Clarck University_Strategic Decoupling

Strategic decoupling, recoupling and globalproduction networks: India’spharmaceutical industryRory Horner

y

Graduate School of Geography, Clark University, 950 Main Street, Worcester, MA 01610-1477, USAyCorresponding author: Rory Horner. [email protected]

AbstractContemporary debates on economic globalization have emphasized the developmentopportunities for the Global South through local firms becoming integrated into theglobal commodity chains (GCCs), value chains (GVCs) and production networks (GPNs)governed by leading multinational corporations. With increasing attention to thenegative sides of integration, an emergent issue is the role of disengagement from,and operation outside of, the GPNs of lead firms. Through the case of the Indianpharmaceutical industry, where a selective and short-term strategic decoupling andsubsequent recoupling has played a crucial role in the development of what is now thelargest such industry in the Global South, this article explores how decoupling fromGPNs may lead to positive development outcomes. The experience of India and thepharmaceutical industry shows that a sequence of decoupling and recoupling can bean alternative to strategic coupling as a route to economic development.

Keywords: Global production networks, decoupling, India, pharmaceuticalsJEL classifications: O14, O17, O20Date submitted: 30 November 2012 Date accepted: 6 June 2013

1. Introduction

Since the late 1980s, global integration has been widely regarded as a necessarycomponent of economic development strategy (Rodrik, 2000). The global commoditychain (GCC), global value chain (GVC) and global production network (GPN)frameworks have all emphasized the significance of global integration for the economicdevelopment of firms and regions (Gereffi, 1999, 2001; Henderson et al., 2002; Coeet al., 2004; Gereffi et al., 2005). The GPN approach has developed the concept ofstrategic coupling to denote a process by which regions can achieve ‘globalized’development through integration into the production networks governed by leadingmultinational corporations (MNCs) (Coe et al., 2004). Yet many places, especially inthe Global South, have struggled to achieve strategic coupling and have faceddrawbacks to integration into GPNs (Coe and Hess, 2010; MacKinnon, 2012). Forsome of these territories, an alternative approach may be to decouple as a preludeto recoupling or to taking a different approach to integration. Although decouplingfrom GPNs has been given some conceptual consideration, (Coe and Hess, 2010;

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Journal of Economic Geography (2013) pp. 1–24 doi:10.1093/jeg/lbt022

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Phillips, 2011; MacKinnon, 2012), its dynamics and its impact on economic develop-ment remain to be more fully explored. Can some form of strategic decoupling be usedas an effective component of economic development strategy to overcome adverseforms of incorporation in GPNs?

Taking the case of India’s pharmaceutical industry, this article develops a concept ofstrategic decoupling and considers some of its potential implications for the GlobalSouth. With the third largest such industry in the world in volume terms, India hasbecome a center of production and research for foreign pharmaceutical MNCs(Chaudhuri, 2011; Haakonsson et al., 2013) as well as a source region for emergingIndian-owned pharmaceutical MNCs (Chittoor and Ray, 2007; Athreye and Godley,2009; Kedron and Bagchi-Sen, 2012). In addition to its economic developmentimportance, the industry has significance for public health through its crucial role inproviding more affordable medicines to consumers across the Global South (Waninget al., 2010). The Indian pharmaceutical industry demonstrates how a strategicdecoupling from particular GPNs may, at times, serve as an alternative path todevelopment.

The role of GPNs in development is also crucial for a closer ‘trading zone’ betweendevelopment and economic geography (Murphy, 2008; Vira and James, 2011). MovingGPN research beyond lead firms and economies can help construct a more ‘global’economic geography (Economic Geography, 2011). If regions and nations only becomethe subject of analysis once they are engaged in strategic coupling with global leadfirms, various other forms of integration into the global economy and theirconsequences for development may be overlooked. Considered here are the potentialfor integration into South–South production networks and the role of non-participationin lead firm GPNs as regional and national development strategies.

Following a brief review of the GCC and GPN approaches to the integration ofdeveloping firms and regions in the global economy, the concept of strategic decouplingis introduced. I then describe phases of coupling, strategic decoupling and recouplingin the development of India’s pharmaceutical industry over three different periods,1947–1970, 1970–1991 and 1991–2005, respectively. The article concludes by brieflyconsidering the continuing scope for strategic decoupling at the present time.

2. Global integration, GCCs and GPNs

Various theories of economic globalization have sought to explain how global marketintegration might be translated into positive development outcomes in the GlobalSouth. Perhaps most significantly, the GCC (Gereffi, 1999, 2001) and GVC literatures(Gereffi et al., 2005) have offered frameworks to understand the path of export-orientedsuccess in a new era of globalization. Their collective perspective is that participating inthe commodity chains of global lead firms puts firms and economies on dynamiclearning curves leading to development via upgrading and increased value capture(Gereffi, 1999, 39). A central principle is that ‘development requires linking up withthe most significant lead firms in the industry’ (Gereffi, 2001, 1622). The analysis ofEast Asian economies showed how firms in industries such as apparel, footwearand toys upgraded from input assembly to original equipment manufacture andto original brand name manufacture (Gereffi, 1999, 2001; Bair and Gereffi, 2003). Asmany countries across the Global South shifted away from import-substitution andstate-led industrialization, the GCC framework became part of policy debates about

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appropriate ways for developing countries to benefit from an export-oriented strategy(Bair, 2005, 162).

Building on GCC and GVC literature, the GPN approach involves a relationalunderstanding of the interaction between global firms and economies, with a moreexplicit focus on the processes of territorial development (Henderson et al., 2002; Coeet al., 2004; Coe, 2012). In this perspective, ‘globalized’ economic development ariseswhen particular territories are effectively incorporated into GPNs, comprised ofrelationships involving both firm and non-firm actors, including labor unions, state andcivil society organizations, that shape the transnational production of goods andservices (Henderson et al., 2002; Coe et al., 2004; Yeung, 2009, 2013). Drawing onmostly East Asian examples, Coe et al. (2004) have argued that development is a resultof ‘strategic coupling’, a process whereby the territorial assets, or initial capabilities, ofa region or nation complement the needs of trans-local actors.

A beneficial coupling drives the territorial development processes of value creation,enhancement and capture (Coe et al. 2004). Value creation refers to those productionand service activities creating economic rents based on labor activity, access toparticular technologies, relational or inter-organizational linkages, trade policies andbranding. Value enhancement involves upgrading the value-added activities in a region.Its various forms include product upgrading (entering more sophisticated productlines), process upgrading or improved efficiency and functional upgrading (newactivities with greater skill content) (Humphrey and Schmitz, 2002). Value capture is thedegree to which the value created goes to the benefit of the host territory. Theseprocesses are each mediated by regional or national institutions with policies andactivities targeting particular value-added activities to promote the development ofspecific territorial assets. In cases of strategic coupling, the relationship betweenregional or national institutions and global lead firms is characterized by relativelysymmetrical power relations producing greater value capture.

