Presented by-Group 5

FOREIGN DIRECT INVESTMENT……… WHAT IS IT??? A foreign direct investment is an acquisition or

construction of physical capital by a firm from one (source) country in another (host) country.

FACTORS AFFECTING FDI

TYPES OF FDIGreen field investment

Brown field investment

Joint Ventures

Dunning’s OLI- Criterion

Resource- seeking FDI

Market- seeking FDI

POSITIVE SPILLOVER EFFECTS

Imitation and demonstration effects. Transfer of Technology Research and Development Labour training and human capital

“Market stealing effect.” Ownership structure of foreign firms. Adverse effect on small and medium enterprises.

NEGATIVE SPILLOVER EFFECTS

THE INDIAN PHARMACEUTICAL INDUSTRY - HISTORICAL PERSPECTIVE

The number of purely Indian pharma companies is fairly less. Indian pharma industry is mainly operated as well as controlled by dominant foreign companies having subsidiaries in India due to availability of cheap labor in India at lowest cost.

In 2002, over 20,000 registered drug manufacturers in India sold $9 billion worth of formulations and bulk drugs. 85% of these formulations were sold in India while over 60% of the bulk drugs were exported, mostly to the United States and Russia. Most of the players in the market are small-to-medium enterprises; 250 of the largest companies control 70% of the Indian market. Thanks to the 1970 Patent Act, multinationals represent only 35% of the market, down from 70% thirty years ago.

In terms of the global market, India currently holds a modest 1–2% share, but it has been growing at approximately 10% per year. India gained its foothold on the global scene with its innovatively engineered generic drugs and active pharmaceutical ingredients (API).

There are 74 US FDA-approved manufacturing facilities in India, more than in any other country outside the U.S, and in 2005, almost 20% of all Abbreviated New Drug Applications (ANDA) to the FDA are expected to be filed by Indian companies. Growth in other fields notwithstanding, generics are still a large part of the picture. London research company Global Insight estimates that India’s share of the global generics market will have risen from 4% to 33% by 2007.

Source: www.dipp.nic.in/

THE INDIAN PHARMACEUTICAL INDUSTRY - COMPETITION

OVERVIEW Before liberalization, Domestic manufacturers and imports from china

were the main competitor in Indian Market. With liberalization and new patent regulations, lots of MNC invested in

Indian Pharmaceutical industry due to large market potential. FDI in pharmaceutical provide capital, R&D and technology to Indian

domestic industry, which helped them gain competitive advantage against various MNCs.

MNCs have technological advantage, so domestic industry invested in additional human and physical capital, in order to raise productivity and to be able to compete with the MNC.

The entry of a foreign affiliate can create or intensify competitive pressure on local firms and stimulate them to use existing resources more efficiently.

SOME OF MAJOR COMPETITOR IN MARKET

Government-Owned Companies

Indian Drugs and Pharmaceuticals

Hindustan Antibiotics Limited

Bengal Chemicals and Pharmaceuticals Limited

Bengal Immunity Limited

Smith Stanistreet Pharmaceuticals Limited

Indian Private Companies

Alembic Chemicals Aurobindo Pharma

Ambalal Sharabhai Limited Cadila Healthcare

Cipla , Dr. Reddy‘s IPCA Laboratories

Jagsonpal Pharma, J.B. Chemicals

Lyka Labs, Nicholas PiramalRanbaxy Labs, Matrix Laboratories

Orchid Chemical and Pharmaceuticals

Sun Pharmaceuticals Torrent Pharma

Foreign Companies

Abott India Aventis Pharma India

Astra Zeneca India

Glaxo SmithKlineMerck India

Novartis

Pfizer Limited

Wyeth Ledele India

Burrough-Wellcome

FDI PHARMACEUTICAL INDUSTRY - GOVERNMENT POLICIES

FDI upto 100% is permitted under Government approval route for Brownfield investments (i.e. investments in existing companies) in pharmaceuticals sector.

