Industry Concentration ratio by HH:

Company Name

Cipla
Dr Reddys Labs
Lupin
Aurobindo Pharm
Sun Pharma
Cadila Health
Glenmark
Torrent Pharma
GlaxoSmithKline
Jubilant Life
Ipca Labs
Divis Labs
Piramal Enter
Abbott India
Biocon
Alembic Pharma
Sanofi India
Wockhardt
Pfizer
Orchid Chemical
Nectar Life
Ajanta Pharma
Sharon Bio Medi
Granules India
Unichem Labs
Aarti Drugs
Shasun Pharma
JB Chemicals
Strides Arcolab
Arvind Remedies
FDC
Novartis India
Hikal
Merck
Indoco Remedies
Claris Life
Natco Pharma
Panacea Biotec
Sterling Bio
Ind-Swift Labs
SMS Pharma
Ind-Swift
Shilpa
Plethico Pharma
Suven Life Sci
AstraZeneca
Elder Pharma
TTK Healthcare
Dishman Pharma
Neuland Lab
Venus Remedies
Vivimed Labs
Marksans Pharma
Sequent Scienti
Morepen Lab
Kopran
Albert David
Anuh Pharma
Astec Life
Wanbury
RPG Life
Caplin Labs
Parabolic Drugs
Total

Net Sales

Market Share

( R s. c r)

10,131.78
10,011.00
9,752.47
8,095.10
8,017.19
5,284.40
5,085.60
3,475.49
3,287.58
3,176.30
3,085.14
3,084.01
2,401.41
2,288.65
2,241.60
2,019.00
1,977.48
1,886.55
1,853.32
1,736.19
1,643.64
1,356.20
1,313.77
1,213.31
1,090.98
1,087.22
1,078.39
1,061.42
929.42
911.11
877.65
873.38
871.85
867.49
853.63
722.28
715.55
679.2
666.95
645.74
579.29
569.8
565.4
531.3
520.86
517.07
483.47
482.93
478.69
464.7
451.88
430.15
405.59
384.24
370.26
325.58
321.78
283.69
251.21
249.92
242.27
240.23
231.78

1,17,731.53

0.08606
0.08503
0.08284
0.06876
0.06810
0.04489
0.04320
0.02952
0.02792
0.02698
0.02620
0.02620
0.02040
0.01944
0.01904
0.01715
0.01680
0.01602
0.01574
0.01475
0.01396
0.01152
0.01116
0.01031
0.00927
0.00923
0.00916
0.00902
0.00789
0.00774
0.00745
0.00742
0.00741
0.00737
0.00725
0.00613
0.00608
0.00577
0.00567
0.00548
0.00492
0.00484
0.00480
0.00451
0.00442
0.00439
0.00411
0.00410
0.00407
0.00395
0.00384
0.00365
0.00345
0.00326
0.00314
0.00277
0.00273
0.00241
0.00213
0.00212
0.00206
0.00204
0.00197
1.00000

squares

HHI

0.00740603782879096
0.00723051692009066
0.00686188870871783
0.00472779742801091
0.00463723148816648
0.00201467868539131
0.00186594492423656
0.00087145809916342
0.00077977100706478
0.00072787608951637
0.00068669546165329
0.00068619251931393
0.00041605146309121
0.00037789677655795
0.00036251890529701
0.00029409460783726
0.00028212308460243
0.00025677401028411
0.00024780795791003
0.00021747479239656
0.00019490717535000
0.00013269724431063
0.00012452401210939
0.00010620818276207
0.00008587129298413
0.00008528041198777
0.00008390080503071
0.00008128098487493
0.00006232157946486
0.00005989023961096
0.00005557214219953
0.00005503271121819
0.00005484006587087
0.00005429294233440
0.00005257191088881
0.00003763791895288
0.00003693978778236
0.00003328202775740
0.00003209230993305
0.00003008359980491
0.00002421065210135
0.00002342390585120
0.00002306354344101
0.00002036545211059
0.00001957295678396
0.00001928915070157
0.00001686372398497
0.00001682607397417
0.00001653191387187
0.00001557972433073
0.00001473196451725
0.00001334917045145
0.00001186831054412
0.00001065171581987
0.00000989072250869
0.00000764768271343
0.00000747020497673
0.00000580634020727
0.00000455290167173
0.00000450626210184
0.00000423461276767
0.00000416359910561
0.00000387584446737

