Relocating High Tech Industries To Emerging Markets Case of Pharmaceutical Industry Outsourcing To India

Transnational Corporations Review
ISSN: 1918-6444 (Print) 1925-2099 (Online) Journal homepage: http://www.tandfonline.com/loi/rncr20
Relocating high-tech industries to emerging

markets: case of pharmaceutical industry
outsourcing to India
Muhammad Mohiuddin, Mohammad Nurul Huda Mazumder, Elie

Chrysostome & Zhan Su
To cite this article: Muhammad Mohiuddin, Mohammad Nurul Huda Mazumder, Elie
Chrysostome & Zhan Su (2017): Relocating high-tech industries to emerging markets: case
of pharmaceutical industry outsourcing to India, Transnational Corporations Review, DOI:
10.1080/19186444.2017.1370808
To link to this article: http://dx.doi.org/10.1080/19186444.2017.1370808
Published online: 18 Sep 2017.
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TRANSNATIONAL CORPORATIONS REVIEW, 2017
https://doi.org/10.1080/19186444.2017.1370808
ORIGINAL ARTICLE
Relocating high-tech industries to emerging markets: case of pharmaceutical

industry outsourcing to India
Muhammad Mohiuddin , Mohammad Nurul Huda Mazumder, Elie Chrysostome and Zhan Su
School of Business and Economics, Thompson Rivers University, Kamloops, Canada
ABSTRACT KEYWORDS
Offshore outsourcing has evolved from cost-only strategy to growth strategy in knowledge- Offshoring; pharmaceutical
intensive industries (KIIs) such as the pharmaceutical industry. This paper explores the case of manufacturing; emerging
offshore outsourcing of pharmaceutical manufacturing to India. An extensive literature review markets; India; KIIs; R&D;
IPRs
shows that firms do engage in offshore outsourcing to India have access to talents, infrastructure
as well as markets. Despite the bright future of offshore outsourcing of pharmaceutical industries
to India, inadequate protection of intellectual property rights (IPRs), scarcity of highly skilled
manpower and institutional shortcomings can pose serious challenges. The study finds that insti-
Downloaded by [174.4.188.209] at 13:19 18 September 2017
tutional policy framework for promotion of collaborative research and development (R&D) as
well as investment in infrastructures and human capital development can keep the momentum
in this sector of high-tech industry.
1. Introduction
Globalisation, openness of markets for products and factors of production as well as slicing up of the value chain
have enabled many firms and industries to disperse their activities competitively across the planet, depending on
the availability of production factors. Starting with low-tech manufacturing industries, technological advancement
has sped up the process of slicing up the value chain of high-tech industries, such as the pharmaceuticals, and
enabled them to disperse their different segments in the emerging countries (Mohiuddin & Su, 2013a) such as
India where there is a significant level of low-cost/high-value expertise in biotech industry. Economic emergence,
rise of middle class, access to healthcare and availability of world-class expertise attracted many pharmaceutical
firms to India. Along with these factors, medical tourism to India has further accelerated the demand for and
interest of pharmaceutical industry in Indian market. The relocating process has been further hastened due to the
economic crises and relative economic decline in the western developed countries. The economic gravity is
changing from western developed countries towards the East along with the ever-increasing capacity building
facilities in the large emerging countries such as China, India and Brazil and this has made these countries not
only attractive for low-tech manufacturing but also the high-tech industries such as pharmaceuticals. With the
second largest number of approved laboratories by the Food and Drug Administration (FDA) of USA and availabil-
ity of low-cost/high-value science and technology (S&T) personnel, India presents itself to pharmaceutical firms as
a unique destination for their production, testing and R&D activities. The purpose of this paper is to analyse the
case of India as a destination for high-tech manufacturing like pharmaceutical production. Section two of this
paper presents the evolution of Indian pharmaceutical industries capabilities, and section three discusses how the
pharmaceutical firms can maximally benefit from this evolution, while section four describes the challenges that
Indian pharmaceutical industry might need to address in order to take advantage of the global pharmaceutical
firms that are interested in relocating to India.
2. Rise of Indian pharmaceutical industry

The main markets of pharmaceutical drugs, such as North America, Europe and Japan, are threatened by a
downward trend of drugs sales, rising R&D cost, high demand for reduced healthcare costs, lack of new drugs in
the supply chain and myriad of other factors. As a result, the global pharmaceutical industry is experiencing
CONTACT Muhammad Mohiuddin mmohiuddin@tru.ca School of Business and Economics, Thompson Rivers University, Kamloops, BC, Canada
2017 Denfar Transnational Development INC.
2 M. MOHIUDDIN ET AL.
an essential change and striving to find cutting-edge avenues to stimulate further growth in the marketplace,
which has accelerated the penetration of evolving and emerging markets like India. This development, coupled
with the government of Indias move to develop the pharmaceutical industry, has greatly helped the market to
be one of the leading destinations for pharmaceutical production. Today, the pharmaceutical sector of India has
become one of the major global players in terms of both production volume and domestic consumption value,
ranking third and fourteenth, respectively.
The countrys once almost non-existent pharmaceutical industry has witnessed fast growth and transformation,
which enabled it to become a global player in producing high-class generic drugs over the last 40 years or so.
The Indian pharmaceutical industry is estimated to be contributing 2024% of the world production of generic
drugs. After the independence in 1947, the annual growth rate of Indian pharmaceutical industry was approxi-
mately 17%. The sales volume turnover of Indian pharmaceutical industry has witnessed a tremendous increase
from $100 million to $12 billion between 1947 and 2012. Exportation of drugs has been experiencing an unprece-
dented growth of about 30% annually in recent years (KPMG, 2016). The industry that once depended on
imported pharmaceutical products to meet domestic demand is now exporting more that it imports (Table 1).
Given the fact that the Indian pharmaceutical and healthcare industry was once dominated largely by MNCs, it
was involved in importing substantial part of the needed drugs from other sources, then assembling and distribut-
ing them locally until the 1970s. Over the years, this scenario has been transformed and manufacturing of local
drugs is currently meeting 75% of local demand. This means that India has been successful in obtaining a long-
established manufacturing destination status for foreign as well as domestic producers (Getz & Vogel, 2009). In add-
ition, the pharmaceutical industry of India has been able to position itself as a reputed destination for manufactur-
ing high-quality drugs at a lower cost (Greene, 2007). Despite lower cost of production of drugs and high
healthcare expectations, expenditure on pharmaceutical products in India comprised of less than 1% of GDP. While
Indian pharmaceutical market is responsible for less than 2% of the world market in terms of value, the industry
accounts for about 10% of the world pharmaceutical production (Table 2). The country is currently maintaining a
double-digit growth in biopharmaceutical sector, which is anticipated to continue over the next three decades. In
fact, the efforts put in by the government of India played a critical role in the growth of Indian pharmaceutical
industry. In addition, domestic formulations market bears significant potential for growth in the countys over
1.2 billion population and the emergence of middle-class population. The rise of middle-class population coupled
with increase in disposable income and rising healthcare expectation would be one of the main drivers of Indian
pharmaceutical industry (Pasha et al. 2012). Other drivers of growth include increase in the level of education, gov-
ernments participation in immunisation programme and persistent growth of diagnostic and therapeutic segments
including diabetes and cancer (Pasha et al. 2012).
As mentioned before, the rise of Indian pharmaceutical industry went through a number of historical events to
reach the current state, within a short period of time, and that particularly began after 1947. Although the industry
Table 1. Trade data of Indian pharma sector (USD billion) (IBEF, 2017).
Financial year Exports Imports Exports/imports
FY 2012 10.1 3.6 2.81
FY 2013 12.6 4.4 2.86
FY 2014 14.5 4.6 3.15
FY 2015 14.9 3.7 4.03
Source: www.ibef.org; Department of Commerce India, Department of Pharmaceuticals, India Business News, BMI, TechSci
Research.
Table 2. Pharmaceutical Industry in India in 2015.

