06 - Chapter 1

INTRODUCTION
1
Study of strategies of top 30 Indian pharmaceutical companies (by domestic turnover) to succeed globally
1.1 Pharma Industry a brief:
The Indian pharmaceutical sector has come a long way being almost non existent
before the year 1970 to a prominent provider of healthcare products meeting almost
95% of the country's pharmaceutical needs.
India ranks among the top 15 drug manufacturing countries of the world and are rated
very high in the world in terms of technology quality and range of medicines being
manufactured.
The country boasts of manufacturing almost every type of medicine from simple
headache pills to sophisticated antibiotic and complex cardiac compounds.
The annual turnover of the Indian pharmaceutical industry is over Rs.49,500 crores
(US$11 billion) (Pharmaceutical Export Promotion Council, 2009). Globally, it ranks
4th in terms of volume with a share of 8% in the world pharmaceutical market
(“National Pharmaceutical Policies, 2006, Part A”, Department of Chemicals and
Petrochemicals, Government of India, Dec 2005). In terms of value, it ranks 14th
(Source: World Trade Organization) key therapeutic segments of Indian
pharmaceutical industry include anti-infective, gastrointestinal and cardio-vascular.
Acute therapies make up about 60% of the market. However, it is expected that with
the changing lifestyle and aging population, sale of chronic therapies (that is diabetes,
cardio-vascular) are growing rapidly.
Indian pharmaceutical sector is highly fragmented with more than 20,000

manufacturing units. The industry has been growing at over 10% annually (Source:
Wall Street Journal) in the last 10 years which is well above the industrial growth rate.
The industry is a net major foreign exchange earner.
Players in the pharmaceutical industry include: branded drug manufacturers, generic

drug manufacturers, firms developing bio-pharmaceutical products, non-prescription
drug manufacturers, firms undertaking contract research. In addition, there are also
enablers of the industry such as universities, hospitals and research centers that play a
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role in Research & Development (R&D) activities.
Indian pharmaceutical industry is at a turning point. Drug discovery process has

undergone a major change. The tight intellectual property regime requires strategic
pharmaceutical firms to focus on new drug discovery and its protections. Indian
pharmaceutical firms have to change their trajectories to meet these challenges. This
may need quantum jump in quality systems, innovation, manufacturing and marketing
competence.
The growth in production of bulk drug in India has been significant in the post
liberalization phase. India exports both bulk active and finished doses. Antibiotics
form the largest pharmaceutical segment in India followed by the vitamins, anti cough
/ cold categories and the anti inflammatory segment.
The Indian pharmaceutical industry is the most innovative industry in the country.
Even a decade ago this situation was hard to foresee.
During this era the acquisition and takeovers have taken place and as the economy has
been liberalized the inefficient organizations have been closed down.
During this period the industries who could think ahead see the future and those who
have brought efficiencies into the operation have succeeded in forming the bigger
future.
1.2 Evolution and issues:
There was a time probably till a decade ago when no Indian company would dream of
becoming a global player. Then the software industries showed what was possible
with a combination of enterprises, quick thinking and keeping customers as the
epicenter of the business. Now the entire world thinks India as one of the best
destination from where to execute its information technology strategy.
Indian pharmaceutical industry in the year 1980 and 1990 gathered the dubious
reputation of being a copy cat. By mid year 1990 while India and the rest of the world
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were applauding our software industry and its innovations, the pharmaceutical
industry was getting brickbats for flouting patent laws and opposing the General
Agreement on Tariffs and Trade (GATT). All this innovation has been swept under the
carpet.
Various policies of the Government of India have helped the Indian pharmaceutical
industry to consolidate their position in a competitive environment. The soft patent
regime prior to the year 2005 provided opportunities for this industry to witness
significant growth, particularly in generics production and exports. During this time,
the industry prepared itself to surge ahead in the global competitive environment by
adopting strategies such as increasing Research & Development (R&D) activities,
patent filings, inorganic growth strategy, contract manufacturing, contract research,
co-marketing, co-licensing arrangements, and diversification of markets.
Now General Agreement on Tariffs and Trade (GATT) is a history and the final switch
over to the Trade Related Intellectual Property Reports (TRIPS) is a reality.
Pre 1995 and during the transition period between the years 1995 to 2005 the Indian
pharmaceutical industry was governed with the process patent where for the same
product there could be different processes and accordingly depending upon non
infringement of process the patents were awarded.
Post 2005 the Trade Related Intellectual Property Rights (TRIPS) has become a
reality. Product patents have come into existence where other than the innovator, no
one will be allowed to manufacture that particular product irrespective of the process.
The drugs can be broadly classified into two categories:
ii.. Off patent or generic

iiii.. Patented
The total turnover of global pharmaceutical industry has been Rs.3,71,250 crores
(US$825 billion) (Source: Pharmaceutical Export Council (Pharmexcil), Ministry of
Commerse & Industry, Government of India) in the year 2010 and is expected to
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expand to Rs.4,38,750 crores (US$975 billion) by the year 2013. The global
pharmaceutical industry is on the threshold of a revolutionary change induced by
global competition, acquisition and mergers, intensive innovation, evolution of
biotechnology based drugs, entry of entrepreneurial biotechnology firms,
harmonization of Intellectual Property Rights (IPR) across the globe and the changing
demographic profile. A number of new technology platforms are emerging that are
facilitating this change process. Analysis of the post General Agreement on Tariffs
and Trade (GATT) scenario indicates that unless small firms innovate or are
networked, survival will be difficult. Firms will no longer be able to survive the
competition without getting integrated with the global market.
The pharmaceutical industry also has to tackle regulatory regimes that are getting
tougher day by day.
Despite the drug industry being Research & Development (R&D) intensive, Indian
pharmaceutical firms have been complacent about Research & Development (R&D).
However, the investments of Indian firms in Research & Development (R&D) remain
low both in terms of absolute value and as percentage of the total sale. While Indian
firms spend about 5% (Source: IMS, World Review 2009) of their sales on Research
and Development (R&D), global pharmaceutical firms spend as high as 15% (Source:
Indian Pharmaceutical Industry, ICRA) of their sale on research.
Indian pharmaceutical industry is entering in an era in which it is not only going to

play a pivotal role in providing generic medicines to the world but also in the process
of becoming a global hub for Research & Development (R&D) activities, which may
be in the area of new drug discovery or different stages of clinical trials. The industry
is gaining momentum to face the challenges of new patent regime and increasing
competition from low cost manufacturing and Research & Development (R&D)
destinations like China. Such challenges are helping the industry to modify the
business strategies and thereby to retain its competitive position.
With the harmonization of patent regime in the year 2005, Intellectual Property Rights
(IPR) in the pharmaceutical industry had transformed by the validity of product
patents. Hence the tactics previously adopted by several Indian firms using reverse
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engineering skills to produce drugs patented by large pharmaceutical firms may not be
feasible. Indian firms will need to increase investment in Research & Development
(R&D) and to increase the focus on patent.
The Research & Development (R&D) experience in the Indian industry has increased
substantially in the recent past. There has been a pronounced movement from process
Research & Development (R&D) to new product Research & Development (R&D) as
can be seen from the experience of the larger Indian pharmaceutical firms. The non
Research & Development (R&D) firms may have to re-examine their growth option
systematically as the market valuation of non-innovators have come down drastically
after the year 2005.
The Indian pharmaceutical industry is entering the drug discovery game when the
industries in developed countries are, to put it bluntly, at its wits end. Drug discovery
demands knowledge, skill, experience, money and few things we do not know about
yet.
In the generic business Indian pharmaceutical companies are best in the world. It is
difficult to see any other industry where Indian firms have become so competitive that
they can beat the best in the world at their own game.
Process chemistry is a complex and difficult art that takes a long time to master. It is
no wonder that Indian companies had to chip away for two decades before standing
up to be counted. Drug discovery is even more difficult and uncertain. How much
time would they need?
There are an increasing number of smaller companies spread all over the country that
work for the big ones overseas. They develop processes for the new drug candidates,
validate drug targets, optimize leads and do all kinds of sophisticated chemistry,
biology and computer science that are part of the drug discovery. The global
pharmaceutical industry has accepted that networking is the way to go in Research &
Development (R&D) and in the networked world, some Indian firms and laboratories
can acquire a prominent role.
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Pharmaceutical industry is currently under going change because of generic

convergence. This will require the co-existence of large firms and small
entrepreneurial firms. Major factors facilitating changes are leading to a restructuring
of the global pharmaceutical industry. Most of these small entrepreneur firms are
highly knowledge intensive and have alliances with the large firms, which provide
access to finance, marketing, network and facilities for clinical trials.
Many Indian pharmaceutical companies have adopted the strategy of inorganic

growth through mergers and acquisitions. Such mergers and acquisitions are being
concluded with the objective of complimenting the strengths of two entities to get
market access, new technologies and also new products. Indian pharmaceutical
industry has also been increasing the Research & Development (R&D) expenditure
significantly in recent years (Source: Indian Pharmaceutical Industry, ICRA, 2004).
Another noticeable trend in the Indian pharmaceutical industry is that, it has emerged
as an attractive destination for sourcing contract research, particularly clinical trials,
as also contract manufacturing by many large firms from the developed countries. A
well-developed manufacturing base, low cost Research & Development (R&D), large
pool of skilled man-power are some of the factors for success of Indian
pharmaceutical industry in these segments of business.
The pharmaceutical industry is at the threshold of a revolutionary change. Now

consumers are becoming more proactive in key decisions relating to their health. This
could take the form of precaution health regimes (exercise, diet) or using the internet
to educate them and then questioning the physician who treats them. Finally, there is
the emerging area of personalized medicine. These changes will transform the
industry and its dynamics. As consumers become more involved in their own
treatment, the market for preventive treatment will expand. The emerging trend is that
of healthcare and life style drugs with focus shifting from basic drugs to life style
drugs.
The real prospect lies in the discovery of new diseases causing genes and, thus new
treatment. The scale of clinical research required to make these discoveries is tough to
reach, but it is easier and cheaper in India than in any other country in the world.
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It is generally felt that much work is not being done abroad on tropical diseases like
malaria, typhoid and tuberculosis because there is a feeling that multinational drug
companies do not hope to find high growth profit markets for their research product.
India has to take lead in these areas to remove the pain of the poor masses in the
tropics who suffer from these diseases.
Drug discovery processes are changing due to the evolution of biotechnology based
drugs. The entry cost is coming down as new entrepreneur firms are evolving. New
technologies have shortened the drug discovery cycle time. However, clinical trials
account for more than 80% of the development cost and the Indian firms have yet to
develop competence and infrastructure for the same.
The generic players have to move up the quality staircase for accessing the market
through alliance.
To achieve success in the international business arena, it is imperative that Indian

pharmaceutical companies focus on specific areas and work with a long term
perspective for creating a competitive edge.
Methods to facilitate collaboration between smaller and medium firms and research
laboratories / universities should be explored for improving research and production
interfaces. The funding of research on deriving active medicines based on traditional
Indian knowledge should be encouraged. Since available options for growth of small
firms are becoming increasingly limited, there is a need to design policies that enable
contract manufacturing by them for large firms. This will need excellent
manufacturing and quality management infrastructure.
Innovation and product patents will be the critical success factors in the future.
Firms have to strengthen the technical and managerial capabilities needed for
exploiting the global market opportunities “Innovate or Evaporate” is the dictum
today in the pharmaceutical industry.
Indian companies have to re-invent themselves to take advantage of the merging
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opportunities in pharmaceuticals.
Health is defined both as cause and effect of economic development. Therefore, the
pharmaceutical industry is specifically recognized in the United Nations Millennium
development goals, as an actor that can contribute to economic development. In
addition, the pharmaceutical industry provides significant socio-economic benefit to
the society through creation of jobs, supply chains, and through community
development. The industry also plays an important role in technological innovation,
which may reduce costs of economic activity elsewhere in the economy. There are
expectations, however, by some stakeholders that pharmaceutical industry should
contribute more to economic development, through their own activities and indirectly,
through improvements in healthcare infrastructure and capacity. This reflects the
complex role of companies in healthcare, as well as the special obligation inherent in
a sector whose products and services are needed by people when they are most
vulnerable.
Indian pharmaceutical industry is one of the high performing knowledge based

segments of the manufacturing sector. The industry has achieved global status through
firm level strategies, industry initiatives and also with appropriate policy support. At
present, Indian pharmaceutical industry meets around 95% (Source: Directorate
General of Commercial Intelligence and Statistics (DGCI&S), Kolkata, Ministry of
Commerce, Government of India) of the country's domestic demand for medicines. In
addition to catering to the needs of the domestic demand, the pharmaceutical industry
is also engaged in contract manufacturing, contract research, clinical trials, contract
Research & Development (R&D) and direct exports to developed and developing
country markets.
1.3 Multinational companies presence in India:
Many of the world’s leading pharmaceutical companies have subsidiaries in India.