0.04270853453232530

For the calculation of Industry concentration ratio according to the Herfindahl Index method
we have taken the top 63 companies operating in the Indian geographical context and
competing with each other. Now we have the net sales of each of them in the past financial
year i.e., 2014 and according we have calculated their market share taking the total sales as
100%. Now according to the formula of Herfindahl Index we have,

= ( ) ^2
=1

And accordingly the industry concentration ratio for the pharmaceutical sector comes to be
4.02% which signifies that the pharmaceutical industry is having a perfect competition with
each other.
Strategy of the leading firms:
Before we try to understand the strategies being followed by the leading firms in the
pharmaceutical industry we need to understand the organizational perspectives of the most
prominent issues related to the performance of the organization. And they are enlisted below,
a) Increase in the competition among the firms and resulting into various unethical
practices being followed by some of the propaganda based firms in the industry.
b) Poor rate of customer acquisition, expansion and retention strategies.
c) Varying perception of the customers.
d) The number and quality of the sales representatives.
e) A very high cost involved in the development of a business territory.
f) Doctors being busy in their work schedule does not allow a sufficient time to a sales
representative to complete a quality sales call.
g) High rate of sales personnel attrition.
h) Very high cost involved in the training and re-training workshops for the sales force
(including the managers and medical representatives both).
i) Unclear and untraceable value of prescription of the doctors in the list of each sales
representative.
j) Unknown value of business being given by each retailer in the territory.
These are some among the few others which affects the pharma industry market very
frequently. Now coming to the strategies that most of the leading pharma companies follow
to nullify such kind of inappropriateness of the market. Some of them are discussed
hereunder,
1) Research and Development: Top pharmaceutical firms like Cipla, Lupin, Sun
Pharma, GSK, Merck, etc. focuses on their R&D segment and tries to come up with
new advanced drug formulation for the any disease. Like in the last year only Merck
has incurred a total expenditure of Rs. 112.3 million on its research operations which
can provide them with a competitive advantage over others if they are able to come up
with a new drug molecule or medicine formulation.
2) Diversification of Formulations: A particular drug can be administered in the
patients body through multiple routes depending upon the condition of the patient also
a particular disease can be treated with a several other drug combinations. Now the
company has to decide which one to choose to capitalise upon depending upon the cost

involved in the processes and would naturally select the one involving a lesser cost. But
through this diversification process the firm can increase its portfolio for its customer
segment in terms of treatment which would certainly give a competitive advantage to
the firm.
3) Patents: New formulations being approved from the FDA needs to get patented to have
a competitive advantage over the others of having the exclusive right to manufacturer
to produce and sell it in the market.
4) New Drug Approval: As soon as a drug is discovered it is sent to the central laboratory
for its approval with the relevant reports of trial which the discovering firm would have
carried out with the help of some authorised third party who acts as consultants to the
pharmaceutical firms.
5) Outsourcing of the formulations: Some companies like Merck has started to
outsource some of its formulations from other firms like its one of the main product
Polybion is now manufactured at the production facility of the Cradle Pharma located
at Kolkata and distributed throughout India. This has enabled it to utilize its own
production facility which would have otherwise been occupied by the production
process of Polybion for other more valuable products and thus giving it a competitive
advantage over the others.