Share of global sales Value 1 percent, volume 8 percent
Global ranking 4th in volume, 13th in value
Number of firms in the 250300 (account for 70 percent of products with top ten firms representing
organised sector 30 percent)
Sales $6 billion (1 percent of the $550 billion global industry)
Exports $3.72 billion (to more than 65 countries, USA being the largest customer)
Imports $985 million
Share of world bulk $2.1 billion with over 400 bulk drugs and 60,000 formulations in 60
drug production therapeutic categories
Capital investment $1.2 billion
Employment 5 million direct and 24 million indirect
Source: Greene (2007) and KPMG (2016).
TRANSNATIONAL CORPORATIONS REVIEW 3
has a century-old history of establishment, the local production was limited until 1947. During the late 40s, the
then government of India supported a great deal of investment in the growth of public sector pharmaceutical pro-
duction (Rao, 2008) which did not turn up with massive changes in the domestic production. At that time, multi-
national enterprises (MNEs) were privileged to maintain their operation of importing and selling drugs produced in
their home countries (Felker, 1997; Smith, 2000). To break down the reliance on importation of expensive drugs and
to facilitate bulk production of drugs locally and at an affordable price, the government enacted a new Patents Act
in (The Patents Act, 1970) 1970 which came into effect in 1972. The aim was to promote local production of drugs
and to ensure that its large population has access to low-cost drugs (Sampath, 2006). Through this Act, the govern-
ment excluded the patents requirement of drugs and assisted the industry to grow with a real jump start. Since
then, the industry has expanded at an exponential rate with the provision of a transition period. It was in 2005 that
the pharmaceutical industry in India marked the end of transition period when it became a Trade-related aspects of
intellectual property rights (TRIPS) signatory (Kamble, Ghorpade, Kshirsagar, & Kuchekar, 2012). This led the MNEs
and other pharmaceutical firms, whether local or foreign, to obtain patented products so as to steer the growth in
an emerging market like India. Today, the Indian pharmaceutical industry consists of more than 20,000 licenced
manufacturers from only a few MNEs operating since 1970 (Kamble et al., 2012). Besides capturing the domestic
market, the leading pharmaceutical firms have also started capturing the share of other developed countries as well
as developing countries markets (IBEF, 2017). The emergence of Indian pharmaceutical industry is not only limited
to the production of drugs, and the improved environment is also fostered with competencies and conducive infra-
structure for research and development, an ideal place for continuing contract research and manufacturing services
(CRAMS) as a result of the availability of a large pool of talented professionals. These emerging facts will be dis-
cussed in this section along with the discussion on the rapid economic growth, the pharmaceutical market as well
as the evolving pharmaceutical business model in India.
2.1. Rising of R&D on infrastructure and competences

The future of pharmaceutical industry largely depends on research and development. The importance of R&D in
Indian pharmaceutical industry began with the introduction of product Patents Act in 1970, which allowed the
pharmaceutical firms to get the patents. As there were no restrictions on the intellectual property, many firms
started reverse engineering for non-infringing processes. Under this patents regime, Indian pharmaceutical indus-
try entered into a new era of technology learning based on reverse engineering (Ray, 2008). As a result, many
small players emerged to take advantage of the patents policy regime while majority of the firms did not engage
themselves in the development of new drugs. The pharmaceutical firms of India were primarily engaged in manu-
facturing generic drugs and developing the non-infringing process (Joseph, 2015) after the enforcement of 1970
Patents Act. Within this environment, there was a noticeable rise in R&D expenditure from less than 1% of the
industrys sales turnover prior to 1970 to nearly 2% in 1986 (Ray, 2008).
There was a radical change in the business strategies of Indian pharmaceutical firms after the enactment of the
Indian Policy Statement of 1991. This policy emphasised technology competence building through foreign invest-
ment and technology collaborations with MNEs (Joseph, 2011). The Indian pharmaceutical industry has almost
entirely changed after Trade-Related Aspects of Intellectual Property Rights (TRIPS) came into force in 1994. One
of the objectives of post-1994 policy trajectory was to encourage research and development practices among
indigenous drug producers (Joseph, 2011; Tempest, 2011). At this time, the leading pharmaceutical firms in India
started recognising the fact that without significantly improving their R&D capabilities, it would be difficult for
them to survive and to compete in order to become global drugs producers.
Indian pharmaceutical industry is projected to record a remarkable growth in the area of R&D in the coming
decades as the growth in R&D scenario has been experiencing an upward trend beginning from 2001. According
to Joseph (2011), the R&D intensity started to rise in 20002001 period and reached its peak in 20052006
(Figure 1). The increase in R&D to sales ratio (above 5% in 20052006) was mostly driven by the private sector.
This rise in private sector R&D has been influenced by the increasing incidence of disease, the increase of the
population, rising literacy and lower per capita usage of drugs. Besides, there were some remarkable efforts put
in place in the last few years that would boost R&D in India. Many MNCs in the pharmaceutical industry had
started forming alliances with Indian drug producers (Joseph, 2011). For instance, GSK and Schwarz
Pharmaceuticals have entered into partnership with Ranbaxy Laboratories to identify innovative targets. It has
also partnered with Tata consulting services (TCS) in the area of data management. Glenmark has teamed up with
Figure 1. R&D sales ratio in pharmaceutical industry in India (percentage) (source: Prowess).
Table 3. Total number of patents filed, examined and granted by the Indian Patents Office.
Number of patents
Sr. no. Financial year Filed Examined Granted

