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Vineet Singhal
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India has been the forerunner in the global API industry for more than three decades now with significant focus on process innovation, skilled manpower, costs and market access. The industry has also largely been built on the strong skills of Indian industry in chemical synthesis. With these unique blend of skills and competitive advantages, India has led the global API industry driving the shift of API manufacturing from Europe to India. However, in the past decade, there was a significant shift in the challenges faced by the API industry and the key drivers of the industry. The key determinants started with scale, strong backward integration into intermediates, lower operational costs, lower cost of capital and governmental support in terms of subsidies etc.
Lessons from China
The focus of the Chinese government to drive innovation and scale leading growth and support to pharma as a key area, in turn was responsible for the Chinese API industry with large scale, low cost and better infrastructure such as power, transportation etc. China has also built large capabilities in intermediate space thus giving us a competitive advantage and has gained significantly in the global API market with lower cost and scale as the key drivers.
The Chinese success story has led to closure of a number of API units operating out of India, in the past two to five years. While India still holds a place in the global API industry when it comes to niche APIs, competition across the silk route is expected to catch up on the technology intensive niche APIs as well. The industry is at a cross roads now. The single minded focus on global leadership in APIs primarily driven by low cost and huge scale of Chinese players has had its side-effects in terms of significant and irreparable ecological damage, instances of gaps in quality, companies not being sustainable financially since they spread too thin due to irrational addition of capacities and reducing governmental support to the industry there in terms of tax rebates etc.
Winds of change
New drivers of change now are emerging to be global focus on green / eco-friendly processes, reliability in terms of supplies particularly in a sensitive field such as APIs, sustainability in terms of financial viability to further ensure continuity of supplies of key life-saving medicines, and most importantly the renewed focus on quality. There has also been considerable erosion of cost advantages of the Chinese industry such as lower power cost. The strengthening of Yuan and weakening of Rupee also makes the Indian industry competitive. This throws up a window of opportunity for API industry from India to regain lost space. With the shake out, which we have witnessed in the API industry from India, financially sound companies who are fundamentally secure and assured of reliability and sustainability to global customers can lead the resurgence of API industry from India. Industry from India needs to further strengthen its core competitive advantages of skilled manpower and technological competencies. The wide market access that API players from India have had can further be strengthened. Companies leading the industry in terms of green technologies like enzymatic processes, which lead to lesser carbon foot print and reduce electricity and water consumption, will be increasingly be viewed favourably.
Infrastructural support from the government in terms of power, transportation and governmental clearances for projects/lesser restrictive environment, will help the industry to regain lost space. API industry from India also needs to focus on building capabilities in intermediate space, since the strength of backward integration will give make the industry cost competitive as well as ensure control on quality and reliable supplies. Support from the government in developing intermediate industry in India will be helpful. Since, the API industry is also fairly resilient in face of economic swings, it will also help the Indian exchequer in terms of export earnings by supporting the Industry with certain incentives.
While, it looks possible to turn the table, it’s also clear that a lot needs to be done by the Industry and the government to build the global image of API industry from India on the key planks of skill, quality, reliability, sustainability, eco-friendly processes and innovation.
– Vineet Singhal, Business Unit Director, Asia Pacific Middle East & Africa Region, DSM Sinochem Pharmaceuticals