26 Mar Indian trade possibilities boggle the mind
This country of 1.1 billion people, second only to China in population, living in a space less than 40 percent the size of the U.S. land mass, is clearly a place of vast contrasts.
As I am still in the middle of an Illinois trade mission, this column will focus on some key facts about India, whereas the next one will focus on impressions, some of the people and organizations we met, and the potential impact. The implications of this trade mission, while clearly focused on Illinois, have potential positive implications for all of the Midwest as a region to attract Indian investment.
Th Land of Gandhi
On Thursday of last week, the State of Illinois, Land of Lincoln, opened up its 10th trade office outside of the U.S. in India, Land of Gandhi, with the ribbon-cutting ceremony taking place in New Delhi. It was attended by Jack Lavin, director of the Illinois Department of Commerce and Economic Opportunity, Rajinder Bedi (Indian by birth, but now an American citizen), managing director of Illinois Office of Trade and Investment (OTI), the U.S. Ambassador to India, numerous Indian dignitaries, and a group of Illinois executives from the high-tech, biotech, and venture capital sectors, the Illinois Farm Bureau, and representatives from Illinois academic/research institutions.
The newest Illinois Trade Office in New Delhi, the capital of India and a city of 12.8 million people, is a bold statement for a state as there are only two other U.S. states that have trade offices in India. Jack Lavin has been busy as this is the second international trade office he has opened in about a year. The new trade office joins other Illinois offices already planted in Hong Kong, Tokyo, Mexico City, and elsewhere.
Illinois is one of the few forward-thinking states with trade offices around the globe (another one is Maryland); many states have actually cut back or eliminated these offices. At least two of the trade offices date back over 20 years (Japan and Hong Kong), so even 20 years ago there was some forward-thinking about the role a state could directly play in international commerce. Illinois today has over 6,400 foreign companies residing in its boundaries.
But the opening of trade offices in both China and India is particularly astute as both countries are showing remarkable growth with India’s GDP group running at about eight percent per year, surpassed only by China’s growth of 10 percent per year. Although the size of the U.S. economy is still far superior to that of both China and India, a Goldman Sachs report says that by 2030, both countries will pass the U.S. Still, with a GDP of $797 billion, India is the 12th largest economy in the world, and third largest in Asia.
U.S. trade with India hit about $30 billion last year (the U.S. imported $20 billion and exported $10 billion), and the U.S. is India’s largest trading partner. Illinois had $36 billion in exports in 2006 to 209 countries, making it the largest exporting state in the Midwest, and 5th largest exporting state in the U.S. Illinois exports to India totaled about $438 million last year and are growing quickly. Of the 209 countries which Illinois exports to, India ranked 16th (versus $544 million to China and another $494 million to Hong Kong). Illinois’ top product exports include: fertilizers ($124 million), electric machinery ($80 million), industrial machinery ($ 72 million), and organic chemicals ($38 million).
There are a number of Illinois companies with operations in India such as: Abbott Labs, Archer Daniel Midlands, and John Deere, to name a few.
Likewise, there are a number of Indian companies and banks operating in Illinois, including the well-known Tata Group. Chicago has the third largest Indian population in the U.S., which surpasses 150,000 persons.
It is expected that with the new Illinois Trade Office in India, trade will now further increase. American Airlines now offers daily direct flights between Chicago and New Delhi (14 hours 45 minutes) – our flight (on a Tuesday night) was jam-packed, but there are numerous other flight options through Europe.
The Illinois Trade mission is focusing on agriculture, energy, universities, transportation, and biotechnology, all Illinois strengths and of high interest to India. Illinois universities are highly-prized by Indian undergrad and graduate students and bring in a surprisingly high source of revenue (estimated to be about $1.6 billion per year). Overall, India is the number one country in the U.S. in terms of its students: 80,466 came last year, representing 14.4 percent of all international students.
Energy and agriculture
India, like Illinois, has huge coal deposits (fourth largest in the world), but has been reticent to tap into this resource due to the high pollution. Illinois research into non-polluting extraction of its coal is attractive to India due to its own increased energy needs and oil imports.
Biofuels are also an area of interest, although India’s progress with bioethanol has been limited due to its farming infrastructure. Biodiesel from local crops is of higher interest. Illinois’ success with biofuels is of high interest to the Indians. India is the 11th largest energy producer in the world, but is the sixth largest consumer, and energy demand is projected to double by 2025 (when 90 percent of India’s oil will be imported).
Indian agriculture suffers from the fact that there are huge numbers of farmers, 120 million, most of which have farms of three to four acres (a really large farm is 30 to 50 acres). Contrast that to the typical Illinois farmer, who will have from several hundred to perhaps a few thousand acres. This farming fragmentation makes it quite difficult to implement strategic reform in this sector and improve productivity. It is estimated that 60 percent of India’s labor force is engaged in low-productivity farming.