1 19961997 8562 3042 907
2 19971998 10,155 2688 1844
3 19981999 8954 2931 1800
4 19992000 4824 2824 1881
5 20002001 8503 7246 1318
6 20012002 10,592 5104 1591
7 20022003 94,120 249,003 11,190
8 20032004 12,120 10,709 2469
9 20042005 17,466 14,813 1911
10 20052006 24,505 11,569 4320
11 20062007 28,940 14,119 7539
12 20072008 35,218 11,751 15,316
13 20082009 36,812 10,296 16,061
14 20092010 34,287 6069 6168
Source: Annual Reports of the Controller General of Patents, Design, Trademarks, and Geographical Indication (19962010).
Napo Pharmaceuticals, while Eli Lilly has joined forces with Piramal Healthcare. Novartis has also entered into part-
nership with Torrent and DRL. Likewise, joint R&D initiative of Biocon India and Bristol-Myers Squibb at Biocon
special economic zone (SEZ) in Bangalore and Wellquest Research Center in Hyderabad (Cygnus, 2008). Such
Partnerships would create a new environment for continuing R&D. This is because it is always considered that
favourable foreign capital and technology will accelerate capacity building (Joseph, 2011).
According to Kamble et al. (2012), the TRIPS agreement and the reintroduction of product patents law in 2005
provided the Indian pharmaceutical industry with the opportunity to realise that it is necessary to focus on R&D
in order to achieve further progress as the new patent regime limited the development of copycat generics. The
compliance with the TRIPS during post-1995 regime brought a significant increase in R&D activities of Indian
pharmaceutical firms which can be viewed from the number of patents filed and granted after 1995 (Table 2).
Since TRIPS came into force, investment in R&D by Indian pharmaceutical firms has been spiralling over the
years. More and more Indian drug manufacturers are embracing the need for R&D. As a result, the percentage of
R&D expenditure of these firms has increased substantially (Table 3). Indian pharmaceutical industry yielded an
average of 18% growth in R&D expenditure between 2003 and 2008 (Rao, 2008).
The product Patents Act in 2005 led to the transformation of business strategies of leading Indian pharmaceut-
ical firms towards giving greater importance to R&D along with innovating new chemical entities (NCEs) (Greene,
2007). The new patent era envisaged that Indian pharmaceutical industry needs to go beyond reverse engineering
of existing formulations and be more innovative in order to survive. Since then, the R&D expenditure scenario of
Indian Pharmaceutical Industry has altered overwhelmingly towards innovation of new drugs. Although there was
a reasonable increase in R&D expenditure in the early 2000s, the increase in R&D expenditure triggered to Rs
4860 million in 2005 which has increased to Rs 4980 million in 2010 considering the highest expenditure made
by 11 firms in 2010 (Bedi & Bedi, 2013). There are several factors that are contributing to the development of
R&D environment in India. Rising cost of conducting R&D in western countries, the comparatively lower R&D cost
Table 4. R&D intensity of the leading Indian drug producers during the post-TRIPS regime (Kiran & Mishra, 2011).
Year Ranbaxy DRL Sun Pharma Wockhardt Cadila Glenmark Torrent Cipla Aurobindo
1998 3.22 3.31 4.27 9.27 6.71 3.88 1.21 4.47 3.12
1999 3.53 3.22 5.59 11.05 6.17 5.20 3.33 4.86 2.62
2000 3.28 4.78 4.55 8.96 5.47 7.39 4.84 3.03 1.07
2001 3.75 4.64 4.08 4.62 9.29 6.00 5.50 2.28 0.60
2002 6.81 4.51 4.31 5.01 7.20 10.84 7.85 3.62 1.35
2003 7.81 7.80 10.87 7.02 9.41 9.97 10.36 3.09 1.85
2004 9.16 9.91 123.92 5.16 9.44 12.78 15.65 4.71 3.65
2005 13.74 13.28 12.07 5.20 10.92 7.63 18.52 6.24 4.66
2006 9.51 8.93 12.35 8.02 9.72 5.94 10.93 6.09 5.23
2007 10.99 3.83 13.06 8.79 9.24 3.43 10.32 6.75 4.31
2008 10.56 7.17 8.55 6.23 7.91 2.54 11.66 6.10 4.85
R&D as percentage of gross sale (Kiran & Mishra, 2011).
in India, the expiration of patented drugs and market dynamics are contributing significantly in outsourcing the
MNC R&D activities to India (Kamble et al., 2012).
The change in the IP system of different countries globally and the emergence of changes in internal govern-
ment policies of India will lead to increase in R&D expenditure in the coming years. Greene (2007) mentioned
that R&D expenditure of Indian pharmaceutical industry has increased from merely about $30 million in 1995 to
over $495.3 million in 20052006. However, the author also mentioned that 15 companies were at the forefront
of R&D expenditure which has increased from $131 million in the year 2004 to $192.3 million in 2005, reflecting a
47% increase. It appeared that only a limited number of Indian drug producers are active in developing new
drugs. Among the firms, Ranbaxy and Dr. Reddys Lab are found to be the major spenders in R&D. Other firms
that have made significant contributions to R&D expenditure are Sun, Cadila, Wockhardt, Nicholas Piramal, Lupin,
Torrent, Orchid, Glenmark, Dabur and J. B. Chemical & Pharmaceuticals (Mitra, 2006). It is not only the Indian
domestic drug producers but also global leading pharmaceutical MNEs that are interested in penetrating into
Indian market with substantial R&D investment, directly by establishing their own research centres or indirectly
through M&A. GSK, Pfizer, Daiichi, Alcon, Mylan and Apotex are among the foreign firms that showed active inter-
est in R&D investment (Table 4).
Greene (2007) suggested that many leading pharmaceutical MNEs are facing the problem of patent expiration
and rising cost in their home countries; therefore, teaming up with local Indian drug producers will be an alterna-
tive for them to enjoy the following advantages of the Indian pharmaceutical industry: lower cost of conducting
R&D, presence of large number of FDA-approved plants in India and availability of state-of-the-art research envir-
onment. McKinsey Global Institute (2007) reported that the cost of doing R&D in India is about 4060% of the
similar costs borne in the US, while Central Drug Research Institute (CDRI) estimated that the R&D cost in India
would only be 30% of what it would be in the US (Chaudhuri, 2005). Besides growing participation of domestic
players, as the penetration of global pharmaceutical MNEs is increasing, there will be a remarkable growth of R&D
activities in India which will definitely build a conducive environment for attaining competencies in discovering
innovative drugs and fostering growth. What enables firms to attain core competencies in the process of engin-
eering formulation and to maintain a sharp competitive advantage over other global players in the international
market is the positive external support from the government as well as other research stakeholders view towards
the potentials of Indian pharmaceutical industry (McKinsey, 2012).
2.2. Emergence of contract research and manufacturing services

