The Rise of India’s Drug Industry

Case Study

[DATE]
[COMPANY NAME]
[Company address]
 Abstract

The Main objective of this case study is to describe how India’s pharmaceutical industry includes in one of

the dominant drug suppliers in the world. At a time, Indian pharmaceutical industry was almost non-existent

when they started to violate the intellectual property rights of different western companies. Hence, Indian

pharmaceutical companies were facing international trade limits.

The agreement acceptance by WTO in 2005 brings more opportunities for international investors to invest

in Indian drug manufacturing industry. After the throughout struggles Indian pharmaceutical industry worth

$5.3 billion and still thriving 14-16% per annum. (Bharathi Kamath, (2008))

Moreover, this case study will explain industrial structure analysis, Indian market research, strengths and

weaknesses of the drugs industry in India, trade theories and economist’s research and development

strategies that made Indian pharmaceutical industry a major pharmaceutical trader worldwide.

Evolution
From 1947 to 2005 Indian pharmaceutical industry was managed by European multinational corporations.

Almost 80-90% of all the pharmaceutical commodity was imported from Western countries and Japan. Due

to the massive import from other countries rates of all pharmaceutical products in India were highest among

the world. Indian local drug producer companies started to violate the patent and property rights of well-

known Western companies and sell local manufactured product copies of those companies at lowest rates.

Due to the violation of their copyrights and patent European corporations cut off the trade with Indian

pharmaceutical companies (Sharma, Apr. 16, 2005).

To eradicate the dominance of MNC’s, in 1970’s Indian government launched 5 local pharmaceutical

companies for the production of cheaper and low-cost products. According to The Patent Act, 1970 – Indian

pharmaceutical companies have intellectual right to produce high copy of non-patented products of

European MNC’s before 1995. This act was amended to make sure the delivery of low-cost pharmaceutical

1
products to their local public. They have rights of the reverse engineering of the foreign patent products

and produce the best formulas of generic drugs. Today almost 97% pharmaceutical products in India are

out of this Act. (Kamble, 2012).

Then, in 2005 India met WTO (World Trade Organization) and amended the patent laws of TRIP (Trade

Related Aspects of Intellectual Property Rights). According to those amendments Indian pharmaceutical

companies was allowed to produce “copycat” of the most famous patent products of international

corporations. Within years Indian pharmaceutical companies got expertise in developing cheaper and

affective formulations of the more than 60,000 top-selling patent drugs. From 2002 to 2005 total export of

pharmaceutical products from India was raised from $600 million to more than $3.7 billion. That was 22%

of the general drug products exported across the world. (Greene, 2007)

Due to the economist’s research, lower pricing strategies and by getting license from Federal Drug Agency

comes up with the new opportunities for the international investors to invest in Indian pharmaceutical

industry.

1. How might US pharmaceutical companies and US consumers benefit from the rise of the

Indian pharmaceutical industry?

Currently, India is one of the largest exporters of generic pharmaceutical products. Top pharmaceutical

companies in India are Glenmark, Ranbaxy, Cadila Healthcare, Lupin, Sun Pharma and Dr. Reddy’s

Laboratories. Total revenue received from these companies is margined as $5 billion per year from United

States. And it covers the 10% of U.S sales. World trade Organization agreement cease India to build a

stronger relationship with western countries. The U.S & European MNC’s are relying on India instead of

producing, packing, and outsourcing the pharmaceutical products (Felker, 1997).

Before WTO (World Trade Organization) Indian pharmaceutical companies was obliged only to sell and

manufacture the generic drugs formulations not to export them. In this Era, Indian pharmaceutical

2
companies and pharmacists got expertise in the development of drugs medications. As United States is

outsourcing the pharmaceutical products from India at very low prices. So, low-cost manufacturing and

importing medications from India provides a lot of benefits in term of money, operating costs, assets, and

chemical pollution.

Multiple offices of European MNC’s are developed and are operating through India to assure that all the

tasks are being performed accordingly to their FDA (Food & Drug Administration). Currently, hundreds of

European units and factories are operating in India to develop medications for United States & Western

Europe. U.S based pharmaceutical products consumers are getting the generic drugs at the lowest rates

without even spending any labor cost. The pharmaceutical companies operating in India are coordinating

with pharmaceutical industry to reduce the obstructions in the segmentation of global market to boost their

sales worldwide. It is also helping them in bio-technology research and advancement in the formulations

of the pharmaceutical products to get better results. (Langhauser, 2017)

As the medical expenses in U.S are very high but, Indian manufacturing companies has reduced the pocket

load of the U.S residents by providing them low-cost and affective medication. It also produces high export

income from United States that helps the Indian government to import more from U.S.

