The intra and inter-firm geography of EMNCs: India’s pharmaceuticals Rory Horner Clark University Graduate School of Geography Presentation for ‘Emerging Multinationals’ conference at Copenhagen Business School, October 2008.

Layout Background/context Intra-firm - How international are India’s big pharma? (sales) - Are Indian pharma establishing operations abroad? (subsidiaries) - How global are manufacturing and R&D? Inter-firm alliances - How are Indian pharma using inter-firm alliances in their internationalisation? Conclusions/future research

Where does developing country-FDI locate? Other developing countries (e.g. Kumar 1982, Wells 1983) Developing-country FDI 2000s 1) Early interest in 3rd world multinationals (e.g. Kumar, 1982; Wells 1983) says: developing country FDI → other developing countries Yet, later interest now says: developing country FDI is largely developed country oriented (e.g. UNCTAD 2006). 2) Much of the classic MNC literature (e.g. Dunning, 1988; Vernon 1966 focuses on intra-firm organisational and locational dynamics Yet, EMNC literature suggests importance of inter-firm linkages in expansion of networks abroad Yet little known about sources of competitive advantage that allows these firms to invest abroad. Some suggest, then, that EMNCs can be associate with exploring or voicing an ownership advantage than exploiting one (Ping Li, 2003) Developed countries (e.g. UNCTAD 2006)

From intra-firm to inter-firm Traditional ‘intra-firm’ e.g. Vernon (1966), Dunning (1988) Inter-firm linkages e.g. Mathews (2006)

India’s ‘big pharma’ Firm Total assets (Rs. Million) Net sales (Rs. Million) HQ location Year established Ranbaxy Laboratories 34 068.2 35 754.4 New Delhi 1961 Cipla 24 521.8 28 974.1 Mumbai 1935 Dr. Reddy’s Laboratories 31 860.1 20 058.5 Hyderabad 1984 Sun Pharmaceuticals Industries 32 107.6 16 815.5 1983 Aurobindo Pharma 21 106.3 13 698.7 1986 Lupin 15 565.5 15 965.4 1968 Jubilant Organosys 14 484.4 13 849.1 Noida 1978 Orchid Chemicals and Pharmaceuticals 18 132.8 8734.6 Chennai 1992 Wockhardt 16 149.0 9600.3 1959 Nicholas Piramal India 11 627.1 14 062.8 1988 Analysis framed in terms of geographical and organisational spread of EMNCs in attempt to integrate the intra- and inter-firm dynamics. Focus is on period from 2002 on, the period when the internationalisation of most of these firms really took off. Source: Business World India’s “BW Real 500: India’s top companies” (2007). HQ location and year established are sourced from company websites and annual reports.

Reverse engineering Dr Reddy’s: “We began in 1984 and, like some other players of that era in India, concentrated on strengthening reverse engineering capabilities to produce high quality bulk drugs and formulations at low costs, and sell them in the domestic market. Many of these firms note how they started out as manufacturers and suppliers of APIs.

To …. The importance of these skills cannot be exaggerated, for they created the technological foundations for your Company’s successful foray into the international generics market” (Dr. Reddy’s 2002). PROCESS CHEMISTRY: now in a position to “leverage our chemistry knowledge, strong R&D and manufacturing skills, accumulated over the last 25 years” (Jubilant Organosys, 2005: 15). Dr. Reddy’s, for example, now claims to have “global leadership in organic synthetic chemistry” (2004: 2). EVEN EXPANDING INTO DRUG DISCOVERY: Revenue is providing some finance for drug discovery. Now integrating “the business of today with the drug discovery of tomorrow” (Orchid). Significant progress from “the business of today with the drug discovery of yesterday”.

How international are India’s big pharma? Share of gross revenue from abroad for India’s largest pharmaceutical firms 2002→2007 Most of these firms growing faster than the Indian pharmaceutical industry as a whole. 2002: only 4 had more than 50% of revenue from abroad 2007: all above or very close to this mark North America and Europe dominant geographies in foreign revenues (and increasing) India’s big pharma: “we are targeting the regulated markets … huge potential for our products” (Aurobindo Pharma annual report 2005: 3).

Are Indian pharma establishing operations abroad? Rest of Asia Europe North America Africa Central & South America Oceania Subsidiaries locations 2002 and 2007 Could have just been serving these markets through exports. Very few joint ventures. Why Europe? REGULATORY bodies. This reinforces the emphasis on Europe and North America. Differences between firms: Many of these only financial or front-end/marketing.

How global is manufacturing and R&D? Concentration in India More manufacturing than R&D abroad R&D focus in USA. Largely keep core functions at home – like R&D and, to a lesser extent, manufacturing.

How are Indian pharma engaging in alliances and linkages? Limited evidence of industry-government-university linkages Inter-firm linkages have a distinct geography. → 93% with Non-Indian firms → 93% of those with North American or European firms

How are Indian pharma EMNCs engaging in inter-firm linkages? Classification of international inter-firm alliances of India’s top 10 pharma 2002- mid 2008 Manufacturing Marketing and distribution R&D Inward 24 35 6 Co/joint 5 22 Outward 19 4

Conclusions and future research Growing internationalisation, targeting the regulated markets Proliferation of alliances, yet still strong intra-firm advantage Sources of Indian advantage? Sustainable? How will internationalisation of these firms evolve over time? Importantly, will these EMNCs effectively serve the needs of the base of the economic pyramid?

Within India:

Within Western Europe and North America

Empirical focus: India’s pharmaceuticals A ‘knowledge economy’ sector Prominent in the internationalisation of Indian EMNCs Pharmaceutical industry noted for being alliance-driven (e.g. Birch 2008)

Manufacturing by firm

R&D by firm

Alliances by chronology