Multinational companies like GlaxoSmithKline, Baxter, Aventis, Pfizer, Novartis,
Wyeth and Merck have been active in India’s pharmaceutical market mainly through
subsidiaries. The re-introduction of product patents precipitated the return of a large
number of other multinational companies, some of whom left during the process
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patent era. Multinational companies have also been attracted by tax holidays, the
deduction of capital Research & Development (R&D) expenditures and other
financial incentives offered by the Indian government. Industry sources indicate that
the most significant challenges facing the multinational companies is the uncertainty
over pharmaceutical price controls and data exclusivity.
There are approximately 34 foreign drug companies engaged in the Indian

pharmaceutical market and among them are 15 of the world’s 20 largest
pharmaceutical companies. According to Federation of Indian Chambers of
Commerce and Industry (FICCI) although multinational companies have not launched
new products they have invested in new production facilities, Research &
Development (R&D) centers and many are engaged in contract manufacturing
(Source: “Competitiveness of the Indian Pharmaceutical Industry in the New Product
Patent Regime”. FICCI Report for National Manufacturing Competitiveness Council
(NMCC), March 2005), clinical trials and other forms of outsourcing. In the years
2005-2006, multinational companies invested more than Rs.774 crores (US$172
million) (Source: Directorate General of Commercial Intelligence and Statistics
(DGCI&S), Kolkata, Ministry of Commerce, Government of India) in India’s
pharmaceutical industry and Foreign Direct Investment (FDI) has grown by a
Compound Annual Growth Rate (CAGR) of 62% during the financial year 2002-
2006. However, many industry experts believe that the return of the world’s leading
pharmaceutical companies will gradually erode India’s cost advantages. According to
the organization of pharmaceutical producers of India, multinational drug companies
currently command 24% of the domestic market, though their share could rise to 40%
by year 2010. (Source: Organization of Pharmaceutical Producers of India).
GlaxoSmithKline India a 51% subsidiary of GlaxoSmithKline Plc (United Kingdom)

is the largest multinational company in India’s pharmaceutical market (Source: “GSK
Pharma net up by 16.3% yoy,” India Infoline, Feb 2007). It is the fourth largest
pharmaceutical company and leading prescription drug supplier. GlaxoSmithKline
India operates two Indian manufacturing plants and controls approximately 5.9% of
the domestic Indian market. GlaxoSmithKline India is among India’s leading
suppliers of anti-infective, anti-inflammatory, analgesic, gastro-enterological, anti-
allergic and dermatological drugs. GlaxoSmithKline India announced plans to extend
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its product line by launching several antibiotic, cancer and cardiovascular products in
India in the near term. Likewise, multinational companies dominate India’s over the
counter (OTC) drug market, with Pfizer accounting for 5.1% of the market, Sanofi-
Aventis for 5.0%, and Johnson and Johnson for 4.8%. These companies offer
analgesics, cough and cold preparations, indigestion medicines, skin care products,
vitamins and minerals. Other foreign multinationals active in India’s pharmaceutical
market include: Bristol – Myers Squibbs, Eli Lilly, Boehringer, Bayer, Chiton Corp,
Abbott, AstraZeneca, Janssen and Roche.
Recently, Teva Pharma (Israel), the world’s leading generic drug manufacturing
company, acquired a bulk drug manufacturing and intermediate facility in the state of
Uttar Pradesh. It announced plans to add two more units and more than triple the
value of its exports from India by the end of the year 2010. Teva also opened a
Research & Development (R&D) facility in India and announced plans to register
between 10 to 15 bulk drugs per year in the United States of America (USA) from its
Indian facilities.
1.4 Some recent major Indian companies Mergers and Acquisitions:
Daiichi Sankyo of Japan has acquired Ranbaxy the biggest Indian pharmaceutical
company in January 2008. Fresenius Kabi of Germany has acquired Dabur’s pharma
division which was focusing mainly in the oncology segment.
Multinationals are looking for growth in various therapeutic segments and also
different New Drug Delivery System (NDDS). Sanofi Aventis has acquired Shanta
Biotech, the path setter for Indian vaccines industry and very recently in May 2010
Abbott Laboratories of United States of America (USA) have bought the domestic
division of Piramal Healthcare.
Looking into this recent trend the Hon’ble Minister for Health Government of India
Mr. Gulam Nabi Azad has stressed the need for a regulation in order to ensure that
Indian pharmaceutical industry is not bought over by the multinationals and also the
government objectives of making cheap medicines available to the common people is
not thwarted.
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Foreign Companies Indian assets:

Table: 1.1
Month Indian Foreign Country Deal Size
Companies Companies Rs.crores (US$)
August 06 Matrix Lab Mylan Ins US 3,312 (736 mn)
April 08 Dabur Pharma Fresenius Kabi Singapore 985.5 (219 mn)
June 08 Ranbaxy Daiichi Sankyo Japan 20,700 (4.6 bn)
July 08 Shantha Bio Sanofi Aventis France 3,523.5 (783 mn)
December 09 Orchid Chem Hospira US 1,800 (400 mn)
May 10 Piramal Abbot Lab US 16,650 (3.7 bn)
1.5 Strengths and weakness of India's pharmaceutical industry:
1.5.1 Strengths:
Following are the strengths of Indian pharmaceutical industry. The industry can
capitalize on these advantages to steer growth to the next level (Source: Kumar, A R.
“Impact of TRIPs on Indian Pharma,” Pharmabiz, Dec 2004).
i. Cost advantages (development, manufacturing, Research & Development,

clinical trials).
ii. Large pool of highly trained manpower.
iii. 2nd largest number of United States Food and Drug Administration (USFDA)
approved facilities.
iv. Trade Related Intellectual Property Rights (TRIPS) compliance.
v. Lower operating margins.
vi. Drug cost a fraction of the cost in the West.
vii. Growing biotechnology industry.
viii. Reverse engineering skills.
ix. Largest number of Drug Manufacturing Files.
x. Bio-diversity.
xi. Foreign Direct Investment (FDI) up to 100 %.
xii. Strong Information Technology skills for research data management.
xiii. Political stability.
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xiv. Strong marketing and distribution network.

xv. Well established network of laboratories.
1.5.2 Weaknesses:
The pharmaceutical industry needs to overcome following weaknesses otherwise it

will not be able to perform and sustain.
i. Low level of investment in Research & Development (R&D).

ii. Highly fragmented industry.
iii. Government price controls.
iv. Low margins.
v. High tariffs and taxes.
vi. Substandard drugs and counterfeiting.
vii. Most Indian companies are small by world standards.
viii. High logistics cost.
ix. Lack of experience in drug discovery.
x. Industry concentrates at lower end of value chain.
xi. Corruption.
xii. Weak domestic market.
xiii. Low levels of per capita medical expenditure.
1.6 Opportunities for Indian pharmaceutical industry:
Today the opportunities are immense. The entire world looks towards India for next
economic growth. Indian companies need to follow strategies to tap these
opportunities for their benefit.
i. Significant export potential.

ii. Licensing deals with multinational companies for New Chemical Entity
(NCE) and Novel Drug Delivery System (NDDS).
iii. Marketing alliances for multinational companies’ products in domestic market
and international market.
iv. Contract manufacturing arrangement with multinational company.
v. Potential for developing India as a centre for international clinical trials.
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vi. Niche player in global pharmaceutical Research & Development (R&D).
1.7 Threats for the Indian pharmaceutical industry:
With the opportunities come threats. Indian pharmaceutical companies need to pay
attention to the following threats in order to deal with them proactively and find a way
out.
i. Product regime poses serious challenge to domestic industry unless it invests
in Research & Development (R&D).
ii. Research & Development (R&D) efforts of Indian pharmaceutical companies
hampered by lack of enabling regulatory requirement.
iii. Drug price control order puts unrealistic sealing on product prices and
profitability.
iv. Export effort hampered by procedural hurdles in India as well as non-tariff
barriers imposed abroad.
v. Lowering of tariff protection.
Following Table 1.2 shows the top 12 pharmaceutical companies of the world ranked
by revenue as of March 2010 according to their 2009 Annual Reports released.
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Table: 1.2
R&D
Total
Expenses Fortune
Revenues
Rank Company Country (reported 500
( USD
currency in Rankings
Billion )
Million)
United
1 Johnson and Johnson 61.9 6986 105
States
United
2 Pfizer 50.01 7845 152
States
3 Roche Switzerland 47.35 9874 CHF 171
United
4 GlaxoSmithKline 45.83 £4106 168
Kingdom
5 Novartis Switzerland 44.27 $7,469 183
6 Sanofi-Aventis France 41.99 ¢4583 181
Sweeden/
7 Astra Zeneca United 32.81 $4,409 268
Kingdom
United
8 Abbott Laboratories 30.76 2744 294
States
United
9 Merck and Co. 27.43 $5,800 378
States
10 Bayer Health Care Germany 22.30 ¢1845 154
United
11 Eli Lilly 21.84 N/A 455
States
United
12 Bristol-Myers Squibb 18.81 3647 435
States
Source: http:// en.wikipedia.org/wiki/List_of_pharmaceutical_companies, 2010
1.8 Success strategies of Indian pharmaceutical industry:
The Indian pharmaceutical industry witnesses significant growth due to favorable

policy environment, institutional set-up as also the industry initiatives to meet up the
changing business environment. However, post World Trade Organization (WTO) era
is expected to pose some new challenges to the industry. One of the challenges being
15
faced by the industry is the re-introduction of product patent to meet the Trade
Related Intellectual Property Rights (TRIPS) obligations. With such change in patent
regime, Indian pharmaceutical industry can no longer resort to reverse engineering
process, which was one of the reasons for the growth of the industry in the past.
Besides, the liberalization process has reduced the tariffs and other trade barriers to a
great extent, thus making the imports cheaper in many countries. This has made it
necessary for Indian firms to become more innovative and also to explore overseas
markets, in order to remain globally competitive. Accordingly, the industry has been
adopting new business strategies to cope with the changing scenario. Many Indian
pharmaceutical firms could foresee the changes as also challenges in the business
environment at a much earlier stage and adopted number of strategies to deal with
them.
1.9 Increasing Research & Development activities:
Pharmaceutical industry is knowledge intensive and Research & Development (R&D)

investment plays a crucial role in the growth of the industry include directional search
for solutions to existing medical problems and unmet medical requirements. In
addition, pharmaceutical Research & Development (R&D) may also be aimed at
improving the existing solutions to improve the efficiency or safety of medicines.
Thus the pharmaceutical Research & Development (R&D) may be concentrated in
New Chemical Entities (NCEs), Novel Drug Delivery Systems (NDDS) or in generic
products.
Historically, research in Indian pharmaceutical firms was concentrated mainly on

process engineering of bulk drugs and development of Novel Drug Delivery (NDDS)
for formulations. Though research in the area of discovery of New Chemical Entities
(NCEs) has taken place, due to heavy investment required in the clinical trial phase,
many companies have either licensed the molecules to players abroad or collaborated
with the overseas players to conduct clinical research. However, the post – World
Trade Organization (WTO) patent regime introduced new challenges for the Indian
pharmaceutical industry. Now the pharmaceutical companies are becoming
increasingly innovative rather than imitative. The industry is changing their Research
& Development (R&D) strategy from 'reverse engineering' to 'patent driven' research.
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Though the product patent was introduced from the year 2005, many pharmaceutical
companies realized the need of increasing their Research & Development (R&D)
efforts much earlier (Source: “India’s new product patent Law: challenges and
opportunities for local drug makers,” Pharma Market Letter, Dec 2004). Research &
Development (R&D) expenditure of the Indian pharmaceutical sector, which was
Rs.50 crores during the year 1986 – 1987, has more than doubled to Rs.125 crores by
the year 1993 –1994. This constituted around 1.8% of sales. The industries Research
& Development (R&D) spending increased 17 fold in 11 years from Rs.140 crores in
the year 1995 to Rs.2,380 crores in the year 2006. This accounts for 5% of total sales
of the industry, though few research-based companies are in fact spending more than
10% of their sales on Research & Development (R&D).
Source: Indian Pharmaceutical Industry, ICRA, 2004

