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FACTORS INFLUENCING THE SELECTION OF ENTRY MODES:

SURVEY ON INDIAN PHARMACEUTICAL INDUSTRY

AMISHA GUPTA

Business Economics Department, Delhi University

1. Introduction

An important factor to gauge the global clout of a country today is the amount of investment

made by that country in foreign markets.That includes the investment made by the government of

that country (e.g. in forms of soft loans and advances) as well as the investments made by the

companies in that country (known as FDI outflows). India‟s economy is currently booming. More

and more Indian companies are starting to expand their activities into foreign markets. Sixty years

after independence from colonial rule, more and more Indian entities are investing abroad as depicted

in Fig. 1.2 below. It is argued that the destinations, sectoral composition, motivations and modes of

internationalization has been changing with magnitudes. The selection of an accurate mode of

internationalization is a complex and crucial step as it has a major impact on the success of a

company. In this thesis we focus on the issue of factors that affect the firm‟s choice of a particular

mode of internationalization.

Fig 1.2: ODI (Outward Direct Investment) as a % of GDP – India (1999 – 2013)

Source: UNCTAD FDI-TNC-GVC Information System

Until about the mid-1990s, Greenfield investment was the norm for the overseas operations of Indian

firms. There were no recorded cases of overseas acquisitions during this period. Given the nature of

terms and conditions applicable to overseas investment, all foreign affiliates formed during the period

were joint ventures, usually with minority ownership. Moreover, reflecting foreign exchange

restrictions on capital outflows, a disproportionately large share of equity took the form of capital

goods exported by the parent companies. But since about 2004, the expansion of Indian

internationalization has primarily taken the form of acquisitions. The total number of acquisitions

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

ODI as a % of GDP - India

INTERCONTINENTAL JOURNAL OF MARKETING RESEARCH REVIEWISSN:2321-0346 - ONLINE ISSN:2347-1670 - PRINT -IMPACT FACTOR :4.311VOLUME 5, ISSUE 7, JULY 2017UGC APPROVED JOURNAL - S.NO:43669

An Open Access, Peer Reviewed, Refereed, Online and Print International Research Journalwww.icmrr.org 1 [email protected]

increased to 36% in 2010.

The changing modes of internationalization reflect the changing motivation of Indian investors in

foreign countries. Therefore, the study looks into the aspect of the factors that influence and

determines the decision of an Indian firm with respect to modes of internationalization. In light of the

available literature it is determined that modes of internationalization have long been regarded as

closely associated with varying degrees of resource commitment, risk exposure, control and profit

return. Past studies have shown that the choice of modes of internationalization depends on different

types of factors likecountry specific factors, industry specific factors, firm specific factors and product

specific factors.

The present study aims at exploring few examples in Indian context to examine the changing modes

of internationalization and possibilities of changing factors that influence the selection of modes of

internationalization. Focus would primarily be on the pharmaceuticals sector as it provides a big

opportunity for India and other developing economies.

2. Literature Review

Nothing is created in vacuum. The study is grateful to all the authors of the past studies on the subject.

However, there is much said about the modes of internationalizationof companies (Johanson and Pau

1975, Anderson and Gatignon 1986, Dunning 1977, Auah and Otabe 1997, Root 1994). As part of the

literature review an attempt is made to analyze and develop a more comprehensive picture about the

modes of internationalization of Indian Pharmaceutical companies. The choice of modes of

internationalization is an important decision for a marketer. The diversifying entrant is not only

concerned with the decision regarding which market to enter but also how to enter. Many researches

and theories have been conducted on the topic discussing different factors influencing the modes of

internationalization. Modes of internationalization have long been regarded as closely associated with

varying degrees of resource commitment, risk exposure, control and profit return. Past studies have

shown that the choice of modes of internationalization depends on different types of factors. These

factors are defined as country specific factors (Tihanyi Griffith 2005, Brouthers 2003, Kought& Singh

, Bell 1996,Leung et al. 2003; Chen and Hu 2002; Gillespie 2002; Evans 2002; Cristina and Esteban