The pharmaceutical industry has witnessed faster growth in CRAMS sector. India has not been lagging behind in
this trend; perhaps, it is even attaining a more robust growth than any other country of the world. The availability
of favourable manufacturing facilities as well as highly educated and skilled manpower is triggering the CRAMS
growth over the past five years. This trend is projected to continue in upward direction. CRAMS started gaining
importance since the late 1990s when global pharmaceutical MNEs realised the importance of cutting cost to sus-
tain profitability. These features, along with the reintroduction of amended Patents Act of 2005, enable India to
move up their value chain. In fact, the 2005 Patents Act regime has brought a number of scopes for foreign
pharmaceutical MNEs as well as local pharmaceutical firms operating in Indian market. For the foreign MNEs, it
enables them to be involved in CRAMS, to form joint marketing partnerships, to develop capacity and reduce the
time of marketing new drugs, and to outsource and reduce the cost of research and clinical trials (Bhatt, 2004;
Satyanarayana et al., 2008). These foreign companies have shifted portions of their production, R&D, clinical trials,
packaging and labelling, stability testing, and other areas of drug discovery and development activities to India
(Greene, 2007). These transformations became beneficial for them to attain higher revenues as they were con-
fronted with the problem of rising cost of R&D, coupled with falling R&D revenues and sales of patented drugs in
their home countries. On the other hand, the Act has allowed Indian pharmaceutical companies to transform their
strategies of reliance on reverse engineering of existing formulations and compositions to the discovery of new
drugs, to enhance their exports to the market that were regulated before and to form alliances with leading
pharmaceutical MNEs.
Many Indian pharmaceutical firms that are lacking resources for continuing R&D are taking the advantage of
contract research, traditional manufacturing and partnership for marketing drugs in order to sustain profitability,
according to (Federation of Indian Chambers of Commerce and Industry [FICCI], 2005). In addition, the high cost
and failure rates related to different phases of clinical trials are constituting real obstacles for the Indian firms as
they cannot afford such trials, thereby causing the rise of CRAMS. PricewaterhouseCoopers (PwC) (2011) stated
that MNEs need to share or own the technology partially or wholly with their Indian contract research partners to
facilitate and attain innovative results. However, cost of CRAMS is one of the critical factors that attract foreign
MNEs tapping into Indian market. India becomes popular in CRAMS due to its competitive advantage in a couple
of areas. The factors that are largely contributing to gain competitive advantage are the availability of large pool
of highly trained scientific and technical manpower at lower cost, lower research and production cost, large num-
ber of FSA-approved manufacturing plants outside the US and upward trend in the demand for generic drugs in
developed countries. Besides the mounting significance of R&D with Indian pharmaceutical producers aiming at
the discovery of new drugs, MNEs growing interests to outsource non-core business activities to India and the
reintroduction of product patent regime in 2005 are also assisting to gain competitive advantage in CRAMS
(Greene, 2007).
ICRA (2011) reported that the cost of manufacturing drugs in India is 35% lower than in the US while it is 28%
lower than in Europe. India is also an attractive destination for foreign MNEs because of the availability of the
largest number of FDA-approved manufacturing plants outside the US. Further, CRAMS also ensure international
standards by adhering to the regulatory norms of international institutions like UKMCA, EMEA and Australian TGA.
Joseph (2011) found out that foreign MNEs, such as Eli Lilly and AstraZeneca, already expressed their interest to
set up extensive manufacturing facilities with pharmaceutical firms located in emerging countries like India.
Leading global pharmaceutical firms such as GSK, Pfizer, Sanofi-Aventis, Teva, Marck and Novartis are, to a large
extent, relying on Indian firms in order to fuel their supply chain for the products like Active Pharmaceutical
Ingredients (APIs) and intermediates (FICCI, 2005). All these evidences show that India is becoming a leading des-
tination of the world efficient in CRAMS. Though Indias position as a destination for CRAMS is at infant stage, it
represents an ample opportunity for SMEs to foster their growth. Even though relatively smaller pharmaceutical
producers in India were involved in contract manufacturing at the earlier stage, larger firms had started embrac-
ing this strategy by partnering with leading global MNEs to venture marketing worldwide. The strategic alliances
between Indian firms and leading global MNEs are growing over the years. For example, these alliances exist
between Dr. Reddy and GSK, between Biocon and Pfizer, between Aurobindo and Pfizer, between Torrent and
AstraZeneca, between Glenmark and Napo Pharmaceuticals, and between Cipla and Boehringer Ingelheim.
Indias CRAMS was responsible for 67% of the global market share in 2007 which was projected to increase
by nothing less than 15% by 20092010 (Greene, 2007). Indias CRAMS market generated $2.5 billion in 2009,
which was projected to increase to $7.6 billion by 2012. The annual growth rate of CRAMS was 47.2% between
2007 and 2012. Out of the total CRAMS market financial contribution, contract manufacturing yielded $1.6 billion,
which possessed 64% of the total in 2009. However, it is essential to mention that the contract research segment
is growing at a staggering rate in comparison with global contract research market, which is estimated to be $1.5
billion in 2010 (Joseph, 2011). Although contract manufacturing still holds major share of CRAMS market in India,
there was a 40% increase in both contract research and contract manufacturing services between 2004 and 2005.
Indias contract research market is growing at a rate over three times higher than global contract research market
(Joseph, 2011).
The industry professionals proclaimed that Indian pharmaceutical firms are competent to account for around
3540% of the global CRAMS market (Kumar, 2007). Clinical trials constitute more than 50% of the contract
research. What makes India a favourable destination for clinical trials is mainly cost advantage. The cost of clinical
trials in India is more than 50% during phase I and more than 60% during phases II and III studies (ICRA, 2011).
Some other factors, such as huge population with ethnic and genetic diversity suffering from different illnesses
(Grace, 2004) and looking for cure and better treatment (Srinivasan & Nikarge, 2009), are also attributed to the
growth of clinical trials. The capacity in the area of information and communication technology (ICT) and a large
segment of English-speaking population are expediting the clinical trials business in India. The number of contract
research organisations (CROs), which are involved in clinical trials, has increased from just 20 to 100 between
2005 and 2008, and reached to 200 by 2012 (Joseph, 2015). If properly conducted, clinical trials would be benefi-
cial to the Indian pharmaceutical industry since it is an aspect that promotes capacity building. Block, Dhonkhar,
and Narayanan, (2006) in McKinsey Quarterly report of July 2006 stated that clinical trials generate 65% of this
market while new drug discovery yields the remaining 35%. Greene (2007) asserted that the pharmaceutical firms
that are actively doing contract research in India consist of a limited number of leading MNEs, subsidiaries of
large international contract research companies like Covance, Quintiles, joint ventures and partnerships between
foreign and Indian firms as well as stand-alone and offshoots of Indian firms. The author also mentioned that a
couple of MNEs actively operating in Indian market had announced that they will continue to use India as a hub
for venturing their production of APIs and finished formulations.
Although ongoing contract research does not come up with an overwhelming technology transfer that could
help in competence building, however, it allows the Indian pharmaceutical firms, at least in the short run, to
develop their expertise in some specialised areas such as development and discovery of new drugs and leverag-
ing their financial constraints. These firms that are devoted to delivering services at the early stages of drug devel-
opment and discovery are acquiring some vital strengths ranging from skill development to profit accumulation
(Joseph, 2011), which, in turn, will be the reason for conducting R&D and new drug discovery as well as moving
their value chain to a higher level. The strength that these firms built up at different stages of development and
discovery of drugs in the short run will be the stimulus for their success in the long run.
2.3. Availability of talented professionals

Adequate skills in biology and medicinal chemistry are fundamental prerequisites for venturing into new drug
development (Joseph, 2011), and Indias richness in these areas is well acknowledged. The availability of talented
professionals for discovery and development of new drugs and conducting R&D in India is equally well acknowl-
edged by industry professionals. Although the R&D base of India is still at its early and developing stage, the large
pool of skilled chemistry professionals will gear the growth of Indian pharmaceutical industry. This premium
advantage will serve the nation in determining its future trajectory to become the leading player in the global
pharmaceutical industry. India has established itself in a position to offer a huge number of research talents.
India's rich human capital is believed to be the strongest asset for this knowledge-driven industry. Various studies
show that the scientific talent pool of 4 million Indians is the second largest English-speaking group worldwide,
after the USA (Editorial, 2007). In India, around 70 million people speak English and it is well known for its excel-
lent tertiary education system. About 115,000 scientists with masters degrees and 12,000 with PhDs are produced
in the country every year (Editorial, 2007).
The sophisticated skills required for higher level of pharmaceutical research available in India make it a lucra-
tive destination for global pharma MNEs to develop and manufacture low- to high-end drugs. PwC (2011)
reported that foreign pharmaceutical firms are aggressively seizing the opportunity of Indias rising research
expertise, besides exploiting its manufacturing skills. In addition, non-resident Indians (NRIs) are also playing a
vital role in fulfilling the demand for highly skilled talents to foster the growth of Indian pharmaceutical indus-
try. These NRIs have been working in foreign pharmaceutical MNEs for long and are highly experienced in new
drug development projects. Therefore, they are becoming resource persons for foreign MNEs operating in India
(Joseph, 2011). The list of a number of NRIs who had working experience with leading global MNEs can be
found in Joseph (2011). Chaudhuri (2005) poised that an estimated 15% of those working in the US or
European pharmaceutical laboratories are of Indian origin. Since the opportunities for conducting original
research in India have a huge potential, the large pool of talented and skilled manpower will be an added
advantage for India to be the global leader for pharmaceutical production. Many leading Indian firms, like
Ranbaxy, have started utilising this skilled manpower to carry out original research at a cheaper rate than the in
the US and Western Europe.
3. Advantages of doing business in pharmaceutical and healthcare industry in India