Fig. 1.1
Large Indian pharmaceutical companies such as Ranbaxy, Cipla, and Dr. Reddy's
Laboratories have increased their Research & Development (R&D) spending
significantly over the years. Ranbaxy, one of the biggest Indian pharmaceutical
companies spends over 17% of sales in Research & Development (R&D) (Source:
Indian Pharmaceutical Industry ICRA, 2004). Its Research & Development (R&D)
expenditure is directed towards both drug discovery and development. Ranbaxy has a
total of three modern state-of-the-art multi-disciplinary research facilities, out of
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which two centers focus on the developments of generics and Novel Drug Delivery
Systems (NDDS) research; the third one is dedicated to New Drug Discovery
Research. Another major pharmaceutical producer, Dr. Reddy's Laboratories focuses
on discovery and development of therapeutically useful New Chemical Entity
(NCEs). The current research programs at discovery research of the company are
focused towards developing promising drug candidates in key therapeutic areas such
as metabolic disorder and cardiovascular indications. Other companies like Piramal
Healthcare, Wockhardt, Sun Pharmaceuticals and Ipca Laboratories have also set up
fully dedicated Research & Development (R&D) centers at different places to meet
the new Research & Development (R&D) challenges.
1.10 Novel Drug Delivery System (NDDS):
Historically, the most common form of drug administration was oral administration.
However, it has not been found to be very effective in some therapeutic areas.
Moreover, drug development has become increasingly complex, time consuming and
expensive. As a result there is an increased focus on making clinically established
drugs to perform better, therapeutically, in terms of efficacy, safety and improved
patient compliance by designing novel and patentable technologies or delivery
systems. This initiated research to find out other effective ways of delivery drugs to
the body. Besides focusing on mode of administration, Novel Drug Delivery Systems
(NDDS) also focuses on finding new dosage forms, so that the effectiveness of the
drug is enhanced. Research on Novel Drug Delivery Systems (NDDS) has become
very attractive among the pharmaceutical producers of late. It is because, if a patented
molecule is combined with Novel Drug Delivery Systems (NDDS), it qualifies for
fresh patent filing. Further, since many patented drugs are going off patent in the next
few years, the pharmaceutical companies have the possibility of extending the
exclusivity of marketing those products (Source: Kumar, S., Lupin aims for biotech
growth; first drug in 2011, Hindustan Times, Sep. 2010).
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Global Market for Drug Delivery System (2005)
6% 3%
5%
1%
7% 1%
12%
28%
15%
22%
Liposomal Drug Delivery Cell/gen Therapy

Rectal Need-less Injection
Controlled release Plumanory
Transnasal Transdermal
Injectible Polymer system Transmucosal
Source: Costas KaparissidesSofia Alexandridou, Katerina Kotti and Sotira

Chaitidou, Recent advances in novel drug delivery system, Journal of
Nanotechnology, Vol 2, March 2006, pp 1-11.
Fig. 1.2
19
Global Sales for Drug Delivery Products 2007-2014
90
80
70
US$ Billion
60
50
40
30
20
10
0
Targeted Transmu Transder Sustained Implant-
Drug -cosal -mal Drug Prodrugs sand
Delivery Drug Delivery Released IUDs
2007 42 32 18 15 12 5
2008 48 33 20 15 12 5
2009 51 33 20 15 12 5
2014 78 43 30 15 22 7
2007 2008 2009 2014
Source: BCC research

Fig. 1.3
1.11 Increasing patent filings:
Increasing Research & Development (R&D) investment has been showing positive
results in the pharmaceutical industry. The patents filed by and granted to Indian
pharmaceutical companies have been increasing significantly. Because, the Indian
patent act, 1970s objective was to foster the development of an indigenous Indian
pharmaceutical industry and to guarantee that the Indian public had access to low cost
drugs (Source: The Patent Act, 1970, Office of the Controller General of Patents,
Designs and Trademarks, Government of India). Indian companies have made large
number of Drug Master Files (DMF) and Abbreviated New Drug Application
(ANDA) filing with United States – Food and Drug Administration (USFDA). Over
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the years increasing number of patents filed by Indian pharmaceutical industry.

However, over 90% of the patent filings by India are in the Indian patent office as
resident. A significant number among them belong to the pharmaceutical sector. It is
reported that companies such as Aurobindo Pharma, Ipca Laboratories and Matrix
Laboratories till now have made 205, 95 and 44 patents filings, respectively. With
regard to patent filing outside India, in the year of 2005, United States of America
(USA) tops the list with over 52% share, followed by European Patent Office 14%,
China 7%, Japan 6%, Australia 4% and United Kingdom (UK) 2%.
Indian firms have comparative advantage in patent filings due to the prevalence of
high intellectual base and low cost Research & Development (R&D). In the Global
Competitiveness Report (GCR), financial year 2006-07, India got high score for the
parameter on capacity for innovation. This is due to the high quality of scientific
research and number of scientists and engineers available in the country. Increasing
Research & Development (R&D) expenditure has shown considerable results in
recent times. Many Indian companies have introduced a number of new drugs in the
domestic as well as in the overseas markets. Patent filing by Indian companies has
increased significantly. The Indian pharmaceutical industry has filed 1735 Drug
Master Files (DMF) according to the year 2008 United States Food and Drug
Administration (USFDA) data, as against 1054 from United States of America (USA)
domestic companies and more than the combined total of European and Japanese
companies. In the year 1998, India filed only three Abbreviated New Drug
Applications (ANDAs). And in the year 2009, it filed 181 Abbreviated New Drug
Applications (ANDAs).
1.12 Public – Private Partnership in Research & Development (R &

D):
Another important feature in the current trend of Research & Development (R&D)
activities in India is public private partnership. As shown in Table 1.3 many Indian
companies, besides setting up their own Research & Development (R&D) base, are
collaborating with the research laboratories such as Central Drug Research Institute
(CDRI), Lukhnow; Indian Institute of Chemical Technology (IICT), Hyderabad and
Centre for Cellular and Molecular Biology (CCMB), Hyderabad.
21
Table: 1.3
Select Public – Private Partnership Initiatives In Pharmaceutical R&D In India
CDRI (Lukhnow) IICT (Hyderabad) CCMB (Hyderabad)
Piramal Healthcare Dr. Reddy's Laboratories Dr. Reddy's Research
Limited Foundation
Ranbaxy Laboratories Cadila Pharmaceuticals Shantha Biotechnics Pvt.
Ltd. Ltd.,
Cipla Limited Sun Industries Limited Bangalore Genei Pvt. Ltd.
Wockhardt Limited Cipla Limited Dabur Research Foundation
Torrent Pharmaceuticals Orchid Chemicals Biological Evan Ltd.
Ltd.
Ipca Laboratories Ltd. Unichem Laboratories
Ltd.
Unichem Laboratories Torrent Pharmaceuticals
Ltd. Ltd.
Source: 'Competitiveness of the Indian Pharmaceutical Industry in the New Product
Patent Regime'. FICCI Report for National Manufacturing Competitiveness Council
(NMCC), March 2005
1.13 Leveraging Biotechnology:
Biotechnology is one of the areas that are showing promising future in the Indian
healthcare sector. Biotechnology drugs represent a significant part of the new
innovative medicines launched worldwide. Bio-pharmaceuticals account for more
than 10% (Source: Pharmaceutical Export Council (Pharmexcil), Ministry of
Commerce & Industry, Government of India), of global pharmaceutical industry and
India has emerged as one of the leading biotech players. Bio-pharmaceuticals in India,
comprising vaccines, therapeutics and diagnostics, have recorded over Rs.3,750
crores (US$ 1.5 billion) (Source: Pharmaceutical Export Council (Pharmexcil),
Ministry of Commerce & Industry, Government of India), revenues in the financial
year 2005-2006. Bio-pharmaceuticals thus account for over 70% of Indian biotech
industry. Share of India in global bio-pharmaceuticals market thus works out to nearly
2%. Many Indian pharmaceutical firms have been leveraging their expertise in
biotechnology including manufacture of bio-generics. Biotech is a key area of
strategic focus and a key part of the road map for the future. Biologicals are a new
sector of opportunity for Indian companies as around eight major biological products
have revenue of around Rs.67,500 crores (US$ 15 billion) are expected to go off
22
patent globally by the year 2013.
1.14 Inorganic growth strategy – Acquisitions / Joint ventures

abroad:
The global pharmaceutical industry has been undergoing the consolidation mode
driven by increasing competition and pressure on pricing and margins, on the one
hand, and desire for geographical diversification and growth in market share, on the
other. Indian companies have also adopted the inorganic growth strategy since recent
times and have undertaken several mergers and acquisitions activities. There are
various reasons, which motivate companies to go for mergers and acquisitions or
setting up of joint ventures abroad.
These include:
A company may have strong product portfolio but it may lack access to overseas
distribution network. In such cases a firm may acquire a foreign company to have a
sound distribution network. Thus, the acquisition helps the acquirer to explore new
markets.
The reason for acquisition may be firm specific also. Acquisition may take place to
gain control over new product, brands, technology and skills. Companies can acquire
strong research expertise and boost their capabilities through consolidation.
The recent trend in acquisitions also shows an attempt for vertical integration by
many firms, which are specializing in generic production to get into Active
Pharmaceutical Ingredients (API) production. This has been driven by sharp erosion
of margin in finished dosage products and intense pressure on pricing experienced by
generics manufacturing.
1.15 Strategy:
Strategy is the bridge between policy and high – order goals on the one hand and
tactics or concrete actions on the other. Strategy is a term that refers to a complex web
of thoughts, ideas, insights, experiences, goals, expertise, memories, perceptions and
23
expectations that provide general guidance for specific actions in pursuit of particular
ends. Strategy is a term that comes from the Greek strategic, meaning “generalship”.
The concept of strategy has been borrowed from the military and adapted for use in
business. A review of what noted writers about business strategy have to say suggests
that adopting the concept was easy because the adaptation required has been modest.
In business, as in the military, strategy bridges the gap between policy and tactics.
Together, strategy and tactics bridge the gap between ends and means. Here we will
review various definitions of strategy for the purpose of clarifying the concept and
placing it in context. The author's aim is to make the concepts of policy, strategy,
tactics, ends and means more useful to those who concern themselves with these
matters.
1.16 Some Language basics:
Strategy is a term that comes from the Greek had strategia, meaning “generalship”. In
the military, strategy often refers to maneuvering troops into position before the
enemy is actually engaged. In this sense, strategy refers to the deployment of troops.
Once the enemy has been engaged, attention shifts to tactics. Here, the employment of
troops is central. Substitute “resources” for troops and the transfer of the concept to
the business world begins to take form.
Strategy also refers to the means by which policy is affected, accounting for
Clausewitz famous statement that war is the continuation of political relations via
other means. Given the centuries-old military origins of strategy, it seems sensible to
begin our examination of strategy with the military view. For that, there is no better
source than B. H. Liddell Hart.
1.16.1 Strategy according to B. H. Liddell Hart:
In this book, Strategy (Source: B. H. Liddell Hart, Strategy: the indirect approach,
third revised edition and further enlarged London: Faber and Faber, 1954; reprint:
Dehra Dun, India: Natraj Publishers, 2003), Liddell Hart examines wars and battles
from the time of the ancient Greeks through World War II. He concludes that
Clausewitz' definition of strategy as “the art of the employment of battles as a means
24
to gain the object of war” is seriously flawed in that this view of strategy intrudes
upon policy and make battle the only means of achieving strategic ends. Liddell Hart
observes that Clausewitz later acknowledged these flaws and then points to what he
views as a wiser definition of strategy set forth by Moltke: “the practical adaptation of
the means placed at a general's disposal to the attainment of the object in view.” In
Moltke's formulation, military strategy it clearly means to political ends.
Concluding his review of wars, policy, strategy and tactics, Liddell Hart arrives at this
short definition of strategy: “the art of distributing and applying military means to
fulfill the ends of policy.” Deleting the word “military” from Liddell Hart's definition
makes it easy to export the concept of strategy to the business world. That brings us to
one of the people considered by many to be the father of strategic planning in the
business world: George Steiner.
1.16.2 Strategy according to George Steiner:
George Steiner, a professor of management and one of the founders of The California
management review, is generally considered a key figure in the origins and
development of strategic planning. His book, Strategic Planning, is close to being a
bible on the subject. Yet, Steiner does not bother to define strategy except in the notes
at the end of his book. There, he notes that strategy entered the management literature
as a way of referring to what one did to counter a competitor's actual or predicted
moves. Steiner also points out in his notes that there is very little agreement as to the
meaning of strategy in the business world. Some of the definitions used to which
Steiner pointed include the following:
1. Strategy is that which top management does that is of great importance to the
organization.
2. Strategy refers to basic directional decisions, that is, to purposes and missions.
3. Strategy consists of the important actions necessary to realize these directions.
4. Strategy answers the question: What should the organization be doing?
5. Strategy answers the question: What are the ends we seek and how should we
achieve?
25
Steiner was writing in the year 1979, at roughly the mid-point of the rise of strategic
planning. Perhaps the confusion surrounding strategy contributed to the demise of
strategic planning in the late 1980’s. The rise and subsequent fall of strategic planning
brings us to Henry Mintzberg.
1.16.3 Strategy according to Henry Mintzberg:
Henry Mintzberg, in his book of year 1994 (Source: The Rise and Fall of Strategic
Planning: Reconceiving the Roles for Planning, Plans, Planners, Free Press), The
Rise and Fall of Strategic Planning, points out that people use “strategy” in several
different ways, the most common being these four:
1. Strategy is a plan, a “how,” a means of getting from here to there.

