API's - Manufacturing moves to India and China

API manufacturing has slowly been shifting from the historical leaders in Western countries to newer firms in India and China. This trend will continue as the Indian and Chinese API industries are growing at nearly 19.3% and 17.6% annually.  While Italy still remains the world market leader in APIs destined to sectors such as cardiovascular or the central nervous system, China leads in anti-infective APIs with approximately 43% of world market share.  

Lower production costs in India and China drive much of this growth. For example, to develop, test, manufacture and market a generic medicine in India costs 20-40% of what it costs in the West.16 Indian and Chinese advantages typically come from:

Lower labour, infrastructure, transportation and equipment costs:

If a typical Western API company has an average wage index of 100, this index is as low as 10 for the typical Indian API firm and 8 for a Chinese one, respectively. Not even the higher productivity of a estern company (due to the higher average automation level of the manufacturing processes) can annul the labour cost  Indian and Chinese firms are also embedded in a network of raw materials and intermediary suppliers and so have lower shipping and transaction costs for raw materials. Firms is these two countries often use less expensive equipment, leading to a lower depreciation cost.

Fewer environmental regulations:

Currently, Indian and Chinese firms have fewer environmental regulations regarding the buying, handling, and disposing of toxic chemicals, which lead to lower direct costs for these businesses.  However, as India and China increase environmental stringency, firms will have  to bear more of these costs.

Larger scale manufacturing:

The IFC estimates that a factory making tablets in blister packaging needs to manufacture around 1.0–1.5 billion tablets per year to be said to be operating at scale. Indian and Chinese firms have often reached scale when firms in other countries have not. For example, the IFC estimates that a third of the 30–40 percent cost disadvantage that a leading Ghanaian final formulations manufacturer suffers versus high-scale Indian manufacturers is attributable to scale.

As a generalization, Chinese firms have tended to focus on the earlier raw materials stage whereas Indian firms have tended to focus more on the final API manufacturing stage. In many cases, a Chinese firm will make the raw material for a pharmaceutical product and then sell it to an Indian firm who will then convert the raw material into an API. Then, either the same firm, another Indian firm, a global Multinational Corporation (MNC) or a final formulator in a developing country will convert the API into a final formulation product ready for the market. However, the situation is rapidly evolving as both China and India gain new manufacturing skills

Not surprisingly, while many Western API firms have been winding down and/or consolidating their manufacturing capacity, many firms in India and China have been increasing capacity to meet the growing demand. Indian firms interviewed were not concerned about physical manufacturing capacity as a limiting factor. In fact, if demand increases at a faster than expected pace, a good Indian API manufacturer can build a new plant and get required regulatory approval in about 18 months.