2002, A.W Harzing 2002, SubhashNaik, Kim & Hwang 2002, Reuber and Fisher 2003; Evans 2002;

King and Tucci 2002), firm specific factors ( Leung et al. 2003; Nakos and Brouthers 2002; Evans

2002) and industry specific factors (Nakos and Brothers 2002; Eicher and Kang 2002; Chung and

Enderwick 2001).Although much is said in literature about the factors influencing the selection of

modes of internationalization, their exists the gap with respect to the presence of a unified framework

discussing the inter relationship and the impact of different factors be it firm specific , country

specific or regulatory together as a system on different modes of internationalization in case of India

and specially for the pharmaceutical industry. The need to determine and study interrelationship

among different factors arises from the fact that sometimes individual factors alone may not be able to

explain the behavior of the firm. Henceforth we make an attempt to determine the framework that

defines the factors that influence the selection of modes of internationalization for Indian

Pharmaceutical firms.



3. Objectives:

Literature has established the factors that are most influential in deciding the modes of

internationalization for Indian pharmaceutical companies. It was considered important to validate the

results by evaluating the current scenario and trends for modes of internationalization in the industry.

The objective is to establish the accuracy of research variables and their impact on modes of

internationalization. Therefore, a primary study is performed to understand the current scenario of

internationalization and their modes among leading pharmaceutical companies in India.

The primary study was performed. survey with pharmaceutical companies, industry associations and

government organizations was conducted. The questionnaire for the survey was designed to find

answers to the following

Factors motivating the Indian pharmaceutical companies to go abroad.

Factors influencing the decision of modes of internationalization.

Factors influencing the choice of country for internationalization.

Challenges faced by Indian companies while expanding internationally.

Effect of patent regime changes in India on pharmaceutical companies.

The respondents are all top management executives from leading organizations in the pharmaceutical

industry. The interviews are conducted either over the telephone, through emails or actual meetings.

4. Methodology - Survey

The list of 120 companies, which were analyzed in our empirical study, were sent to IDMA (Indian

Drugs Manufacturer Association) for relevant contact information. Out of those, we could only find

relevant contact details for 50 companies. Request for an interview was sent out to these 50

companies and some other industry organizations. 23 companies or organizations responded with

answers to our questionnaire either through emails or telephone calls.

Companies that responded were divided into four categories. The first category, namely „Big size

companies‟, consists of pharmaceutical companieswith revenues greater than $1 billion in year 2013-

14. The second category, namely „Mid-size companies‟ are pharmaceutical companies with revenue

ranging from $200 million to $1 billion in the year 2013-14.The third category, namely„Small size

companies‟ are pharmaceutical companies with less than $200 million in revenue. The fourth and the

last category, namely „Other organizations‟, are industry associations or government organizations

involved in the pharmaceutical industry of India. Details of these respondents are listed in Table 4.1 to

4.4 below. Table 4.1: Big size companies

Company Name Key Modes of internationalization Revenues (2013-14)

Aurobindo Export, M&A, Licensing Agreements, Strategic

Alliances

$1.25 bn

Cipla Export, M&A, Licensing Agreements, Strategic

Alliances

$1.6 bn

Dr. Reddy‟s Labs Export, M&A, Licensing Agreements, Strategic

Alliances

$2.25 bn

Lupin Export, M&A, Licensing Agreements, Strategic

Alliances

$1.89 bn

Glenmark Export, M&A, Licensing Agreements, Strategic

Alliances

$1.4 bn

Sun Pharma Export, M&A, Licensing Agreements, Strategic Alliances

$2.56 bn



Table 4.2: Mid-size companies

Company Name Key Modes of internationalization Revenues (2013-14)

Torrent Pharma Exports, M&A $0.8 bn

Aristo pharma India Ltd. Exports $0.7 bn

Mankind Pharma Exports, M&A $0.6 bn

Wockhardt Exports, M&A $0.8 bn

YPSOMED India Pvt. Ltd. Indian subsidiary of Swiss company $0.325 bn

Table 4.3: Small size companies

Company Name Key Modes of

internationalization Revenues (2013-14)

