2. COMPANY OVERVIEW
IndiPharmaCo
1EBITDA for IndiPharmaCo has reduced since 2016 and hasn’t recovered yet.
2Although the value of Indian pharmaceutical exports took a big hit in 2020, the domestic market is growing.
History of Mergers and New Market Penetration
In the last 5 years, the company has acquired/merged with
more than 20 brands including 3 API companies
Finished Dosage Manufacturing Facilities
The company owns 13 finished dosage manufacturing
facilities including 10 in India
33 Years of Experience, Low Growth Recently
IndiPharmaCo is India’s no.1 company in generic pharma
sector, but the company has seen low growth in last 5 years1
High Dependence on China for Raw Materials
The company procures 69% of its raw materials from China
Operating in a Growing Market
Indian pharmaceutical market is experiencing constant year-
on-year growth that is projected to continue2
IndiPharmaCo
30.00
28.00
29.00
31.00
34.00
35.00
14.90
16.90
16.80
17.30
19.10
10.80
-
10.00
20.00
30.00
40.00
50.00
60.00
2015 2016 2017 2018 2019 2020
Indian Pharmaceutical Market
Indian Market Export Market
3882 3741
4332
3559 3695 3793
0
1000
2000
3000
4000
5000
2014 2015 2016 2017 2018 2019
IndiPharmaCo’s Revenue
* Revenue in $ billion USD
3. INDUSTRY SNAPSHOT
Pharmaceuticals Industry
POLITICAL
Increasing protectionism and nationalistic policies
on internal trade
ECONOMIC
Sharp decline in global Indian GDP growth rate due
to COVID-19
SOCIAL
Increase in nationalistic sentiments during COVID,
which puts pressure on governments
TECHNOLOGICAL
Comparatively less investment on R&D, but
increasing digitization
Bargaining Power of Suppliers
MOD.
Bargaining Power of Buyers
MOD.
Threat of Substitutes
HIGH
Threat of New Entrants
LOW
PORTER’S FIVE FORCES
Competitive Rivalry
HIGH
Lenient patent laws are ideal for pharma
generics
Low degree of differentiation, high fixed
costs, and low switching costs
Highly globalized industry supply chain with
increasing trend of globalization
Indian pharma caters to 40% US generics
demand, and 20% of global exports
4. ISSUES IN THE CURRENT SYSTEM
1 Reliance on a single sourcing market highly increases risk of production disruption. Gross overdependence on China means sales to almost all markets will take a hit
in case of another disruption at the source.
2 As per the case, domestic bans on exports caused 10% loss of revenue for the company during covid. The company has 16 out of 33 foreign manufacturing facilities,
and acquisitions in US, Russia, Japan, Israel and China yet their products are identified as "Indian Generics". This risks regulatory issues as world leaders are
increasingly promoting deglobalization.
Core Issue
Lack of decentralized sourcing and production1,
coupled with absence of market-specific decision structure2
High dependency (69%) on raw
materials from China and
overdependence on US market for
revenue (38%)
Deglobalization trends jeopardizes
IndiPharmaCo's overdependence on
exports
Majority of production happens
domestically in India, but India accounts
for only 29% revenue
Symptom 1 Symptom 2 Symptom 3
5. DECISION POINTS
Building Blocks of our Solution
In the short term, we will prioritize 3 factors:
• supplier responsiveness1,
• High-demand markets and cashflow2, and
• immediate payoff3.
Immediate Action: What to Prioritize?
In the long term, we should gradually
decentralize1 supply chain in order to
accommodate deglobalizing markets and
enter emerging markets while optimally
meeting local demand.
Long Term: To Localize or Globalize?
Rationale:
1 Supplier responsiveness will determine their ability to rapidly comply
with shifts in demands during the pandemic. If essential suppliers fail to
deliver after all efforts, alternatives need to be identified as fast as
possible. This is because, backlogs with customers and clients need to
be cleared as soon as possible otherwise IndiPharmaCo will run the risk
of rapidly losing market share.
2 Supply of critical products to high-demand markets, such as USA,
needs to be prioritized. This is to ensure that financial and liquidity
issues do not arise.
3 Resources should not be spent on looking for new customers or
suppliers if we want to get the supply chain back running immediately.
Instead, prompt optimization of existing procurement, manufacturing
and distribution resources will lead to faster and easier short-term
growth after COVID slump.
