USA (Hill, 2015). Thus, the US companies benefit from low labor costs while ensuring the proper quality of the products.

The changes in India’s industry organization that enabled such advantages for the US industry became possible to several factors. First of all, India’s pharmaceutical companies adopted a number of technological changes which enhanced their productivity (Sharma, 2012). Secondly, both countries benefit from the regulations which India adopted in order to become a fair competitor in the world’s market. These changes bring advantages for the US pharmaceutical firms by providing lower labor costs and higher quality of products.

Conveniences for the US Consumers

Not only US companies benefit from the cooperation with India. The consumers have obtained a number of advantages from such alliance as well. The most crucial benefit for people is the price of drugs produced by Indian pharmaceutical organizations. Due to the lower labor costs, the price of such drugs is considerably smaller than on the ones produced by local companies. Also, people experience an advantage due to the quality of drugs produced by Indian pharmaceutical organizations.

Due to numerous policies and regulations, there is no more danger in buying Indian pharmaceutical products. Companies take care to adhere to the highest requirements in order not to lose their image in the international market. Consequently, with the growing quality of India’s production, US consumers tend to have a more friendly disposition towards purchasing drugs produced in India. Finally, since pharmaceutical industry in India is experiencing a stable development and growth, the drugs are produced in sufficient amount. Thus, US consumers benefit from the affordability of pharmaceutical production.

Thus, three major advantages exist for the American people in concern with the US-Indian pharmaceutical industries’ cooperation: reasonable prices, high quality, and affordability of the products manufactured by Indian companies and imported to the US.

Disadvantages for the US and Other Countries from the Recent Advancement of the Indian Pharmaceutical Industry

Along with a number of benefits for consumers and the US industry, cooperation with Indian pharmaceutical companies also brings some disadvantages. These limitations are felt not only by the US firms but also by national markets of other countries. Manufactures experience a comparative disadvantage due to India’s advantage being much higher. The major asset of India, as compared to other counties, is delineated by its low labor costs and natural circumstances. Decreased costs of farm labor and having warm weather during three-fourths of the year highly stimulate foreign direct investment (FDI) in agribusiness (Contractor, Kumar, & Dhanaraj, 2015).

Moreover, foreign companies tend to sign supply-chain contracts with Indian farms because of the country’s favorable environment. The country encourages young and ambitious skilled workers to come and work for pharmaceutical companies at different levels of the production process. Whereas all of these issues have a positive impact on India’s industry development, they prevent other states from having the same level of prosperity. In some countries, climate and weather are not so favorable as in India. Also, not all states can afford to invite highly skilled English-speaking specialists. Because of these limitations, many countries’ markets are not so successful as the one in India.

Another set of limitations for other states is associated with India’s created advantages. One of such advantages in the interconnectedness that has been developed in the country for many decades (Contractor et al., 2015). For over thirty years before 2005 (when the country started working in accordance with TRIPS), India’s pharmaceutical industry did not boast any favorable accounts about its production process and outcomes. However, the country realized how important it was to change in order to get appreciation and respect of its production. Thus India did its best to move from ‘‘duplicative imitation to creative imitation’’ (as cited in Contractor et al., 2015, p. 162).

The problem with other countries, as compared to India, is that they do not tend to change their attitude towards the industry. While India has been considered an outsider of the pharmaceutical industry for many years, other states relished in success and prosperity. However, as India began to revolutionize its industry, other states did not move much forward as they got accustomed to the thought that their success would be everlasting. Thus, in ten years, India managed to get equal recognition and then outrun the success of other countries. The disadvantage of these states is, therefore, concerned with the fact that India was ready to admit its mistakes and work on self-improvement, while other markets did not change their conduct and expected to keep receiving the same outcomes.

Finally, other countries experience a high level of job loss as compared to India. For instance, between 2008 and 2010, the manufacturing employment in the US pharmaceutical industry fell by 5% (Hill, 2015). India’s personal networks, as well as organizational connections, promotes the country’s interconnectedness endeavors (Contractor et al., 2015). The nation’s diaspora reaches as many as over twenty million people, with over two million in European countries and three to four million in North America (Contractor et al., 2015). In many cases, people of the Indian origin appear to be highly-skilled professionals who contribute to the companies where they work with a high flow of innovative and efficient ideas (Contractor et al., 2015). This factor also contributes to the disadvantages of other countries in comparison with India.