Famy Care Exports $0.08 bn

Fourrts Lab Exports $0.03 bn

J B Chemicals Exports $0.15 bn

Medicamen Exports $0.012 bn

Systopic Exports $0.015 bn

Saarthi Healthcare Pvt. Ltd. Exports $0.05 bn

Cris Pharma India Ltd. Exports $0.02 bn

Table 4.4: Other organizations

Organization Name Brief Profile

Indian Drug Manufacturer‟s

Association

Indian Drug Manufacturers' Association (IDMA) was formed in 1961.

Membership of over 800 Indian large, medium and small companies and

State Boards. IDMA has been organizing Pharmaceutical Analysts

Convention (PAC) for many years with the active participation of the

Regulatory Authorities, both Central and States.

IMS Health IMS Health is a leading global information and technology services

company providing clients in the healthcare industry with comprehensive

solutions to measure and improve their performance.

Indian Pharmacy Alliance Indian Pharmaceutical Alliance (IPA) is an association of 11 large research

based national companies. The purpose of IPA is to assist clients in

evolving investor-friendly public policies, to facilitate market share

expansion, to help new companies entering the Indian Market, and advise

pharmaceutical and consumer goods companies in their strategic planning.

Ministry of Health & Family

Welfare, Government of India

Ministry of Health and Family Affairs is the nodal agency of Govt. Of

India to deal with any pharmaceutical related policies.

Deloitte Consulting Deloitte Consulting is a premier MNC advising companies across various

sectors worldwide.



The responses from the survey are analyzed in the context of various questions we are trying to

answer i.e.

Factors motivating the Indian pharmaceutical companies to go abroad.

Factors influencing the decision of modes of internationalization.

Factors influencing the choice of country for internationalization.

Challenges faced by Indian companies while expanding internationally.

Effect of patent regime changes in India on pharmaceutical companies.

Factors that were determined from our literature are analyzed again based on survey responses and a

Chi-Square analysis is done. It is first performed by taking all the four categories separately but the

results are not significant. This indicates that probably the small sized firms and industry bodies do

not hold much association with the variables. The numbers for small sized firms and industry bodies

are then clubbed together to form three categories: 1. Big sized 2. Medium sized 3. Others. Chi-

Square tests are run again but the results are still not significant. Finally, big size firms are kept as a

separate category and all the other responses are clubbed together under the „Others‟ category. The

findings from these tests and survey responses are presented in the next section. For complete details

of the Chi-square tests and all the different iterations of the categories.

5.Survey Findings

As found in the available literature, the firm specific factors that influence modes of

internationalization decisions are Size of the company, profitability, operational efficiency and

R&D.Country specific factors influencing modes of internationalization decisions are market size of

the host country, regulatory framework of home and host country. Same factors are analyzed here in

context of the survey.

i. Factors encouraging companies to venture abroad

Table 5.5: Factors encouraging companies to venture abroad (Chi square analysis)

Higher Profit Margins

Regulatory

framework

of home country

Increased

competition

in Indian

market

Market size of

host country

Firm

category

Total

Firms No Yes No Yes No Yes No Yes

Big Size 6 5 1 5 1 3 3 0 6

26.09 83.33 16.67 83.33 16.67 50 50 0 100

Others 17 10 7 6 11 14 3 6 11

73.91 58.82 41.18 35.29 64.71 82.35 17.65 35.29 64.71

Total 23 15 8 11 12 17 6 6 17

100 65.22 34.78 47.83 52.17 73.91 26.09 26.09 73.91

Pearson chi2(1)

1.1744 4.1015** 2.4074 2.8651***

Fisher‟s Exact#

0.369 0.069** 0.279 0.144

Note: Figures in italics are the percentage of the total firms in each category. „*‟, „**‟ and „***‟



indicates the significance at 1%, 5% and 10% level of significance respectively. # p-values for

Fisher‟s exact test (two-sided) is given

The Ho for the Pearson chi2 of no association between firm categories is rejected for the „regulatory

framework of home country‟ and „market size of the host country‟ while it could not be rejected for

„high profit margin‟ and „increased competition in Indian market‟. Hence there is no significant

association between firm category and „high profit margin‟, while significant association is observed

with „regulatory framework of home country‟ and „market size of the host country‟‟.