India offers distinguishing benefits for doing pharmaceutical and healthcare business as the industry has wit-
nessed a remarkable growth in the last few decades. A federal government system with transparent distribution
of power between central and state governments, as well as an amicable place for investment with lucrative for-
eign direct investment policies have made India a favourable place for doing business and for investments. These
favourable infrastructures are considered to be beneficial for the global pharmaceutical businesses and healthcare
service providers. The consistent economic growth and the huge presence of efficient and skilled knowledge
workers have made India a desirable destination for investors who are generating high turnover, with opportuni-
ties for conducting overseas business, and the global pharmaceutical or healthcare businesses aiming to expand
beyond their borders.
The reforms taking place in healthcare sector and the ease of patent-related legislation have attracted enor-
mous interests of global pharmaceutical industries (Ministry of Health and Family Welfare Government of India
[MHFW], 2005). India is poised to generate a huge market for pharmaceutical products. There are numerous fac-
tors for which India has been considered to be an excellent and promising potential avenue for global pharma-
ceutical manufacturers in outsourcing their venture. The factors that make India attractive to the pharmaceutical
businesses are a growing pharmaceutical market, a sizeable increase in disposable income, the rise of middle-
income households, growing expansion of healthcare infrastructure, the presence of increased chronic diseases,
the rising demand for health insurance and execution of product patents. Thanks to these factors, the country is
gaining significant attention from global pharmaceutical manufacturers.
3.1. Advantages from economic growth, market expansion, socio-demographic change

3.1.1. Economic rise and growing pharmaceutical market
India is characterised by an optimistic market for global pharmaceutical manufacturers given that it is an expand-
ing economy. The population of India is growing at a very fast pace along with its tremendous economic expan-
sion over the last two decades. The population is expected to rise from 1.2 billion in 2012 to 1.6 billion by 2050.
This means that India will be witnessing a population increase of 45.5% between the year 2012 and 2050 to be
the most populous nation in the world. Although there was a decline in the GDP growth rate from 9.7% in 2005
to about 6% in 2010, the economy is still expected to have a robust growth of 7.8% over the next decade,
according to Reserve Bank of India (RBI, 2016).
Even if this growth rate continues at of 5% over the next few decades, India will be the only economy among
the emerging economies that is capable of maintaining sustainable economic growth over a longer period of up
to 2050, as suggested by Goldman Sachs (Figure 2). There are some other factors that are also to be taken into
consideration to understand why this market is beneficial for the global pharmaceutical manufacturers. For
instance, while most of the emerging Asian economies are heavily dependent on the manufacturing sector to
achieve economic growth, in contrast, Indian economy is heavily relying on its service sector to obtain the
Figure 2. India is forecast to grow by at least 5% a year for the next 41 years. (Source: BRICs and Beyond, Goldman Sachs,
November 2007).
fundamental economic growth. The service sector accounted for 64.5% of GDP in 2009, reflecting the importance
of India as a great destination for global pharmaceutical manufacturers. The country attained its competitive
advantage in offering services in the area of biotech, pharma and other related areas as a result of its improve-
ment in information technology and other key knowledge areas. As one of the leading knowledge-based econo-
mies in the world (Huang & Khanna, 2003), India offers sheer opportunities for global pharmaceutical businesses.
With such a huge population and enormous prospects, it will be difficult for global players in pharmaceutical
businesses to ignore such a promising and potential healthcare market as India.
The global pharmaceutical manufacturers will be benefited from India as a formidable manufacturing base.
They will also benefit from Indias immense economic growth and growing pharmaceutical market. The pharma-
ceutical products market size grew from $6.3 billion in 2005 to about $20 billion in 2015. This was a huge
increase in the sales volumes of pharmaceutical products. The country ranked 14th in the global ranking in terms
of pharmaceutical sales. The PwC suggests that the sales will be up to $50 billion by 2020 which would reflect
a steered 163% increase compared to 2009. The Pharma 2020 report by McKinsey (2012) also projected that the
pharmaceutical sector in India will grow to $55 billion by 2020. While domestic market is growing at an unprece-
dented rate, the pharmaceutical exports are also developing at an astounding rate. The industry is making about
65% of its attributed revenue from exporting to different countries of the world. In addition, 18% of its revenue is
being spent on research and development. Due to lower cost of research and development, offshoring by foreign
pharmaceutical businesses contributed approximately $2.5 billion of investment in India. Moreover, the market
shows a growth rate of 23% in clinical research and is forecast to generate additional $2.2 billion by 2012. If these
growth rates continue, it is likely that the Indian market will be the third largest market for pharmaceutical prod-
ucts within the next decade, just behind the US and China.
The Indian market has been witnessing an increasing presence of pharmaceutical multinationals over the years,
through the establishment of wholly owned companies or through acquisitions. Along with a number of multi-
national pharmaceutical companies that are already playing a pivotal role in the domestic market, many of them
have re-entered after 2005, to take advantage of this growing market. The market share of multinational pharma-
ceuticals is expected to reach 35% by 2015. The fundamental benefit that global pharmaceutical manufacturers
can attain is also reflected in the existing gap in terms of per capita consumption of drugs. The per capita con-
sumption of drugs in India is said to be among the lowest in the world. While India possesses $3 of per capita
drug consumption, other important markets such as Japan, Germany and the US have per capita drug consump-
tion of $412, $222 and $191, respectively. This gap in per capita drug consumption between India and the other
developed countries explains why the global pharmaceutical businesses should tap into the opportunity accruing
from this growing market.
3.1.2. The rise of middle-class and changing demographic structure and diseases
The rise of middle-class in India represents an exciting news for the global pharmaceutical companies which are
looking for new growth opportunities. India has been experiencing a significant increase in the purchasing power
of its people as the income of households in India has doubled over the past two decades. The middle-class in
India represents more than 600 million people (Krishnan & Hatekar, 2017). According to McKinsey Quarterly,
Indias middle class will form the worlds fifth largest consumer market in the next two decades as the country
will be experiencing a significant and continuous middle-class growth. Such increase in the size of the middle
class will influence the domestic demand-driven nature of Indian economy. This is also ensures that overreaching
private consumption will increase as the purchasing power of Indian population rises. Therefore, it can be con-
cluded that the global healthcare business can take advantage of the rising Indian middle-class population as this
group of people is rapidly attaining the purchasing power required to afford contemporary healthcare services.
Deutsche Bank research report (Deutsche Bank, 2006) mentioned that about 60 million middle-class people in
India have the ability to buy medicine produced in western countries. Although there exist some fundamental dif-
ferences between Indian middle-class consumers and western consumers, yet the fact remains that the former
has immense potential and rising influence than the latter. Therefore, global healthcare businesses must recognise
this newly developing Indian consumer class and take advantage of it by catering for the heterogeneous prefer-
ences of this consumer class.
Along with the growth in the demographic dividend of Indias middle-class population, there will also be a
change in demographic structure. Particularly, the aging population in India is on the rise, offering huge potential
market opportunities for global healthcare businesses to take advantage of and draw benefits from. A report of
the United Nations estimated that the proportion of people aged over 65 will increase from 5% at present to 8%
by 2025. This means that there will be approximately 55 million more people at the age of 65 and above. PwC
reported that there will be 199 million people aged 60 and above by 2028. This rise of aging population means
that typical age-related diseases such as cardiovascular and cancer will be more widespread. In addition, Indian
healthcare sector will also experience a surge in the continuing boost of some of our civilisation diseases like dia-
betics and obesity. Diabetic patients are expected to reach 73.5 million by 2025. At the current expenditure of
approximately $420 for treating a diabetic patient per year, the total expenditure would be around $30 billion by
the year 2025. Moreover, there is also an ongoing shift pattern of demand for medicine. While the sale of anti-
infectious and gastrointestinal medicines and vitamins is steadily declining (from 50% in 2001 to 36% in 2012),
the sale of medicines for cardiovascular disease, central nervous system and other chronic diseases is growing sig-
nificantly (from 50% in 2001 to 64% in 2012). These changes in the size of demographic structure-related diseases
offer opportunities for global generic pharma manufacturers to draw benefits from the Indian market.
3.1.3. The untapped rural market and health insurance coverage

