COVID-19 has thrown international trade and investment into disarray; however, it is first and foremost a global health crisis. With Global Value Chains (GVCs) receiving heightened scrutiny, no other industry has been so prominently featured in the discussions of anxious governments as the pharmaceutical industry. Many are looking to internalize the pharmaceutical supply chain to ensure access to a critical arsenal in fighting a pandemic. However, it should be noted that this is an industry with a particularly volatile mix: an immense drive for cost efficiency coupled with enormous health and environmental liabilities.
Like other GVCs, the globalization of pharmaceutical manufacturing is driven by the pursuit of cost-effectiveness. A long research and development process usually leaves less than 10 years of patent protection to recoup the USD $1.5 – 2.6 billion spent to discover a single medicine. Thus, the drive to lower manufacturing costs is particularly acute in this industry. This has led to an offshoring and outsourcing trend by US and EU firms to contract manufacturers (CDMOs) in China and India for the last 20 years, attracted by economies of scale, availability of low-cost skilled labor, and relatively lenient environmental regulations. Keeping in mind these specific characteristics, careful consideration should be taken by any governments attempting to rapidly expand pharmaceutical manufacturing capacity.
Published Date: September 01, 2020