As frequency in some of the cells is less than 5, Fisher‟s exact test for association was also carried

out. The Ho for the Fisher‟s exact test of no association is rejected only in case of „regulatory

framework of home country‟. Hence significant association is observed between type of the firm and

„regulatory framework of home country‟.

Higher Profit Margins

As companies engage in international business, scope of profit is of the top most concern related to a

new venture. 35 % of the respondents believe that it is the higher profit margin which is a major

motivating factor behind internationalization. According to Mr. Madan (Executive Director of India

Drug Manufacturer‟s Association) “the returns per unit from the exports is 8 to 10 times than what we

get in the domestic industry”. Due to high price control measures Indian companies are not able to

fetch high return on investments as they are able to generate in international market.

Regulatory framework of home country

India is evolving into a more regulated market as its economy grows. After re-introduction of product

patent from 1995, the domestic companies realized that growth driven by new products will slow down as

they will no longer be able to launch patented products. Hence, they looked at market expansion by

exploring overseas markets. As a result, 53% respondents are with the opinion that it is the strict regulation

in home market which is pushing the companies in international market. More so, the Indian domestic

industry is highly regulated in terms of Price Control and hence the companies who are producing the

goods, which fall under price control, they find it more profitable to export to other countries rather than

the domestic market.

The respondents are of the opinion that regulations are getting stricter in the domestic market and

hence it is getting difficult to compete with established companies. In such a scenario, there is a great

incentive to export to less regulated markets. Govt. of India has floated several tax incentive schemes

to promote exports and hence help the companies to internationalize. These schemes to promote

exports are not restricted to pharmaceutical sector only and can be utilized by companies across any

sector. One scheme named SEZ (Special Economic Zone) constituted under the SEZ act of 2005

provides for tax rebates for 100% Export oriented units (EOU‟s) set up in designated areas.

Manufacturing units set up in SEZ areas have a big incentive to move into exports and hence

internationalize their presence to enjoy the tax benefits.

25 % of respondents said it is the tax incentives from Govt. of India that are a motivating factor

behind exports. These incentives to encourage the exports are in the form of duty drawbacks, duty

free imports of raw materials etc.

Increased competition in Indian market

26 % of respondents feel there is increased competition in the Indian market and that is reducing the

chances of a new company to survive unless they come up with a novel idea. Getting approvals for a



new drug is very tough and requires huge investments in terms of R&D and approvals so it is better

for companies to explore new markets that are still in infancy.

Market size of host country

Market size refers to the total value of estimated revenues from a particular market segment. Any

business before moving into a new venture evaluates the size of the opportunity. According to one of

the respondents“the health expenditure in countries like USA and UK is very high. This enables the

Indian companies to earn heavy returns and generate high profits which they are not able to do in

India. Moreover, purchase of medicines is a function of our income and in this regard, the Western

world has been the richest according highest priority to health. Therefore, they looked for every

opportunity to purchase quality as well as reasonably priced drugs.”

According to 74 % of respondent‟s market size of the opportunity is an important factor in evaluation

of the decision to move into an international market.

ii. Factors that influence the decision of modes of internationalization

Table 5.6: Factors that influence the decision of modes of internationalization (Chi square

analysis)

Regulatory Framework

of foreign country

Age of the

company

R&D

Operational

Efficiency

Firm category Total

Firms No Yes No Yes No Yes No Yes

Big Size 6 0 6 5 1 1 5 6 0

26.09 0 100 83.33 16.67 16.67 83.33 100 0

Other 17 6 11 13 4 9 8 13 4

73.91 35.29 64.71 76.47 23.53 52.94 47.06 76.47 23.53

Total 23 6 17 18 5 10 13 19 4

100 26.09 73.91 78.26 21.74 43.48 56.52 82.61 17.39

Pearson chi2(1)