FDI, upto 100%, under the automatic route, is permitted for Greenfield investments. Some drastic changes in policy from 1950 to present

Policy initiatives that have been imposed to liberalize the economy in respect of FDI are for example; industrial decontrol, simplifications of investment procedures and commitment to safeguarding intellectual property rights.

Source: http://www.cci.gov.in/

FDI PHARMACEUTICAL INDUSTRY - GOVERNMENT POLICIES

Despite liberalization and deregulation of the pharmaceutical industry, foreign capital in the industry is still quite low.

Due to the weak patent regime, price control and rigid labour laws, the firms tend to outsource a large part of their production and do not invest much in R&D. Example GlaxoSmithKline outsources 70% of its production.

Some Big deals in pharmaceutical sector:

Currently the government is actively considering a proposal to have a separate policy for allowing 100 % FDI in the manufacture of medical devices, through the automatic route.

Source: http://www. economictimes.indiatimes.com/

MERGER BETWEEN SUN PHARMA AND DAIICHI SANKYO’S SUBSIDIARY RANBAXY

Recently, Daiichi Sankyo Company, Ltd. announced in a release dated April 7, 2014, pursuant to a merger transaction, whereby it has agreed with Sun Pharmaceutical Industries Ltd. in favor of Sun Pharma’s acquisition of Ranbaxy Laboratories Ltd.

Following is the main timeframe of the merger :

TIME EVENT

April 6, 2014 Resolutions regarding the merger agreement and other matters made at the Boards of Directors meetings of Sun Pharma and Ranbaxy

June, 2014 Merger approval from Indian securities exchanges

August, 2014 Extraordinary meetings of shareholders at Sun Pharma and Ranbaxy

December, 2014 (estimated)

Merger completed with approval from high courts in India and other regulatory agencies

FOLLOWING ARE THE MAIN POINTS RELATED TO MERGER :

1. Significant step of becoming the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India for Sun Pharma and an opportunity to pursue new development in its hybrid business model through the new partnership for Daiichi Sankyo.

2. Ranbaxy will be merged with Sun Pharma by means of a share swap.

3. 0.8 shares of Sun Pharma will be allotted for each share of Ranbaxy.

4. After applying various methods of valuation, Daiichi Sankyo judged that the share swap ratio (1: 0.8) is an appropriate level.

5. The merger is expected to close by the end of December 2014, pending shareholder, court and regulatory approvals and other customary conditions.

6. Daiichi Sankyo will have the right to nominate one Director to Sun Pharma’s Board of Directors post completion of merger.

Source:http://www.daiichisankyo.com/media_investors/media_relations/press_releases/detail/006111.html

FDI PHARMACEUTICAL INDUSTRY - IMPACT ON

COMPETITION• Today Indian pharmaceutical market is

today highly competitive with a large number of foreign players who have features such as research orientation, product portfolio, production capability and marketing and distribution network

• Invest more in marketing and Field because of absence of cost advantage.

• Domestic players replicating to compete with foreign players.

• With introduction of patents the market has become all the way more competitive with small scale finding difficult to survive.

• It leads to reduction of inefficient firms.

• There are government interventions and support to help small scale firms in up-gradation with efficient abilities.

• Also both FDI greenfield and FDI portfolio helps domestic players to have technological advancement, new selling techniques, etc. which finally corroborates there brand building.

FUTURE TRENDS• India hopes to tap on its cheap human resources and low cost of

innovation.• Differentiating pricing stratergy to increase market reach.• Try to become a major player in outsourced clinical research as

well as contract manufacturing.• Open up new avenues for joint collaborative research for new

drug discoveries along with having joint intellectual rights.

Source: http://www.pharmatutor.org/articles/future-growth-prospects-of-indian-pharmaceutical-industry

CONCLUSION

Pharma industry plays a very important role in implementing the welfare of the state of the people by providing cheap and effective medicines to the masses.

India still needs large amounts of fdi inflows and its spillover effects to grow .

Six major indian companies had been acquired by mnc’s in the time span of 2006-10.

Major policies like the FIPB and CCI have been put in place to watch over the market competition leading to price rise.

CCI must ensure that it brings about the needed changes to the competition act of 2002.