However, many economies face significant barriers to greater value creation,enhancement and capture and struggle to generate beneficial development outcomesthrough global market integration and strategic coupling. Early integration intoGPNs can lead to the crowding out of domestic firms (Amsden, 2001; Chang, 2004),curbing the potential introduction of ‘new’ industries to the developing world(Amsden, 2009). Many places are locked into quasi-hierarchical relationships withglobal lead firms that curb value enhancement. In the Sinos Valley shoe cluster inBrazil, for example, integration into global buyers’ commodity chains resulted inproduct and process upgrading but did not lead to functional upgrading (Humphreyand Schmitz, 2002). Firms who upgrade and capture greater economic value in aGPN may be open to greater competition and business risks, undermining their long-term economic viability (Barrientos et al., 2011). When facing asymmetric powerrelations, territories may even develop new forms of transnational dependency,exclusion and uneven distributions of economic benefits. For example, the USmarket has significantly influenced the fortunes of the Mexican apparel industry,with inclusion in full-package supply being limited to a few large and well-connectedcompanies who have secured a disproportionate share of the benefits (Bair andGereffi, 2003). Incorporation may also lead to the marginalization of workers(Phillips, 2011) and the ‘downgrading’ of the goods and services produced (Gibbonand Ponte, 2005; Ponte and Ewert, 2009). Integration into GCCs and GPNs canconsequently be a source of friction, both between local and non-local actors and

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within an economy, over such issues as uneven value capture, labor exploitation andsocial conflict (Coe and Hess, 2010).

A focus on the role of global lead firms can also be criticized for a possible ‘inclusionarybias’ by only tracing actors and regions when they are participating in prominent GPNs(Bair and Werner, 2011). Such an emphasis overlooks those development processesarising in and through alternative forms of market internationalization and in placeswhere lead firms are absent (Murphy and Schindler, 2011). Moreover, little attention hasbeen placed on the role of the domestic market in GPNs (Yang, 2013). In some cases, aconsiderable degree of prior economic development may be necessary to enable firmsto successfully export within the production networks of global lead firms. In East Asia,state promotion policies have played an important role in the development oftechnological capabilities prior to coupling with global lead firms (Yeung, 2009, 340).An emphasis on lead firms as facilitators of upgrading and greater value capture in theGCC and GPN literatures can produce an unintended ‘effective affinity’ with theneoliberal approach to development. For the most part, the role of the state in developinginitial capabilities for successful integration (Bair, 2005, 174), including policiesselectively restricting engagement with GPNs, remains under-explored.

3. Decoupling and GPNs

The limited attention to decoupling in the GPN literature has encompassed a variety ofterminologies. Citing divestment, the exit of foreign firms and loss of foreign markets asexamples, Coe and Hess (2010) use ‘ruptures’ to refer to a significant reduction in thelevel or existence of connection between regions and firms. Bair and Werner (2011) referto ‘disarticulations’ to describe the contraction of the apparel industry in La Laguna,Mexico. MacKinnon (2012) has discussed how decoupling is also likely to varyaccording to the type of coupling (Table 1). For him, decoupling is unlikely wherecoupling between territories and lead firms has occurred organically, as for example ineconomic hotspots and source regions of global firms such as in Silicon Valley. Incontrast, decoupling is a more likely outcome after structural coupling in those placeswhere power relations are highly uneven between territories and global firms, forexample in old industrial regions in Western Europe and North America. In cases ofstrategic coupling, decoupling is unlikely in the short term but may eventually occur asthe regional characteristics and firms evolve.

Table 1. Types and dimensions of coupling

Type of

coupling

Dimensions of coupling Likelihood

of

decouplingRole of regional

institutions

Type

of

region

Regional

assets

Status of MNC

affiliates within

parent company

Power relations

between global

firms and region

Strategic Explicit, policy-led Host Distinctive Some autonomy Symmetrical Medium

Organic Implicit Source Distinctive Autonomous Symmetrical Low

Structural Explicit, but limited Host Generic Dependent Asymmetric High

Source: Author’s compilation, based on Coe et al. (2004) and MacKinnon (2012).

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In the same way as coupling can be seen as involving intervention and action onthe part of both territorial institutions and firms (Yeung, 2009), decoupling isconceptualized here as a reduction or break in the prevailing form of linkage betweena particular GPN(s) and a territory, an outcome that may be the result of either afirm-based decision or the initiative of territorial, including state, institutions. Inaddition to sudden breaks or ruptures, decoupling can be a gradual shift. It is mostlikely following earlier structural coupling that has produced a highly asymmetricrelationship between global firms and territories, with consequent lack of compatibilitybetween the strategic needs of firms and the regional and national development goalsof their host territories.

Decoupling has been widely construed as ‘structural’, involving a ‘loss’ of the positivecontributions of coupling, for example of jobs or revenue (Coe and Hess, 2010; Bair andWerner, 2011; MacKinnon, 2012). In such circumstances, any subsequent recouplingmay continue to be on asymmetric terms, owing to a lack of territorial assets. However,territories may also have the opportunity to take advantage of decoupling from someGPNs, especially if the detrimental effects of global ties on the economy and societyoutweigh their contribution to value creation (Coe and Hess, 2010, 136). This articleexplores how such a decoupling from global firms and markets may be ‘strategic’ if itleads to positive regional or national development outcomes that can overcome aprevailing negative form of incorporation (Table 2). With the enhanced development ofterritorial assets, strategic decoupling may pave a path toward more symmetrical formsof recoupling (‘strategic’ or ‘organic’) in the future.

Unlike the view that incorporation in the world economy leads to underdevelopment(Frank, 1966; Amin, 1976), a strategic decoupling perspective does not reject outrightthe possibility of improved territorial development prospects through participating inGPNs. Rather, strategic decoupling is a temporary and sequential strategy to improvevalue creation, enhancement and capture for developmental objectives, and may be

Table 2. Types of decoupling

Associated

with

Empirical

examples

Impacts on

territorial

development

Value creation,

enhancement,

capture

Potential for

subsequent

recoupling

Structural

decoupling

Divestment of FDI

and loss of jobs

to lower cost

regions due

to declining

competitiveness

Old industrial

regions in UK

(MacKinnon,

2012); La

Laguna, Mexico

(Bair and

Werner, 2011)

Negative aspects

of decoupling

outweigh

positive impacts

Loss (e.g. jobs,

regional

revenues)

High for structural

recoupling; Low

for strategic and

organic

recoupling

Strategic

decoupling

Promotion and

protection of

domestic firms

and start-ups

by a variety of

institutional

and policy

mechanisms

India and pharma-

ceutical industry

(Section 5.2)

Positive aspects

of decoupling

outweigh

negative impacts

Gain (e.g. growth

of local firms,

functional

upgrading); New

opportunities

in domestic

markets; South–

south trade

Low for structural

recoupling; High

for strategic and

organic

recoupling

Source: Author’s compilation.


