The Growth of India S Drug Sector

¶ … Rise of India's Drug Industry

The strong growth of India's pharmaceutical or drug industry has been one of the greatest success stories in international trade in the recent past. India has traditionally been renowned as a country that produces cheap knockoffs of patented drugs invented or developed by pharmaceutical companies in Japan and in the West. As a result, India's drug industry was regarded as an international pariah and a hub for violation of intellectual property rights. Moreover, Indian pharmaceutical companies were prohibited from selling their products in developed markets. However, the recent strong growth of this industry is more likely to benefit pharmaceutical companies and consumers in the American drugs market as the company rises to be a major exporter of pharmaceuticals.

Background of the Issue

India's drug industry heavily relied on supplies by large international corporations until the 1970s since this sector only produced cheap bulk drugs (Perlitz, Just & Ebling, 2008). State-owned companies that were founded in the 50s and 60s could only produce such kinds of drugs with the help of the World Health Organization. As these companies provided the foundation for the growth of India's drug industry, its development has been characterized by several struggles and successes. Over the years, India's pharmaceutical industry has been renowned as problematic since it used to produce cheap knockoffs of patented drugs developed by pharmaceutical companies in Japan and in the West. Given its production of these cheap products, this industry violated intellectual property rights and was considered as an international pariah. Consequently, Indian drug companies were prohibited from selling their products in overseas markets, especially in developed countries. Opportunities for these firms were further limited by lack of assurance of protection of their intellectual property and refusal to invest, partner with or purchase products from domestic counterparts.

However, India's drug industry took a significant turn in 2005, which has contributed to its status as one of the great success stories in global trade in recent years. Following an agreement with the World Trade Organization that brought the country into compliance with international rules on intellectual property, Indian pharmaceutical firms stopped producing counterfeit products. Consequently, foreign companies started partnering with their Indian counterparts due to assurance of protection of intellectual property rights. This propelled the dramatic growth of India's drug industry to an extent that it generated approximately $30 billion sales in 2012. The growth has been fueled by increasing exports that have increased at 15% per annum between 2006 and 2012. In light of its recent growth, this sector has become an attractive destination for Western companies to outsource drug manufacturing since the country offers numerous advantages to Western enterprises.

Benefit to U.S. Pharmaceutical Companies and Consumers

Over the past four decades, the pharmaceutical industry in India has developed from a relatively non-existent one to a global leader in producing high-quality generic drugs (Greene, 2007). As India's drug industry continues to garner an international reputation for generating high-quality and relatively cheaper generic pharmaceuticals, it continues to have a significant impact on the global pharmaceutical industry. This growth has essentially had considerable impacts on countries in the West, particularly the United States. The impact is fueled by the increased consideration of India as a suitable destination for outsourcing manufacturing among other benefits.

The growth of India's pharmaceutical industry has significantly impacts American pharmaceutical industry, especially companies and consumers. This is largely because the United States continues to be the largest single export destination for India's drug industry. India's drug exports to the U.S. increased from $429 million in 2003 to $589 million in 2005 as the United States accounts for a sizeable portion of global sales of pharmaceutical products. India's drug industry mainly plays the role of imports in the U.S. markets, which in turn generates numerous benefits for U.S. drug companies and consumers.

U.S. pharmaceutical companies benefit from growth of India's drug industry in several ways including manufacturing and packaging. Some of these manufacturing and packaging benefits for American drug companies include low wage rates, increased use of English as a business language, and an educated workforce. In addition, the growth of India's drug industry results in lower operational costs for American pharmaceutical companies, which is a major contributor to increased profitability of these businesses. By lowering costs of operation, U.S. pharmaceutical companies can protect their earnings in an increasingly difficult local market that is characterized by increased pressure on pricing because of government health regulation and increased competition. The additional benefits of this growth for U.S. pharmaceutical companies include lower insurance costs, smaller copays, and eventual lower out-of-pocket expenditures.

The benefits from the rise of the Indian pharmaceutical industry to U.S. pharmaceutical companies emanate from the fact that India's drug sector has comparative advantages in cost competitiveness, reverse engineering experience, well-developed chemical industry infrastructure, and relatively low costs of labor (Greene, 2007). This implies that Indian pharmaceutical industry provides American companies with avenues to enhance their global competitiveness, to improve their product offering, and to consolidate their market shares (KPMG International, 2006). Through this rise, U.S. drug companies create and enter new markets, compensate for disadvantages in their domestic market, and move up the value chain.

The rise of the Indian pharmaceutical industry is also beneficial to the market for new patented drugs at U.S. prices. While this market is relatively negligible, the growth of Indian drug industry has provided innovator drug companies in the U.S. an opportunity to explore several strategies to enhance revenues using differential pricing (Subbu, 2014). American innovator companies in this sector are also benefiting from India's large generic market through increasing sales and imports of finished products.

