In the cacophony of FDI in the pharmaceutical sector of India

It is a widely accepted fact that Foreign Direct Investment (FDI) in the Pharmaceutical industry, just like in any other industry, is important for an emerging economy like India, mainly because of various important benefits that the country would derive out of such investments, like for example:

  • Job creation
  • World class infrastructure development
  • Transfer of modern technology
  • Help creating a talent pool through international training and development
  • Meeting unmet needs of patients through innovative medicines
  • Help imbibing the best practices of the world

Types of FDIs in the Pharmaceutical sector of India:

There are mainly three types of FDIs that we have witnessed so far in India:

  1. Green field investment: Like, setting up new manufacturing facility at Vizag by Eisai of Japan
  2. Brown field investment: Like, acquisition of Ranbaxy by Daiichi Sankyo of Japan, Piramal Healthcare by Abbott USA or Shantha Biotech by Sanofi Aventis of France.
  3. Joint venture: Like, Bayer Healthcare and Cadila Healthcare or Sun Pharma and MSD etc.

Besides these, as mentioned below, there have been some collaborative arrangements, as well, between global and Indian Pharmaceutical companies in the last five years like, GSK with Dr. Reddy’s Laboratories (DRL), Pfizer with Biocon etc.

Key drivers for FDI:

Following are the key factors, which attract FDI in the pharmaceutical sector, especially in an emerging market like India:

  1. Domestic market size, prospects for future market growth,
  2. Cheaper operating cost
  3. Cheaper input and English-speaking skilled manpower cost
  4. Regulatory environment
  5. Pricing environment
  6. Robust IT infrastructure
  7. Legal, IPR and financial framework

Relationship between FDI and Intellectual Property (IP) Environment:

Some recent media reports in various parts of the world including India had highlighted that China attracts more investment from foreign drug makers due to more robust Intellectual Property (IP) laws in that country.

US Trade Representatives (USTR) is one such agency which evaluates the adequacy and effectiveness of protection of Intellectual Property Rights (IPR) with US trading partners in various countries of the world through annual release of their ‘Special 301 Report’.

The report of US Trade Representatives (USTR 2011 Special 301) rates IPR regime of both China and India as unsatisfactory, so far as law enforcement, piracy prevention and transparency are concerned. The two main categories in the report are the ‘Priority Watch List’ and the ‘Watch List’. Both India and China fall under ‘Priority Watch List’ of this report.

An apparent contradiction:
The key question, in this context, that is being raised for quite some time now is, whether the decisions of foreign drug makers to invest in the emerging markets, like India and China are predominantly dependent on the IPR scenario in the respective countries.

If it is so, some would obviously like to know whether or not the ‘USTR 2011 Special 301 Report’ contradicts the above hypotheses.

Notwithstanding ‘USTR Special 301 Reports’ and being featured in their ‘Priority Watch List’ year after year, China continues to attract more and more FDI in pharmaceuticals over a long period of time. In any case, the FDI from USA in China was just around 12% of the total FDI that the country attracted in 2008. The same trend continues even today.

However, without going into the details of any report, relative robustness of IPR regime could at best be just one of the several key factors for a research based global pharmaceutical company to decide on FDI in any emerging market of the world.

Relatively speaking:

China is certainly attracting more FDI in the Pharma space than India. According to “The Survey of Foreign Investments in China’s Medicine Industry” of the Government of China, the FDI in the pharmaceutical industry of the country for a three year period commencing from 2006 to 2008 was around US $ 1772 million. The percentage of total investments made by the major countries is as follows:

Country wise pharmaceutical FDI % in China in 2008






Hong Kong



United States



British Virgin Island








(Source: Invest in China 2009, Ministry of Commerce of the People’s Republic of China)

Whereas, as per Mr. Jyotiraditya Scindia, Minister of State, Ministry of Commerce and Industry, from the year 2006-07 up to September 2009, India attracted FDI of US $ 817.39 million, as follows:

FDI ( US$ million)





2009-10 (upto Sept.09)








These figures would change significantly if FDI through M&A is taken into consideration.

In any case, this trend should not necessarily be exclusively correlated to the relative robustness of the IPR regime in India and China, notwithstanding the fact that 5.5% of all global pharmaceutical patent applications named one inventor or more located in India as against 8.4% located in China (Based on WIPO PCT applications)

Impact of FDI on the Indian Pharmaceutical Sector:

Some important FDI in India from 2006 to 2011


Indian Companies

Multinational Companies

Value ($Mn)

Matrix Labs Mylan


Dabur Pharma Fresenius Kabi


Ranbaxy Labs Daiichi Sankyo


Shantha Biotech Sanofi-aventis


Orchid Chemicals Hospira


Business Buyout
Aurobindo Pharma Pfizer

Not disclosed

Generic Development and Supply
Dr Reddy’s  Labs GlaxoSmithKline

Not disclosed

Generic Development and Supply
Piramal Healthcare Abbott


Business Buyout
Paras Pharma Reckitt Benkiser


Claris Lifesciences Pfizer

Not disclosed

Generic Development and Supply
Biocon Pfizer


Insulin Marketing Deal
Cadila Healthcare Bayer

Not disclosed

Marketing Joint Venture
Sun Pharma Merck & Co.