2.8651*** 0.1228 2.3746 1.7090

Fisher‟s Exact#

0.144 1.000 0.179 0.539




Results of the Pearson chi2 shows that there is no significant association between firm category and

„age‟, „R&D‟ and „operational efficiency‟, while significant association is observed between firm

category and „regulatory framework of foreign country‟. Whereas Fisher‟s exact test shows that there

is no significant association between type of the firm and „regulatory framework of foreign country‟,

„age”, „R&D‟, and „operational efficiency‟.

Regulatory Framework of foreign country

74% of the companies responded by saying that regulatory framework of the foreign country is a big

determinant in modes of internationalization strategy. Mr. Rajput of YPSOMED has a view

“Countries like USA or Japan are preferred for strategic alliance due to tough regulatory system to go

through. While countries like middle east or Africa are preferred for distributors‟ network channel”.

According to Mr. Gaurav Goyal from Glenmark, “there is a huge regulatory gap in the countries like

Japan, Russia, Argentina and USA. In Japan it is mostly the joint ventures that work as themode of



internationalization. The reason behind is the strict and rigid rules and regulations. Japanese market is

very particular, that is they are less flexible in terms of size, looks, color etc. of the product. They

want the product absolutely as per their requirement. Henceforth as far as Indian pharmaceutical

companies are concern, so far it is only Lupin that has been successful in exploring Japanese market

and that too with a joint venture with a Japanese firm Kyowa. As far as Russia is concern setting up a

manufacturing plant is a challenge, as they don't allow import of raw material from other countries.

USA is a very expensive market. It requires huge investment to take FDA approvals in USA. But with

the huge investments they tend to give good returns also as medicines and the health products and

services are exorbitantly expensive in USA. Argentina is country which is very protective for the local

manufactures and local market. Hence we see that different countries have different constraints and

different pull factors”.

Acquisition has emerged as a dominant strategy for internationalization in Europe compared to the US

and developing countries. Indian companies are acquiring firms in Europe in order to augment their

regulatory skills and enter new markets. Due to European government‟s price controls and other

regulations use of generics is growing quickly.

According to the empirical study, Regulatory framework of a foreign country has a negative influence

on exports. Tighter the regulations, tougher it is to export and that is what has been established in this

primary survey as well. Companies tend to do joint ventures, mergers and acquisitions in tightly

regulated markets as getting approvals for a greenfield project might prove to be an onerous task.

Similarly, export is the choice of modes of internationalization in lightly regulated markets.

Age of the company

Age of a company refers to the number of years that company has been in business. 21 % of

respondents say age of the company is also a factor in determining the internationalization strategy of

a company. As per Mr. Madan “If it is a new entrant and from SME sector, they may find the entry to

the less regulated markets like Africa and ASEAN as the choice countries and once they grow and are

able to compete, they tend to choose more stringent regulated markets for further better value

addition.” He further elaborates “It‟s the arena of born globals, gone are the days where age use to be

the barrier for selecting equity or non-equity modes of internationalization”. He established his

opinion quoting the example of Cipla and Sunpharma. Although Sunpharma is far younger than Cipla,

still highly aggressive in organic modes of international expansion.

Henceforth it is concluded it is not practical for the new entrant to expand organically in international

market, but not even impossible for a company which is not old enough like Cipla, but do carries

enough knowledge and experience to venture abroad. This conclusion matches with findings of the

empirical study which says that there is an inverse relationship between the age of the firm and the

inorganic modes of entry in the international market.

R&D

Post changes in the Patent Act in 2005, there is a renewed focus on R&D in the Indian pharmaceutical

industry. Gone are the days when a company could simply create a generic version of a patented

medicine and see tremendous growth in its sales. Incentive now is to move towards R&D.

56% of the respondents believe that R&D has a direct impact on modes of internationalization

decision of a company. Companies with high focus on R&D file more patents and generally tend to

take the subsidiary route to explore foreign markets. They are very concerned about loss of

intellectual property and feel the safest in that route.



