In recent years many companies have touted their expansion into emerging markets as a means of lowering costs, increasing sales and expanding their global presence. Much of the manufacturing investment and expansion has been focused in India and China.

However, as the costs of manufacturing rise in India and China, other countries are being explored as alternative sourcing destinations. Another factor contributing to the search for additional manufacturing destinations has been the increased publicity of quality issues and import bans over the past few years, including in India and China.

Western regulatory bodies are becoming increasingly rigorous in their inspections and review of regulatory submissions. The US FDA has banned imports from multiple Indian companies, while the EDQM has suspended COSs held by a number of Chinese and Indian companies.

When compared to the more than 1,600 API manufacturers in India and China, there is relatively little API manufacturing in second wave emerging markets.(Figure 1) Although a large number of the companies in India and China continue to be locally focused, many have invested in facility upgrades and supplying regulated markets. Similarly, most of the manufacturers in the emerging sourcing markets are primarily regionally focused but within each of these emerging regions there are some companies with experience supplying regulated markets (Figure 2).

A number of analysts have commented on the great potential Brazil and Russia have for local API manufacturing. Currently, both countries rely heavily on imported active ingredients. Brazil has a small number of manufacturers with experience supplying regulated markets, while in Russia there are currently no locally owned API manufacturers with that kind of experience. However, the Russian government has outlined investing over $1billion into the domestic pharmaceutical market, with some of that money charted to improve and increase local API production.

Russia has also stated that there will be a requirement of local manufacturing in order to sell products in the country. However, it is unclear if this requirement is specific to active ingredients, dose manufacturing, or simply the packaging of products. Currently, Russia only produces only 15% of the active ingredients consumed in the country and the lack of applied GMP is a significant hurdle to supplying regulated markets.

The most promising alternative sourcing options for regulated market players are South Korea, Taiwan, or Eastern Europe. These regions offer more API manufacturers with experience supplying regulated markets than others. South Korea has been an API sourcing choice for Japanese companies for a number of years, which has encouraged manufacturers in the country to develop quality processes.

The accession of Poland and other Eastern European countries into the EU has prompted API manufacturers in the region to meet EMEA manufacturing standards while offering a lower cost base than other European markets. Over the past few years the government of Taiwan has invested over $2.5billion into the local pharmaceutical market in addition to establishing a more stringent local Food and Drug Administration.

If one looks more closely at the manufacturers in other emerging regions, most of the companies offer little experience in regulated markets. There is no indication that these countries can offer better price at acceptable quality of API compared to what is produced in India or China.

It is unlikely that any of the emerging countries will take over from India and China the position as the primary source of active ingredients. Although in each of the countries there exist individual companies that offer attractive sourcing options, overall China and India will continue to be the major sourcing destinations for the foreseeable future.

Increasing competition and industry consolidation will continue to push manufacturers to search for strategic advantages and lower costs. Additional emerging markets are expected to grow as pharmaceutical consumers, as they experience expanding access to healthcare and rising GDPs. While some of the emerging markets may have aspirations to become major players in the global API manufacturing field, at this time we do not anticipate API manufacturing to move out of India and China.

Emerging markets will continue to be of interest to many companies looking to diversify, but as sourcing destinations it is unlikely they will be able to compete on the same scale as India and China.