The benefits of doing pharmaceutical or healthcare service businesses in India are not only limited to the above-
mentioned economic and demographic factors. Most of the healthcare facilities, whether public or private, are
located in urban settings. Rural people and dwellers of Tier-2 and Tier-3 cities are yet to gain full access to health-
care facilities. Since majority of the population still live in the rural areas and Tier-2/Tier-3 cities, this suggests that
pharmaceutical and healthcare businesses can benefit from expanding their businesses to this untapped market
and future market driver. The Indian Government has taken proactive measures to increase the healthcare infra-
structures by launching new policies such as a promise to upwardly review healthcare public expenditure to
23% of GDP, setting up of more hospitals furnished with beds, improving the quality of medical training and giv-
ing greater access to healthcare facilities. The government also introduced fiscal incentives. For example, there is
a five-year tax holiday for building and operating hospitals in India. The healthcare businesses can take the first
entry prevalence from such opportunities.
Since majority of the population live in the rural areas, and rural areas are in lack of healthcare specialists, the
demand for telemedicine is increasing, aided by the evolution of ICT sector and decreasing telecommunication
costs. It is expected that telemedicine will be a viable business opportunity for pharma and healthcare stakehold-
ers. Telemedicine is growing at a faster rate because of the fact that outside the six major towns (tiers 1 and 2 cit-
ies), availability of quality healthcare services is still narrow. Therefore, venturing into the growing telemedicine
sector would bring huge benefits to the healthcare and pharmaceutical business.
Another area that is expected to expand is the health insurance. This is as a result of better health infrastruc-
ture, mounting incidences of lifestyle illnesses, growing middle-class population and rising income. Additionally,
because of the rise in out-of-pocket medical expenditure, Indians are gradually showing interest in accessing
health insurance coverage. The implication of the above-mentioned growing concerns is that there is scope for
health insurance firms to make maximum profit by penetrating this facet of growing healthcare and medical
industry in India. It is estimated that only 35% of Indians are now covered by health insurance policies according
to the report published by the National Commission on Macroeconomics and Health of India (NCMHI, 2005).
Indian Government is also welcoming private firms participation by opening up the regulated health insurance
market, i.e. through the Insurance Regulatory and Development Act of 2000. Although there is still lack of trans-
parency in the healthcare regulatory policies enacted by Indian Government, which are putting obstacles in the
expansion of private health insurance, any healthcare insurance organisation which can come up with realistic sol-
utions to these inadequacies by recognising the ongoing healthcare system in India is on the verge of making a
meaningful venture.
3.1.4. The rise of medical tourism

One of the main external drivers of the healthcare industry in India is the growth of medical tourism in the last
decade. The factors that influence the growth of medical tourism in India are highly educated workforce, modern
private hospitals with diagnostic facilities, the presence of a large number of English-speaking staff, relatively
cheaper treatment cost compared to North American and Western Europe countries, etc. Due to the expertise of
private hospitals and their ability to provide world standard treatments, Indian medical tourism is growing over
the years. The government is also laying emphasis on the expansion of medical tourism by granting various
incentives including expediting visa issuance process for medical tourists, lowering import duties and privileged
depreciation rates on medical devices and equipment. Considering the above affirmative scenario of medical tour-
ism, it can be concluded that India is at the verge of offering ample benefits to global healthcare service
providers.
3.2. Advantages from manufacturing, outsourcing, R&D and clinical trials

In addition to the above-mentioned demographic and market structure benefits, the pharmaceutical industry in
India appears to be an attractive destination for manufacturing drugs and medical devices as the country is
already well known as the factory of generic medicine, outsourcing medical and healthcare facilities. The country
is also becoming an ideal place for research and development in various spheres of medical science, and for con-
ducting inexpensive clinical trials. The benefits related to these aspects are delineated in the next section of this
chapter.
3.2.1. Manufacturing of drugs and medical devices

The developed nations' pharmaceutical and healthcare businesses are facing serious problem of rising produc-
tion cost. In this aspect, manufacturing the products in India would provide them with some financial incen-
tives as the production cost of drugs is still much lower in India than in western countries. According to Sachs
(2007), the cost advantage of establishing a new manufacturing facility in India is one-fifth of establishing the
same facility in the western countries. Besides, the emergence of India as one of the major suppliers of a num-
ber of bulk drugs coupled with producing them at a comparatively cheaper price than the other global pro-
ducers has attracted the attention of pharmaceutical producers. Indeed, India obtained the approval of 85 APIs
and formulation plants from the US Food and Drug Administration (FDA). This is a benchmark achievement for
India. The number of approvals is the highest of such number allowed to produce outside the US borders.
Pharmaceutical firms in India make up 35% of Abbreviated New Drug Application (ANDA) approvals by FDA
of the US (Mathew, 2009). India is well positioned to consolidate the share of new generic markets because
some drugs for which sales are around $70 billion will be out of patent restrictions within the next couple of
years, a PwC estimate stressed. Therefore, it is obvious that India will become the key exporter of pharmaceut-
ical and healthcare products to world market in the nearest future, especially for over-the-counter and generic
drugs. PwC estimated that India contributes about 20% of the production of world generics. However, India
needs extensive investment for the expansion of production capacity. In line with this, pharmaceutical firms
that specialise in generic drugs can gain by sourcing their products from the Indian manufacturers or by utilis-
ing contract manufacturing facilities available in India to produce the finished products. In fact, the pharma
businesses or healthcare service providers could make huge profits by setting up their own manufacturing
facilities in India as a method of organic growth, taking advantage of flexibility in foreign ownership laws and
the implementation of a supportive tax regime.
3.2.2. Outsourcing of healthcare services