2. Who might have lost out as a result of the recent rise of the Indian pharmaceutical

industry?

United States faced unemployment due to the operating of U.S pharmaceutical companies in India. This

has induced the continuous price dropping and collusion in the annual worth of the United States

pharmaceutical industry. It all happened due to the outsourcing of the medications from India. The rise in

Indian pharmaceutical industry effected the country’s economy. Because, with the lower prices people are

getting products at cheap rate that insists the competitors to decrease their rate in online market. U.S citizens

are spending less money on medication so; they are paying less taxes. (Altsedter, 2017, para. 25).

3
3. Do the benefits from trade with the Indian pharmaceutical sector outweigh the losses?

The pharmaceutical industry of United states added 15.8% of the economy of the country. So, we can say

that it is the most profitable industry of U.S among all. As Indian pharmaceutical industry provides low-

cost medication and it also offers higher profit margins to the U.S consumers on bulks that is up to 16.7%.

Although pharmaceutical industry provides higher profits but, it also needs high investment and operating

costs. The pharmaceutical industry is constantly increasing in market-size and employees.

According to a report from 2000 to 2010, the earnings generated by the pharmaceutical industry is 3 times

of the last decade. And the number pharmaceutical companies operating in United States have increased

from 700 to 2000. In 2010, the total revenue generated by the U.S Pharmaceutical industry was about $329

billion that was three times of their closest competitor (Fein, 2017).

The United States has divided their pharmaceutical industry into three parts such as counter, generic, and

patented. All these products are produced in the companies being operated in India. All the products have

to be approved before sold or advertised by the FDA (Federal Drug Admission) one of the well reputed

agencies of United states. The U.S has privileges to directly advertise their patent product in foreign

countries. ( Technology spillovers from foreign direct investment in the Indian pharmaceutical industry. ,

(2001).)

4. What international trade theory (or theories) best explain the rise of the India as a major
exporter of pharmaceuticals?

By producing and exporting a large amount of the product in the pharmaceutical industry India a lot of

expertise and advantages over their competitors. Long term export to Western Europe & United states India

is being counted as an expert in this industry. By producing generic drugs more efficiently and less costly

4
as compared to the other countries creates an opportunity to sell your own product on cheaper rates in other

countries.

The Heckscher-Ohlin Theory, describes that country will trade products that are produced by using it’s

abundant characters like land, capital, and labor and import the products that are produced the scarce

characters. As India has labor that works lower cost to produce and pack the drugs. So, United States is the

main importer because it has scarcity in the goods that are produced at low cost labor.

Product Life-Cycle Theory, divides the potential marketing of the goods into four parts such as

introduction, growth, maturity, and decline. It states that product that is invented by the United States has

been moved for the production in India. It doesn’t mean that any good invented by the U.S should also

be produced in the same country. The product invented by a country could be produced in another

country in lesser rates and exported to the desired country for the sale purposes.

5
References:

https://brainmass.com/business/wto-and-gatt/rise-indias-drug-industry-527721

Bharathi Kamath, G. (2008). Intellectual capital and corporate performance in Indian

pharmaceutical industry. Journal of Intellectual Capital, 9(4), 684-704.

Löfgren, H. (2007). The global biopharma industry and the rise of Indian drug multinationals:

implications for Australian generics policy. Australia and New Zealand health policy, 4(1), 10.

Greene, W. (2007). The emergence of India's pharmaceutical industry and implications for the US

generic drug market.

Feinberg, S. E., & Majumdar, S. K. (2001). Technology spillovers from foreign direct investment

in the Indian pharmaceutical industry. Journal of International Business Studies, 32(3), 421-437.

Selvaraj, S. (2007). How effective is India’s drug price control regime. Harvard School of Public

Health.

Devinder Sharma, “When death becomes cheap,” Deccan Herald, Apr. 16, 2005

Ganguli, P. (2004). Patents and patent information in 1979 and 2004: a perspective from India.

World Patent Information, 26(1), 61-62.

Felker, G., Chaudhuri, S., Gyorgy, K., & Goldman, M. (1997). The pharmaceutical industry in

India and Hungary: policies, institutions, and technological development. The World Bank.

Langhauser, K., & Director, C. C. Pharma Manufacturing.

Fein, A. J. (2017). The 2017 economic report on US pharmacies and pharmacy benefit managers.

Philadelphia Drug Channels Institute February.

6
7