2. Strategy is a pattern in actions over time; for example, a company that
regularly markets very expensive products is using a “high end” strategy.
3. Strategy is position that is; it reflects decisions to offer particular products or
services in particular markets.
4. Strategy is perspective, that is, vision and direction.
Mintzberg's typology has support in the earlier writings of others concerned with
strategy in the business world, most notably, Kenneth Andrews, a Harvard Business
School professor and for many years editor of the Harvard Business Review.
1.16.4 Strategy according to Kenneth Andrews:
Kenneth Andrews presents this lengthy definition of strategy in his book (Source:
Kenneth R. Andrews, The concept of corporate strategy, Third Edition, Publisher:
Dow Jones-Irwin Published: 1971), The Concept of Corporate Strategy:
“Corporate strategy is the pattern of decisions in a company that determines and

reveals its objectives, purposes or goals, produces the principal policies and plans for
achieving those goals and defines the range of business the company is to pursue, the
kind of economic and human organization it is or intends to be, and the nature of the
economic and non-economic contribution it intends to make its shareholders,
employees, customers and communities.”
26
Andrew's definition obviously anticipates Mintzberg's attention to pattern, plan and

perspective. Andrews also draws a distinction between “corporate strategy,” which
determines the businesses in which a company will compete, and “business strategy,”
which defines the basis of competition for a given business. Thus, he also anticipated
“position” as a form of strategy. Strategy as the basis for competition brings us to
another Harvard Business School professor, Micheal Porter, the undisputed guru of
competitive strategy.
1.16.5 Strategy according to Micheal Porter:
In a 1996 Harvard Business Review article by Porter (Source: Porter, M.E. 1991,
"Towards a Dynamic Theory of Strategy", Strategic Management Journal, 12 (Winter
Special Issue) and in an earlier book (Source: Porter, M.E. 1996, "What is Strategy",
Harvard Business Review), Porter argues that competitive strategy is “about being
different.” He adds, “It means deliberately choosing a different set of activities to
deliver a unique mix of value”. In short, Porter argues that strategy is about
competitive position, about differentiating yourself in the eyes of the customer, about
adding value through a mix of activities different from those used by competitors. In
his earlier book, Porter defines competitive strategy as “a combination of the ends
(goals) for which the firm is striving and the means (policies) by which it is seeking to
get there”. Thus, Porter seems to embrace strategy as both plan and position. (It
should be noted that Porter writes about competitive strategy, not about strategy in
general).
1.17 Global strategy….In a World of Nations?
Three steps are essential in developing a total worldwide strategy for business and its
growth as shown in Fig.1.4.
Developing the core strategy – the basis of sustainable competitive advantage.
Internationalizing the core strategy through, international expansion of activities and

adaptation. Globalizing the international strategy by, integrating the strategy across
countries.
27
The two most burning strategy issues that have become for managers around the
world are, whether to globalize and how to globalize. Many forces are driving
companies around the world to globalize by expanding their participation in foreign
markets. Almost every product market in the major world economies –
pharmaceuticals, computers and fast foods, has foreign competitors. Trade barriers are
also falling; the United States / Canada trade agreement and impending 1992
harmonization in the European community are the two most dramatic examples. Japan
is gradually opening up its long barricaded markets. Maturity in domestic markets is
also driving companies to seek international expansion. This is particularly true of
companies in the United States of America that, nourished by the huge domestic
market, have typically lagged behind their European and Japanese rivals in
internationalization.
Companies are also seeking to globalize their worldwide strategy. Such global
integration contrasts with the multinational approach whereby companies set up
country subsidiaries that design, product and market products or services tailored to
local needs. This multinational model (also described as a “multidomestic strategy”)
is now in question. Several changes seem to increase the likelihood that, in some
industries, a global strategy will be more successful than a multidomestic one.
One of these changes, as argued forcefully and controversially by Levitt, is the

growing similarity of what citizens of different countries want to buy. Other changes
include the reduction of tariff and non tariff barriers, technology investments that are
becoming too expensive to amortize in one market only, and competitors that are
globalizing the rules of the game.
Companies want to know how to globalize – in other words, expand market

participation – and how to develop an integrated worldwide strategy. Fig 1.4 shows
three steps that are essential in developing a total worldwide strategy:
Developing the core strategy – the basis of sustainable competitive advantage.

It is usually developed for the home country first.
Internationalizing the core strategy through international expansion of activities and
28
through adaptation.
Globalizing the international strategy by integrating the strategy across countries.
Multinational companies know the first two steps well. They know the third step less
well since globalization runs counter to the accepted wisdom of tailoring for national
markets.
Industry globalization drivers (underlying market, cost, and other industry conditions)
are externally determined, while global strategy levers are choices available to the
worldwide business. Drivers create the potential for a multinational business to
achieve the benefits of global strategy. To achieve these benefits, a multinational
business needs to set its global strategy levers (for example, use of product
standardization) appropriately to industry drivers and position the resources of the
business and its parent company. The organization's ability to implement the strategy
effects how well the benefits can be achieved.
Total Global Strategy
Develop Core Core Business Strategy

Business Strategy
Internationalize
the strategy
Globalize the Country Country Country Country Country

strategy A B C D E
Source: Yip, George S. (2003), Total Global Strategy II, Upper Saddle River, NJ:
Prentice Hall
Fig. 1.4
29
Framework of Global Forces
Position and Resources

of Business and Appropriate Setting for
Parent Company Global Strategy Levers Benefits /
- Major Market participation Cost of Global
- Product standardization Strategy
- Activity concentration
Industry Globalization - Uniform marketing
Drivers - Integrated Competitive moves
- Market factors
- Cost factors Organization's ability
- Environment factors to implement a Global
- Competitive factors Strategy
Prentice Hall
Fig. 1.5
1.18 What is global strategy?
Setting strategy for a worldwide business requires making choices along a number of
strategic dimensions. Table 1.4 lists five such dimensions or “global strategy levers”
and their respective positions under a pure multinational strategy and a pure global
strategy. Intermediate positions are of course, feasible. For each dimension, a
multidomestic strategy seeks to maximize worldwide performance by maximizing
local competitive advantage, revenues or profits; a global strategy seeks to maximize
worldwide performance through sharing and integration.
30
Globalization dimensions / Global strategy levers:

Table: 1.4
Setting for Pure Multi- Setting for global

Dimensions
domestic Strategy Strategy
Significant share in major
Market Participation No particular pattern
markets
Fully customized in each Fully standardized

Product Offering
country worldwide
Location of value- All activities in each Concentrated - one activity

added activities country in each (different) country.
Marketing Approach Local Uniform worldwide
Competitive moves Stand-alone by country Integrated across countries
Prentice Hall
1.19 Classifying the Environments of MNCs
Each Multinational Companies (MNCs) subsidiary operates in a different national

environment. In each country, the local subsidiary must be responsive to local
customers, governments and regulatory agencies for its on going institutional
legitimacy and economic success. To some extent, then, the Multinational Companies
(MNCs) must respond to the different contingencies presented by the multiple
environments in which it operates. Such contingencies have been categorized in the
multinational management literature as ‘forces for national responsiveness’.
Four types of MNC environments:
The environment contingencies faced by the MNC as a whole can, therefore, be

conceived in terms of extent to which it must respond to strong and unique national
environments and the extend to which it must respond to the linkages across these
national environments. Adopting the terms used by Bartlett and Ghoshal, we broadly
distinguish among four environmental conditions faced by Multinational Companies
31
(MNCs):
• A global environment in which the forces for global integration are strong and
for local responsiveness weak.
• A multinational environment in which the forces for national responsiveness
are strong and for global integration weak.
• A transnational environment in which both contingencies are strong and
• A placid international environment in which both contingencies are weak.
The Environment of MNCs: Classification of Business

Global Environment Transnational Environment
• Construction and • Drugs and
mining machinery pharmaceuticals
Strong
• Nonferrous metals • Photographic
• Industrial chemicals equipment
• Scientific measuring • Computers
instruments • Automobiles
Forces for Global • Engines
Integration International Environment Multinational Environment
• Metals (other than • Beverages
nonferrous) • Food
• Machinery • Rubber
Weak • Paper • Household appliances
• Textiles • Tobacco
• Printing and publishing
Weak Strong
Forces for Local Responsiveness
Fig. 1.6
1.20 Market participation:
In a multidomestic strategy, countries are selected on the basis of their stand-alone

potential for revenues and profits. In a global strategy, countries need to be selected
for their potential contribution to globalization benefits. This may mean entering a
market that is unattractive in its own right, but has global strategic significance, such
as the home market of a global competitor. Or it may mean building share in a limited
number of key markets rather than undertaking more widespread coverage. A pattern
of major share in major markets is advocated in Ohmae's United States of America
32
(USA) – Europe – Japan “triad” concept. In contrast, under a multidomestic strategy,

no particular pattern of participation is required – rather, the pattern accrues from the
pursuit of local advantage.
Across the globe major companies are acquiring smaller sound companies in order to
increase their reach and also are looking into the possibility of joining hands in order
to serve the market better. In addition the companies are also doing co-marketing
where depending upon individual company’s strength and thrust area if a product has
utility in more than one therapeutic area. Other companies who are strong in different
therapeutic areas pursue that product and it becomes a win-win for all.
1.21 Product offering:
In a multidomestic strategy, the products offered in each country are tailored to local
needs. In a global strategy, the ideal is a standardized core product that requires
minimal local adaptation. Cost reduction is usually the most important benefit of
product standardization. Levitt has made the most extreme case for product
standardization. Others stress the need for flexibility, or the need for a broad product
portfolio, with many product varieties in order to share technologies and distribution
channels. In practice, some multinationals have pursued product standardization to a
greater or lesser extent. Differing worldwide needs can be met by adapting a
standardized core product.
Looking into the Indian strength in manufacturing the multinational companies have
started their manufacturing base and offering product for the whole globe especially
south-east Asia. The products being manufactured in India and looking into the need
of the local consumer the product presentation test and other attributes have been
modified to appeal to the local consumer and create a winning combination.
1.22 Location of value – added activities:
In a multidomestic strategy, all or most of the value chain is reproduced in every

