Outsourcing has opened up another avenue for Indian companies. A large number of MNCs who operate from within and without the country, today look towards production facilities in India in their search for solutions to ever-rising phenomenon of manufacturing costs. As the multinationals struggle to reduce operational costs in their effort to cope with the stringent price control regime which determines the cost of essential medicines sold in the country, the alternative option to outsource quality manufacturing comes as a great solace. Apart from the relatively low-cost of skilled man power, the easy availability of raw materials at competitive prices make manufacturing in India the focus of attraction.

Available data indicate that the Indian companies are set to grab around 20-25 per cent outsourcing jobs from US, Europe and Japanese firms in the coming years as survival strategy post-2005. This will mostly benefit mid cap companies which dominates the manufacturing sector. Moreover, quite a few multinational players such as Pfizer and Aventis are already supplying bulk drugs and formulations to their parent companies overseas. All these signal to the fact that the country can well go ahead and consolidate itself as global sourcing hub for bulk drugs and formulation.

Indian Drug Manufacturers' Association (IDMA) estimates that there are nearly 20, 000 manufacturing units operate in the country. Of these, 80 per cent of the companies are into contract manufacturing of some kind or the other. Many drug firms have upgraded their facilities to international standards and a number of players are already in the process.

India has maximum number of US FDA approved plants outside US. Nicholas Piramal, Wockhardt and Cipla have taken major initiatives on this front. Many smaller pharma companies such as Matrix Laboratories and Divi's Laboratories have also shown strong growth on the back of drug manufacturing contracts.

The Indian pharmaceutical industry manufactures about 400 bulk drugs belonging to several therapeutic segments. Bulk drug production recorded a CAGR of 20 per cent during the last 10 years, which is higher than the growth in the overall production of the pharmaceuticals (17 per cent) in the same period.

However, formulations still account for a larger share. The strong growth in formulation exports can be attributed to the developing markets and the access gained by Indian players into the generic markets of the developed countries. Formulations account for the 50 per cent of the total pharmaceutical exports from India.

So, reverse engineering apart, many foreign companies have obtained their manufacturing facilities approved by international regulatory authorities. This, along with cost-competitiveness and established value-addition skills make India an attractive manufacturing base for bulk drugs and formulations.