Not disclosed

Marketing, Manufacturing Joint Venture

There is no published data, as yet, to justify that the inflow of FDI in the pharmaceutical sector of India, including acquisition of large domestic pharmaceutical players like, Ranbaxy, Piramal Healthcare etc., had any adverse impact whatsoever on the country.

However, the reality is that such apprehension, especially the acquisition of some ‘Pharma Crown Jewels’ of India by the Multinational Companies (MNCs), though not fact-based, are apparently getting reverberated as a ‘sinister and sordid design’ even in the corridors of power ranging from the Ministry of Commerce, Cabinet Committee of Economic Affairs (CCEA), Planning Commission of India to Joint Parliamentary committee for Commerce.

It appears that the government is adopting a ‘wait and watch’ policy in this area for now, presumably because of the fact that the newly formed ‘Competition Commission of India (CCI)’ from now onwards will keep a careful vigil on such mega acquisitions.

Poor healthcare coverage could be a key barrier:

As indicated above, relative size and growth of the domestic pharmaceutical market together with healthcare coverage and delivery mechanism of a country could well be the most critical factor to influence foreign investment decision of the global pharmaceutical companies.

In global ranking, China is currently the seventh (India: 14) largest pharmaceutical market and is expected to be the fifth (India: 10) largest market by 2015 and the third largest by 2020. Chinese pharmaceutical market is expected to grow by over 15% per annum in the next five years, which is higher than India, even without considering the current base of both the countries.
Even in Health Insurance space, “India ranks 136th on penetration levels and lags behind China (106), Thailand (87), Russia (86), Brazil (85), Japan (61) and the US (9),” reported ‘Indo-Asian News Service (IANS)’ on July 21, 2009, in a paper titled, “India’s insurance penetration lower than world average”, jointly prepared by Crisil and Assocham.

Moreover, ‘out of pocket’ healthcare expenditure in India is one of the highest in the world at around 80% against 61% in China.

Country Attractiveness Index (CAI):

‘A.T. Kearney’ developed a CAI for clinical trials, for the use of, especially, the pharmaceutical industry executives to make more informed decision on offshore clinical trials. As per this study, the CAI of China is 6.10 against 5.58 of India. This could mainly be due to prevailing lackadaisical regulatory environment in India.
Other reasons to influence FDI:
I would reckon, all foreign direct investments (FDI) by the global pharmaceutical companies are driven by a combination of key business factors, as mentioned above, IPR ecosystem in the country is just one of them. This is vindicated by a recent report, which is as follows:

“Novartis has signed an agreement to build a pharmaceutical manufacturing facility in St. Petersburg, Russia. The plant is part of a $500 million Novartis investment in infrastructure, health care initiatives, and R&D in Russia over the next five years”.

The reason behind this investment was reported as follows:
“The announcement follows a pledge late last year by Russian Prime Minister Vladimir Putin of some $4 billion in federal funding for pharmaceutical industry development over the next 10 years. The government has set a goal for local industry to produce 90% of Russia’s “essential medicines”—about half of the country’s total pharmaceutical sales—by 2020.”
Other recent examples of FDI made by the global majors in other countries, which will support my above statement, are as follows:

1. Novo Nordisk: US $100 million in Russia 2. Sanofi-Aventis: a plant in Saudi Arabia. 3. Eisai: relocated global Aricept manufacturing facility to India for worldwide export.


‘The Journal of International Business Studies’ (1999) 30, 1–24 based on the results from an econometric analysis of 136 laboratory investments reconfirms that relative market size, growth and the  strength of science base of a country would ultimately influence FDI in pharmaceutical research and development in an emerging market. The study also reiterated that these factors hold good for even Japanese, European and U.S. pharmaceutical companies.

Thus, to attract more FDI in the pharmaceutical sector and effectively compete with China, India should primarily focus in creating a vibrant and large domestic pharmaceutical product and services market reflecting sustainable high inclusive growth. A comprehensive ecosystem to provide healthcare to all, efficient regulatory mechanism, effective well balanced IP environment and a robust legal and financial framework will further hasten the process.

By: Tapan J Ray

Disclaimer:The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

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