Indian healthcare market is known as the most attractive destination in the world for providing global competi-
tive and quality outsourcing facilities. The critical factors that are necessary for ensuring quality outsourcing in the
healthcare services are all available and this is advantage for the global healthcare businesses. For providing qual-
ity outsourcing facilities, India is well endowed with up-to-date technology as well as skilled and talented work-
force to perform the healthcare jobs according to international standards. If the foreign healthcare or pharma
businesses want to grow with competitive advantage through offshoring, India offers the right framework by pro-
viding offshore outsourcing services with reduced cost and high quality (Mohiuddin, 2011). Furthermore, the
country is attractive as a hub for delivering outsourcing activities in knowledge-driven sectors. The critical out-
sourcing benefits that the global pharma businesses can draw are addressed below.
In the present competitive market, the success of a healthcare business largely depends on providing services
with minimum cost which will enable the firm to attain maximum profit. Some healthcare services, such as med-
ical transcription, medical coding, medical image animation, medical illustration and claims decision, can easily be
conducted through outsourcing. Outsourcing these services to India can remarkably help the healthcare
businesses in reducing their cost by up to 60%. Outsourcing healthcare services to India will not only benefit the
healthcare service providers by minimising cost, it will also help in saving time. In addition, India, as an attractive
outsourcing destination for global healthcare service providers, offers to take advantage of its inexpensive man-
power that is capable of delivering efficient services that will leverage the burden of highly paid manpower in
developed countries as well as leveraging healthcare infrastructure. While outsourcing in India will save the firms
investment on expensive healthcare software and technology, it will allow the outsourcing firm to focus on main-
stream tasks such as patients care. This will help in reducing the outsourcing worries related to managing the
staff and meeting the requirements of health insurance portability and accountability (HIPPA). In a nutshell, out-
sourcing healthcare services to India will allow the developed countries healthcare firms to make more profits by
making substantial savings on their capital expenditure.
Many developed countries healthcare firms are looking at increasing their overall level of productivity and effi-
ciency. They can take advantage of outsourcing their non-mainstream services such as healthcare administration
and revenue cycle management to India, which will enable the developed countries healthcare firms to focus on
their core responsibilities. While this will help the developed countries healthcare firms and their staff to spend
all their time and efforts concentrating on their core jobs like patient care, they will witness quick and noticeable
progress in augmenting the efficiency and productivity at the long run. Another benefit that India offers to global
healthcare firms is the time zone advantage. As India enjoys time zone advantage against some of the developed
countries such as the US and Canada, healthcare businesses from the developed countries can embrace this time
zone advantage by outsourcing the medical transcription, billing, coding and claiming decisions. The exploitation
of this time zone advantage will benefit the global healthcare service providers by getting their important tasks
accomplished earlier than scheduled.
Moreover, outsourcing healthcare services to India will help in making and executing informed decisions and
settlements as the importance of this aspect has been critical for the development of global healthcare service
providers. Easier and quicker access to up-to-date healthcare reports from devoted Indian healthcare outsourcing
service providers will enable the developed countries healthcare service providers to have such reports at any
time and from anywhere in the world, thus enabling them to come up with informed decisions with the support
of technological means in this world of technological evolution. In addition, when the global healthcare busi-
nesses are vying for increased business performance, outsourcing healthcare services to India will be a fast way to
achieving that. The outsourcing healthcare firms will be able to improve significantly in their level of productivity,
thus boosting their profit through outsourcing non-mainstream functions to India. It will also assist in increasing
the business value and it will facilitate avoiding fierce competition from rival firms. Lastly, accuracy is an import-
ant phenomenon for improved business performance. Almost all healthcare service providers, regardless of
whether they originate from developed or developing countries, are facing scarcity of resources and lack of time
which drastically affect accuracy. Outsourcing non-mainstream healthcare services to India will eliminate worries
about maintaining accuracy as outsourcing firms in India ensure 99.9% of accuracy in accomplishing medical cod-
ing, claims adjudication, medical transcription and medical billing. Does it sound fanatical? Not really, as the
healthcare service providers in India are reputed for maintaining rigorous quality control to promote their busi-
nesses and sustain the highly competitive marketplace. The above-mentioned benefits of outsourcing healthcare
services to India suggest that India is the most appropriate destination or the place of tender for global health-
care businesses in order to further their business growth.
3.2.3. Pharmaceutical R&D

Because of the growing occurrence of diseases, low per capita consumption of drugs and sizeable increase in
Indias population, there is a possibility that pharmaceutical research and development will witness an incredible
growth in the upcoming decades. Although research and development is still at an infant stage, it is likely to wit-
ness a huge rise in the forthcoming decades. The advantages that pharmaceutical and healthcare businesses
would get from conducting research and development are as follows: a large pool of English-speaking people
about 70 million, and a huge turnover of scientists with Masters and PhDs in each year these stacks of people
comprise 115,000 and 12,000, respectively. The wage cost of recruiting this pool of people is much lower about
one-third than those in western developed countries (Dhar & Gopakumar, 2006). Research and development
expenditures in India are about one-eighth of what it costs in western developed countries (KPMG, 2006). The
rate of conducting research through collaboration in India is still low. Hence, pharmaceutical and healthcare
businesses with strong capability of doing research by incorporating government institutes and academics will be
able to gain an edge on competitive advantage.
The latest success in IT and software development is a unique advantage for India among the emerging devel-
oping economies. Realising the potentiality of this IT boom and knowledge-driven sector, like biotech, the Indian
Government is placing much emphasis on the expansion of these sectors through creating special zone for
biotechIT, such as the inauguration of Biotech-IT park of Bangalore Helix. The pharmaceutical businesses relying
on biotech and IT can enormously benefit from conducting their activities in India as the country has positioned
itself as the global hub for biotech, stem cell and bioinformatics.
3.2.4. Clinical trials

The overall costs of conducting clinical trials in India account for one-tenth of the cost of doing the same in the
US and western European countries (KPMG, 2006). The Indian pharmaceutical industry offers the highest intellec-
tual capital per dollar in the world, according to the Organisation of pharmaceutical products of India (OPPI). With
an established history of manufacturing pharmaceutical products and a large pool of well-educated workforce
comprising of 700,000 engineers and scientists, 122,000 chemical engineers and chemists, and 1500 PhDs gradu-
ating per year1, India offers tremendous opportunity for global pharmaceutical and healthcare businesses to reap
the advantage of conducting clinical trials. Although the rules for clinical trials were lenient before, the Indian
Government is increasingly adopting rigorous regulatory rules and strengthening the supervision of clinical trials.
To ensure quality of the clinical trials, a new Schedule Y-1 to the Drugs and Cosmetic Rules 1945 has been pro-
posed (Alexander, 2009). This kind of more stringent regulatory framework, combined with growing interest of
global pharmaceutical firms, will definitely boost the conduct of clinical trials in India.
India become an important market for clinical trials (Chakraborty, 2013). India is an ideal site for clinical trials
since the country has an existence of huge patient pool with remarkable genetic diversity, according to Rabo
India Finance, a subsidiary of Rabo Bank based in the Netherlands. It is relatively easy to get access to people in
India for clinical trials as over 80 million people are residing in urban areas, specifically in Indias six largest Tier-1
cities. Most importantly, the privilege of cost saving for carrying out clinical trials in India makes it an attractive
destination for pharmaceutical businesses. While over 40% of the cost of producing a new drug goes into clinical
trials (Davies & Jones, 2008), the cost of performing a clinical trial in the US is substantially 50% higher than in
India (Mitra, 2006). On the other hand, custom duties are exempted for imported drugs and materials used for
conducting clinical trials. Clinical trials also get exemption from paying service tax.
4. Challenges
Despite the aforementioned benefits of expanding pharmaceutical and healthcare business in India, there is a var-
iety of major and formidable challenges that needed to be addressed and resolved in order to create a favourable
and sustainable business environment. The local pharmaceutical players had continued their domination even
before Indian pharmaceutical industry entered into the product patent regime in 2005. At the same time, global
pharmaceutical and healthcare businesses are expanding and revitalising their interest to penetrate and play a
pivotal role in the Indian healthcare sector due to its prospects that cannot be ignored. The industry is facing
competitive pressure as well as tough business challenges. Since the industry has been moving ahead, a spurring
competitive pressure together with these foreseeable challenges may escalate in the future and may worsen the
challenges, if the healthcare businesses do not come up with proper strategies, and if the government of India
does not take necessary measures through robust healthcare reform policies. Some of these challenges are deficit
in sustainable infrastructure spending for improving healthcare facilities, absence of proper protection through
intellectual property rights (IPRs) and a number of question marks on finalising regulatory frameworks and policies
taking into consideration the control of drug prices, tax policy and access to over-the-counter drugs. The next sec-
tion is devoted to the discussion on the challenges of doing pharmaceutical and healthcare businesses in India.
4.1. Lack of Sustainability of pharmaceutical infrastructures

