Discuss about the Pharmaceutical Sector in Seeking Market Entry.
Economic development determines the causes and impacts on the health of the population of a country. It is determined by the pharmaceutical industry existing in the country. The role of the pharmaceutical industry is to discover, create and develop, produce, and market the productions for use as medications. The pharmaceutical firms deal with generic and brand medications. Several medical devices also fall under the product domain of the industry. This industry is different in different countries according to the countries’ rules and regulations regarding the health sector. As stated by Desai (2015), the laws incorporate patents, tests, safety, efficacy, and marketing the products. This industry contributes to the well-being of people by providing both health care and economic assistance. The pharmaceutical sector absorbs a huge portion of the labour force of a country. The industry provides benefits to the socio-economic structure by creating jobs, supply chains, and community development. It is also responsible for several technological innovations which increase efficiency by reducing the cost of production.
The pharmaceutical industry has shown a growth rate of eight percent on an average, all over the world. As stated by Duggan, Garthwaite and Goyal (2016), worldwide around $650 billion USD turnover has been presented by the industry. The economy of the United Kingdom was a major player in the European Union which had presented a share of a twenty-eight percent of the turnover. In terms of volume, the developing countries are way ahead of the developed nations like the United Kingdom due to their size, population, diseases, and other reasons. For the United Kingdom, the pharmaceutical industry as generated a huge trade surplus over the past ten years. According to Gernaey, Cervera and Woodley (2012), the surplus was accounted more than £2.8 billion in the year 2013. In this country, the people working in the pharmaceutical industry earn more than their counterparts from other industries. The pharmaceutical industry of the United Kingdom shows a bright future due to its consistent success in research and development wing. According to Jenkins and Oram (2013), for this purpose, every year, the company uses a huge portion of the resources available. The outcomes deliver mostly positive results making the investments worthy. This is the core of the pharmaceutical industry. The health conditions and the diseases which are known to the humankind are changing with time. As stated Morel, Popa and Simoens (2014), it requires a lot of research and development to evolve the available products to meet the purposes which the new situations demand. It also involves creating new ideas to fight the diseases which still do not have a cure.
The pharmaceutical industry of India incorporates branded drug manufacturers, generic drug creators, biopharmaceutical producing and developing companies, manufacturers of non-prescription drugs, and the researchers who look for new drugs, and solutions for different diseases. As stated by Garavaglia et al. (2013), the research and development activities in this country are mainly sponsored by the universities, hospitals and nursing care units, and several research centers. In terms of volume, India stands fourth with eight percent share, making the country the thirteenth in terms of value.
After globalization, the economy of India grew rapidly to become a $1.3 trillion USD economy. According to Horner (2013), the country has its self sufficient agricultural sector and a moderate industrial base. The financial sector and the service sector of the country have grown to be stable and become one of the biggest in the world. Before the Global Financial Crisis, the country had shown an average growth rate of 8.8 percent. Due to some turbulence in the trade sector, the country’s growth got halted and resumed during 2009-11 financial years with 8.4 percent growth rate. The population of the country is over 1.21 billion, the second highest in the world. The country consists of a large middle-class domain, which mainly determines the economic activities in the country. According to Roschangar, Sheldon and Senanayake (2015), the demographic advantages fuel the country’s development. The number of people working in the technical production process of the country is huge, creating a large market for the pharmaceutical industry.
The Indian pharmaceutical industry grew during the period 1995 – 2008. The production performance of the country improved significantly since during this period. Presently, the pharmaceutical industry in the country is a $19 billion industry which shows the scope of tremendous growth in the coming years. The pharmaceutical industry is the second largest regarding exports, exporting to more than hundred countries all over the world. A higher investment in the country’s health industry can earn a large profit for the domestic country’s pharmaceutical sector. The political scenario of India is stable under the BJP leader Narendra Modi, who has promised the Indian citizen an inclusive growth with the help of the Foreign Direct Investment. The United Kingdom has a colonial history with the country making the idea of expansion a strong one. The new economic activities in the country have been stirred due to the demonetization policy of the government authorities creating a window for investing in the country’s market. The forecasts by different economists along with those, who are working for the Reserve Bank o India, have suggested that the country will keep on witnessing a growth rate over 6.5 percent for many years. This is way greater than the other developing nations. The reason behind this is the advantageous demographic profile of the country and an existing robust service sector. The Information Technology sector of the country has shown a rapid growth, based on which the country became a major “offshore business service provider.”