Benefits of the Recent Advancement of the Indian Pharmaceutical Industry versus Limitations

As it can be seen from the analysis, the rise of Indian drug industry has caused a number of inconveniences for other countries’. However, the benefits presented by this development considerably outnumber the disadvantages. Not only does India’s pharmaceutical production provide high-quality drugs that are available and inexpensive. The country is a great example for other states struggling to enter the international market.

Patent-law changes caused a considerable difference in India’s drug industry. On this country’s example, others have a possibility to learn about the impact of regulatory and institutional environments on the progress of low-income markets (Haley & Haley, 2012). Since the adoption of Patent Act in 1970, the Indian pharmaceutical industry has become much more competitive and strong (Haley & Haley, 2012).

The number of Indian drug firms increased from over two thousand in 1970 to nearly twenty-three thousand in 2004-2005 (Haley & Haley, 2012). Domestic and export growth was also rather extensive. While some Western states predicted that India’s product-patent regime would not be able to provide data secrecy, their pessimistic forecasts did not come true. In just three decades, India’s drug industry managed to become the fourth largest industry in the world (Haley & Haley, 2012).

Another asset of India’s pharmaceutical industry is that its development serves a good lesson on how to organize the strategic development. As Horner (2014) remarks, the combination of decoupling and recoupling is a productive substitute for strategic coupling on the way to economic progress. The author mentions that the integration of local companies into value chains, global commodity chains, and production networks managed by multinational business organizations provides ample possibilities for development (Horner, 2014).

Horner (2014) asserts the significance of global integration for any industry’s successful performance and development. Thus, the course of development of India’s pharmaceutical industry is a good example of reaching international recognition and success. Among the crucial elements of such success is value creation. However, economies of many countries meet difficulties when trying to create value and enhance their outcomes (Horner, 2014).

Thus, strategic decoupling is considered a productive way of enhancing value creation whose effect is further increased by recoupling with other global production networks (Horner, 2104). According to Horner (2014), India’s pharmaceutical industry has succeeded due to the combination of these approaches. Possibilities of value creation provided by decoupling may appear via cooperation with other production organizations such as the ones focused on domestic or regional markets (Horner, 2014). India’s partnership with the US is a good illustration of such collaboration.

Therefore, apart from obvious national benefits for producers and consumers such as affordability of drugs and new job opportunities, there are also global advantages such as teaching the industries in other developing countries how to become more profitable and successful.

Using Porter’s National Competitive Advantage Theory to Define the Growth of India as a Major Pharmaceutical Exporter

The rise of the Indian pharmaceutical industry can be explained by Porter’s diamond approach (Pawar & Veer, 2014; Kharub & Sharma, 2016). This international trade theory it most suitable for India’s case because the model deals with the nation’s competitive advantage. Porter’s diamond model makes it possible to analyze the industry’s competitiveness and explain the reasons for its success. The framework delineates five forces determining the industry’s prospects and attractiveness. Porter’s diamond model consists of such components as bargaining power of suppliers and buyers, risk for substitutes and new entrants, and industry rivalry (Bakan & Doğan, 2012).

The theory is focused on the concept that all of these constituents should interact to provide industry with a high level of competitiveness and success. There are six major determinants of Porter’s diamond model: factor conditions, demand conditions, related and supporting industries, government, chance events, and company strategy, rivalry, and structure (Pawar & Veer, 2014).

Factor conditions are associated with knowledge, human, and physical resource. Factor condition is divided into two categories: primarily based and advanced based factors, the latter one comprising human resource and physical resource (Kharub & Sharma, 2016). What concerns pharmaceutics, human resource is the major source of this industry (Pawar & Veer, 2014). The majority of Indian citizens are under thirty-five years of age (as cited in Pawar & Veer, 2014, p. 76).

The young population is a benefit for the country’s economy, as it means that people are interested in developing the industry to obtain innovations and better possibilities for competitiveness (Pawar & Veer, 2014). Such aspects of human resource as market and government research, scientific knowledge, and information resources improve the industry’s quality and provide better possibilities for funding the sector’s infrastructure (Kharub & Sharma, 2016).