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followed by recoupling with the same or, usually, other GPNs. Depending on the extentof territorial assets developed, a re-engagement may be based on a more symmetricdegree of power leading to a coupling that is more strategic and organic, and lessstructural. As such, strategic decoupling may serve as a crucial component of a stateand regional strategy that takes advantage of globalization, rather than disengagingentirely from it.

By decoupling from global lead firms, new opportunities for value creation andenhancement may arise through engagement with other production networks, forexample those centered on domestic and regional (supra-national) markets. In lowerincome markets with less stringent process and product standards, entry barriers can belower than those to supply markets in the Global North (Kaplinsky and Farooki, 2011;Staritz et al., 2011). Strategic decoupling may also offer an avenue for functionalupgrading by moving into higher end activities such as product development anddesign, branding and marketing. For example, footwear and furniture firms in Brazilhave upgraded by specializing in the domestic and regional market (Navas-Aleman,2011). Local firms can thus initiate and expand activities previously discouraged bypowerful global lead firms.

Opportunities for value enhancement through learning can also lead to strategicdecoupling. The early stages of industrial learning may draw on borrowing from abroadin the form of copying and self-teaching (Amsden, 1989). For this imitative activity,which does not require the involvement or cooperation of the innovator of thattechnology, firms may access codified knowledge and/or take advantage of labormobility to develop a copied version of a product. Another learning opportunity isprovided through apprenticeship with other firms in the Global South (Haakonsson,2009; Murphy, 2012). For example, South–South production linkages with limitedinvolvement in the production networks of companies from the Global North led tofunctional and process upgrading for Uganda’s pharmaceutical industry (Haakonsson,2009). Ultimately, if decoupling leads to the building up of firms that are domesticallyowned and controlled (Wade, 2010), greater value is likely to be captured within theterritorial economy.

Greater value clearly does not arise automatically as a result of exiting lead-firmGPNs and entering new production networks. However, the presence of competitivepressure on domestic firms as a disciplinary factor combined with state regulation (Lall,2004) can prevent uncompetitive industries emerging after decoupling. In return formeeting performance requirements (e.g. exporting, import replacing, reducing the gapbetween international and domestic prices, or increasing the proportion of localcontent), the East Asian developmental states have supported firms in target industriesthrough policy mechanisms such as subsidies, licenses and protection (Amsden, 2001;Chibber, 2003; Wade, 2010). Regional and national institutions can play an active rolein facilitating positive territorial development outcomes through the formation outsideglobal lead firms of domestic and other production networks, including those linkedto expanding markets in the Global South (Fold and Larsen, 2011; Pietrobelli andRabellotti, 2011, 1267).

As the following sections demonstrate, evidence from the Indian pharmaceuticalindustry since independence suggests that its capabilities developed through a processof strategic decoupling and recoupling. As key policies governing relationships withMNCs have been set at the national level, the regulatory role of India’s centralgovernment is particularly relevant to the development, including the public health

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dimensions, of the pharmaceutical industry. The national scale has not been widely usedin the analysis of coupling with GPNs, yet it is a key governance framework forterritorial development and is also significant because national economies differso much in their global integration (Coe et al., 2004, 281; Hess and Yeung, 2006;Rodrik, 2013).

4. Research context and methods

The Indian pharmaceutical industry is the third largest in the world today in volume and14th largest in value terms, comprising approximately 10% of the global pharmaceuticalmarket in volume and 1.5% in value (Maira Committee, 2011). The output of theindustry, which involves over 10,000 pharmaceutical manufacturing units, rose substan-tially from 3500 Crore Rupees (US$63.1 million) in 1971–1972 (Narayana, 1984) to104,209 Crore Rupees (US$18.8 billion) in 2010 (Department of Pharmaceuticals, 2012).In 2010, the size of the domestic market was 62,055Crore Rupees (US$11.2 billion), whileexports were 42,154 Crore Rupees (US$7.6 billion). In value, the majority of India’sexports are to Europe and America (57.8%) (Chaudhuri et al., 2010, 453), yet in volumeterms, the majority of India’s pharmaceutical exports are outside those regions. Thechemistry-based pharmaceutical industry is significantly larger than bio-pharmaceuticalsin India, which was $1.9 billion in 2010–2011 (EBTC, 2012).

The following analysis is drawn from material arising out of firm-level interviewsand a detailed review of secondary sources. The field research comprised 89 interviewswith various stakeholders involved in the Indian pharmaceutical industry, conductedin July 2009, September–December 2011 and May 2012. The 30 largest pharmaceuticalfirms (as ranked by sales according to the Centre for Monitoring the Indian Economyfor 2007–2008) were contacted while smaller and medium sized firms were approachedbased on a geographically stratified sampling of firms identified from the NationalPharmaceutical Pricing Authority’s 2007 list of pharmaceutical manufacturing unitsin India. Table 3 provides summary characteristics of the 65 firms interviewed.Following a semi-structured interview format, senior managers of various-sized firmswere asked how their firm started and the subsequent evolution of business activities,including the impact of policy changes in patent law, foreign investment restrictions,quality controls, price controls, experience exporting and broader nature of activitiesabroad. In addition, a total of 201 industry associations, civil society groups,policymakers and consultants were interviewed as to the activities of their organiza-tions, their achievements, and the perceived impact of different policies affecting, andmajor challenges facing, the pharmaceutical sector. All interview notes and transcrip-tions were coded, using QSR NVivo 9.0 software, according to value creationactivities, barriers to entry, current and future challenges facing firms, varying formsof engagement with foreign GPNs (partnerships, exporting, hosting FDI, home toFDI) and the influence of state institutions, policies and non-firm actors (e.g. civilsociety) on processes of value creation, enhancement and capture. From this broadanalysis, it was subsequently possible to identify the three periods of (de/re)coupling

1 A single representative was interviewed from most of the 65 firms and 20 other stakeholders, although infour cases, two people were interviewed.


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which form the structure of the following description of value creation, enhancementand capture processes. Secondary literature (e.g. academic, policy documents,corporate websites, media reports) has provided an additional macro-level perspectiveand greater historical depth.

