The Spectacular Rise of the Indian Pharmaceutical Industry

Abstract

Over the second half of the 20th century, Indian pharmaceutical firms were nudged by government policies to focus on import substitution. To this end, they were encouraged to produce generic variants of foreign MNEs' branded drugs. In response, MNE strategies in India became strongly focused on intellectual property (IP) protection, most typically implemented through the avoidance of collaboration with domestic firms. Hence, domestic firms in the industry developed mostly independently from the influence of foreign firms but with a strong guidance from governmental policies. Everything changed when India ratified the provisions of Trade Related Aspects of Intellectual Property Rights (TRIPS) in 1995 and committed to full implementation by 2005. A significant number of domestic firms recognized that the returns to imitative, re-engineering oriented innovation would inexorably decline under the new regime. These firms implemented aggressive new strategies aimed at generating world-class product innovation. In this paper, we document the rise of these Indian domestic innovation champions.