There are few agro-industrial companies currently at work in this sector, although Illinois’ ADM is here. So is Missouri’s Monsanto, which has had huge success with one crop: Bt cotton. Because of the number of farmers, and the aversion to try new methods and a public wariness on genetically modified foods and crops, the only crop that has been approved for and felt the impact of biotechnology, with huge impacts on productivity, has been cotton.
This will change because there is high receptivity by the Indian government to make progress in both the agricultural and energy fields. Biotechnology is already at play, of strategic importance, and growing furiously, in the human therapeutics arena.
Pharmaceuticals and biotechnology
The Indian pharmaceutical industry has annual sales of over $9 billion, ranking it 12th in terms of value and 3rd in terms of volume, and it has been growing at an annual compound growth rate of about 14 percent (versus the overall world pharma industry growth rate of about eight percent). The industry size is expected to grow to $25 billion by 2010, not so far away. Furthermore, Indian drugmakers will have an estimated one-third of the global generics market before then.
India’s pharmaceutical exports are a key source of income, totaling about $3.5 billion per year, and India has become a key outsource point for pharmaceutical raw material and finished formulations. In fact, there are more FDA-approved pharmaceutical plants (75) in India than in any other country outside of the U.S.
Although the concept of patents was introduced in 1974 and revamped in 1999, it wasn’t until 2005 when serious efforts to reform intellectual property rights in India were really implemented. Even so, India will take a 10-year process, and some U.S. companies are standing on the sidelines with their new products, waiting to see the impact, as Indian Ph.D.s are ingenious in retro-engineering drugs. However, Indian companies are not waiting: 855 drug patents, up from virtually zero 10 years ago, were filed in 2004.
Due to the Indian government’s renewed impetus on intellectual property, this is expected to have a profound impact on the Indian pharma industry by reducing an industry of several thousand companies to perhaps 500 to 1,000 companies by 2010, according to a Business Week article of April 2005. As the article continues, the focus will need to be on innovation as opposed to imitation.
The largest Indian pharma companies, Dr. Reddy (annual sales of over $500 million), Ranbaxy (annual sales of over $1.2 billion), and Cipla (annual sales of over $500 million), are beginning to globalize, and there has been a lot of press about these companies acquiring assets of pharma companies in Europe and the U.S.
To be sure, the U.S. pharma market is an important target for the major Indian pharma companies, most of which are employing a generic strategy. There are an estimated $60 billion of annual sales of drugs that will go off patent between now and the year 2013, and Indian companies have aggressively pursued these products. But at the same time, there is a shift to increase R&D to develop products, and such R&D is substantially cheaper in India. Whereas a new drug from a major Big Pharma company may cost $1 billion to develop, an Indian company could probably develop it for one-tenth of this number.
While the local Indian pharma market is growing and the larger Indian pharma companies are globalizing, another source of growth is the outsourcing business in India, which is focused on two key areas: contract research (preclinical and clinical development) and contract manufacturing (raw material and finished product). Pharma outsourcing will generate $3 billion in annual revenue by 2010.
Another growth segment is the Indian biotech industry. In 2004, India had 96 biotech companies and trailed other Asian countries such as Australia (228) and China/Hong Kong (136). By 2006, this number had increased to about 200 companies, and this industry has become a strategic imperative for the federal government and a number of the state governments. Biotech product sales have grown from $500 million in 1997 to $1.8 billion in 2002, and are expected to reach $4.3 billion by 2010.
India also has its equivalent of the National Institutes of Health, called the Council of Scientific and Industrial Research (CSIR). This agency, much like the NIH, has multiple R&D labs (38 to be exact) scattered around the country with 18,000 employees (including almost 5,000 scientists). In our meeting with one of the top people at this institution, he identified several key areas of interest and research, including nanotechnology, biotechnology, and biofuels, and was quite interested to be hearing about Illinois and the Midwest’s prowess in this area.
State competition for Indian resources
Illinois’ timing for this trade mission and the new trade office is very good, but Illinois will have competition not only from other U.S. states but other countries.
According to members of the U.S. Consulate General, there has already been six or seven state trade missions in 2007, and another eight or nine are in the works. The same day of our visit, a group from Germany was also making the rounds.
In my next article, I will share some of my personal observations about this fascinating country, as well as details on different sectors of Indian commerce and government.
See you soon!
Previous articles by Michael Rosen
• Michael Rosen: A Midwest life-science odyssey comes full circle
• Michael Rosen: Bioscience clusters: Too many or room for more?
• Michael Rosen: The deconstruction of “Big Pharma”
• Michael Rosen: The 10 biggest events shaping biotech in 2006
• Michael Rosen: A Midwest small-cap, life-science surprise package
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