5. Structural coupling, strategic decoupling and recoupling: thecase of India’s pharmaceutical industry since 1947

In this section, the development of the Indian pharmaceutical industry is discussed inrelation to the processes of value creation, enhancement and capture. Three generalperiods of engagement with GPNs are distinguished: structural coupling fromIndependence in 1947 until 1970, strategic decoupling from 1970 to 1991 andrecoupling from 1991 to the present.

Table 3. Background information on the firms interviewed

Characteristic Distribution for each characteristic (number of firms)

Size (mfg. firms) Large (top 30): 8

Medium (31–100): 7

Small (101–): 44

Location of HQ Mumbai: 15

Ahmedabad: 14

Delhi: 11

Hyderabad: 11

Vadodara: 9

Bangalore: 4

Chennai: 1

Year founded: Pre-1970: 12

1970–1990: 32

1991–present: 21

Primary activity: Trading: 6

Bulk drugs: 12

Formulations: 33

Bulk and formulation: 14

Highest level of quality (mfg. firms): Domestic: 14

WHO: 27

Regulated market (e.g. USFDA, UKMHRA): 18

Facilities abroad (mfg. firms): None: 44

Marketing and financial subsidiary only: 6

Manufacturing: 6

Marketing, manufacturing and R&D: 3

Rank of person interviewed: Chairman: 2

Managing director: 25

Vice-president/deputy managing director: 6

Chief financial officer: 6

Technical director: 7

General manager: 11

Business development manager: 2

Export/international marketing manager: 4

Investor relations manager: 2

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5.1. Structural coupling

5.1.1. Value creation and enhancement

Value creation activities in pharmaceuticals were limited in India in the 1950s and1960s, largely dominated by global lead firms. As the Indian domestic market was smallin value terms, many foreign companies did not perceive local production could bejustified (Ravindranath, 2002, 41). Most final products were imported, although firmssuch as Glaxo, Boots, Burroughs Wellcome, Parke Davis, Lederle, Merck, Ciba,Hoechst, Roche and Wyeth did engage in a limited amount of basic formulationsactivity (e.g. filling capsules, pressing tablets, packaging) (Hamied, 2005). However, themore technically challenging bulk drugs production, involving chemical reactions toconvert raw materials into active pharmaceutical ingredients or bulk drugs, remainedoutside the country (Table 4). The overwhelming majority of licenses granted to MNCsin India between 1952 and 1968 were in formulations (360 licenses) rather than bulkdrugs (4 licenses) (Lal, 1990, 20). Domestic production was also highly dependent onimported basic chemicals (Ramachandran and Rangarao, 1972). The presence of theMNCs provided some industry exposure to scientists and business people, leading tothe development of initial capabilities in pharmaceuticals. For the most part, however,as the MNCs had limited depth to their integration, this exposure was restricted to thebusiness side and less demanding technical operations.

Table 4. Pharmaceutical MNCs in India in 1956

Firm Year of

entry

Manufacturing presence in India

Formulations Bulk drugs

Abbott Laboratories (India) 1946 No No

Alkali and Chemical Corp of India 1938 No No

Anglo French Drug Co. (Eastern) 1923 Industrial license in 1955 No

Biological Evans 1953 No

Boots Co. 1929 In 1949 No

Burroughs Wellcome & Co. (India) 1912 In 1950 No

Ciba Geigy 1928 Between 1947 and 1951 No

Cyanamid India 1947 In 1953 No

Geoffrey Manners 1943 Information not available No

German Remedies 1949 No No

Glaxo Laboratories 1924 In 1947 In 1956

Hoechst Pharmaceuticals 1956 — —

May and Baker 1928 In 1943 In 1948

Parke–Davis 1907 In 1954 No

Pfizer 1950 cf. 1952 No

Rallis 1948 Information not available No

Reckitt & Colman 1951 Information not available No

Richardson Hindustan 1951 No No

Roussel Pharmaceuticals 1956 No No

Sandoz 1947 No No

Smith, Kline and French 1950 No No

Whiffen 1954 No No

Source: Adapted from Tyabji (2010, 10).


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With global lead firms dominating the Indian market, domestic firms had limitedopportunities to participate in value creation activity. A few domestic companiesimported pharmaceuticals from global lead firms in the United States and WesternEurope and then coordinated local distribution. Only a very small number, however,were able to enhance their value in this period, most notably Ranbaxy. Originally, asupplier to A. Sinoigi, a Japanese firm, and then Lepetit SpA, an Italian firm, and nowone of the largest Indian pharmaceutical firms, Ranbaxy was able to initiatemanufacturing after Lepetit SpA exited. Typically, Indian firms were only able toinitiate their own manufacturing by operating independently of the MNCs. Forexample, a Vadodara-based, small-scale company interviewed commenced operationsfrom 1952 to 1962 by importing medicines from Parke Davis in the US and thenrepacking and selling, but only later initiated its own manufacturing by supplyinggovernment health programs, an alternative to the MNC dominated market (Interview,Vadodara, 8 October 2011). The quality of production from the small domesticindustry which did exist was questionable (Bakshi, 2011, 12). The most significantexpansion of domestic value creation at this time was the establishment of twopublic sector firms—Hindustan Antibiotics in 1954 and Indian Drugs andPharmaceuticals Limited (IDPL) in 1961, drawing on technology from the US-ownedMerck and from the Soviet Union. With MNCs reluctant to produce bulk drugsin India, these units helped initiate domestically based pharmaceutical production,introducing Indian scientists to production activity and thereby creating initial domesticcapabilities.

Domestic firms faced three major challenges to greater value enhancement. First, thepharmaceutical MNCs enjoyed a technological advantage over the developing world(Gereffi, 1983), arising from the huge advances, among them the discovery andmanufacture of antibiotics, of the therapeutic revolution in the world-wide pharma-ceutical industry between 1940 and 1955. Although a nationalist industrializationprogramme was launched promising to regulate foreign investment (Encarnation,1989), to access the benefits of the therapeutic revolution few alternatives existed forIndia other than to permit foreign companies to enter the domestic market in thepharmaceutical industry. As an interviewee noted:

in those days, technology was driving the industry. Technology was very secretly guarded

by the multinational companies, so it was not coming out.—Interview, Vadodara, 8 October 2011

Second, owing to their reputation for better quality products and their large teams ofmedical representatives, the MNC subsidiaries had a significant marketing advantagewithin India. Referring to the dominance of such firms as Pfizer, Glaxo, Abbot,Sandoz and Ciba in the 1960s, Bhandari observes that ‘doctors were not willing totouch drugs made by Indian companies’ (2005, 48). Third, the Patent Act 1911 alsoregulated Indian firms, restricting their production of imitations of new drugs(Hamied, 1988). Although several post-Independence government enquiries hadrecommended changes, MNCs succeeded for 20 years in preventing any change todomestic patent laws. Their success underscores the corporate power MNCs thenenjoyed and has been represented as ‘perhaps the best example [in India] of thedeployment of foreign business pressure to influence government policy’ (Kochanek,1974, 308).

