The Strategic Dilemma Imagine you’re leading an Indian pharmaceutical company ready to go global. You face a crucial decision: Should you build your own operations from scratch (greenfield) or acquire existing companies (brownfield)? This fascinating research dives deep into this strategic choice that’s shaping India’s pharmaceutical future.
The Journey: Four Acts in India’s Pharma Story
Act 1: The Import Era (1947-1969)
- Picture a newly independent India, heavily dependent on foreign companies
- 90% of the market controlled by global giants
- Local companies mainly acted as distributors
- A game-changing move: Government starts public sector pharma companies
Act 2: Learning to Walk (1970-1989)
- The Patent Act of 1970 becomes the industry’s launching pad
- Indian companies master the art of reverse engineering
- Exports begin, albeit modestly
- First overseas ventures: Ranbaxy leads the way with Nigerian joint venture
Act 3: Finding Wings (1990-1999)
- Indian companies start spreading globally
- Exports surge dramatically
- Companies establish presence in multiple countries
- First experimental steps into acquisitions
Act 4: The Global Leap (2000 onwards)
- Aggressive international expansion
- Major acquisitions become common
- Contract manufacturing emerges as a new strategy
- Indian companies become serious global players
The Big Question: Buy or Build?
The Case for Building (Greenfield Investment)
- Complete control over operations
- Can design everything from scratch
- Useful for creating marketing networks
- Lower risk of cultural clashes
The Case for Buying (Acquisitions)
- Instant access to markets and customers
- Ready-made infrastructure
- Acquisition of brands and technologies
- Faster market entry
A Deep Dive: The Ranbaxy Experience The paper uses Ranbaxy’s journey as a case study:
- The Ohm Labs Acquisition (USA)
- Provided instant access to US market
- Brought FDA-approved facilities
- Helped develop new products
- Turned profitable quickly
- The Basics GmbH Purchase (Germany)
- Entry into European market
- Added 20 products to portfolio
- Profitable within three years
- The French Connection (RPG Aventis)
- Gained foothold in French market
- Acquired 52 products
- Still working toward profitability
The Verdict: Acquisitions Win The research suggests that for Indian pharma companies:
- Acquisitions provide faster market access
- Bring immediate technological benefits
- Offer established customer base
- Create synergies with existing operations
Practical Takeaways
For Companies:
- Consider acquisitions as primary global strategy
- Look for targets with strong market presence
- Focus on integration post-acquisition
- Build capabilities to manage global operations
For Policymakers:
- Create supportive policies for overseas acquisitions
- Provide easier access to financing
- Develop support systems for global expansion
- Build databases to track acquisition performance
Looking Ahead The research suggests Indian pharma companies should:
- Focus more on acquisitions than greenfield ventures
- Build capabilities for successful integration
- Look for strategic fits in target markets
- Maintain balance between different markets
This story of strategic choices in India’s pharmaceutical industry shows how careful analysis of expansion strategies can make the difference between success and failure in global markets.
Academic Abstract:
Very recently overseas acquisition and outward greenfield foreign investment have emerged as the two important modes of internationalization of the Indian pharmaceutical enterprises. This study examines the relative strengths and weaknesses of these strategies so as to suggest which between the two is a more effective internationalization strategy for the Indian pharmaceutical firms, given the nature of their ownership advantages. This analysis has been conducted in three stages. First, the internationalization process of the Indian pharmaceutical industry has been embedded into a four-stage theory emphasizing on the emergence of different modes of internationalization like inward foreign investment, imports, exports, outward greenfield investment, overseas acquisition and contract manufacturing including inter‐firm strategic alliances. Second, theoretical perspectives have been developed with regard to the different ways in which greenfield investment and overseas acquisition can maximize the revenue productivity of pharmaceutical firms’ competitive advantages and/or to strengthen their competitive position. Third, case study of Ranbaxy Laboratories has been undertaken to empirically assess its experience with overseas acquisitions. The analysis indicates that the growth and internationalization of Indian pharmaceutical enterprises was critically dependent upon strategic government policies pursued in the past. The Indian experience offers a number of policy lessons to other developing countries wanting to build their domestic base in the pharmaceutical sector. Theoretical understandings indicate that acquisition is a more effective internationalization strategy than greenfield investment since the former not only provides all the benefits that the latter gives, but also several other competitive advantages important for firms’ performance in world market. The experience of Ranbaxy shows that overseas acquisitions have augmented its intangible asset bundle including distribution and market networks and have provided access to an existing market.
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Full citation: Pradhan, Jaya Prakash and A. Alakshendra (2006), ‘Overseas Acquisition versus Greenfield Foreign Investment: Which Internationalization Strategy is better for Indian Pharmaceutical Enterprises?’, ISID Working Paper, No. WP2006/07, 2006, New Delhi: Institute for Studies in Industrial Development.
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