country. In another type, international strategy – exporting – most of the value chain is
kept in one country. In a global strategy considering costs each activity may be
conducted in a different country. One value chain strategy is partial concentration and
33
partial duplication. The key feature of a global position on this dimension is the
strategic placement of the value chain around the globe.
1.23 Marketing approach:
In a multidomestic strategy, marketing is fully tailored for each country, being

developed locally. In a global strategy, a uniform marketing approach is applied
around the world, although not all elements of the marketing mix need be uniform.
Unilever achieved great success with a fabric softener that used a globally common
positioning, advertising theme, and symbol (a teddy bear), but a brand name that
varied in each country. Similarly, a product that serves a common need can be
geographically expanded with a uniform marketing program, despite differences in
marketing environments and this is what is precisely done by all pharmaceutical
companies.
1.24 Competitive moves:
In a multidomestic strategy, the managers in each country make competitive moves

without regards for what happens in other countries. In a global strategy, competitive
moves are integrated across countries. The same type of move is made in different
countries at the same time or in a systematic sequence: a competitor is attached in one
country in order to drain its resources for another country, or a competitive attack in
one country is countered in a different country. Perhaps the best example is the
counterattack in a competitor’s home market as a party to an attack on one's own
home market. Integration of competitive strategy is rarely practiced, except perhaps
by some Japanese companies. Bridgestone Corporation, the Japanese tyre
manufacturer, tried to integrate its competitive moves in response to global
consolidation by its major competitors – Continental AG's acquisition of Gencorp's
General Tyre Rubber Company, General Tyre's joint venture with two Japanese tire
makers, and Sunitomo's acquisition of an interest in Dunlop Tyre. These competitive
actions forced Bridgestone to establish a presence in the major United States of
America (USA) market in order to maintain its position in the world tyre market.
The major merger and acquisitions in pharmaceutical field are also governed with the
same logic of integration of competitive strategy in order to increase the market share
34
by expanding territory, brand and customers.
1.25 Benefits of a global strategy:
Companies that use global strategy levers can achieve one or more of these benefits
i. Cost reductions
ii. Improved quality of products and programs
iii. Enhanced customer preference and
iv. Increased competitive leverage
1.25.1 Cost reductions:
An integrated global strategy can reduce worldwide costs in several ways. A company
can increase the benefits from economics of scale by pooling production or other
activities for two or more countries. Understanding the potential benefit of these
economies of scale, Sony Corporation has concentrated its compact disc production in
Terre Haute, Indiana and Salzburg, Austria. A second way to cut costs is by exploiting
lower factor costs by moving manufacturing or other activities to low-cost countries.
This approach has, of course, motivated the recent surge of offshore manufacturing,
particularly by United States of America (USA) firms. For example, the Mexican side
of the United States of America (USA) Mexico border is now crowded with
“maquiladors” - manufacturing plants set up and run by United States of America
(USA) companies using Mexican labor. All major United States of America (USA)
pharmaceutical companies like Pfizer and Johnson & Johnson have put their
manufacturing plants in India and China to reduce production cost.
Global strategy can also cut costs by exploiting flexibility. A company with
manufacturing locations in several countries can move production from location to
location on short notice to take advantage of the lowest costs at a given time. Dow
Chemicals takes this approach to minimize the cost of producing chemicals. Dow uses
a linear programming model that takes account of international differences in
exchange rates, tax rates and transportation and labor costs. The model comes up with
the best mix of production volume by location for each planning period.
An integrated global strategy can also reduce costs by enhancing bargaining power. A
35
company whose strategy allows for switching production among different countries
greatly increases its bargaining power with suppliers, workers and host governments.
Labour unions in European countries were very concerned that the creation of the
single European market after the year 1992 would allow companies to switch
production from country to country at will. This integrated production strategy had
greatly enhanced companies bargaining power at the expense of unions.
1.25.2 Improved quality of products and programs:
Under a global strategy, companies focus on a smaller number of products and

programs than under a multidomestic strategy. This concentration can improve both
product and program quality. Global focus is one reason for Japanese success in
automobiles. Toyota markets a far smaller number of models around the world than
General Motors, even allowing for its unit sales being half that of General Motors.
Toyota has concentrated on improving its few models while General Motors has
fragmented its development funds. For example, The Toyota Camry is the United
States of America (USA) version of a basic worldwide model and is the successor to a
long line of development efforts. The Camry is consistently rated as the best in its
class of medium sized cars, but was recently withdrawn. Industry blamed this on a
failure to invest development money to overcome minor problems. Each
pharmaceutical company depending upon their core product strength and management
depth to decide which products to position and in which market and how to achieve
leadership position and to continuously work on that.
1.25.3 Enhanced customer preference:
Global availability, serviceability and recognition can enhance customer preference

through reinforcement. Soft drink and fast food companies are, of course exponents of
this strategy. Many suppliers of financial services, such as credit cards, must have
global presence because their service is travel-related. Manufacturers of industrial
products can also exploit this benefit. A supplier that can provide a multinational
customer with a standard product around the world gains from world wide familiarity.
Pharmaceutical manufacturers have started pursuing this strategy.
36
1.25.4 Increased competitive leverage:
A global strategy provides more points from which to attack and counterattack
competitors. In an effort to prevent the Japanese from becoming a competitive
nuisance in disposal syringes, Becton Dickinson, a major United States of America
(USA) medical products company, decided to enter three markets in Japan's backyard.
Becton entered the Hong Kong, Singapore, and Philippine markets to present further
Japanese expansion.
1.26 Drawbacks of global strategy:
Globalization can incur significant management costs through increased coordination,

reporting requirements, and even added staff. It can also reduce the firm’s
effectiveness in individual countries if over centralization hurts local motivation and
moral. In addition, each global strategy lever has particular drawbacks.
A global strategy approach to market participation can incur an earlier or greater

commitment to a market than is warranted on its own merits. Many American
companies, such as Motorola, are struggling to penetrate Japanese markets, more in
order to enhance their global competitive position than to make money in Japan for its
own sake.
Product standardization can result in a product that does not entirely satisfy any
customers. When companies first internationalize, they often offer their standard
domestic product without adapting it for other countries, and suffer the consequences.
For example, Procter and Gamble stumbled when it introduced ‘Cheer’ laundry
detergent in Japan without changing the United States of America (USA) product or
marketing message (that detergent was effective in all temperature). After
experiencing serious losses, Procter and Gamble discovered two instances of
insufficient adaptation. First, the detergent did not suds up as it should because the
Japanese use a great deal of fabric softener. Second, the Japanese usually wash clothes
in either cold tap water or bath water, so the claim of working in all temperatures was
irrelevant. ‘Cheer’ became successful in Japan only after the product was
reformulated and the marketing message was changed.
37
Glaxo, Pfizer and other major multinational companies faced the problem of taste,
especially in the pediatrics segment where each country has its specific likes and
dislikes and accordingly the syrup is required to have native taste for its acceptance by
the local market.
A globally standardized product is designed for the global market but can seldom
satisfy all needs in all countries. For instance, Canon a Japanese company, sacrificed
the ability to copy certain Japanese paper sizes when it first designed a photocopier
for the global market.
Activity concentration distances customers and can result in lower responsiveness and
flexibility. It also increases currency risk by incurring costs and revenues in different
countries. Recently volatile exchange rates have required companies that concentrate
their production to hedge their currency exposure.
Integrated competitive moves can mean sacrificing revenues, profits, or competitive

position in individual countries, particularly when the subsidiary in one country is
asked to attack a global competitor in order to send a signal or to divert that
competitor’s resources from another country.
1.27 Finding the balance:
The most successful worldwide strategies find a balance between over globalizing and
under globalizing. The ideal strategy matches the level of strategy globalization to the
globalization potential of the industry. In Fig.1.7, both business A and business C
achieve balanced global and national strategic advantage. Business A does so with a
low level of strategy globalization to match the low globalization potential of its
industry (frozen food products). Business C uses a high level of strategy globalization
to match the high globalization potential of industry (computer equipment). Business
B is at a global disadvantage because it uses a strategy that is less globalized than the
potential offered by its industry. The business is failing to exploit potential global
benefits such as cost savings via product standardization. Business D is at national
disadvantage because it is too globalize relative the potential offered by its industry.
The business is not tailoring its products and programs as much as it should. While
38
there is no systematic evidence, executive’s comments suggest that far more business
suffer from insufficient globalization than from excessive globalization. A global
strategy has five major dimensions and many sub dimensions. Similarly, the potential
of industry globalization is multidimensional.
1.28 Industry globalization drivers:
To achieve the benefits of globalization, the managers of a worldwide business need

to recognize when the industry globalization drivers (industry conditions) provide an
opportunity to use global strategy levers. These drivers can be grouped in four
categories: market, cost, governmental, and competitive. Each industry globalization
driver affects the potential use of global strategy levers.
Globalization potential of Industry Vs Globalization strategy
High National
Strategic
Disadvantage
Business D Business C
Balanced
Global and
Globalization of National
Strategy Strategic
Business A Business B
Global Strategic
Low Disadvantage
Low High
Globalization Potential of Industry
Source: Dereck F. Channon, Global Banking Strategy, Chichester, West Sussex, John
Willey and Sons, 1988
Fig. 1.7
39
1.29 Market drivers:
Market globalization drivers depend on customer behavior and the structure of

distribution channels. These drivers affect the use of all five global strategy levers.
1.30 Homogeneous customer needs:
When customers in different countries want essentially the same type of product or
service (or can be so persuaded), opportunities arise to market a standardized product.
Understanding which aspects of product can be standardized and which should be
customized is key. In addition, homogeneous needs make participation in a large
number of markets easier because fewer different product offerings need to be
developed and supported.
1.31 Global customers:
Global customers buy on a centralized or coordinated basis for decentralized use. The
existence of global customers both allows and requires a uniform marketing program.
There are two types of global customers: national and multinational. A national global
customer searches the world for suppliers but uses the purchased product or service in
one country. National defense agencies are a good example. A multinational global
customer also searches the world for suppliers, but uses the purchased product or
service in many countries. The world health organization’s purchase of medical
products is an example. Multinational global customers are particularly challenging to
serve and often require a global account management program. Companies that
implement such programs have to beware of global customers using the unified
account management to extract lower global prices. Having a single global manager
makes it easier for a global customer to negotiate a single global price. Typically, the
global customer pushes for the lowest country price to become the global price. But a
good global account manager should be able to justify differences in prices across
countries.
1.32 Global channels:
Analogues to global customers, channels of distribution may buy on a global or at

