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Overseas Acquisition versus Greenfield Foreign Investment: Which Internationalization Strategy is better for Indian Pharmaceutical Enterprises?

Author

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  • Pradhan, Jaya Prakash
  • Alakshendra, Abhinav

Abstract

Very recently overseas acquisition and outward greenfield foreign investment have emerged as the two important modes of internationalization of the Indian pharmaceutical enterprises. This study examines the relative strengths and weaknesses of these strategies so as to suggest which between the two is a more effective internationalization strategy for the Indian pharmaceutical firms, given the nature of their ownership advantages. This analysis has been conducted in three stages. First, the nternationalization process of the Indian pharmaceutical industry has been embedded into a four stage theory emphasizing on the emergence of different modes of internationalization like inward foreign investment, imports, exports, outward greenfield investment, overseas acquisition and contract manufacturing including inter-firm strategic alliances. Second, theoretical perspectives have been developed with regard to the different ways in which greenfield investment and overseas acquisition can maximize the revenue productivity of pharmaceutical firms’ competitive advantages and/or to strengthen their competitive position. Third, case study of Ranbaxy Laboratories has been undertaken to empirically assess its experience with overseas acquisitions. The analysis indicates that the growth and internationalization of Indian pharmaceutical enterprises was critically dependent upon strategic government policies pursued in the past. The Indian experience offers a number of policy lessons to other developing countries wanting to build their domestic base in the pharmaceutical sector. Theoretical understandings indicate that acquisition is a more effective internationalization strategy than greenfield investment since the former not only provides all the benefits that the latter gives, but also several other competitive advantages important for firms’ performance in world market. The experience of Ranbaxy shows that overseas acquisitions have augmented its intangible asset bundle including distribution and market networks and have provided access to an existing market.

Suggested Citation

  • Pradhan, Jaya Prakash & Alakshendra, Abhinav, 2006. "Overseas Acquisition versus Greenfield Foreign Investment: Which Internationalization Strategy is better for Indian Pharmaceutical Enterprises?," MPRA Paper 12339, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:12339
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    References listed on IDEAS

    as
    1. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
    2. Pradhan, Jaya Prakash, 2005. "Outward Foreign Direct Investment from India: Recent Trends and Patterns," MPRA Paper 12358, University Library of Munich, Germany.
    3. Jaya Prakash Pradhan, "undated". "Global competitiveness of Indian Pharmaceutical Industry: Trends and Strategies," Working Papers 0605, Institute for Studies in Industrial Development (ISID).
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Rajesh Chadha & Geethanjali Nataraj, 2008. "Trade in Services and Investment Flows in South Asia," EABER Working Papers 21796, East Asian Bureau of Economic Research.
    2. Pradhan, Jaya Prakash, 2007. "National Innovation System and the Emergence of Indian Information and Software Technology Multinationals," MPRA Paper 12359, University Library of Munich, Germany.
    3. Pradhan, Jaya Prakash, 2008. "Overcoming Innovation Limits through Outward FDI: The Overseas Acquisition Strategy of Indian Pharmaceutical Firms," MPRA Paper 12362, University Library of Munich, Germany.
    4. Steven Globerman & Daniel Shapiro, 2009. "Economic and strategic considerations surrounding Chinese FDI in the United States," Asia Pacific Journal of Management, Springer, vol. 26(1), pages 163-183, March.
    5. Jaya Prakash Pradhan, 2010. "Strategic Asset-Seeking Activities of Emerging Multinationals: Perspectives of Foreign Acquisitions by Indian Pharmaceutical MNEs," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 1(2).
    6. Pradhan, Jaya Prakash, 2007. "Trends and Patterns of Overseas Acquisitions by Indian Multinationals," MPRA Paper 12404, University Library of Munich, Germany.
    7. Athreye, Suma & Godley, Andrew, 2008. "Internationalising to create Firm Specific Advantages: Leapfrogging strategies of U.S. Pharmaceutical firms in the 1930s and 1940s & Indian Pharmaceutical firms in the 1990s and 2000s," MERIT Working Papers 051, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. Pradhan, Jaya Prakash, 2007. "New Policy Regime and Small Pharmaceutical Firms in India," MPRA Paper 12335, University Library of Munich, Germany.
    9. Jaya Prakash Pradhan, "undated". "Growth of Indian Multinationals in the World Economy: Implications for Development," Working Papers 0704, Institute for Studies in Industrial Development (ISID).
    10. repec:kap:asiapa:v:34:y:2017:i:4:d:10.1007_s10490-017-9527-y is not listed on IDEAS

    More about this item

    Keywords

    Indian Pharmaceutical Industry; Foreign Investment; M&As; Trade; Strategic Alliances;

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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