According to Khanna (2012), the government of India has given priorities to the reform of the public sector, agriculture, removing labour regulations, rural and backward development, and infrastructure. These reforms have made the country attractive towards the investors from the foreign economies. As stated by Schuhmacher et al. (2013), the rate of interest rate in the country is open to investments. The Foreign Domestic Investments in India comes through some promotional routes which have been created by the government to encourage foreign investors investing in the Indian economy. For example, there exists Automatic route which allows Foreign Domestic Investment to get in the economy without any prior allowance of the government and the Reserve Bank of India. The Government route requires the Foreign Domestic Investments to gather allowance before entering the Indian market. As stated by Jong (2013), this process takes more time but offers a better involvement of in the boom that has been forecasted by the economists.
Being a part of the economic boom which awaits India will help the economy of the United Kingdom to improve in the post-Brexit period. The colonial tie between the countries will play a huge role in his regard. The post-Brexit period offers the economy a tremendous opportunity to incorporate employees from all over the world without giving any importance to the European providers. The educated Indian labour force offers the economy of the United Kingdom an efficient production process with the diversified working environment. According to DiMasi, Grabowski and Hansen (2016), this will also help the United Kingdom’s pharmaceutical industry to create a better reputation all over the world.
Understanding the future of the pharmaceutical industry of the United Kingdom in the foreign market of India requires a proper analysis of the business environment of the Indian market. This purpose can be best meet by the Porter Diamond Framework as given below:
As the figure above shows the pharmaceutical industry of India where the industry of the United Kingdom is planning to enter has the following characteristics:
India being a large country with plenty of different kinds of resources and very populated has a large number of suppliers of the inputs that are needed in the production of drugs and other health care products. According to Michelino et al. (2015), the government policies are created in order to facilitate both the suppliers and the producers. The producers get the help from the government through subsidies and tax cuts. The strength of the labour union in the suppliers market is not at par to the requirement, providing the suppliers less power than its potential. As a result, the large number of suppliers has made them price takers.
The pharmaceutical industry of India is on its way to become the third in the world in the category of the volume of the market. This makes there are many producers operating in the country. It means, the products being sold in the market are easy replaceable. Other countries who are trade partners of India like the United States of America will challenge the goods which will be provided by the British industry. According to Roemer (2013), the firms operating in the pharmaceutical industry survives by constant research and developing new strategies, innovating products, identifying new diseases, and creating better drugs and other products. Hence, there lies a huge threat of substituting products in pharmaceutical market of India.
Due to high population in the country the number of buyers in the pharmaceutical market is high, making the consumers price takers. They have no control over the market prices. The products of this industry face an in elastic demand curve. This means, no matter what the price is, the consumers will pay to avail the products. The pharmaceutical industry of the United Kingdom thus has an incentive to enter into the Indian market. The population size also ensures high revenue level in the case of a successful product launch.
The barriers to enter the market of any country come from two sides. One is the government rules and regulations and the other is the market competition which works as barriers. In the case of India, the government rules and regulations are right now in the favour of Foreign Domestic Investment which makes entering the market of the country easily. The market competition is high in India since the globalization of 1990. To survive in this market, the firms have to invest more on marketing the products along with the research and development. Consistent evolving can make a firm in this industry sustainable in India.
According to Gassmann, Reepmeyer and Zedtwitz (2013), the pharmaceutical industry of India is expected to grow over fifteen percent in the next five years. By the year 2020, the industry India will value $55 billion USD. This makes entering the market of India more lucrative for the industry of the United Kingdom. The “Pharma Vision 2020” unveiled by the government of India which allows foreign firms to join in the market faster. This increases the competition in the market. According to Sams (2013), the major players currently operating in the Indian market are Sun Pharmaceutical, Lupin Ltd, Dr. Reddy’s Laboratories, and Cipla. These companies have the major market share. The competitive market structure of India can offer the Pharmaceutical industry of the United Kingdom a healthy competition.
To understand the advantages and disadvantages of operating in the pharmaceutical industry of India, the following table is provided.