least a regional basis. Global channels or middlemen are also important in exploiting
40
differences in prices by buying at a lower price in one country and selling at a higher
price in another country. Their presence makes it more necessary for a business to
rationalize its worldwide pricing. Global channels are rare, but region wise channels
are increasing in number, particularly in pharmaceutical distribution and retailing.
1.33 Transferable marketing:
The buying decision may be such that marketing elements, such as brand names and
advertising, require little local adaptation. Such transferability enables firms to use
uniform marketing strategies and facilitates expanded participation in markets. A
worldwide business can also adapt its brand names and advertising campaigns to
make them more transferable, or, even better, design global ones to start with.
Offsetting risks include the blandness of uniformly acceptable brand names or
advertising, and the vulnerability of relying on a single brand franchise.
1.34 Cost drivers:
Cost drivers depend on the economics of the business; they particularly affect activity
concentration. Economy of scale helps to reduce the operating cost.
1.35 Economies of scale and scope:
A single country market may not be large enough for the local business to achieve all
possible economies of scale and scope. Scale at a given location can be increased
through participation in multiple markets combined with product standardization or
concentration of selected value activities. Corresponding risk include rigidity and
vulnerability to disruption.
In the past few years, the economics of pharmaceutical industry has shifted. As the
cost of production has decreased, the economic advantage has gone to companies that
can produce the lowest product. Size has become major asset. Pfizer, the major
pharmaceutical company of United States of America (USA), understood the need to
have a worldwide presence in an industry characterized by economics of scale. Pfizer
greatly increased its operating scale and its global coverage by acquiring the
companies around the world.
41
1.36 Learning and experiencing:
Even if economies of scope and scale are exhausted, expanded market participation
and activity concentration can accelerate the accumulation of learning and experience.
The steeper the learning and experience curves, the greater the potential benefit will
be. Managers should beware, though, of the usual danger in pursuing experience
curve strategies – over aggressive pricing that destroys not just the competition but
the market as well. Prices get so low that profit is insufficient to sustain any
competitor.
1.37 Sourcing efficiencies:
Centralized purchasing of new materials can significantly lower costs. Himont began
as a joint venture between Hercules INC. of the United States and Montedison
Petrochemical SPA of Italy, and is the leader in the global polypropylene market.
Central to Himont’s strategy is global coordination among manufacturing facilities in
the purchase of raw materials, particularly monomer, and the key ingredient in
polypropylene production. Rationalization of raw material orders significantly
strengthens the venture’s low-cost production advantage.
All major pharmaceutical multinational companies are sourcing major raw materials
and products manufactured either in India or China to keep overall manufacturing cost
lower. In addition the contract manufacturing has got tremendous importance to keep
the overall cost lower (Source: D’Silva, J. “Drug cos bet on contract manufacturing,”
The Economic Times, Jul 2006).
1.38 Favorable logistics:
A favorable ratio of sales value to transportation cost enhances the company’s ability
to concentrate production. Other logistical factors include non-perishability, the
absence of time urgency, and little need for location close to customer facilities. Even
the shape of the product can make crucial difference. Cardboard tubes, such as those
used as cores for textiles, cannot be shipped economically because they are mostly air.
In contrast, cardboard cones are transportable because many units can be stacked in
the same space.
42
The product shape and size plays a significant role in order to reduce overall logistics
cost in pharmaceutical companies.
1.39 Differences in country costs and skills:
Factor costs generally vary across countries; this is particularly true in certain
industries. The availability of particular skills also varies. Concentration of the
activities in low cost or the high skill countries can increase the productivity and
reduce the costs, but the managers need to anticipate the danger of training future
offshore competitors.
Under attack from lower – priced drugs, Glaxo has needed to reduce its costs. It is
doing so by concentrating its production to take advantage of the differences in
various countries cost. Glaxo had put manufacturing facility in early 1980’s in India.
To take advantage of this cost differential, the company moved production, freeing up
the high-wage western labor to produce the higher-priced drugs. Another example of
this concentration occurred when Pfizer and other multinational pharmaceutical
companies have all started adopting this strategy. The higher end of the product line
including patented drugs would be exported from United States of America and
Europe and generics will be sourced mainly from India and China. This concentration
and coordination of production has enabled the company to lower costs substantially.
Eastern Europe, South-East Asia, Latin America are the geographical zones which are
reasonably cheaper than their western counterpart that is the reason manufacturing is
getting shifted to this part of the world to lower the overall cost using local skill at
cheaper cost.
1.40 Product development costs:
Product development costs can be reduced by developing a few global or regional

products rather than many national products. The pharmaceutical industry is
characterized by long product development periods and high product development
cost. One reason for the high costs is duplication of efforts across the countries. The
Pfizer’s “Centers of Excellence” program aims to reduce this duplication of efforts
and to exploit the differing expertise of Pfizer specialists worldwide. As part of the
43
concentrated effort, United States of America and Europe are focusing on Research &
Development (R&D) and new market strategies and off patented drugs production has
been given to subsidiaries around the world mainly in India and China. This
concentration of work is estimated to save “hundreds of millions of dollars per drug
by eliminating duplicative efforts and saving on retooling factories”.
1.41 Governmental drivers:
Government globalizations drivers depend on the rules set by national governments

and affect the use of all global strategy levers.
1.42 Favorable trade policies:
Host governments affect globalization potential through imports tariffs and quotas,
non-tariffs barriers, export subsidies, local content requirements, currency and capital
flow restrictions, and requirements on technology transfer. Host government policies
can make it difficult to use the global levers of major market participation, product
standardization, activity concentration, and uniform marketing; they also affect the
integrated-competitive moves lever.
National trade policies constrain company’s concentration of manufacturing activities.

Aggressive United States of America (USA) government actions including threats on
tariffs, quotas, and protectionist measures have helped convince Japanese and other
manufacturers to give up their concentration of manufacturing in Japan. Japanese
companies have opened plants in the United States and even Indian governments
initiative have helped them to put factories in India.
The easing of government restrictions can set off a rush for expanded market
participation. European community regulations for banking and financial services
were harmonized in 1992. The European community’s decision to permit the free flow
of capital among member countries has led European financial institutions jockey for
position. Until Euro formation, the Deutsche Bank had only fifteen offices outside of
Germany, but it has established a major presence in the French market after Euro
formation and Deutsche Bank also moved into the Italian market by acquiring Bank
of America’s one hundred branches there. Other financial organizations, such as J. P.
44
Morgan of the United States, Swiss Bank Corporation, and the S. P. Warburg Group in
Britain have increased their participation in major European markets through
acquisitions. Post 2000 even now Indian banks like State Bank of India and ICICI
have opened their office in Europe and United States of America and are working
aggressively to capture market.
1.43 Compatible technical standards:
Differences in technical standards, especially government imposed standards, limit the

extent to which products can be standardized. Often, standards are set with
protectionism in mind. Motorola found that many of their electronics products were
excluded from the Japanese market because these products operate at a higher
frequency than was permitted in Japan. Likewise each country has its own regulatory
norms for pharmaceutical keeping in mind the safety of its people and to leverage
protection to its native companies.
1.44 Common marketing regulations:
The marketing environment of individual countries affects the extent to which

uniform global marketing approaches can be used. Certain types of media may be
prohibited or restricted. For example, the United States of America (USA) is far more
liberal than Europe about the kind of advertising claims that can be made on
television. The British authorities even veto the depiction of socially undesirable
behavior. For example, British television authorities do not allow scenes of children
pestering their parents to buy a product. And, of course, the use of sex is different. As
one extreme, France is far more liberal than the United States about sex in advertising.
Various promotional devices, such as lotteries, may also be restricted. The Indian
government also has their code of conduct for advertising.
1.45 Competitive drivers:
Market, cost and governmental globalization drivers are essentially fixed for an
industry at any given time. Competitors can play only a limited role in affecting these
factors (although a sustained effort can bring about change, particularly in the case of
consumer preferences). In contrast, competitive drivers are entirely in the realm of
45
competitor choice. Competitors can raise the globalization potential of their industry
and spur the need for a response on the global strategy levers.
1.46 Interdependence of countries:
A competitor may create competitive interdependence among countries by pursuing a

global strategy. The basic mechanism is through sharing of activities. When activities
such as production are shared among countries, a competitor’s market share in one
country affects its competitive position in a lead country as an indicator of overall
quality. Companies frequently promote a product as, for example, “The Leading
Brand in the United States”. Other competitors then need to respond via increased
market participation, uniform marketing, or integrated competitive strategy to avoid a
downward spiral of sequentially weekend position in individual countries.
1.47 Globalization competitors:
More specifically, matching or preempting individual competitor moves may be

necessary. These moves include expanding into or within major markets or being the
first to introduce a standardized product, or being the first to use a uniform marketing
program.
The need to preempt a global competitor can spur increased market participation. By
the end of the last century, Unilever the European consumer products company,
sought to increase its participation in the United States of America (USA) market by
launching a hostile takeover bid for Richardson-Vicks Inc. European system, Procter
and Gamble was able to greatly strengthen its European positioning. So Unilever’s
attempt to expand participation in a rival’s home market backfired.
In summary, industry globalization drivers provide opportunity to use global strategy

levers in many ways. Some industries, such as civil aircrafts, can score high on most
dimensions of globalization. Others, such as the cement industry, seem to be
inherently local. But more and more industries are developing globalization potential.
Even the food industry in Europe, renowned for its diversity of taste, is now a
globalization target for major food multinationals.
46
1.48 Change over time:
Finally, industry evolution plays a key role. Each of the industry globalization drivers
are changing over time, so too will the appropriate global strategy change. For
example, in the European major pharmaceutical industry, globalization forces seem to
have reversed. In the year 1970s, a regional standardization strategy was successful
for some key competitors. But in the year 1980’s the situation appears to have turned
around, and the most successful strategies seem to be national.
In some cases, the actions of individual competitor can affect the direction and pace of
change; competitors positioned to take advantage of globalization forces will want to
hasten them. For example, a competitor with strong central manufacturing capabilities
may want to accelerate the worldwide acceptance of standardized product.
1.49 More than one strategy is viable:
Although they are powerful, industry globalization drivers do not indicate one
formula for success. More than one type of international strategy can be viable in a
given industry.
Industries vary across drivers. No industry is high on every one of the globalization. A
particular competitor may be in a strong position to exploit a driver that scores low on
globalization. The dominance of national government customers typically prefers to
do business with their own nationals. In such an industry a competitor with a global
strategy can use its other advantages, such as low cost from centralization of global
production, to offset this drawback. At the same time, another multinational
competitor with good government contacts can pursue a multidomestic strategy and
succeed without globalization advantage, and single country local competitors can
succeed on the basis of their very particular local assets. The hotel industry provides
example both of success global and of successful local competitors.
Global effects are incremental. Globalization drivers are not deterministic for a
second reason the appropriate use of strategy levers adds competitive advantage to
existing sources. Superior technology is a major source of competitive advantage in
47
most industries, but can be quite independent of globalization drivers to offset

globalization disadvantages.
Business and parent company position and resources are crucial. The third session that
drivers are not deterministic is related to resources. A worldwide business may face
industry drivers that strongly favor a global strategy. But global strategies are
typically expensive to implement initially even though great cost savings and revenue
gains should follow. High initial investments may be needed to expand within or into
major markets, to develop standardized product to relocate value activities, to create
global brands. The strategic position of the business is also relevant. Even though a
global strategy may improve the business long term strategic position, its immediate
position may be so weak that resources should be devoted to short term. Lastly,
investing in non-global sources of competitive advantage, such as superior
technology, may yield greater returns than global ones, such as centralized
manufacturing.
Organizations have limitations. Finally, factors such as organization structure,

management processes, people and culture affect how well a desired global strategy
can be implemented. Organizational differences among companies in the same
industry can, or should, constrain the companies’ pursuit of the same global strategy.
48
Domestic v/s International business strategy:
Table: 1.5
Domestic strategy International strategy
Single language Multilingual
Relatively homogeneous markets Different cultures and ethnic groups
Single or relatively unified market Diverse markets
Effective marketing research Marketing research difficult and costly
Political involvement not vital Political involvement often vital
Political and government stability Political uncertainty
Uniform financial environment Uncertain financial climate
Single currency Foreign exchange fluctuations
Stable regulatory environment Regulatory conditions uncertain
Stable labor relations Unstable labor relations
No problem with nationalism Nationalism and protectionism

Prentice Hall
49
Global Strategy – Two Approaches:
The global strategies can have two approaches as shown below:
Table: 1.6
Multidomestic Industries Global Industries
Competitive Competition in each country is An industry in which a firm's