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5.1.2. Value capture

In the early 1960s, the prices of medicine in India were amongst the highest in the world(U.S. Senate, 1961) and, as a result of foreign ownership, limited value was capturedwithin India. With limited economic and health benefits from foreign MNCS, frictiongrew between foreign pharmaceutical companies and the Indian government. Theperiod from 1947 to 1970 can be characterized as structural coupling, with a highlyuneven power relationship between the global lead firms controlling the Indian marketand the state possessing limited bargaining power.

5.2. 1970–1991: strategic decoupling

Official policies from 1970 onwards supported a wide-ranging strategic decoupling withan objective of increasing domestic pharmaceutical production and making medicinesmore affordable. Disengagement from MNC control was a logical strategy, particularlyin view of the costs arising in the pharmaceutical industry as a result of transfer pricing,the lack of R&D for developing country diseases, over-prescribing and mis-prescribing.As Lall (1979, 22) argued:

in the absence of an alternative system of drug production, innovation and marketing, it

becomes impossible for developing countries to provide essential medicines to the majority of

their population.

An incremental policy shift involved a sequence of initiatives, starting with the PatentAct 1970, the Drugs (Prices Control) Order 1970, the Foreign Exchange Regulation Act(FERA) 1973, and finally and most significantly the New Drug Policy 1978. Whilegeneral restrictions on foreign-investment (FERA) were applied widely at a time whenPrime Minister Indira Gandhi would often refer to the ‘foreign conspiracy againstIndia’ (Encarnation, 1989, 199), other policies and factors were more sector-specific andare key to the trajectory of the pharmaceutical industry. The Patent Act of 1970, whichprovided for short process patents (5 years) and no product patents in pharmaceuticals,required relatively little state capacity to implement and was particularly influential inan industry where new drugs can be copied relatively easily. As a result and unlike otherindustries in India (Kohli, 2007), pharmaceuticals was less affected by the state’s limitedcapacity to implement its industrial policy. As the Indian state moved to give lesspriority to rapid industrialization during the 1970s, the pharmaceuticals sector receivedconsiderable policy support because of its potential benefit for public health. Other keydistinguishing factors were the later start date of decoupling in pharmaceuticals, theinfluential role of the public sector companies in developing pharmaceuticaltechnologies, and the lack of entry barriers for domestic firms.

Official initiatives in India during the 1970s and 1980s can be situated within thebroader movement across the developing world that came to be consolidated in theNew International Economic Order, and which sought to reform relationships with themultinational pharmaceutical industry (Patel, 1983) to capture greater health andeconomic value. While other countries made similar patent law revisions, however,India achieved greater change in the pharmaceutical industry by imposing moreextensive restrictions. In Brazil, for example, pharmaceutical patent protection wasabolished in 1969, yet there were few other restrictions comparable to those in India,and foreign investment in the pharmaceutical sector multiplied more than 5 times


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between 1971 and 1979 (Gereffi, 1983, 229). In India, the FERA of 1973 and New DrugPolicy 1978 were particularly significant in reducing MNC involvement. The FERAimposed restrictions on foreign equity holdings in core high technology industries,including drugs and pharmaceuticals (Sahu, 1998, 67). Arising from the recommenda-tions of the official Hathi Committee Report (1975), the New Drug Policy limitedforeign equity ownership (40% or less) and required MNCs to operate at a significantlyhigher share of bulk drug production.2 This initiative was aimed at encouraging MNCsto commence local production of bulk drugs and to protect the lucrative formulationmarket for Indian firms. The Drugs (Prices Control) Order 1979 that followed placedmore than 347 drugs under price control.


The value creation activities of MNCs were significantly constrained in the new policyenvironment. With patents of their own, MNC subsidiaries were not willing to copy thepatented products of rival companies (Interview, Mumbai, 19 October 2011). The headof Sandoz India recalled that ‘everything went well till 1974’ when FERA came in, afterwhich they concentrated on non-pharmaceutical activities, such as agrochemicals anddyes, which did not come under FERA restrictions (Ravindranath, 2002, 96). The NewDrug Policy was a particularly significant disincentive for MNCs in India (Fifer andRahman, 1983, 20). For one interviewee, it was ‘the real critical thing that hascontrolled the influence of foreign and encouraged Indian entrepreneurs’ (Interview,Hyderabad, 1 November 2011). MNCs reluctantly set up a few bulk drug plants underthe restrictions, but the policy overwhelmingly favored domestic firms. The number offoreign pharmaceutical companies more than halved in a few years, from 45 in 1978 to22 in 1981 (Lal, 1990, 18). While the multinationals had dominated the pharmaceuticalindustries in both countries in 1971, by the end of the decade the Indian domesticprivate share was double that of the less-restricted Brazil (Encarnation, 1989). By thelate 1980s, only half a dozen foreign pharmaceutical companies remained in India—Bayer, Johnson and Johnson, Roche, Wyeth, IEL and Sandoz (Sahu, 1998, 74).

For domestic firms, the policy changes of the 1970s opened significant value creationand enhancement opportunities. Some already-established firms greatly expanded anddiversified their activities during this period leading to functional upgrading. Ranbaxy,which had earlier imported on behalf of MNCs, rapidly expanded its manufacturing.In other interviewed examples, a medium-sized, Mumbai-based company expandedfrom repacking activity into formulations production in 1979, while a small-scale Delhi-based company, founded in 1968, started its production activities in 1978.

A large number of new firms were formed, creating domestically based productionnetworks, mostly independent of MNCs. Of the 58 different manufacturing firmsinterviewed, more than half (31) were established between 1970 and 1991, with 26 ofthose being founded after the New Drug Policy in 1978. The many companies foundedin this time period include Glenmark (1977), Jubilant Life Sciences (1978), SunPharmaceutical Industries (1983), Dr. Reddy’s (1984) and Aurobindo (1986)—all in the15 largest in India by 2007/08 (according to CMIE). The majority of the interviewees

2 A minimum bulk drug: formulation ratio of 1:5 was allowed for foreign firms, compared with 1:10 forIndian firms and the previous 1:12.53 for MNCs (Drabu, 1986, 194).