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Advantages: |
Disadvantages: |
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· India has the center spot in Asia and with a huge market structure ensuring a big consumer domain. · India being a fast growing economy has the potential of generating high revenue. · With the huge market size, the pharmaceutical industry of India has the potential to grow to be one of the biggest industry holders. · Products of the pharmaceutical industry of India can be distributed all over Asia due t its geographical location. · Lower cost of production of the country will generate more profit. · The skilled labour force of India will perform better in this industry with the proper implementation of the available resources and technologies. · The market of Australia can be reached easily from India. · India offers low cost of research and development. · India possesses a growing biotechnology industry. · The household income of the population in India is fast rising. · The government India provides incentives to the investors which makes creating a plant easy. · Colonial tie between the two countries. |
· The high competitiveness of the market can edge out a firm which fails to produce innovative results. · Issues with security and discipline. · Patent protection laws are weak in the country making product reengineering easy for the competitors. · The prices of the products has to be approved by the government which means government intervention it e country is high. · Competition from the neighbour country China is growing with time. |
Table 1: Advantages and disadvantages of the Indian Market.
Source: As created by the author.
The market entry strategies that are available for the Indian market are:
Fully owned manufacturing facilities.
Joint venture with an existing firm.
Merging and Acquisition.
Contract manufacturing.
According to Dutt and Vidal (2016), the United Kingdom being one of the biggest stakeholders in the pharmaceutical industry has all these market entry strategies as option. Choosing between these will need a detailed analysis in the grass root level. The present scenario of the two countries gives the option of Merging and acquisition as the best possible market entry strategy.
Explanation:
According to Jungmittag, Reger and Reiss (2013), entering the Indian market with fully owned manufacturing facilities will cost a huge amount of money to the firms of the United Kingdom pharmaceutical industry while the return from the industry is still unsure. Joint venture with an existing firm will bring in the firms of the United Kingdom less profit which it can achieve by working to its full potential. Contract manufacturing itself will possess a dead end for a firm with its low innovative ideas. It will decrease a firm’s sustainability.
According to Sheela and Karthikeyan (2012), merging and acquisition hold bright future for a firm entering the market of India. The acquisition is the best option as it adds up the experience of both the firms. The acquired firm has the knowledge of the market and industry as well, which can be used in favour of the parent firm. It will reduce the market risks that are a part of the Indian market. It will also make the integration easier for the new firm. Finding employees and staffs for the new firm will be easier this way. The economies of scale can also be achieved readily by this market entry strategy. According to Song (2016), it will also reduce the promotion costs for the foreign firm. The market distribution channel will be readily available, which will increase efficiency for the firm.
According to DiMasi, Grabowski and Hansen (2016), the potential implementation and the post entry issues hold the major risks for using the merging and acquisition strategy while entering the Indian market. It possesses the primary day to day challenges with new systems which might be unstable. As stated by Comanor and Scherer (2013), the acquisition might change people’s jobs in the same firm or change the required skill sets. Thus, the acquisition must consider the views of the consumer domain and align with the new processes. The marketing management risks are lower in this strategy as the previous experience of the old firm are there to be used as the guidelines for the acquiring firm. Using the existing market strategy with required updates can help the company in the quick expansion.
According to Kabir (2013), the management can face significant challenges after acquisition regarding the employees as their rising uncertainty about the new firm’s targets and intentions. The change of production and marketing strategy can confuse the employees about their roles in the production process. Due to the change in hierarchy, the current managers can get troubled to cope up with the changes and challenges that the market can present in front of the organization. The strength of the human resource management faces various challenges to make the employees understand about their new determined roles. According to Bouet (2015), the allocation of available resources changes with the new strategy. It can hamper the production process of the firm. It will directly hit the earning capability of the company. According to Guler and Nerkar (2012), it can become a challenge for the Human Resource department retaining the diversity during the transition. The consumer relationship also faces problems due to the change of authority. The change of quality and prices associated with the change might hamper the reputation of the firm.
Conclusion:
The Indian market for the pharmaceutical industry is huge than most of the developing countries. India has a favourable geographical position for exporting the products all over the Asia and even Australia. The pharmaceutical industry of the United Kingdom is one of the largest in the world in the terms of its share in the world market while India is leading due to its large volume. The combination of both can create a huge potential for the industries of the two countries after joining. The portfolio report shows that entering the Indian market has a huge profit earning potential for both the countries. It makes both the countries Pareto efficient. The negative traits of the Indian market can cause risks for the firms of the United Kingdom, but those can be avoided with proper strategy implementation. The best market entry strategy for the firms of the United Kingdom is Merging and acquisition. The advantages of the location can be utilised to earn sustainability in the Indian market.