Rationale:
1 As a world leader, IndiPharmaCo has access to diverse markets. Not
all markets show nationalistic tendencies with the push towards
deglobalization. And IndiPharmaCo cannot afford to lose its leading
position in the world or in India by choosing one over the other. Here,
optimization is necessary by catering to the specific needs of each
unique market. And that is why decentralization of the supply chain is
necessary. This will allow IndiPharmaCo to have agency over essential
markets while having the resources needed to take need-specific
decisions in each market.
6. ALTERNATIVES
Immediate Actions to Protect Supply Chain & Company Growth in the Wake of Covid-19
Alternative 1 Alternative 2 Alternative 3
Domestic resource optimization
Developing a portfolio of new
suppliers with low supply risk
Focusing on priority suppliers within
existing contracts
• Caters to different requirements of
the product portfolio
• Increases revenue generation
streams and decentralizes it
• Reduces dependency on a single
supplier
• Domestic suppliers can provide
faster procurement
• Opportunity to target suppliers with
low risk
• Prioritizes supply of critical
products to high-demand markets
• No time or resource lost to pursue
new suppliers or customers
• Major uncertainty in domestic
market due to steep decrease in
forecasted GDP growth rate and
lack of infrastructure1
• Doesn't address the raw material
supply crisis
• Time and resources needed to
target and negotiate with new
suppliers
• Immediate visibility in terms of
supply chain recovery is not
plausible
• Persisting dependence on China in
the short run
Pros
Cons
1 As per stated in the case, India’s GDP growth rate is estimated to drop to 1.9% from 5.8% for the FY20
7. OUR SOLUTION
Immediate Actions to Protect Supply Chain & Company Growth in the Wake of Covid-19
Focusing on priority suppliers within existing contracts
Prioritizing high-demand markets to
restore sales and bring in substantial
revenue in order to prevent cashflow
issues
Suppliers with lesser lead times and
greater adaptability with shifting
demands due to the pandemic
Optimal utilization of existing suppliers
to ensure immediate payoff in terms of
clearing backlogs, recovering sales and
maintaining important partnerships
Leverage Suppliers
Suppliers’ end
Supplier type-specific
management strategies with
focus on uncertainty reduction
Strategic Suppliers
Suppliers
Logistics end
Mode optimization, customs
clearance & resource pull
8. PLAN OF ACTION
Immediate Actions to Protect Supply Chain & Company Growth in the Wake of Covid-19
Step 1: Categorization of suppliers
• In order to drive growth, identify critical products and their
required raw materials1
• Review existing suppliers that supply raw materials for the
critical products
• Strategic Suppliers: suppliers that have high impact on
revenue and high risk of supply disruption due to COVID, such
as Chinese suppliers
• Leverage Suppliers: suppliers that have high impact on
revenue but low risk of supply disruption due to COVID
Step 2: Strategic supplier relations
• Strengthen relationship by ensuring win-win situations for
both parties and offer long-term contracts
• Greater integration with company for better compliance1
• Increase safety stock taken from such suppliers2
• Resolve incidents rapidly using root cause analysis, corrective
action execution and verification3
Rationale
1 Critical products are products that are in high demand. As stated
in the case, 40% of USA’s demand for generics is met by India.
This makes them important strategic tools as higher sales will
lead to better cashflows during the pandemic. Based on the raw
materials required to make these products, suppliers will be
identified.
Rationale
1 Increases supplier accountability and facilitates communication,
monitoring and benchmarking. Ultimately, this reduces
uncertainty and risk.
2 Measures to minimize losses due to supplier failure.
3 Investing in an automated corrective action routing system will
keep requests moving forward thus preventing bottlenecks and
thus loss of sales of critical products.
9. PLAN OF ACTION
Immediate Actions to Protect Supply Chain & Company Growth in the Wake of Covid-19
Step 3: Leverage supplier relations
• Focus on getting the best price for the service
• Offer high order volumes for better prices
• Invest in smart negotiations to secure a deal that gives
operational and financial leverage to IndiPharmaCo1
Rationale
1 These suppliers drive the production of critical products, yet they
are least disrupted due to COVID. Here is our chance to get a
leverage by negotiating best prices for the raw materials. High
competition among suppliers also work in our advantage.
Rationale
1 Transportation costs in logistics are driven almost completely by
the price of crude oil. And crude oil prices hit an 18-year low due
to COVID. Source: https://www.bbc.com/news/business-
52089127
2 Transportation is the second biggest driver of supply chain
costs. Saving big in this sector leaves room for the funds to be
utilized in weaker nodes of the supply chain.