Pharmaceutical Company Business Strategies

Whats the clandestine behind success? For one, the firm functions in niche formulations
(chronic) segments such as psychiatry, cardiovascular, gastroenterology and neurology. While
most of the top Indian syndicates have engrossed on antibiotics and antiinfectives (acute),
Sun Pharma engrossed on therapeutic areas such as depression, hypertension and cancer. The
company has introduced an entire range of such products that has gained leadership position in
each of these areas. Being a speciality company shields Sun Pharma from the industry growth.
While the industry was exaggerated to a hefty magnitude by a slowdown in the domestic
formulations market, Sun Pharma has registered a growth of 26% in revenues. Over the years
Sun has also used the strategy of acquisitions and mergers to grow quickly. It has acquired
Knoll Pharmas bulk drug facility, Gujarat Lyka Organics, 51.5% in M. J. Pharma, merged
Tamil Nadu Dadha Pharma & Milmet Labs and acquired Natcos brands. Post-Merger with
Tamil Nadu Dadha Pharma the company gained presence in gynecology and oncology
segments. While company like Lupin has focused on developing its own API formulation
facility which has gained it a huge competitive advantage over other firms in the industry.
The bases of marketing strategies can be best described in these two models in both acute
and chronic segments:
(1) Super Core Model involving the search for, and dissemination of a small number of drugs
from Chronic Therapy Area that has achieved a significant global sales. The success of this
model depends on accomplishing hefty yields from a trifling number of drugs in order to pay
for the huge expense for the drug discovery and improvement process for a large number of
patients. Total revenue largely depends on sales from a smaller number of drugs. This model
integrates highly specific approach in all manner. Initially the rivalry seems more at entry level
but since growth is stable and more in this area; every company is ruthless to enter in this area.
The major strategy in this model involves right focus on highly specialized customer by welltrained team of professionals.

(2) Core Model in which a greater number of medications from Acute Therapy Area are
promoted to big diversified markets. The advantage of this model is that its triumph is not
reliant on sales of a small number of drugs. Here bestowing a large number of products and
taking the benefit of opportunity cost is one of the key strategy. Other strategy includes daily
prompts to cross the perceptual filter and get the brand name into the sub-conscious mind.
Any leading firm like Cipla, Lupin, Merck, GSK, Sun Pharma, etc. will adopt a combination
of strategies that are mentioned above in order to compete in the market and claim a greater
market share and margin.
Value Chain Study:
FIRM INFRASTRUCTURE
RECRUITMENT
& TRAINING

First aid kits &

other gifts for
doctors

TECH. & DEV.

RECRUITMENT, TRAINING
& RE-TRAINING

Improved efficient
machinery,
automated
technology
installation

New Drug Design,

Formulation, SOP
design, Testing
procedures, Energy
management

ITES development

Market research, Sales

aid development,
scientific literatures for
doctors

PROCUREMENT

HR

RECRUITMENT &
TRAINING

Transportation
Services by
temperature
controlled vehicles if
required, supplier
selection through ebidding

Materials, Energy,
Supplies,

Automated inventory
tracking system,
Transportation services

Promotional leaflets
and pamphlets, Visual
aids

Inbound drug and

additives handling,
inspection for the
quality, storing in
the temperature
maintained storage
facility

Washing machines
and equipment,
weighing materials,
manufacturing
medicines, QC & QA
testing of the batch,
packaging, storing in
go-downs

Preparing invoice, Order

processing, loading into
trucks, shipping

Advertising,
promotion, sales force
meeting doctors and
chemists, sample
distribution

Regular
feedback
from doctors
and
chemists,
online
feedback
portal

INBOUND LOGISTICS

OPERATIONS

OUTBOUND LOGISTICS

MARKETING & SALES

SERVICE

Value Activities: Value activities of a firm can be broadly divided into two categories i.e.
a) Primary Activities which includes 1) Inbound Logistics, 2) Operations, 3) Outbound
Logistics, 4) Marketing and Sales & 4) Service and b) Support Activities which includes

1) Firm Infrastructure, 2) Human Resources, 3) Technology and Development & 4)