This corroborates our empirical study findings that R&D positively influence the selection of mergers

and acquisitions, opening subsidiaries and other organic modes as modes of internationalization.

Operational Efficiency

Operational Efficiency is defined as the capacity utilization of company‟s resources. According to 18% of

respondents, it is an important determinant in internationalization efforts of a company. According to Mr.

Mohit of Saarthi Healthcare “Operational efficiency is a determinant in internationalization but there is no

direct correlation between operational efficiency and type of modes of internationalization.” The findings

of primary survey are not conclusive enough and as such cannot corroborate the findings of empirical

study.

iii. Factors that influence the selection of country

Table 5.7: Factors that influence the selection of country (Chi square analysis)

Regulatory Framework

of foreign country

Product Range of

the company

Firm category Total Firms No Yes No Yes

Big Size 6 0 6 4 2

26.09 0 100 66.67 33.33

Other 17 6 11 10 7

73.91 35.29 64.71 58.82 41.18

Total 23 6 17 14 9

100 26.09 73.91 60.87 39.13

Pearson chi2(1)

2.8651*** 0.1145

Fisher‟s Exact#

0.144 1.000




Results of the Pearson chi2 shows that there is no significant association between firm category and

„product range of the country‟, while a significant association is observed with „regulatory framework

of foreign country‟. Whereas Fisher‟s exact test shows that there is no significant association between

type of the firm and „regulatory framework of foreign country‟, and „product range of the country‟

Regulatory framework of foreign country

As per 74 % of the respondents, regulatory framework in the country of export remains the most

important factor to determine the international expansion strategy. As per the viewpoint of respondent

from Aristopharma “Highly regulated markets like USA follow stringent rules and regulations.

Moreover, seeking approvals from regulatory bodies of these countries is not an easy job.”

One of the most important things which the respondent from YPSOMED brought to the limelight is

the impact of combination drugs. He says that there are many combination drugs which are restricted

in India, but they are high revenue generating ventures. Moreover, they carry high demand in many

Middle Eastern countries. This is another pushing factor for Indian companies to venture abroad.

According to 60 % of respondents, political stability of the foreign country is also a big factor in

determining the right country for exports. All companies prefer politically stable countries with well-

defined laws. In this regards, western world is definitely way ahead from various other countries.



Mr.Shailendra (Director – Ministry of Health and Family Affairs, Govt. of India) believes “The

Western world has been the harbinger of economic liberalization in terms of opening their markets to

the outside world. As a result, Indian companies found it much easier to export to that region

compared to the other regions of the world.”

Also, according to the respondent from Lupin “Most of the Indian Pharmaceutical companies define

USA as the toughest market to enter into, but he also adds that US is simultaneously the most

preferred market for international expansion, keeping in mind its best judicial system, negligible

political risk and the best economy to encourage the companies to expand.”

Product Range of the company

The product range refers to the type of products being manufactured by the company. Big companies

generally have a broad range of products available. It is easier for them to venture into newer markets

as the number of products available to sell is large. Smaller companies generally deal in niche

products and as such have limited opportunities to expand initially.

40 % of respondents believe it is the product range that company has that would define the markets it

can target. The type of health issues varies by country. For e.g. it would not make sense for a company

producing Malaria or Typhoid vaccinations to target the developed markets as these diseases are very

rare in those countries.

iv. Challenges faced by Indian Pharmaceutical Industry

Table 5.8: Challenges faced by Indian Pharmaceutical Industry (Chi square analysis)

Increased competition

from MNC‟s

Protectionism towards

domestic industry

Firm category Total

Firms No Yes No Yes

Big Size 6 6 0 6 0

26.09 100 0 100 0

Other 17 16 1 16 1

73.91 94.12 5.88 94.12 5.88

Total 23 22 1 22 1

100 95.65 4.35 95.65 4.35

Pearson chi2(1)

0.3690 0.3690

Fisher‟s Exact#

1.000 1.000




Results of Pearson chi2 and Fisher‟s exact test shows that there is no significant association between

firm category and „increased competition from MNC’s‟, and „protectionism towards domestic

industry‟.

