European FDI in the Indian pharmaceutical industry

Abstract

The Indian pharmaceutical industry has become one of the most dynamic worldwide with tremendous growth, increasing domestic market and high technological skills. Besides, India has developed the research and development sector. The country is on the path of becoming the region’s hub for R&D, manufacturing and exportation for pharmaceutical and biotechnology. India is thus attracting the MNCs which so far have been really cautious in the way they invest in India. They are now eager to be major players on the market and gain market share. The Indian market is expected to represent US$ 20 billion sales in 2015 and the MNCs will be able to catch 35% of the shares compared with 25% today. To do so, the MNCs are implementing voluntary strategies that are adapted to the Indian market with low pricing, launch of generic drugs and penetration of the rural areas. They have thus increased new product launch by 44% in the last years. These strategies begin to pay and the MNCs have known high growth rates in India. Indeed the top eight MNCs companies have grown at a rate of 16,7% compared to the 9% CAGR of the 2005?2008 period. However, doing business in India has not always been easy for MNCs as the market was highly regulated and the Indian companies were often favored. That’s why, in order to establish on the Indian market, MNCs have mainly resorted to acquisitions and alliances. This was a way to benefit from Indian companies knowledge of the market, manufacturing facilities and distribution network while the MNCs could focus on the marketing and strategic competencies. Partnerships are also increasing in R&D and this is becoming one of the main factors that bring FDI in India. However in order to secure the position of India as a major pharmaceutical hub, it should improve the regulatory environment as China or Korea can be attractive alternatives for MNCs. MNCs have also to take into account the Indian pharmaceutical companies that are not only dominant on the Indian market but also on the international scene. They are bringing low price generic on the developing as well as emerging economies thus challenging the Big Pharmas. Many patents will be expired in the coming years and the MNCs have to reposition in order to remain competitive. For MNCs, investing in India through higher collaborations with local players is a huge opportunity as it will enable them to supply both the global market and the growing domestic market.