Step 4: Logistics Optimization
• Global slump in crude oil prices mean that transportation
costs can be heavily minimized. So faster modes of
transportation can be utilized.1
• Rapid customs clearance is a priority
• Funds saved in transportation should be utilized in sourcing
and manufacturing.2
10. Alternative 1 Alternative 2 Alternative 3
Decentralization through market-
specific strategies
Focused expansion into Emerging
economies only
Optimizing production through a
multitier supplier and sourcing
approach
• Gives emphasis to both domestic
and international markets
• Potential to develop better relations
in each market with regulators and
other stakeholders
• Reduces overdependence on a
single supplier
• Targets economies with high
industry growth potential
• Affordable labor and wage costs
• Reduces risk of disruption by
identifying critical components of
supply chain
• Alternative suppliers ready
Pros
• Requires decentralized global
management approach which is
expensive
• Requires time and organization-
wide tech adoption to come into
effect
• Requires setting up of
infrastructure in new countries
• Suppliers in many emerging
economies untested for large scale
pharma operations
• Dependence on USA for revenue
generation persists given no
change in that end.
• Alternative suppliers may not
deliver satisfactory efficiency
Cons
ALTERNATIVES
Maintaining Leading Position and Profitability in the Long Term
11. Emerging Markets
India, China and other
emerging countries
Contract manufacturing in
untapped countries
Developed Markets
(Focus: EU, USA, Japan,
Australia)
Diversified sources from both
within and outside the markets
Internal manufacturing in
IndiPharmaCo owned plants
Regional Hubs
Local Distribution
Center
Categorization Sourcing Manufacturing Distribution
OUR SOLUTION
Maintaining Leading Position and Profitability in the Long Term
Decentralization through market-specific strategies
Gradually diversifying sourcing partners
to reduce overdependence on China
Reducing overdependence on US
exports by localizing operations in
certain developed markets, and entering
emerging economies
Creating new operation hubs that have
strategic significance in distribution and
procurement, and can be upscaled in
the future
12. PLAN OF ACTION
Maintaining Leading Position and Profitability in the Long Term
Step 1: Raw Material Sourcing
Diversification
• Apart from domestic sources in developed markets, target
Brazil for sourcing raw materials in order to supply to North
America1. And target Turkey for sourcing raw materials for
European countries2.
Developing capacities
• Countries can further reduce dependence on cross-border
sourcing if local capacities can be developed.
• Increase Indian raw material development capacities to
reduce dependence on China in other markets.
Step 2: Domestic Manufacturing in Developed
Markets
• Utilize manufacturing plants in USA, Canada, Japan, Australia,
Hungary and Romania to conduct domestic manufacturing by
leveraging existing and new M&As 1.
Rationale
1 As an emerging economy placed close to North America, Brazil
has cheaper rates and faster supplies. Moreover, it is one of the
few pharma markets that could avoid peril due to COVID
disruption.
2 Turkey is one of the fastest growing emerging markets and a
generics powerhouse that can act as a doorway into EU, if utilized
alongside IndiPharmaCo’s existing facilities in Hungary and
Romania.
Please refer to the Appendix A and B for further clarification.
Rationale
1 Developed markets like USA, Japan and Europe may face
increase pressures of protectionism. Developing internal
production capacities in these markets by using existing plants
and M&As (US and Canadian ones for North America, Hungarian
and Romanian ones for Europe) positions IndiPharmaCo to have
the upper hand in any future scenario. This also positions us to
increase revenue generated from developed markets outside USA.
13. PLAN OF ACTION
Maintaining Leading Position and Profitability in the Long Term
Step 3: Contractual Manufacturing in Emerging
Economies
• Establish contract manufacturing relationships with
Bangladesh for API, with Indonesia for raw materials, with
Brazil for generics and also with other Indian companies.1
Rationale
1 Bangladesh has a dedicated API manufacturing policy and
cheap labor. Indonesia has easy regulations and encourages
investments in raw material production. IBoth these countries can
act as regional hubs to supply APIs and raw materials to other
emerging markets. Indian government has announced
investments in pharma. Brazil is a large manufacturer of generics
with cheap labour, and can act as a window in North America.
Please refer to the Appendix A and B for details.
Rationale
1 Vietnam has a large, untapped demand for generics. Mexico has
the second largest penetration of generic drugs in the world and
can also act as a window to diversify supply in North America.
Please refer to the Appendix A and B for details.
Step 4: Distribution
Emerging markets:
• Export to Vietnam and Mexico.1
Developed markets:
• Use existing M&As as distribution hubs and set up dedicated
distribution centres if necessary.