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stated that they had little difficulty with approval procedures for their firms. Forexample, the director of a company set up in 1982 recalled how, compared with today,the regulatory requirements to start and operate a pharmaceutical entity were lessstringent (Interview, Ahmedabad, 24 September 2011). Entrepreneurs also emergedfrom IDPL, the public sector company, and its offshoots, founding Uniloids (1976),Standard Organics (1980), Virchow Laboratories (1981), and most notably Dr. Reddy’sLaboratories (1984), now one of the three largest Indian pharmaceutical firms. Thesefirms played a key role in the establishment of bulk drugs production in India.

Indian entrepreneurs also emerged from among those who had already gained crucialtechnical and/or business experience working for MNCs in India. An intervieweerecalled how for:

technical people working in a multinational company, after 5 or 6 years you left that companyand started another company. You know all the technology.

—Interview, Vadodara, 8 October 2011

For example, the managing director of a large Hyderabad-based bulk drugs producercompleted a PhD in chemistry and then, after 10 years’ experience working for GlaxoIndia, started his own firm in 1984. He had experience:

in all aspects of the pharmaceutical product development, R&D, quality control, process devel-opment, CGMP manufacture, so he figured if I can do it for Glaxo, why don’t I do it for myself?

—Interview, Hyderabad, 15 November 2011

In other instances, the founders of two Bangalore-based companies worked for SmithKline & French (SKF) before starting their own firms, respectively a bulk drugsoperation in 1984 and a small scale formulations facility in 1989. The former recalledthat working at SKF in the late 1970s and early 1980s gave:

exposure to a number of areas. I went to meetings with people from various departments,various divisions. It was really my learning ground.

—Interview, Bangalore, 24 November 2011

In addition to technical expertise, entrepreneurs also gained business experience. Someof those who had worked as marketing representatives for pharmaceutical MNCs alsoset up their own small formulation units (Interview, Delhi, 8 September 2011; Interview,Ahmedabad, 30 September 2011).

Domestic firms adopted two distinct value enhancement strategies. Some suppliedMNCs, for example one interviewee described how his company, which had none of itsown formulation brands in the market, was able to become the preferred partner ofMNCs exiting India (Interview, Mumbai 27 July 2009). In another example, a Mumbai-based trading company, founded in 1954, created a manufacturing arm in 1980 toproduce one of Upjohn’s products before subsequently further diversifying (Interview,Mumbai, 19 October 2011). MNCs made use of the loan licensing system, whereby onecompany could supply another with ingredients to manufacture a product that it wouldthen take back to sell. Drabu (1986, 195) estimated that 32% of the bulk drugs requiredby MNCs were manufactured by other firms in India in the mid-1980s. Throughsupplying MNCs which still dominated the marketing of formulations, the domesticsector, particularly small scale firms, expanded.


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An alternative strategy for value enhancement was through imitative learning as partof an altered relationship with MNCs. Indian firms had opportunities to accesstechnology independently of MNCs, by introducing products that were under patentabroad. One interviewee recalled that:

we were not governed in the patent law. The multinationals say you cannot market a brand,but you can reengineer and you can market the similar brand product in a different

manufacturing form or different process. That was the breakthrough.—Interview, Vadodara, 8 October 2011

Domestic firms could access knowledge through journals, manuals, contacts abroadand by deconstructing global lead firms’ products in their laboratories, to then producetheir own imitated version (Horner, 2013). In this manner, ‘Indian companies becameextremely good at chemistry skills’ (Interview, Mumbai, 28 July 2009), developingnumerous new processes. A number of drugs were introduced within 2–3 years of theircreation abroad (Hamied, 1988). MNCs were seemingly reluctant to license incircumstances where Indian firms had the ability to copy their technology (Interview,Bangalore, 21 November 2011), something which was legally permissible in the absenceof product patents. The technological advantage of the MNCs, the basis of their powerduring the earlier period of structural coupling, was gradually and progressively eroded.By the late 1970s, decoupling had allowed the Indian domestic firms to master thetechnology of at least 76.8% of the bulk drugs and 97.5% of the formulations inthe Indian market, thereby making technology no longer ‘a bottleneck for undertakingthe task of replacing most of the manufacturing activities of the TNCs’ (Chaudhuri,1984, 1373).

The major remaining barrier to greater value enhancement for domestic firms wasthe marketing advantage of the MNCs. Doctors and patients evidently had littleconfidence in locally made products. One interviewee noted that in the 1980s andearlier, ‘for the doctors to initially believe [a product was effective], a multinationalhad to promote it’ (Interview, Hyderabad, 17 November 2011). MNCs also hadconsiderably greater resources to provide as incentives to doctors (Interview, 20October 2011, Mumbai). Nevertheless, corporate and legislative restrictions limitedthe activities of MNC subsidiaries, with one interviewee suggesting that ‘people inMay & Baker couldn’t shift a reaction six inches without consulting London’(Interview, Hyderabad, 10 November 2011). More importantly, once Indian domesticmanufacturing did emerge, foreign companies were apparently unable to compete withthe cost structure of Indian manufacturers and so they cut back their activities(Interview, 15 November 2011, Hyderabad).


Considerably greater value was captured domestically as Indian-owned firms took theopportunity to serve the once foreign-dominated domestic market during this period.The share of the MNCs in the domestic pharmaceutical market declined from 80% to90% in 1970 to 39% in 1993 (Table 5).

As a result of these changes, the prices of some products fell substantially to amongthe lowest in the world. By 1988, the average price of a range of nine drugs, includingantihypertensives, antiulcer and cardiovascular drugs was only 25% of the cost of the

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same drugs in the UK (calculated from Hamied, 1988). In the 16–17 year periodfollowing the first moves toward strategic decoupling in the pharmaceutical sector, therise in the wholesale price index of medicines in India was, at 103.7%, significantlylower than all products, at 277.8% (Singh, 1988).

In sum, the power relationship between multinationals and the Indian host territorywas radically rebalanced during the 1970s and 1980s. Global lead firms facedprogressively heavier restrictions, leading to a decline in the foreign dominance of theIndian market. The Indian domestic industry grew, much of it independently from theglobal lead firms. A sequence of policies had the cumulative effect of producingstrategic decoupling, facilitating the development of initial capabilities in preparationfor subsequent recoupling.

5.3. 1991-Present: recoupling and emerging South–South production networks

Since 1991, as part of a shift towards the Washington Consensus approach toeconomic development, India’s economic policy has emphasized external liberaliza-tion. State reforms have dramatically changed the policy environment for India’spharmaceutical industry, reducing price controls and allowing 100% inward andoutward FDI in pharmaceuticals. Constrained in part since joining the World TradeOrganization (WTO) in 1994, the state has become much less confrontational vis-a-visMNCs, and has used the agency of Pharmexcil, a specialized exports promotionorganization established in 2004 and a special Department of Pharmaceuticals set upsince 2008 to promote the participation of Indian firms into various GPNs. A newphase involving recoupling has been given further impetus by the reintroduction ofpharmaceutical product patents since 2005 as a result of India’s compliance withthe WTO’s Trade-Related Aspects of Intellectual Property Rights Agreement(Chaudhuri, 2005). A mix of external pressure and emergent domestic lobbies(Pedersen, 2000) facilitated these changes in state orientation and in the policyenvironment for coupling.