Characteristics essentially independent of competitive position in one
competition in other countries. country is significantly effected by
its position in other countries and
The international industry vice-versa.
becomes a collection of The industry is not merely a
essentially domestic industries. collection of domestic industries
but a series of linked industries in
which rivals compete against each
other world-wide.
Strategy The firm should manage its The firm must integrate its
international activities as a activities on a world-wide basis to
portfolio. capture linkages between
National strategies should enjoy a countries.
high degree of autonomy. The global competitor must view
The firm's strategy in a country its international activities as an
should be determined by overall system but must still
conditions in that country; i.e. it maintain some country perspective
should be a country-centred
strategy.
International strategy collapses to
a series of domestic strategies.
Source: Porter, M.E., Competition in Global Industry, Harvard Business Press, 1986 -
Business & Economics
50
Product Life Cycle:
Live cycle of a product passes through different stages as shown in Table 1.7
Table: 1.7
Introduction Growth Maturity Decline
Production In innovating In innovating and Multiple Mainly in LDC's

location country others countries
Market Mainly in Mainly in Growth in LDC's Mainly in LDC's

innovating industrialized some decrease in some LDC
country, with nations industrialized exports
some exports Shift in export countries overall declining
market as foreign overall stabilized demand
production demand
Competitive Near monopoly Number of Number of Price is key

factors position competitors competitors weapon
sales based on increases decreases number of
uniqueness some competitors price is very producers
rather than price begin price important continues to
evolving product cutting decline
characteristics product becomes
more standardized
Production Short production Capital input Long production Unskilled labour

technology runs increases runs, using high in mechanized
evolving capital inputs long production
methods to highly runs
coincide with standardized
product
evolvement less labor skill
high labor to required
capital input
Source: Daniels, John D., Lee H. Radebaugh and Daniel P., International Business:
Environments and Operations
51
Main competitive strategies adopted by Indian firms:

Following competitive strategies are adopted by Indian pharmaceutical companies to
generate bigger sales volume (Table 1.8).
Table: 1.8
Strategy Examples
Specialty generics Several development initiatives at both Cipla and DRL are
actively focusing on the development of specialty generics.
No infringing processes Ranbaxy’s non-infringing process on Cefuroxime Axetil
enabled Ranbaxy to be its sole seller for almost one and a
half years in the United States of America (USA) market.
Matrix Laboratories has developed its own non-infringing
process on Citalopram and is the sole exporter of the Active
Pharmaceutical Ingredients (APIs) to Europe presently.
Novel drug delivery Ranbaxy has licensed its Novel Drug Delivery System
systems (NDDS) on ciprofloxacin to Bayer AG that is under
consideration in the United States of America (USA) right
now. It is also actively involved in developing Novel Drug
Delivery System (NDDS) in several other therapeutic areas
such as gastric retention.
New chemical entities Ranbaxy licensed out its New Chemical Entities (NCEs)
RBx 2258 for the treatment of cancer to Schwarz Pharma
AG. This New Chemical Entities (NCEs) has now been
dropped from clinical trials.
Dr. Reddy’s had licensed out its molecule for the treatment
of diabetes (Balaglitazone) to Novo Nordisk in the year of
1997, for carrying out toxicology studies that form part of
Phase II clinical trials. This molecule also had to be dropped
from clinical trials due to toxicity issues.
Source: Field interviews conducted by author, 2007
Table 1.8 and 1.9 contains an illustrative list of major competitive and collaborative
strategies emerging in the Indian industry. In-licensing arrangements are a major
cooperative strategy for all major Indian pharmaceutical companies and following is
52
list of some examples of in-licensing agreements that Indian firms have entered into.
As mentioned, Indian firms are, in some cases, also using in-licensing agreements to
acquire new technologies. For example, in the agreement between Zydus Cadila and
Fermenta Biotech, the Zydus Cadila has the “…exclusive rights for the
commercialization of this technology, with manufacturing assistance being provided
by Fermenta Biotech Ltd.”
Main collaborative strategies adopted by Indian firms:
Table: 1.9
Strategy Examples
In-licensing Piramal Healthcare and Roche agreement on launching Roche’s
arrangement products dealing with cancer, epilepsy in the local market (CII,
1999, P. 23).
Agreement between Ranbaxy and K.S. Biomedix Ltd accords
Ranbaxy exclusive marketing rights for TransMID, a
biopharmaceutical product used in the treatment of brain cancer
in India with an option to expand this to China and other South
East Asian countries (IBEF and Ernst and Young, 2004).
Agreement between Zydus Cadilla and Fermenta Biotech Ltd.
(A subsidiary of Duphar Interfran Ltd) that gives Zydus process
technologies to manufacture Lisinopril and Benazepril
exclusively within India.
No infringing Ranbaxy’s non-infringing process on Cefuroxime Axetil
processes enabled Ranbaxy to be its sole seller for almost one and a half
years in the United States market.
Matrix Laboratories has developed its own non-infringing
process on Citalopram and is the sole exporter of the Active
Pharmaceutical Ingredient (API) to Europe presently.
Collaborative GlaxoSmithKline and Ranbaxy have a collaborative Research
Research & & Development (R&D) arrangement for the development of
Development (R&D) new drugs in the areas of infective diseases and diabetes.
Cipla has established a Research & Development (R&D) deal
53
with a smaller biotechnology firm, Avestagen Laboratories to

produce the biogeneric drug for Arthritis, N-Bril.
Ranbaxy and Avestagen Laboratories have collaboration for the
production of New Chemical Entity (NCEs) using
biotechnological techniques.
Avestagen has collaboration with AstraZeneca Research facility
to help develop their Tuberculosis (TB) Dots products.
Biocon’s subsidiary Syngene performs a large range of contract
Research & Development (R&D) activities for pharmaceutical
firms world-wide.
Avestagen Laboratories, also a biotechnology firm, performs
Research & Development (R&D) for European pharmaceutical
companies
Source: Field interviews conducted by author, 2005; IBEF, Indian brand Equity
Foundation and Ernst and Young, ‘Pharmaceuticals’, 2004. “The Indian
Pharmaceutical Industry: Collaboration for Growth”, KPMG, 2006, Krishnan, R. “It’s
Europe for Ranbaxy”, The Financial Express, April 2006
1.50 The ways to find the Strategies:
There are no permanently excellent companies, just as there are no permanently

excellent industries. Every business is a growth business, if right strategies are
formulated at right time and executed properly.
Innovative strategy challenges company to break out of the old assumption

competition by uncontested market space that makes the competition irrelevant.
Instead if dividing up existing and often shrinking demand and bench marking
competitors, innovative strategy is about growing demand and breaking away from
the competition.
Companies step up to the challenges and creating innovative strategy in a smart and
responsible way in both opportunity maximizing and risk minimizing.
To win in the future, companies must stop competing with each other. The only way
54
to beat the competition is to stop trying to beat the competition.

Following are the principls to overcome in the existing product and market set up:
A. Formulation Principle
1 Reconstruction market boundaries
2 Focus on the big picture not numbers
3 Reach beyond existing demand
4 Get strategic sequence right
B. Execution Principle
1 Overcome key organization hurdles
2 Build execution in the strategy
1.51 Institutionalization of strategy innovation in the existing

organization
In today’s increasing competitive, global market, even the most successful business
are hitting plateaus in revenue and profit growth faster than ever before.
Emerging industries have become increasingly attractive as markets that represent

new opportunities for corporations to capture long term growth and sustain their
competitive advantage.
Existing organizations go wrong in “idea execution in new business, noting that most
companies do not foster a well defined environment for strategy innovation.
Defining characteristics of four different types of innovation

Innovation type Expense of single Length of each Ambiguity of
experiment experiment results
Continuous process Smallest Shortest Clearest
improvement (could be days)
Process revolution
Product/services
innovation
Strategic
Longest
innovation Largest Most ambiguous
(could be teays)
Fig. 1.8
55
Characteristics of strategic experiments

1 High revenue growth potential
2 Focus on emerging industries
3 Test an unproven business model
4 Radical departure from existing business
5 Use of some existing assets and competencies
6 Development of new knowledge and capabilities
7 Discontinuous rather than incremental value creation
8 Great uncertainty across multiple functions
9 Unprofitable for several quarters
1.52 Need of the Research:
The research work 'Study of Strategies of top 30 Indian pharmaceutical companies (by
domestic turnover) to succeed globally' has been taken because of its relevance to the
following factors:
Healthcare is the primary concern of any human being and it is of utmost importance
for the government to ensure that it reaches across the masses at reasonable and
affordable price.
In the United States of America (USA) and the Western Europe the biggest spending
done by government is in the healthcare sector. All governments are struggling to
keep medicinal prices at reasonable level. It is a big hole in the government
expenditure.
We are all aware about the Clinton Foundation initiative to provide affordable
medicines to third world countries specially Africa and other deprived nations mainly
for Malaria, Human Immunodeficiency Virus (HIV) and Acquired Immunodeficiency
Syndrome (AIDS) and there also the Indian companies have played a major role
(Source: Nagarajan, R., India a lifeline to HIV+ in poor nations, The Times of India,
Sep 2010). Cipla, Ipca, Hetero and Ranbaxy have been cleared to supply even
patented drugs of multinationals as generic to these markets.
56
Cipla sells Human Immunodeficiency Virus (HIV) medicines which are Rs.45/-
(US$1) per day as treatment cost against more than Rs.1,350/- (US$30) per day
treatment cost of Novartis.
In the Indian context if we see the Information Technology (IT) and pharma are the
two major growth drivers and more so to overcome any mental block both the sectors
have proven that Indian companies are better and if not better at least at par with any
major multinational company.
From the year 1970 till the year 1995 the Indian pharmaceutical market was under the
process patent and was working under the protected atmosphere of the government,
between the years 1995 – 2005 was a transition phase and India had accepted World
Trade Organization (WTO) guidelines of product patent from the year 2005 onwards
hence it is very important to understand and find out the change in market dynamics,
change in patent regime and with the willingness of the major multinationals to
pursue Indian market more aggressively how Indian companies strategies their
position and decide to use for their advantage to put an impression in the overall
global market.
Harmonization of Patents regime in the year 2005, intellectual property rights in the
pharmaceutical industry will be transformed by the validity of product patents.
With the opening up of global market and the penetration of Indian drugs across the
world especially in the developed countries the innovator costs have become highly
uneconomical and the trend has been shifted towards outsourcing the manufacturing
from India.
Exploiting the talent pool and business acumen Indian companies have started
developing their own molecule and also providing contract research facility to bigger
multinational.
Need for fresh and innovative strategies. To remain viable in new competitive
environment, six out of 10 survey respondents believe that Indian pharma firms will
expand rapidly during the next five years, taking on more risks, building greater
57
product depth, and developing substantially increased scale and deeper expertise. The
question is, will they move quickly enough? To build efficient global scale in time,
Indian firms can take three important steps. Indian pharma companies can position
themselves as indispensable service providers to global pharmacos along the path that
drugs travel from Research & Development (R&D) through manufacturing to new life
as generics. The discovery and development partnerships being formed between
Indian companies and global players are a good foundation, providing the skills and
capabilities – and, potentially, the products – which Indian firms will need to become
more productive in their own Research & Development (R&D).
Indian pharma companies can also begin acquiring small-scale drugs discovered by
multinationals but shelved because the market is too small to justify further
investment. Novartis has a “mature products” division, Bristol Myers Squibb has “off
strategy brands”, but they have struggled like all global pharma companies to make
the most of these products.
Indian Pharma companies can focus on innovation geared to their strengths. That is
vital, because innovation is critical but expensive. Bain research shows that it costs
global drug companies nearly Rs.700 crores (US$1.7 billion) to bring a drug to the
market, and that “blockbuster” drugs are getting harder and harder to develop. While
some of those costs will be lower in India, innovation remains costly. To innovate
more efficiently and effectively, Indian pharma companies can take a number of steps.
They should pick the most attractive therapeutic areas and achieve scale in them.
They need to target the right mix of novel and less novel compounds in development.
They need a strong emphasis on outcomes, to zero in quickly on the most effective
compounds. And they need to link to marketing early, to ensure that compounds are
clinically differentiated. Indeed, this is the Research & Development (R&D) model
that’s evolving among multinationals to manage yields and high innovation costs.
Indian pharma companies have an opportunity to profit from big pharma’s reluctance
to invest in developing countries, other than the largest ones in India and China.
Indian companies have the skills and the expertise to run those operations more
profitability than big pharma can, given their history of thriving under tough
competition in India. The key here is for Indian companies not to focus largely on
58
large developed markets in the United States of America (USA) and Europe, as they
have historically done, but to look to developing countries where big pharma needs
effective commercial partners.
The stakes are large, but Indian pharma companies have a successful role model near
at hand: India’s Information Technology (IT) industry has started to move up the
global value chain, from providing basic, low-cost outsourcing services to higher-
value applications and systems development that is a strategy worth copying. By
pursuing focused innovation, forging the right partnerships with multinationals and
quickly entering developing country markets, India’s pharma industry could
eventually become the innovation model that others emulate.
Consistent effort of new players to communicate effectively with various regulatory

authorities of different countries and domestic and global customers have the potential
to change the market dynamics.
All this has made the Indian market and global market very fluid and interesting and it
is a now or never situation for Indian pharmaceutical companies to succeed globally.
Keeping this in mind the researcher has taken this topic to do research and come out
with the findings for top 30 Indian pharmaceutical companies who are the torch
bearers to succeed and to create precedence over other companies to follow.
My background, experience and inspiration / ambition vis-à-vis pharmaceutical

industry.
1.53 Aims and Objectives of the Research:
The word strategy is very important in the pharmaceutical business and with the
dramatic changes in the global market and also with the introduction of patent law, the
Indian pharmaceutical industry is going through a major change as so far being under
government protection. Now it has come out and needs to perform on its own.
Hence the strength and weakness of the pharma company coupled with opportunities
and threats will determine what strategy they adopt in the revised global scenario.
59
In the global context the vision supported by strategy will determine along with the
organization execution capability how far that particular organization will go.
The strategy includes both types of drugs:

1 Off patented
2 Which falls under patent regime
The scope includes Active Pharmaceutical Ingredient (API) and the dosage form in
addition the present chemical synthesis route and also looked into the other alternative
route possible like biotechnology, herbal and ayurvedic alternatives.
The study also covers evolution of Indian pharma strategies pre-product patent law
(2005) and growth options available in post-product patent law 2005.
This also covers short term and long term strategy coupled with financial muscle of
the organization.
The Indian pharmaceutical market has become very competitive. Almost all major
international and domestic players are available. All major pharmaceutical companies
have opened therapeutic group wise marketing divisions in the domestic market to
penetrate to both urban and rural consumers. It is expected that by the year 2015, 40%
of the business will come from the rural market. As the world has become one almost
all pharmaceutical companies are exporting across the globe and are losing on generic
as well as branded formulations. It has become a cut throat competition. The total
pharmaceutical globe market is Rs.3,82,500 crores (US$850 billion) and expected to
be Rs.4,38,750 crores (US$975 billion) by the year 2013. India ranks 4th in terms of
volume and 14th in terms of value. In the last five years the Indian market was Rs.
2,700 crores (US$6 billion) which has now become Rs.4,950 crores (US$11 billion)
and expected to be Rs.9,000 crores (US$20 billion) by the year 2015 and is growing
at a compound annual growth rate of more than 10%.
Indian pharma market is set to outpace many others like Brazil, Mexico, South Korea
and Turkey to be among the global top 10 by the year 2015.
60
Jumping the League:

Fig. 1.9 and 1.10 shows, the top 14 pharmaceutical market in the year 2005 and 2015
respectively.
Top 14 Pharmaceutical Markets ( 2005 ) US$billion
Japan
Germany
UK
Canada
Mexico
S. Korea
India
0 50 100 150 200 250 300
Source: IMS world review 2009, analyst projection; McKinsey India Pharmaceutical
demand model
Fig. 1.9
61
Top 14 Pharmaceutical Markets (2015) US $billion
Japan
Germany
UK
Italy
India
Mexico
Turkey
0 100 200 300 400 500
Source: IMS world review, analyst projection; McKinsey India Pharmaceutical

demand model
Fig. 1.10
The reasons for this stupendous growth are not far to seek.
Doubling middle-class disposable incomes will account for 45% of the projected
demand, while the expansion of medical infrastructure will add another 20% to the
market.
Greater penetration of health insurance will add another 15% and a gradual shift in the
diseases profile and adoption of patented products will account for the remaining 10%
of the demand by the year 2015.
Significantly, some 14 crores people will move above the poverty line during the next
decade, which will hit spending on basic healthcare and the consumption of mass
therapy drugs for acute ailments, the research points out. Growing prevalence of
62
lifestyle and stress-related disorders will spur growth in the specialty therapies,
mainly in Tier-1 cities, with the most notable ailments being metabolic disorders.
These trends have strategic implications and challenges for all the three players –
large domestic companies, multinational companies and small companies – in the
Indian market.
The top 15 pharma players account for 35% of the Indian market and the
Multinational companies (MNCs) hold 22%.
On the other hand, the big Indian pharma companies will have to look at market
creation be it opening up new geographies or new segments while also adopting
differentiated strategies for different markets, Mitra points out.
A major complication for Indian companies is that product access will be a challenge,
even though in the year 2009 and pre year 1995 molecules are not yet in India and
present a big opportunity for product launches.
But that is easier said than done as many of these molecules are not easy to reverse
engineer as some earlier ones have already been cherry-picked by the early birds.
Priorities for the three groups of players, therefore, vary with the underpinning case
for action for leading domestic companies began to counter the threat to their market
leadership while for small and medium companies, it is to replicate their past success
and coping with the complexities of scale.
On the other hand, for the multinational companies, it is an issue of being relevant to
the market and building scale in the new patent regime, the research paper adds.
In addition the healthcare spend has become higher spending by any government
especially in western countries mainly United States of America (USA), Europe and
Japan and all governments are struggling to reduce the price and to keep this under
control. In addition the development regarding the new cures is a significant thrust
area for major multinational and Indian companies.
63
With the United States passing President Barack Obama’s Healthcare Bill last week,
firms in India are hoping to reap the benefits arising from this landmark reform
(Source: Datta, N., Positive side effects, Outlook Business, Apr 2010). The domestic
pharma industry, the beneficiary of this reform process, has much to cheer about. We
expect a big upside. As cost pressures increase, there will be a push for greater
consumption of low cost drugs. Although generic penetration in the United States of
America (USA) is high – about 65% of India’s share in this pie is not more than 20%,
leaving enough room for growth. However, the downside is that profit margins on
generic sales in the United States of America (USA) will come under more pressure,
thereby straining bottom lines.
Interestingly, the Bill has put an end to ‘pay for delay’ settlements. Earlier, innovator
companies could negotiate on out of court settlement with generic companies to delay
the entry of copy-cat drugs. With the ban, Indian Pharma’s prospects look brighter as
it encourages early entry of generic versions in the market. While a few Indian drug
companies like Dr. Reddy’s Laboratories and Ranbaxy have linked such deals with
innovator companies and earned good money, most firms suffered long delays in
launching their generic versions because of such settlements.
The main objective of the present study is to examine, appraise and find the strategies
being adopted by Indian pharmaceutical companies and also what is the future path
for them in the present global turbulent time as the relevance of this study has
increased and may help further in finding and aligning their strategies.
i. To study the strategies being adopted by Indian pharmaceutical companies.

ii. Global strategies.
iii. Scope of the different strategies.
iv. Operation methodology of the multinational companies.
v. Effectiveness of different strategies.
Top 30 Indian pharmaceutical companies under study, through, various
means of response.
vi. To find out the strengths, weaknesses, opportunities and threats for the
Indian pharmaceutical industry.
vii. To find ways / strategies to succeed globally.
64
viii. Future path for Indian pharmaceutical companies.
A new study has established that Indian generic manufacturers supplied over 80% of
donor funded Acquired Immunodeficiency Syndrome (AIDS) medicines to
developing countries in the last seven years, confirming India’s status as the pharmacy
of the third world.
The study – A lifeline to treatment: the role of Indian generic manufacturers in

supplying antiretroviral medicines to developing countries – was done by Unitaid, an
international facility for purchase of drugs against Acquired Immunodeficiency
Syndrome (AIDS), malaria and Tuberculosis (TB) founded in the year 2006, Boston
School of Medicine and the centre for International Development, Harvard Kennedy
school of Government. According to the study, in the year 2008, India produced
generics accounted for 91% of pediatric Anti Retroviral (ARV) volume. Acquired
Immunodeficiency Syndrome (AIDS) treatment has experienced startling progress
over recent years; with about four million people starting treatment between the year
2003 and the year 2008, largely due to India’s ability to produce low cost quality
medicines, said a Unitaid statement.
Our pharma industry, by pursuing focused innovation, forging right partnerships and
entering developing country markets can become the innovation model for others to
emulate.
…………..
65

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INTRODUCTION

1.1 Pharma Industry a brief:

Indian pharmaceutical sector is highly fragmented with more than 20,000

Players in the pharmaceutical industry include: branded drug manufacturers, generic

role in Research & Development (R&D) activities.

Indian pharmaceutical industry is at a turning point. Drug discovery process has

1.2 Evolution and issues:

The drugs can be broadly classified into two categories:

ii.. Off patent or generic

Indian pharmaceutical industry is entering in an era in which it is not only going to

Pharmaceutical industry is currently under going change because of generic

Many Indian pharmaceutical companies have adopted the strategy of inorganic

The pharmaceutical industry is at the threshold of a revolutionary change. Now

To achieve success in the international business arena, it is imperative that Indian

Indian companies have to re-invent themselves to take advantage of the merging

Indian pharmaceutical industry is one of the high performing knowledge based

1.3 Multinational companies presence in India:

Many of the world’s leading pharmaceutical companies have subsidiaries in India.

There are approximately 34 foreign drug companies engaged in the Indian

GlaxoSmithKline India a 51% subsidiary of GlaxoSmithKline Plc (United Kingdom)

1.4 Some recent major Indian companies Mergers and Acquisitions:

Foreign Companies Indian assets:

1.5 Strengths and weakness of India's pharmaceutical industry:

i. Cost advantages (development, manufacturing, Research & Development,

xiv. Strong marketing and distribution network.

The pharmaceutical industry needs to overcome following weaknesses otherwise it

i. Low level of investment in Research & Development (R&D).

1.6 Opportunities for Indian pharmaceutical industry:

i. Significant export potential.

vi. Niche player in global pharmaceutical Research & Development (R&D).

1.7 Threats for the Indian pharmaceutical industry:

3 Roche Switzerland 47.35 9874 CHF 171

5 Novartis Switzerland 44.27 $7,469 183

6 Sanofi-Aventis France 41.99 ¢4583 181

10 Bayer Health Care Germany 22.30 ¢1845 154

Source: http:// en.wikipedia.org/wiki/List_of_pharmaceutical_companies, 2010

1.8 Success strategies of Indian pharmaceutical industry:

The Indian pharmaceutical industry witnesses significant growth due to favorable

1.9 Increasing Research & Development activities:

Pharmaceutical industry is knowledge intensive and Research & Development (R&D)

Historically, research in Indian pharmaceutical firms was concentrated mainly on

Source: Indian Pharmaceutical Industry, ICRA, 2004

1.10 Novel Drug Delivery System (NDDS):

Global Market for Drug Delivery System (2005)

Liposomal Drug Delivery Cell/gen Therapy

Source: Costas KaparissidesSofia Alexandridou, Katerina Kotti and Sotira

Global Sales for Drug Delivery Products 2007-2014

2007 2008 2009 2014

Source: BCC research

1.11 Increasing patent filings:

the years increasing number of patents filed by Indian pharmaceutical industry.

1.12 Public – Private Partnership in Research & Development (R &

1.13 Leveraging Biotechnology:

patent globally by the year 2013.

1.14 Inorganic growth strategy – Acquisitions / Joint ventures

1.16 Some Language basics:

1.16.1 Strategy according to B. H. Liddell Hart:

1.16.2 Strategy according to George Steiner:

1.16.3 Strategy according to Henry Mintzberg:

1. Strategy is a plan, a “how,” a means of getting from here to there.

1.16.4 Strategy according to Kenneth Andrews:

“Corporate strategy is the pattern of decisions in a company that determines and