The machinery sector has shallowed the growth of Indian pharma but is finding it harder to go global
If necessity is the mother of invention, then it is no wonder that the Indian pharmaceutical machinery industry is flourishing. Import restrictions coupled with a burgeoning generics sector resulted in a requirement for homegrown engineering expertise with the ability to innovate and develop equipment to meet the specific needs of the drug manufacturers.
The development of the Indian machinery sector has followed closely that of the pharma manufacturing industry. In the 1960s and 70s, when the industrialisation of India began, a shortage of foreign exchange resulted in the imposition by the Indian government of heavy import duties and restrictive import licensing policies. Consequently the imported machinery that until then had dominated the Indian pharmaceutical sector was no longer available.
blessing in disguise
But according to Mrs Bhavna Shah, president of the Indian Pharmaceutical Machinery Manufacturers Association (IPMMA), these restrictions were a blessing in disguise, because the industry had to rely on its own resources. The only way for the pharma industry to meet the needs of the rapidly growing domestic market was to encourage the local manufacture of the machinery and equipment it needed, and hundreds of machinery companies sprang up to meet the new demand.
Today the Indian pharma engineering and machinery sector is a net importer in terms of value, but a net exporter in volume terms. The disparity is because the value of the exported machines is seven or eight times lower than that of the imported machines. Imports consist largely of high-value, high technology machines such as equipment for r&d laboratories, for which there is relatively low demand and therefore no domestic production.
The sector is growing at a rate of 15-20% a year - this is faster than the growth rate in the pharma sector because of the export performance.
The reason for the success of the Indian pharma machinery industry is simple: value for money. The country has a cultural tradition of problem solving, and this is combined with skilled engineers and technicians and labour costs that are a tenth of those in Europe and the US, resulting in an exceptional price:performance ratio.
Another positive aspect, according to Mrs Shah, is that Indian pharma machinery manufacturers have not yet adopted a culture of sticking to the letter of the contract. As a result, they are very flexible in terms of delivery schedules, contractual terms and after-sales service that goes beyond the annual maintenance contract.
fragmented sector
But there are a number of issues facing the Indian pharma machinery sector that it is currently trying to address. The first is that its rapid growth has resulted in a high degree of fragmentation. There are an estimated 800 manufacturers in total, of which 300 are in the "organised" section of the industry, while the remaining 500 are very small enterprises.
Formed in 2001, the IPMMA currently has 245 members. One of its aims is to unite the industry, but Mrs Shah acknowledges that so far it has not been very successful. If the sector's marketing and r&d efforts were co-ordinated, she says, it could achieve economies of scale and this would increase the willingness of investors to put money into pharma engineering r&d. This lack of r&d investment is seen as the major obstacle facing the sector.
Another issue is the lack of trained manpower. With strong competition for the top engineers from the IT sector, salaries have risen and this makes it difficult for small-scale manufacturers to attract and retain skilled and trained manpower. In a sector that is growing by around 17% a year, the job market has heated up, resulting in a rapid staff turnover.
Furthermore, pharmaceutical engineering is not regarded as an academic subject in its own right, and the IPMMA would like to see specialist full-time courses set up.
Mrs Shah also laments the difficulty in attracting international companies to participate in joint ventures with Indian pharma machinery manufacturers. The organisation is working hard to improve the brand image of its members" products and technology transfers and jvs are now starting to come about.
value for money
"Looking at the capabilities of Indian engineering companies, many international machine manufacturers have joined hands with Indian companies, which has helped the Indian pharmaceutical industry to procure further improved Indian-made machinery at a price almost a quarter of that of the imported technology," she said.
One example of a large European machinery manufacturer expanding its presence in India is Italian company IMA. Until recently, it owned only 51% of its Indian subsidiary, but has now increased this to 100% to put it in a position to increase its activities in the Indian market. IMA is a high quality company but is looking to develop lower cost machines with less sophisticated technical standards.
From India, IMA supplies machinery and equipment not only to Europe but also to Russia and Vietnam. As well as manufacturing capabilities in India, it also has plants in China and Italy, which allows a cross-fertilisation of technology. India is becoming increasingly export orientated, IMA believes, with exports set to overtake domestic consumption.
competing countries
Of a total turnover of Rs2,000 crore (US$50m; Euro 31.75m), the Indian machinery sector exports goods worth Rs600 crore ($15m; €9.5m). The 80 markets include the US and Europe, but the main destinations are South America, Africa and the Middle East. This is partly due to cultural links, but also because these are price-sensitive markets.
Solid dose machinery manufacturer Rapid-Pack, for example, has been particularly successful in the Mexican market, which will account for approximately 50% of the company's exports in 2007/08.
It focuses mainly on generics manufacturers as these move out of developed markets like the US into countries like Mexico, the former Eastern Bloc states, China and India, and is targeting these countries, together with Latin America, Bulgaria and Turkey.
Although the Indian machinery sector has been highly successful as an exporter, it is now facing increasing competition. Until 2004/05 Italy, Germany and South Korea were its main competitors. But in recent years there has been much activity from Chinese machinery suppliers. This is still in the early stages, said Mrs Shah, but there is already sizeable penetration of Chinese manufacturers into the Indian market.