Demand conditions are related to the character of home-market and constitute the second most important element of the national competitive convenience (Kharub & Sharma, 2016). In Porter’s model, the advantage of demand condition is regarded as the buyers’ maturity level and the size of home market. In this connection, India’s pharmaceutical companies need to meet the highest standards and the maturity rate of buyers. This pattern of conduct provides the possibility to meet the world’s standards and consumers’ demand, such as in the US (Kharub & Sharma, 2016). India’s economy is growing, and many industries (pharmaceutical one being among them) are becoming mature, which guarantees them the ability to meet the demand. This factor is divided into two variables: market value and sophistication (Kharub & Sharma, 2016).

Related and supporting industries constitute another significant factor of industry’s success (Pawar & Veer, 2014; Kharub & Sharma, 2016). Competitive suppliers and related national industries enable advantages such as the improvement of technology, encouragement of innovation, and development of technology via company alliance that provides a benefit in downstream industries (Kharub & Sharma, 2016). India’s pharmaceutics may obtain exceptional opportunities from supporting the cooperation between suppliers and customers. However, if input factors such as raw materials and energy are unsatisfactory, the industry’s development becomes impossible (Kharub & Sharma, 2016).

Another important component of Porter’s diamond model is the input of chance events and government. Government’s role is in introducing the regulations and policies impacting all dimensions of Porter’s theory. India’s government projects help domestic companies to start cooperation with foreign nations. The country’s pharmaceutical industry’s success is based on the advantages that cannot be easily imitated by competitors. India’s pharmaceutics suggests lower prices and competitive quality, which enables the industry to have good ratings among the customers and presents good opportunities for international cooperation.

Finally, the industry’s strategy, rivalry, and structure play an important role in industry’s power. Since India changed its attitude towards producing pharmaceutical products and became more focused on supporting the intellectual rights, the rates of foreign direct investment rose (Pawar & Veer, 2014). The industry continues its development based on positive strategies, which allows a better assimilation in world market, especially in the USA.

Therefore, according to Porter’s diamond theory, India’s pharmaceutical industry is in good condition and has positive prospects for further development.

Conclusion

India’s pharmaceutical industry is a rare example of a rapid progress from the least to most successful players in the world market. Since 2005, when the country signed an agreement with the World Trade Organization that made it comply with the intellectual property rights, India’s production process and international cooperation level underwent dramatic changes. The advancement of the Indian pharmaceutical industry brought some advantages and disadvantages to drug production companies all over the world.

On the one hand, rapid progress of India-based market enables consumers to get better access to medicines and gives opportunities for employment. On the other hand, however, while more job possibilities open in India, other countries lose such opportunities. Taking into consideration all advantages and disadvantages of the rise of pharmaceutical industry in India, it is obvious that the former ones outnumber the latter. If other countries’ markets are dissatisfied with the limitations created by India’s development, they should work hard to follow this country’s example and create new options for their own consumers and employees.

References

Bakan, I., & Doğan, I. F. (2012). Competitiveness of the industries based on the Porter’s diamond model: An empirical study. International Journal of Recent Research and Applied Studies, 11(3), 441-455.

Contractor, F. J., Kumar, V., & Dhanaraj, C. (2015). Leveraging India: Global interconnectedness and locational competitive advantage. Management International Review, 55(2), 159-179.

Haley, G. T., & Haley, U. C. V. (2012). The effects of patent-law changes on innovation: The case of India’s pharmaceutical industry. Technological Forecasting and Social Science, 79(4), 607-619.

Hill, C. W. L. (2015). International business: Competing in the global marketplace (10th ed.). New York, NY: McGraw-Hill.

Horner, R. (2014). Strategic decoupling, recoupling and global production networks: India’s pharmaceutical industry. Journal of Economic Geography, 14(6), 1117-1140.

Kharub, M., & Sharma, R. K. (2016). Investigating the role of Porter diamond determinants for competitiveness in MSMEs. International Journal for Quality Research, 10(3), 471-486.

Mahajan, V., Nauriyal, D. K., & Singh, S. P. (2015). Trade performance and revealed comparative advantage of Indian pharmaceutical industry in new IPR regime. International Journal of Pharmaceutical and Healthcare Marketing, 9(1), 56-73.

Pawar, P. A., & Veer, N. B. (2014). Competitive advantage of India for FDI in retail: A Porter’s diamond approach. Annual Research Journal of SCMS, 1, 69-83.

Sharma, C. (2012). R&D and firm performance: Evidence from the Indian pharmaceutical industry. Journal of the Asia Pacific Economy, 17(2), 332-342.

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