Procurement.
Primary Activities:
a) Inbound Logistics: Activities associated with receiving, storing and dispensing of the
drugs and other ingredients required in the process of manufacturing of the medicines
such as handling of the inbound materials, warehousing, regular checking of
inventories, returning of the expired or defective or inferior quality materials back to
the suppliers. These are the activities associated with the inbound logistics of any
pharmaceutical firm.
b) Operations: Core operational activities within a pharmaceutical firm may involve
activities like manufacturing of their own active pharmaceutical ingredients like Lupin
does in order to have a competitive advantage over the other firms in the pharmaceutical
industry, proper washing of the machines and equipment and their certification from
the QA/QC lab of the firm, weighing of the active ingredients and their recording in the
dispensing slips from the inventory manager, manufacturing of the medicines using the
dispensed materials which involves a series of steps starting from mixing of the
ingredients to the coating of the end product in case of tablets, once the medicine is
manufactured QA/QC teams are sent the samples which is then tested for their hardness,
size, shape, thickness, colour, odour, dissolution test, friability test, weight etc. once the
QA/QC team passes the batch it is sent to the packing facility for blister packing and
the box packing.
c) Outbound Logistics: Once the packing of the medicines are done in bulk quantities
they are stored in the company go-down and are ready to be dispatched as and when
order arrives. As soon as any requisition arrives first invoice is prepared for the products
ordered and then according to the invoice products are sorted out in the dispatch facility
and loaded into the trucks and shipped to the concerned C&FA from where it gets
distributed to the wholesalers and then the retailers. Every company has its C&FA like
Merck has an all total of 22 C&FAs all over India where the company distributes its
stock from two main production facilities located at Goa and Bangalore.
d) Sales and Marketing: Every company has its own robust sales force team which
operates in the market to create demand for the product in the market. The entire sales
team is divided into a number of levels as per the customer segment they are targeting
which again depends on the product basket they have. Just in case of the Community
Care division of Merck which has a product basket for one and all in the community
and the focussed customer being the general physician it needs the maximum number
of work force compared to any other division of Merck. As for example a sales
representative of CC division covers a doctor list of 330 doctors within a time period
of 45 days which is spread over a territory consisting of 2 districts. And an ASM has a
total of 5-7 such FSR under him. Whereas a ZSM is reported by 7-9 ASMs who then
reports to the Sales Manager. This is all about the hierarchical structure of the sales
team. Now coming to the marketing team each product or a pool of similar products is
assigned to a Product Executive who used to report to the Product Manager who is a
part of the Product Development Team. He then reports to the Business Unit Head of
the division. Now coming to the job responsibilities of the sales personnel, the sales
personnel are supposed to make calls to doctors and convince them to prescribe

products of the company. They are also supposed to cross check with the chemists
nearby to evaluate the doctor in terms of the monthly revenue that they give to the
company in terms of their prescriptions and the frequency of prescribing the medicines
of the company.
e) Service: In terms of service by the pharmaceutical firms most of them have a feedback
mechanism through their sales force channel. Some firms like Merck has went up to
the extent of launching web portal for registering complaints even by end user of the
medicines i.e. the patients and also for the doctors in case of any mishaps or even if
they have any doubt regarding the medicine. The sales force is also well equipped with
scientific articles and documents in order to clarify any doubt of the doctor during the
call.
Support Activities:
a) Human Resource: Recruitment for the firms production facility involving recruitment
of the labour work force, pharmaceutical technicians for the production area and
QA/QC lab is done by the management of the production house or facility. They are
also responsible for the recruitment of the research scientists working in the R&D
section of the production facility of the firm, whereas recruitment of the sales force is
done by the marketing management sitting in the corporate offices. Some of them are
directly recruits their bottom-line sales personnel directly in the company payroll and
some recruit through their third party recruiting agents and all the liabilities of the sales
personnel rests on the recruiting firm. Like for the largest stakeholder division of Merck
i.e. Community Care division the recruitment of the bottom-line sales personnel is done
by the Ahura Enterprise and the payment is also done by the firm itself. The marketing
management is also responsible to recruit IT personnel to maintain the company
website, the feedback and suggestion portal and also the online reporting portal used by
the entire sales force for their daily reporting purpose and also a team of efficient
personnel who should be well equipped with the drug and medication information able
to answer the online queries of the customers.
b) Technology & Development: Company should look for the technological
advancement going on in the market of pharmaceutical industry so as to cut down the
production cost by maximizing the production output and utilizing machineries that
consume less energy and is more automated. They also look for installation of various
ITES that reduces the man power required and can operate with better efficiency in
maintaining inventory and generating automatic alert when there is a possible shortage
of inventory in the near future. Company can also deploy new approved technology for
the R&D section and automated and more accurate equipment to facilitate the research
process and make it fruitful.
c) Procurement: Procurement of modern technologies and good quality active
pharmaceutical ingredients is a necessity for a firm to operate in such competitive
atmosphere. They should look for a supplier of raw materials who supplies the active
ingredients at a comparatively low price but of standard quality. The supplier selection
criteria should be defined by a cross-functional team of representatives from different
sectors of the organization. In a manufacturing organization such as in a typical
pharmaceutical industry the team would typically include representatives from
purchasing, quality, production and engineering. In India, Merck imports all its raw