References:
Bouet, D., 2015. A study of intellectual property protection policies and innovation in the Indian pharmaceutical industry and beyond. Technovation, 38, pp.31-41.
Comanor, W.S. and Scherer, F.M., 2013. Mergers and innovation in the pharmaceutical industry. Journal of health economics, 32(1), pp.106-113.
de Jong, H.W., 2013. The structure of European industry. Springer Science & Business Media.
Desai, S.R., 2015. Competitive dynamics An empirical analysis of large pharmaceutical companies in India.
DiMasi, J.A., Grabowski, H.G. and Hansen, R.W., 2016. Innovation in the pharmaceutical industry: new estimates of R&D costs. Journal of health economics, 47, pp.20-33.
Duggan, M., Garthwaite, C. and Goyal, A., 2016. The market impacts of pharmaceutical product patents in developing countries: Evidence from India. The American Economic Review, 106(1), pp.99-135.
Dutt, N. and Vidal, E., 2016. Small Changes, Big Growth: The Relationship between Divestitures and Knowledge Growth in the Global Pharmaceutical Industry.
Garavaglia, C., Malerba, F., Orsenigo, L. and Pezzoni, M., 2013. A simulation model of the evolution of the pharmaceutical industry: A history-friendly model. Journal of Artificial Societies and Social Simulation, 16(4), p.5.
Gassmann, O., Reepmeyer, G. and von Zedtwitz, M., 2013. Leading pharmaceutical innovation: Trends and drivers for growth in the pharmaceutical industry. Springer Science & Business Media.
Gernaey, K.V., Cervera-Padrell, A.E. and Woodley, J.M., 2012. Development of continuous pharmaceutical production processes supported by process systems engineering methods and tools. Future medicinal chemistry, 4(11), pp.1371-1374.
Guler, I. and Nerkar, A., 2012. The impact of global and local cohesion on innovation in the pharmaceutical industry. Strategic Management Journal, 33(5), pp.535-549.
Horner, R., 2013. Strategic decoupling, recoupling and global production networks: India’s pharmaceutical industry. Journal of Economic Geography, p.lbt022.
Jenkins, J.O. and Oram, S., 2013. Water use attitudes in the UK pharmaceutical industry. Water and Environment Journal, 27(4), pp.575-580.
Jungmittag, A., Reger, G. and Reiss, T. eds., 2013. Changing innovation in the pharmaceutical industry: globalization and new ways of drug development. Springer Science & Business Media.
Kabir, M.I., 2013. Reverse logistics in pharmaceutical industry. International journal of supply chain management, 2(1).
Khanna, I., 2012. Drug discovery in pharmaceutical industry: productivity challenges and trends. Drug discovery today, 17(19), pp.1088-1102.
Michelino, F., Lamberti, E., Cammarano, A. and Caputo, M., 2015. Measuring open innovation in the Bio?Pharmaceutical industry. Creativity and Innovation Management, 24(1), pp.4-28.
Morel, T., Popa, C. and Simoens, S., 2014. Market watch: Are orphan drug companies the pick of the pharmaceutical industry?. Nature Reviews Drug Discovery, 13(1), pp.10-10.
Roemer-Mahler, A., 2013. Business conflict and global politics: the pharmaceutical industry and the global protection of intellectual property rights. Review of International Political Economy, 20(1), pp.121-152.
Roschangar, F., Sheldon, R.A. and Senanayake, C.H., 2015. Overcoming barriers to green chemistry in the pharmaceutical industry–the Green Aspiration Level™ concept. Green Chemistry, 17(2), pp.752-768.
Sams-Dodd, F., 2013. Is poor research the cause of the declining productivity of the pharmaceutical industry? An industry in need of a paradigm shift. Drug discovery today, 18(5), pp.211-217.
Schuhmacher, A., Germann, P.G., Trill, H. and Gassmann, O., 2013. Models for open innovation in the pharmaceutical industry. Drug Discovery Today, 18(23), pp.1133-1137.
Sheela, S.C. and Karthikeyan, K., 2012. Financial performance of pharmaceutical industry in India using dupont analysis. European Journal of Business and Management, 4(14), pp.84-91.
Song, C.H., 2016. Understanding the aftermath of Brexit: implications for the pharmaceutical industry. Pharmaceutical Medicine, 30(5), pp.253-256.
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