At present, the government of India is emphasising on extensive improvements in the pharmaceutical and health-
care business facility development through various means, i.e. encouraging publicprivate partnerships (PPPs), set-
ting up of SEZs for pharmaceutical and healthcare businesses and planning to set up designated cargo zones to
promote importation and exportation of pharmaceutical products. Many of these initiatives are still in the early
stage of their development. Moreover, the transport and energy infrastructure are inadequate and grossly insuffi-
cient to meet the growing needs of pharmaceutical and healthcare business.
While India has been experiencing considerable economic growth over the last two decades, there is still inad-
equacy in the delivery of physical healthcare infrastructure to meet the growing demand for healthcare facilities.
Although some achievements have been recorded, the inferior conditions of the available infrastructural facilities
in most parts of the Indian economy are limiting the access of many people to these facilities, and maintaining
standard requires the provision of sufficient healthcare facilities. Majority of the hospitals are government owned
and being under-funded over the years, therefore only able to provide basic healthcare facilities. Inefficient public
healthcare facilities are common because of the use of outdated medical equipment, inadequate management
and overstaffing. As a result, private healthcare providers are increasingly expanding their operations, thereby
causing the rise of citizens healthcare consumption expenditure. Some other factors that are making the out-of-
pocket expenditure to rise are low government budget on healthcare facilities which is 1.1% of gross domestic
product (GDP), lack of universal health coverage, lower penetration rate into the health insurance system, delicate
healthcare infrastructure and poor healthcare service delivery system.
The sustainability of pharmaceutical and healthcare infrastructures is largely dependent on how the govern-
ment and private sectors are aiming at overcoming these challenges and taking measures for fruitful remedies. It
has also been envisaged by the stakeholders that it will be hard for the pharmaceutical and healthcare industry
to enjoy the much-desired quantum leap if the government and private pharmaceutical and healthcare service
providers do not work in tandem.
4.2. Institutional factors

One of the key challenges in the pharmaceutical and healthcare industry in India is the continuity in making
drugs and healthcare facilities affordable for the large segment of the population. At least, the high profitability
made and reported by the listed pharmaceutical and healthcare service providing companies gives the impression
among the stakeholders and government that there is considerable scope for more reduction of prices of pharma-
ceutical and healthcare services. Furthermore, the availability of patented drugs at affordable price and their sup-
pressed pricing mechanism is posing a threat to pharmaceutical businesses that are attempting to operate in this
potentially huge market. The innovative pharmaceutical firms, which are producing patented medicines in India,
are continuously being pressurised to follow differential pricing mechanism. Although several initiatives are being
taken to resolve the issue of patented drugs, the pressure on patented drugs pricing will remain a challenge for
this growing industry. Extensive price control of patented drugs will hamper the growth pace of pharmaceutical
products and may not allow the industry to move forward.
Going forward, India is yet to generalise the prevailing tax structure. The delay in implementing the new dual
system of general sales tax (GST) and the presence of variety of tax incentives at different stages of product and
industry development are also pointers to the absence of simplified tax structure. Tax incentives that are crucial
for attracting FDI are not at the level that can compete with incentives given by some other countries, to success-
fully attract FDI in pharmaceutical and healthcare businesses.
The absence of the much-needed additional regulatory reforms is posing a challenge in creating a conducive
environment to do more research and reduce the pressure on prices of drugs, thereby creating room for a more
robust domestic pharmaceutical and healthcare industry.
4.3. Managing IP and counterfeiting

The lack of an adequate environment in protecting IPRs remains a major challenge for further expansion of
pharmaceutical and healthcare industry in India. This is because some issues related to IPRs still need to be
resolved although the Indian Government launched the Patents (Amendment) Act in 2005 for all industrial sec-
tors. These drawbacks constitute obstacles in balancing the interests of foreign and domestic pharmaceutical
manufacturers. According to PwC report, the first drawback is that the Act is not applicable to drugs patented
before 19952 and the second drawback is that copies of drugs patented between 1995 and the implementation
of the Act will perhaps not be eliminated. The Act also allows third parties to oppose the application of a patent,
which is delaying the period necessary to issue a funding (Sampath, 2006). The provisions of the Act allowing for
mandatory licencing during national emergencies could be misused or abused in the interest of commercial gains.
The lack of sufficient resources to expedite the patent application submitted to Indian Patents Office is causing
delays and the pending status of mail box application is giving manufacturers licence to free production of gen-
eric drugs while permitting them to successfully avoid accountability for damages. While the enforcement rule is
altering rather than improving, the overloaded legal system may prolong the effectiveness of the improvement
through the provisions of the Act.
Lastly, drug counterfeiting has become a deliberate issue in India as the country is still required to produce suf-
ficient credible data to prove and ascertain that these counterfeited drugs are posing mounting risks to humanity.
Because of the higher commercial interests, counterfeiting of drugs is ruining the potential pharmaceutical indus-
try. The sales of counterfeited drugs of branded pharmaceutical manufacturers are posing another key challenge
as this can negatively affect their business performance. Even though stakeholders and the government are spear-
heading and developing policies to counter the production and sale of counterfeit drugs through various meas-
ures, the pharmaceutical producers should remain at alert and maintain due diligence to the plausible emergence
of drug counterfeiting controversies.
5. Conclusions
The new economic prowess, rise of middle class, medical tourism and above all, the availability of low-cost/high-
value production factors attract many pharmaceutical firms to invest and develop partnership in India, for produc-
tion, testing and R&D. With a promising economic growth trends and the steady economic rise in Asia, the off-
shore outsourcing itself has been transformed from cost efficiency to growth strategy (Mohiuddin & Su, 2013a,
2013b, 2014). Many of the pharmaceutical firms who have engaged in offshore outsourcing to India did not only
find a relatively cost-effective place to manufacture pharmaceutical products, but also had access to talents, infra-
structures and above all, rising local, regional and global markets. Well-established networks of pharmaceutical
value chains as well as concentration of many pharmaceutical firms in India have further accelerated outsourcing
to India. The relocation process is likely to be further accelerated in the coming years. Cost pressures in devel-
oped markets, regulatory changes in international markets, Indias capability to offer world-class product mix with
high-end research services, biologics and complex technology services at low cost, and abundant availability of
professionals in the area of drugs research and development, chemistry and related field will likely keep India as
a competitive destination for pharmaceutical products development, manufacture and marketing in the coming
years. Developing special economic zones, technology parks and establishing partnerships with leading research
centres and universities for pharmaceutical industries could facilitate this business in India. Despite these prom-
ises, intellectual property (IP) issues in pharmaceutical production and changing public policies may affect this
sector and therefore need to be carefully addressed from public policy orientation, for both soft and hard infra-
structures, in a way that not only supports the current needs but also contributes to moving up the value ladder
and remaining ahead of its competitors.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. Confederation of Indian Industry study, September 2004.
2. The Patents (Amendment) Act, 2005, accessed July 6, 2009, www.patentoffice.nic.in/ipr/patent/patent_2005.pdf
ORCID
Muhammad Mohiuddin http://orcid.org/0000-0003-2009-027X
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Transnational Corporations Review

ISSN: 1918-6444 (Print) 1925-2099 (Online) Journal homepage: http://www.tandfonline.com/loi/rncr20

Relocating high-tech industries to emerging

Muhammad Mohiuddin, Mohammad Nurul Huda Mazumder, Elie

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Relocating high-tech industries to emerging markets: case of pharmaceutical

2. Rise of Indian pharmaceutical industry

Table 2. Pharmaceutical Industry in India in 2015.

2.1. Rising of R&D on infrastructure and competences

Sr. no. Financial year Filed Examined Granted

2.2. Emergence of contract research and manufacturing services

2.3. Availability of talented professionals

3. Advantages of doing business in pharmaceutical and healthcare industry in India

3.1. Advantages from economic growth, market expansion, socio-demographic change

3.1.3. The untapped rural market and health insurance coverage

3.1.4. The rise of medical tourism

3.2. Advantages from manufacturing, outsourcing, R&D and clinical trials

3.2.1. Manufacturing of drugs and medical devices

3.2.2. Outsourcing of healthcare services

3.2.3. Pharmaceutical R&D

3.2.4. Clinical trials

4.1. Lack of Sustainability of pharmaceutical infrastructures

4.2. Institutional factors

4.3. Managing IP and counterfeiting

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