Global lead firms have been increasingly engaged, particularly since the mid-2000s, ingreater value creation activity in India. As well as their traditional emphasis onpatented products, MNCs are increasingly active as powerful buyers of qualitygenerics production, acting as ‘manufacturers without factories’ (Haakonsson, 2009).India provides key assets, in particular the low cost generic production andconsiderable process chemistry skills developed during the period of strategic

Table 5. Pharmaceutical market share (percent): MNCs vs. Indian companies

Year Multinational Indian public sector Indian private firms

1970 80–90 5–10 5–10

1982 50 2 48

1993 39 1 60

Source: Huang and Hogan (2002, 18).


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decoupling, to meet this emerging need. One interviewee explained: ‘in India there are

two things which are very clearly advantageous—the skill and the knowledge which is

available in abundance; second, the cost’ (Interview, Mumbai, 23 July 2009). Another

explained that:

You see what Indian companies are doing in, say, US markets - taking market share or putting

that kind of pricing pressure into those markets. Other [multinational] companies have to

ensure that they have similar skills or infrastructure available to them. That is why they have to

come here.—Interview, Mumbai, 20 July 2009

The growing domestic market is another reason for the increasing interest of

pharmaceutical MNCs in India:

All the MNC companies who had already exited are now you know frantically strategising

their India business. You know how do I enter the market? Because it’s a $7 billion3 market,

growing at 12%. It can’t be ignored.—Interview, Mumbai, 27 July 2009

Pharmaceutical MNCs have been partnering with large Indian firms, such as

Wockhardt, Cipla and Piramal Healthcare, as part of a more symmetrical coupling

with mutually advantageous value enhancement opportunities. One executive from a

large Indian firm observed that foreign MNCs ‘need a marketing channel in India and

we need access to the product pipeline’ (Interview, Mumbai, 21 July 2009). In the

reverse direction, global lead firms provide access to highly-regulated markets in North

America and Western Europe by marketing and distributing products on behalf of

Indian firms. For example, an interviewee explained that:

We have partnered with multiple generic companies like Hospira, Actavis, Apotex, and Dava

to name a few in terms of putting our medicines into the market. We followed a policy where

we concentrate more on development and manufacturing and leave the front-end marketing

to the local people.—Interview, telephone, 20 July 2009

By providing a growing number of Indian firms with a revenue stream far greater than

could be obtained by solely serving the domestic market, these arrangements have acted

as an increasingly significant additional source of value enhancement as well as a source

of opportunities for learning about quality standards and production techniques for

regulated markets (Interview, Mumbai, 21 July 2009). In the words of the technical

manager of a medium-sized contract manufacturer:

Basically all the systems, the processes, the requirements, the SOPs [standard operating

procedures], everything is what we have adopted from these multinational companies.—Interview, Vadodara, 8 October 2011

3 By the end of 2010, the official estimate for the size of the domestic market was $11.2 billion (Departmentof Pharmaceuticals 2012).

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These improvements are complemented by Indian firms’ greater engagement in processand product R&D, encouraged by government tax incentives, and increasinginvolvement in research partnerships with MNCs. Under recoupling, for the mostpart, Indian pharmaceutical firms have greater bargaining power to engage in theserelationships than under the structural coupling of the 1950s and 1960s.

Value creation and enhancement activities also involve Indian firms establishing theirown, increasingly global, production networks. Those firms now emerging as globalgeneric firms target both regulated and semi-regulated markets (19 of the 59manufacturing firms interviewed), and have quality approvals from bodies such asthe United States Food and Drug Administration (USFDA), United KingdomMedicines and Healthcare Products Regulatory Agency (UKMHRA) and the WorldHealth Organization (WHO). Most firms still conduct the vast majority of theirproduction from India. Cipla and Orchid, two of the largest, do so exclusively, takingadvantage of the lower costs available, the presence of skilled scientists in the genericsindustry and the availability of facilities that meet international regulatory require-ments.4 Increasingly successful in the lucrative markets of North America and WesternEurope, and focusing on generic products once they come off patent, these Indian-controlled enterprises are also internationalizing through establishing manufacturing (9of the 59 manufacturing firms interviewed), R&D (3 of the 59), marketing and financialsubsidiaries (15 of the 59) abroad. The highly regulated markets of the United Statesand United Kingdom are favored manufacturing locations, with market access a majorconsideration in the acquisition of plants. Ranbaxy and Dr. Reddy’s, in particular, havelarge numbers of subsidiaries overseas, in addition to a few other firms includingJubilant Life Sciences, Wockhardt and Sun Pharmaceuticals. Indian pharmaceuticalfirms are thus increasingly forming GPNs of their own from their base in the GlobalSouth.

The new network relationships include Indian firms forging partnerships across theGlobal South, exporting exclusively to Asian, African, and Latin American markets.Compared with regulated markets, these are destinations where the registration andquality approval process is less demanding (Interview, Delhi, 3 September 2011).Indian firms are particularly attracted to larger developing country markets, such asGhana and Nigeria in West Africa, Brazil and Mexico in Latin America, Sri Lankaand Bangladesh in South Asia, while Russia and CIS countries are also importantexport destinations. In addition to 19 firms which serve regulated and semi-regulatedmarkets, these exporters include a significant number of smaller firms (32 of the 59).Operating mostly independently of any global lead firms, smaller pharmaceuticalenterprises have formed alternative networks that rely on merchant exporters ordistributorship arrangements rather than overseas manufacturing subsidiaries.Pharmexcil has helped promote such trade relationships through, for exampleorganizing ‘buyer–seller’ meets with industry representatives from Latin Americaand Africa. In these locations, Indian firms are participating in production networksfor low-value generics, without powerful lead firms (Haakonsson, 2009), exporting tosemi-regulated markets where the challenges for value enhancement are less than in themore competitive environment within India (Interview, Vadodara, 7 October 2011).However, in a sign of changed circumstances, some Indian firms are now facing

4 India now has the largest number of USFDA-approved plants outside of the United States.


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challenges as a few African countries, in particular, attempt to develop their owndomestic pharmaceutical industries. One interviewee noted that Kenya is nowsupporting its own local pharmaceutical industry and is in a similar situation toIndia in the 1970s, with a comparable emphasis on restricting foreign companies(Interview, Delhi, 3 September 2011).