14. CONTINGENCIES
How to Combat Risks
Challenge
Covid-19 increasing uncertainty and volatility in
supply chain
With the passage of time, trade and businesses will come back
to normal with some permanent changes. Adaptability and
flexibility in operations will enable IndiPharmaCo to combat
such uncertainty and volatility.
Challenge
Shifting global trade dynamics due to
deglobalization trends
Although deglobalization is not going away anywhere, it is
impossible in modern day connected and specialized world to
localize all jobs. Even if there are substantial levels of
deglobalization, partnerships with local companies will combat
such issue.
Challenge
Disrupted value-chain due to higher use of digital
tools and raw material procurement dependence
on China
There are no alternatives to building self-capacity for removing
uncertainty relating to raw material procurement in the pharma
sector. However, doing so will require time and depend on
various factors. Using IT tools like blockchain and IoT can
make supply chains more traceable. *ref*
15. Appendix A
India • India’s pharmaceutical sector will grow to US $39billion by 2024 (as per the case).
• The government will invest Rs 3,000 crore in the next 5 years in three bulk drug parks, according to India Today Group
Bangladesh • According to GlobeNewswire, the market is expected to surpass US$ 6 Billion by 2025 with a growth of 114% from 2019
levels.
• The API manufacturing policy will cut raw materials manufacturing prices significantly and will produce 370 important
API molecules. Plus, it aims to attract 1 Billion in Foreign Direct Investment in API, as per The Financial Express
Bangladesh.
Indonesia • Indonesia has the 5th largest population of older citizens in the world and the number of citizens above 60 will be close to
20% of the total population by 2050
• The government has eased regulatory hurdles to attract foreign investors for raw material production of pharmaceuticals,
as per ASEAN Briefing by Dezan Shira & Associates.
Brazil Around 79% of the Brazilian population buy or have bought generic drugs, according to IAM by Law Business Research.
• According to Statista, the expected growth rate of the Brazilian pharmaceutical industry between 2017 and 2030 is 169%.
• Coronavirus: Pharma to get Rs 10,000 crore boost; 3 'Bulk Drug Parks' to be built. (2020). India Today Group.
• Pharmaceutical Market in Bangladesh to Cross $6 Billion by 2025. Growing With a CAGR of Approx 12%, (2020). Research and Markets from
GlobeNewswire.
• API park to boost export of medicines. (2020). The Financial Express Bangladesh.
• Aging remarkably. (2019). Indonesian Resources and Information Program (IRIP).
• Indonesia’s Healthcare Industry: Growing Opportunities for Foreign Investors. (2020). ASEAN Briefing by Dezan Shira & Associates
• 20 years of the Brazilian Generics Law. (2019). IAM by Law Business Research.
• Pharmaceutical industry in Brazil - Statistics & Facts. (2020). Statista.
16. Appendix B
Turkey • The value of Turkey’s generic pharmaceutical market is increasing and stood at 9.92 billion Turkish Lira in 2018,
according to Statista.
• Presidency of the Republic of Turkey 333 incentive certificates were issued for international investors worth 42.5 billion
Turkish Lira in 2018 indicating a friendly foreign investment environment.
Vietnam • Domestic producers only meet 52.5% of the demand for generic drugs.
• The pharmaceutical industry is set to reach 10.1 Billion in 2022, according to Ken Research Private Limited.
• The pharmaceutical industry is still undeveloped and so local companies want a foreign partner who can transfer
production technology and solve output problems through drug export, as per VietNamNet Global.
Mexico • Mexico’s pharma market size is estimated to reach US dollars 13 billion by 2028.
• Mexico signed 12 FTAs with 33 countries (including USA & EU ), as per Pharmaceutical Technology. As a member of the
NAFTA, it has access to the most well-established and emerging pharmaceutical markets in North and Latin America.
• According to Oxford Business Group, Mexico has the world’s 2nd highest penetration of generic drugs, which account for
84% of unit sales..
• Vietnam's Pharmaceutical Industry Keeps Staging High Growth. (2019). Vietnam Business Forum - The Magazine of Vietnam Chamber of
Commerce and Industry.
• Vietnam Pharmaceutical Market Outlook To 2022. (2018). Ken Research Private Limited.
• Foreign investors continue to target Vietnam’s pharmaceutical industry. (2020). VietNamNet Glob
• Mexico Pharma Market Forecast 2020. (2020). PharmaBoardroom.
• Mexico: growing South America’s pharmaceutical industry. (2013). Pharmaceutical Technology.
• Price of pharmaceuticals in Mexico falls due to recent reforms. (2017). Oxford Business Group.