India’s Drugmakers Squeezed by China

Posted by: Bruce Einhorn on November 3, 2008

With the cost of manufacturing in China going up and companies stung by an endless series of Made-in-China scandals, lots of corporate executives talk about a China-plus-one strategy. Yes, you can do a lot of your manufacturing in China, but you also better make sure you have a significant presence in another country. That way, if things hit the fan in China, you have a plan B.

That seems to be a lesson that some people in India’s pharma industry haven’t yet taken to heart. “Acute shortage of Vitamin C reported,” this morning’s Hindu reports. “Issue lies in supply crunch from China, from where most raw materials are imported.” While there’s a big demand for vitamin C right now as cold-and-flu season approaches in India and other countries, there’s not enough to go around. The Hindu sites one example of one government hospital that has just 10% of the vitamin C it needs. Why? Because there was a slump in production in China a few months ago, as Beijing tried to clean up its air for the Olympics by curtailing manufacturing. Since most of the vitamin C in India comes from China, the Chinese cutback then is turning into Indian shortages now.

And the Chinese impact on Indian drugmakers isn’t limited to vitamins. Sunday’s Hindu reports on the industry-wide problem of expensive Chinese imports. India’s pharma companies have established themselves as global players in the generics business and are also trying to break into new drug discovery, but one business they have largely vacated is the boring low-margin production of active pharmaceutical ingredients (APIs). Without APIs, you can’t make medicines. To keep their focus on more lucrative parts of the business, big Indian drug companies have decided not to make their own APIs but instead to import them from China. That strategy worked when both the Indian and Chinese currencies were rising against the U.S. dollar.

The problem is, the Indian rupee, like so many other currencies, has gone into reverse with the financial crisis, dropping 19% against the dollar this year. Meanwhile, the Chinese yuan is (along with the yen) one of the rare major currencies that is up against the greenback, having gained 6.8% this year. That makes Chinese-made APIs far more expensive – in some cases, about 50 to 60% higher than the start of the year. Having a big non-Chinese supplier of APIs would come in awfully handy right now.

Reader Comments

Robert Stinnett

November 3, 2008 5:56 PM

Gee, here is a crazy idea, why not bring some of these jobs back to the US? It seems companies will spend billions of dollars to do anything but bring a job back to the US. People are tired of cheap, Chinese-made junk. We're really tired of cheap Chinese junk that can kill you!

chetan

November 4, 2008 12:03 AM

If you see from the space, Earth looks beautiful & probably you may also see a tag attached to it saying "Made in China".

chenleilili

November 4, 2008 4:03 AM

Robert Stinnett:are you sure there is no American-made junk ?If my memory is not bad ,where is the mad cow diesase come? and now the world ecomonmy is in slowdown just for the financial junk products produced by Wall street.

Steven

November 4, 2008 12:55 PM

The biggest junk is US "modern" financial system.

Robert Stinnett bought his house in florida, bough Lehman, AIG, ...stocks. HAHA!

So, right now, he can only afford junks.

Robert Stinnett, Walmat's business is better and better, do you think all Americans are just as "smart" as you?

jj

November 4, 2008 4:42 PM

the first thing our company now asks a componet/material supplier is 'where is it made'?
If its China, so long, no need for your junk.

crapy steel alloys, castings with air pits, screws out of tolerance, coatings peeling off, counterfeit components, lead based materials, junk, junk ALL junk from China.

American Woes

November 4, 2008 5:37 PM

American woes is something to do with mistaken idiology and government policies driven by elitism. They ignore the importance of working class economics and manufacturing jobs for them! They favored stock market instead. Note that many Europeans and Japanese still make decent manufactured products. Americans are barking at the wrong target. Instead of barking at Chinese, they should shout at own politicians and financial elite groups.

Cherie

November 4, 2008 9:09 PM

Hi, Cheneleilili, well done!

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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