Value captured by the pharmaceutical industry in India has continued to grow rapidlyin recent years during recoupling. Indeed, significant expansion in global markets aswell as the domestic market has allowed the industry to grow rapidly, at between 9%and 19% per annum over the 5 years from 2005 to 2010 (Department ofPharmaceuticals, 2012). With the domestic pharmaceutical market still dominated byIndian-owned and predominantly India-based firms, the value created is largelycaptured domestically. The industry has also created considerable value from a healthperspective, providing more affordable medicines not only within India but alsoglobally, and as a result becoming known as the ‘pharmacy of the developing world’.Perhaps most notably, competition from India and China has been shown to havelowered prices across a variety of therapeutic categories (Hafner and Popp, 2011, 2).Cipla, one of the largest Indian companies, provides a striking example of pricereduction, having in the early 2000s lowered the price of antiretroviral medicine supplyfrom $10,000 to $350 a year. However, gaps have remained in access to medicineswithin India (Gopakumar, 2008), while concerns persist from a health perspectiveregarding potential access issues that may arise from recoupling and reintegration intoGPNs. Large Indian pharmaceutical firms can earn substantial revenue from partneringwith MNCs to serve lucrative export markets, particularly in North America andWestern Europe. However, such an orientation may promote R&D spending for thosetherapeutic categories most associated with high-income markets while reducing theincentive to produce generic alternatives to MNCs products (Chaudhuri et al., 2010). Inthe light of recent acquisitions by MNCs in India, the debate has resurfaced as towhether restrictions on FDI should be re-introduced (Maira Committee, 2011), anindication that tensions surrounding the role of foreign pharmaceutical firms in Indiaare again on the rise as a result of the repercussions of recoupling.

In sum, the case of GPNs and the Indian pharmaceutical industry involves a series ofdistinct coupling and decoupling processes. Each of these stages has had distinctimplications for the type and degree of value creation and enhancement activities andthe degree of value capture, as summarized in Table 6.

6. Conclusion

The Indian pharmaceutical experience demonstrates how a sequence of strategicdecoupling and recoupling can create opportunities for imitative learning andfunctional upgrading while also re-balancing the earlier asymmetrical power relationsbetween territories and GPNs. Strategic decoupling in the Indian pharmaceuticalindustry has been driven by dual imperatives, one focused on economic benefits andanother on public health concerns, in particular the provision of medicines. Granting ahistorical trajectory of strategic decoupling and recoupling has emerged, some of it hasbeen forced out of circumstance, notably the extent of liberalization and the

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introduction of product patents, both of which have had major influences on thesubsequent forms of coupling. Although the state has aimed at breaking the negativerelationship with the multinational pharmaceutical industry and promoting domesticfirms, state action, particularly in relation to recoupling, has also been very muchcontingent on the global and domestic economic contexts.

A focus on the couplings between territories and firms illuminates the relationalnature of development under economic globalization, and the analysis of decoupling inGPNs gives renewed attention to the cautionary approach to integration taken by theoriginal world systems literature (Bair, 2009). Decoupling may be strategic for aparticular phase of development, allowing various scales of territories to improve theirform of integration into GPNs. By focusing on the varied Indian experience, this articlehas sought to produce a deeper understanding of the breaking up and reform ofcoupling relationships and their development implications. Strategic decoupling in theIndian context was influenced by the possibility of governing access to a very largeinternal market with growing purchasing power, which provided opportunities fordomestic firms to engage in a wide range of activities. However, smaller countrieselsewhere in the Global South may be more constrained in their opportunities forengaging in similar forms of decoupling and recoupling.

With changes in global trade rules since the formation of the WTO in 1994, the policyautonomy of developing countries has been substantially reduced (Wade, 2003; Lall,2004), but states still have policy options to shape interaction with MNCs in areas suchas tariff ceilings, restrictions on FDI, requirements to hire local labor, technologytransfer, R&D, and domestic subsidies (Chang, 2009). The rise of new end markets inthe Global South (Kaplinsky and Farooki, 2011; Staritz et al., 2011; Gereffi and Lee,2012) presents new opportunities for coupling and decoupling. In 2012, for the firsttime, a greater volume of exports from the Global South went to other countries in theSouth than to the Global North (The Economist, 2013). Yet, many currentdevelopment policies give priority to attracting the FDI of global lead firms (Reiterand Steensma, 2010) and to providing technical assistance and capacity building tomeet the export standards for high income markets (Staritz et al., 2011). The Indian

Table 6. Summary of value creation, enhancement and capture in GPNs for India and the pharmaceutical

industry

Value creation Value enhancement Value capture

Structural

coupling

(1947–1970)

Limited: import of

formulation by

MNCs

Restricted: technological,

marketing and legal

(patent law) barriers

Limited: MNCs dominate,

transfer pricing and

high prices

Strategic

decoupling

(1970–1991)

Growing for domestic

market: bulk drug,

formulation

Expanded: process and

functional upgrading

Growing: Indian firms

increase domestic market

share, lower medicine

prices for consumers

Recoupling

(1991–present)

Growing for global

market: bulk drug,

formulation

Expanded: Increased

volumes, process and

product R&D

Growing: Indian firms

expand in global markets

Source: Author’s compilation.


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experience from the recent past suggests that alternative pathways may be available forregions and nations struggling to achieve strategic coupling and upgrading throughGPN integration.

With the prospect that more inward-looking development strategies focused ondomestic and regional markets in the Global South may be emerging (Gereffi, 2013),further research might explore how the potential of, and limits to, strategic decoupling,as well as coupling, processes are manifest, including in smaller countries who might beable to exploit growing niche opportunities in supra-national regional markets withinthe Global South. The continued role of the state and its scope in planning andanticipating coupling processes for territorial benefit also warrants further attention.Ultimately, more analysis in other sectors and territories is needed to furtherunderstand when these realignments become strategic and significant as economicglobalization continues to unfold.

Acknowledgements

The National Science Foundation Geography and Regional Science Program’s DoctoralDissertation Research Improvement Grant (no. 1103231) and the Association of AmericanGeographers’ Economic Geography Specialty Group Graduate Student Research Award 2012are gratefully acknowledged for supporting the fieldwork on which this paper is based. Theinsightful comments of Harald Bathelt, the journal referees, Yuko Aoyama, James T. Murphy,Balaji Parthasarathy and Seth Schindler are also gratefully acknowledged, as is feedback from theorganisers and participants in the ‘‘Expanding the economic geography-development geographytrading zone’’ session at RGS-IBG 2012 in Edinburgh and in the ‘‘Value chains, neoliberalismand global restructuring’’ session at AAG 2013 in Los Angeles. The usual disclaimers apply.

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