Given its numerous advantages on U.S. pharmaceutical companies, the rise of the Indian drug industry also has some benefits to U.S. consumers. First, the growth of India's drug industry over the years has contributed to easy access to high-quality pharmaceuticals for American consumers. According to The Economist (2014), many pharmaceutical products from India remain of the highest quality. U.S. consumers can access high-quality drugs because Indian drug companies are increasingly changing their business models and strategies to place more emphasis on research and development and discovery of new drugs. The emphasis on research and development contributes to production of high --quality drugs based on new chemical entities.

Secondly, the rise of this industry has increased accessibility of drug or pharmaceutical products to U.S. consumers. The Economist (2014) reports that the efficient manufacturing and production of pharmaceuticals by Indian drug industry has made these products available to millions of people who could otherwise not access or afford them. The improved accessibility of drugs in the U.S. is attributable to the increased imports of such products from the Indian pharmaceutical industry.

Third, U.S. consumers have also benefited from low cost drugs because of the rise of India's drug sector. The low costs of pharmaceutical products for consumers emerge from the numerous economic advantages that the growth of this industry provides to U.S. pharmaceutical companies. As these companies benefit from low operational costs and low labor costs, they increasingly lower the prices of their products. Moreover, American drug companies lower costs of their products in attempts to increase and/or maintain their market share in an increasingly competitive market. These measures are largely fueled by the significant growth that has characterized the Indian drug market and results in affordable costs of products to U.S. pharmaceutical consumers.

Disadvantages of the Rise of the Indian Pharmaceutical Industry

Despite the numerous advantages/benefits associated with the rise of the Indian pharmaceutical industry, there are some disadvantages as several sectors or companies have lost out. One of the aspects that have lost out to this trend is the innovation sector of pharmaceutical industry in Western countries, particularly the United States. As the Indian pharmaceutical industry continues to grow, innovation and drug development in the West has suffered a lot and become negligible. For instance, the market for new patented drugs at American prices has become increasingly negligible in the U.S. because of growth in India's drug industry (Subbu, 2014). The growth of Indian drug industry has seemingly killed innovation in the West since Western countries have become dependent on India to provide pharmaceutical products. Western pharmaceutical enterprises are increasingly partnering with Indian pharmaceutical products to manufacture drugs, which hinder innovation in their own countries.

Secondly, employment opportunities in pharmaceutical industries in Western countries have declined because of growth of India's drug industry. Western pharmaceutical enterprises have become too dependent on India's drug sector to manufacture drugs rather than employ people in their domestic environment to do so. This tendency continues to contribute to lack of employment for many people in these countries. In essence, one of the major offsets of the economic benefits of the rise of Indian drug sector is loss of jobs. For instance, the United States experienced a 5% decline of total manufacturing employment between 2008 and 2010 because of the growth of Indian pharmaceutical industry. The loss of jobs has also emerged from the fact that many pharmaceutical companies are outsourcing manufacturing of their products to India.

As Western companies have become dependent on Indian drug industry, the rise of this sector has weakened India's domestic pharmaceutical market. From an international perspective, the growth of India's pharmaceutical industry has generated numerous economic advantages because of its emergence as a hub of drug manufacturing. However, this growth has relatively weakened the domestic market since the economic advantages associated with largely benefit foreign companies rather than the local market. For instance, foreign companies can set up a pharmaceutical production plant in India 40% cheaper than in their domestic markets, which show that this growth hurts the domestic industry (Greene, 2007).

Benefits v. Losses

As evident in the previous analysis, it's increasingly important to determine whether the benefits from trade outweigh the losses associated with trading with Indian pharmaceutical sector. In the past few years, there have been numerous concerns on the sustainability of India's drug industry in the global arena because of increased influx of foreign companies into this market. Recent acquisitions of Indian companies by multinational corporations have been the major sources of concern because of the potential effects of such measures on the availability and affordability of generic drugs, especially to poor people in India (Lakshmi, 2011). The existing policies in India provide an easy way for any foreign company to acquire a local one, which may end up generating some economic disadvantages. The existing policies and tendencies make it easier for foreign companies to compromise India's public health priorities through acquisition of local pharmaceutical companies. From a local perspective, Indian pharmaceutical companies and industry is likely to suffer from increased trade with foreign firms because of the likelihood of undermining India's public health priorities. Foreign acquisitions are likely to shift the focus of the Indian drug industry from producing cheap lifesaving medicines for the poor to exporting to developed countries (Lakshmi, 2011).

However, trading with Indian pharmaceutical sector seems to generate benefits that outweigh losses for foreign pharmaceutical companies. As previously shown, India's drug industry provides foreign firms numerous economic benefits that seemingly outweigh losses. The economic benefits outweigh losses because India has a vital role in the international labor division in the pharmaceutical industry through offering a base for outsourcing that in turn lessens manufacturing costs (Chadha, 2007). Trading with Indian pharmaceutical sector provides a perfect economic sense in which benefits outweigh losses through providing companies with an opportunity to increase their profitability while lessening the costs of operations or manufacturing.