Increased competition from MNC’s

Indian companies face major challenges from the Multinational companies who are threatened by the

Indian generics. Lot of molecules of the multinational companies are going off patent and the advent

of Indian companies in these markets, with the new generic molecules, is posing major threat to

Multinational Companies. 5% of the respondents agree with the fact that many a times, the quality



concerns are primarily documentation process only and have nothing to do with the product safety &

have been blown out of proportion, given extensive media attention to the detriment of the image of

the Indian pharmaceutical industry.

According to Mr. Madan “There is move by certain so-called think-tanks in USA who keep on trying

to derogate the Indian industry. The recent example in media had been of certain un-substantiated

reports that the generic drugs from India were not conforming to the quality standards but when FDA

conducted the investigations, they have not found any basis for such reports.”

It would be interesting to see how Indian companies overcome this challenge to maintain their growth

trajectory overseas. One way would be to move up the value chain but that would require more

investment in R&D.

Protectionism towards domestic industry

Increasingly, countries across the world are waking up to the economic reality of 21st century. The

danger of a conventional war among nations is dwindling but there is a new type of war that is waging

amongst nations. It‟s the economic war. The size of a country‟s economy is a bigger bargaining chip

in international diplomatic relations than the number of weapons a country possesses today. It is for

this reason that every country is trying to protect its local industry. After WTO, it is becoming difficult

to tweak the rules of the game to favor local industry but countries still manage ways to block key

legislations and provide incentives to the local industry.

5 % of respondents felt that there is increased protectionism towards domestic firms and that creates

an entry barrier. As per the respondent fromWockhardt, China and Japan are difficult markets to enter

just for this reason”

As the world becomes a global village and the rules governing the companies become standardized

across various countries, then only remaining factor for excellence would be innovation. It would be

interesting to see how soon that happens but till then it would remain a challenge to penetrate markets

with heavy protectionism towards local industry.

v. Impact of patent regime 2005

Under the 1970 Patents Act, India had provided for the Process Patent and Product patents for the

drugs and pharmaceuticals was not available. With the signing of WTO Agreement in 1995, India

became a part of patent regime from 1995 onwards. Under the Patent regime 2005, India has

provided for both the Product and the Process patent. The Indian companies in the meanwhile have

grown and now have their own patents. The extent of usage of patented medicines in domestic

market is very low and is hardly 1 to 2%. There are number of substitutes available in the same

therapeutic classes and hence it does not impact the domestic users.

30 % of the respondents feel that after introduction of product patent from 2005, the growth driven by

new products in domestic has slowed down. They are no longer able to launch patented products.

Hence, they looked at market expansion by exploring overseas markets, some of which offered better

price realization than the domestic price controlled market. Many of these markets have fewer

competitors as doing business in these markets is not easy.

Respondent fromGlenmark opined that, as far as impact of Patent Regime 2005 is concern, this

change has been an advantage for the Pharma industry rather that any penalty. After the patent act

2005 company get an opportunity to enter into more international ventures. Better pricing and



moreover more encouragement for research and development. Perhaps the Companies are aware

when are their patents getting expired and they can plan the future accordingly. “

So the introduction of patent regime has been a mixed bag for the India pharmaceutical industry. On

one hand it has created a level playing field for MNC‟s and domestic companies and in that process

slowed down the growth of generic business in India. On the other hand, it has created incentive for

investing more in R&D and so allow domestic companies to move up the value chain.

6. Conclusion

To conclude, it can be summarized that the role of Company size, R&D, Regulatory framework,

Market Size and Age is prominent as far as modes of internationalization decision is concerned.

Primary study did not throw much light on the role of operational efficiency, patent regime and

profitability of the company in their roles on modes of internationalization decisions.

Factors that are important to motivate companies to move abroad are higher profit margins, increasing

competition in the domestic market and tightening regulations in the domestic market.

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