materials like salts, active pharma ingredients, excipients, etc. from China and Germany
while Lupin mostly rely on its own production facility of active pharma ingredients.
Merck also imports packaging materials like PVC, PVDC film and other coating
materials from Taiwan and Singapore and cartons and shipment boxes from Pakistan.
For the selection of a supplier Merck follows e-bidding process through its portal. It
also follows KPI and Value Added Project when selecting a particular supplier. The
KPI includes 10% cost reduction over last year in totality, following of OTIF, and
supplier selection. Whereas in Value Added Project the JIT theory applies in bilky local
items, supplier development and improvising on ongoing projects.
d) Firm Infrastructure: The production facility of the organization should be well
equipped with modern technologically advanced machines and SOPs should be
designed accordingly. The assembly line should be well planned so that after finishing
the production it should not take longer time to transport the medical formulations to
the packaging facility. Every production section should be completely separate from
the other i.e. the injection formulation section should be completely separate from the
tablet formulating section and syrup formulation sections in order to maintain aseptic
environment for each of them and to avoid cross contamination of the products. In case
the firm is also producing beta lactum antibiotics then it should maintain a completely
separate building for the production facility of such formulations.
Linkages:
The following analysis is aimed at identifying the linkages between the primary and support
activities being followed by any firm in the pharmaceutical industry. Linkages may be
present in between two or more primary activities and two or more support activities.
Linkages between Primary and Support Activities
1) Inbound Logistics and Technology Development: Installation of improved and
automated technology and equipment enables firms like Lupin, GSK, Sun Pharma,
Merck, etc. to have a competitive advantage over the others by reducing the time
involved in the material handling time during the inspection of the inbound materials.
2) Operations and Technology Development: Installation of automated machineries in
the production departments of the firms enables it to consume less time and thus
providing a competitive advantage over the others. Except this development in the R&D
section of any pharmaceutical firm will also give them a leverage in their production
operations. Implementation of MIS within the firm helps them to keep track of the raw
materials dispensed for the production department and also to keep track of the
inventory so that there never arises any situation of stock out.
3) Outbound Logistics and Technology Development: Every pharmaceutical company
has now implemented automated receipt of order and accordingly with the proper
utilization of the IT enabled services invoices of the order can be generated more
quickly and accurately and the packaging type is already taken care of so no need to
worry about any mistake. This has helped firms to keep track of the movement of
different SKUs and forecasting the demand accordingly.
4) Sales and Marketing and Technology Development: When a sales personnel make
a visit to a doctor he is well equipped with information related to the medicines that he
would demonstrate to the doctor. This information has been developed with the firm

through repeated trials under the supervision of competent technically knowledgeable

personnel.
5) Operations and Human Resource: Companies like Lupin, Cipla, Merck, GSK, etc.
recruits technically skilled personnel from reputed institutes and train them in their
production facility so as to attain a total quality management which is monitored by
their respective department supervisors.
6) Sales and Marketing & HR: Firms like Cipla, Merck, GSK, Lupin, etc. recruit their
marketing management team from reputed institutions so that they are well equipped
with both the technical and managerial skills to address the responsibilities assigned to
them. They are also trained at the recruitment phase and also in between the duration
of their stay in the organization at regular intervals through different workshops.
7) Inbound Logistics & Procurement: Usage of temperature controlled trucks for the
delivery of the temperature sensitive API from the Suppliers location to the production
facility has helped a lot in terms of maintaining the quality of the procured goods and
reduces the amount of return to the suppliers.
Outside the Value Chain Activities: Merck has started an initiative of educating its
customers about the recent scientific advancement and drug discovery through its newly
developed web portal which consists of a collection of journal and scientific literatures
which they can use for review purpose and become aware of adverse effects of the spurious
drugs available in the market.