Although this is a source of concern for the future, there are significant differences between China and India when it comes to machinery manufacture. China also has low-cost labour and its raw materials are even cheaper than those available in India; furthermore, they have mass manufacturing capacity, with the ability to produce 200-300 machines are a time, whereas Indian companies would have an output of only 10.
However, says Mrs Shah, the Chinese do not have high-end technology. "In certain categories, such as distillation plants required for sterile products, you would not take a chance with Chinese manufacturers because you have to be sure of the results."
Bosch Packaging Technology confirms this point of view. India offers higher standards and performance than China but lower than Europe, the US or Japan, the company says, although India does not compromise on operator safety standards. For example, in Europe all vials are checkweighed, whereas outside the EU and US this is optional: 50% of the Indian market wants this feature, but it is not requested in the Middle East.
cost differential
Bosch, which has had a presence in India for 50 years through its 80% share in Bosch Motor Industries, recently moved its main pharma machinery factory from Bangalore to Goa to increase capacity. Previously its focus was on the food sector, but this year it has begun to move into the pharmaceutical industry, particularly on specialist applications for Indian and German machinery.
The cost differential between the German and Indian markets is 25-30%, according to Bosch. But there is no variation in quality standards, just in the offering of optional extras: 90% of the machine is the same as in Germany with small modifications.
According to the IPMMA, there are also some internal obstacles to export growth. Although trade barriers with Pakistan have now been partially lifted for some categories of pharmaceutical equipment, the organisation would like to see them removed completely.
lack of recognition
Another difficulty is that the pharmamachinery sector is not fully recognised by the Indian government - it is classified merely as "engineering goods". The lack of a separate chapter is hindering export growth, the IPMMA claims, because the sector cannot take advantage of import duty concessions offered by Brazil, for example.
Representing the opposite side of the coin from IMA is ACG. Founded by two UK-educated Indian brothers, the company identified an opportunity in the capsule equipment market. A bottleneck had been created because imported capsule filling machines were too fast, so the company started to design and manufacture manual and then semi-automatic equipment to make their own capsules.
foothold in Europe
Today, the company has 3,600 employees, including 600 engineers and claims to be the largest capsule filling machinery manufacturer in the world and the number two capsule supplier. It offers a complete range of machines for solid dosage forms, and has a 50:50 joint venture with Glatt and a tie-up with Alcan and Honeywell for films.
ACG is already exporting to the US, but is finding Europe a tougher market to crack. It recently acquired a hard capsule company in Croatia, Lucaps, to give it a foothold in Europe from where it can provide film finishing operations, a machinery showcase and after-sales support. It is also able to supply machines by road transport to the fast-growing markets of Hungary, Russia, Poland and Romania.
infrastructure needed
Mumbai-based Parle Global Technology, which was established in 1974 as a tooling company and is now a major manufacturer of tablet tooling, cites other internal hindrances to expansion of the pharma machinery sector. In particular, there is a need for more infrastructure, but it says the Indian government is taking this in hand and speeding up construction.
Transportation is also a major problem and needs to be improved, especially road and rail transport. This, the company suggests, would result in both time and fuel savings.
According to Parle, the Indian market has a number of peculiarities: the customer knows what he wants and at what price he needs to buy it in order to be competitive in a global market. The manufacturer needs to understand this. The Indian machinery sector is becoming more professional. It is acquiring overseas companies and conforming to international standards. But at the same time, it needs to go the extra mile and provide local support for customers at lower cost.
Indian customers need good tooling and good machines, it says. The pharma industry is expanding faster than the machinery sector is advancing and is looking for faster technologies, including soft gels and injectables rather than just solid doses.
Parle's annual turnover is Rs100 crore ($27m; €70m). This is growing by 25% a year and the aim is to raise this rate to 35%. To increase its capacity it recently opened a new facility in the Vasai Road engineering industrial zone about an hour from Mumbai.
The company represents a number of foreign principals and uses Korean technology to supply all the machinery needed for making tablets. Import duties on European equipment make Korean products a good solution because they have 80% of the quality features of European-made equipment at only 50-60% of the price. They are also well received by the customers.
Parle says that Korean companies are very flexible about customisation and are therefore more accepted than European suppliers because their offering better meets the needs of the Indian market.
price competitiveness
Fette Compacting, part of Leitz precision engineering group, also recognises the special challenges of the Indian market - in particular the two-week delivery period that is the norm, and the price competitiveness.
Fette Compacting India was established in April 2006 and has a technical competence centre in Goa. Last year it sold 28 machines on the Indian market. "Customers can rely on Fette to solve any faults, even at very remote sites," said national sales manager Sameer Rane. "We are selling not just the machine but also the service and support."
The company recognises that Asian producers need manual machines with a small footprint, while automatic machines also need to fit into the existing space. To enable it to deliver added value high tech solutions without compromising on quality, Fette is looking for generic solutions applicable to other markets. Standardisation benefits customers through standard parts and servicing, therefore 75% of parts are common across the company's range.
As Pharmexcil's Shah put it, once viewed as pirates, Indian manufacturers are now the partners of today and tomorrow.
