15-Low-End Competitor May Not Stay at the Low End

Posted 4/21/08

One of your competitors may be a low-end player today. If that competitor stays at the low end, the likelihood is that its share of the market will not exceed 15%, even if it is quite successful. However, that very success may breed a significant challenge to industry leaders in the future. If the low-end competitor is earning a good return on investment, it may enter the market for the industry’s higher-end products in order to enhance its own profits and future.

The pharmaceutical industry offers a current example of the phenomenon of a low-end competitor attempting to migrate into the Standard Leader products. Indian generic drug manufacturers, including Dr. Reddy’s Laboratories Ltd., Ranbaxy Laboratories and Glenmark Pharmaceuticals have realized great success and profits in the generic drug business. These are low-end Price Leader companies. Each is a type we call a Predator competitor. Each of these companies is reinvesting some of those profits from its low-end sales into research and development on proprietary drugs. If these early stage investments into the proprietary end of the pharmaceutical business succeed, these formerly low-end companies may well challenge the Mercks and Pfizers of the world.

If this trend seems unlikely, consider that Charles Schwab, Dell, Nucor Steel and Wal-Mart all got their starts at the low end of the market. For more on low-end competitors, see “Turmoil Below: Confronting Low-End Competition” in the Tools/Perspectives section of StrategyStreet.

 

Update 2020:

Patent law in India tends to discourage the research and development of proprietary pharmaceutical preparations there.  These laws aborted Indian pharmaceutical companies’ efforts to enter the market for proprietary drugs.

In 2020 the Indian pharmaceutical competitors remain Price Leaders, largely Predator producers of generic drugs. The Indian pharmaceutical industry is the world’s 3rd largest by volume and 14th largest in terms of value in 2020.  India is the largest provider of generic drugs globally. The Indian pharmaceutical industry meets over 50% of global demand for various vaccines, 40% of generic demand in the U.S. and 25% of all medicine in the U.K.  According to a report by IQVIA, Indian companies held a market share of around 10% in the global generics market in 2019.

Government policies in India have retarded the opportunities for Indian pharmaceutical companies to enter higher-margin segments of the industry. Creating a successful product innovation approach requires that you first stop losing customers and then respond to their clear market needs. See more HERE.

 

Update August 6, 2025:

As we expected, the Indian pharmaceutical manufacturers, known primarily as generic drug manufacturers in 2008, have moved up the value chain and have done so successfully. They have become even more successful drug producers with attractive returns on investment.

In the late 2010s, the leading Indian pharmaceutical manufacturers began shifting their focus from volume to value. From 2008 until 2018 or so most Indian pharmaceutical companies were traditional generic manufacturers. They specialized in efficient production of low-cost generic drugs. As the 2010s came to a close, the market witnessed a significant shift in the Indian pharmaceutical industry’s strategy to begin emphasizing Performance Leader products in the form of complex generics, biosimilars, novel specialty drugs and injectable therapies. The targets for these high-end products were drugs to treat specific and complex diseases with smaller patient populations and higher prices. Hence, less intense competition.

The Indian pharmaceutical manufacturers began moving up the value chain under the competitive pressure of declining margins. The US generic drug industry became saturated and intensely competitive. Margins had declined since the early 2000s. The Indian manufacturers were also under pressure at home as the Indian government clamped onerous price controls on many generic drugs in order to provide low drug costs for its domestic population. These price controls made further investments in many generic drugs unattractive for the Indian domestic market.

These changes in focus and products have been wildly successful. The Indian pharmaceutical manufacturers maintain their strong US generic drug presence. In 2024 they supplied 47% of US generic drug products. Each of the industry’s leaders relied on the US for a mid 20s to mid 40s percentage of their exports. At the same time, the Indian pharmaceutical manufacturers’ share of the US biosimilar market has risen to 15% from nothing a few years ago.

The Indian pharmaceutical industry enjoys stable and attractive returns on investment with this combined Price Leader and Performance Leader product mix. Their costs remain low though not without challenges. The industry obtains 60 to 70% of its active pharmaceutical ingredients from China. It faces an uncertain tariff future on its sales to the US.

The Indian government has been both a partner and a problem for the industry. The government has ramped up its investments in biotech and biosimilar initiatives. It has been inventive in creating bulk drug parks, bringing several manufacturers together in a common location sharing infrastructure costs. It has also begun to align its regulation of the industry with that of the US to reduce its regulatory costs. On the negative side, the government banned exports of many pharmaceuticals during the pandemic. This, of course, damaged the Indian pharmaceutical manufacturers’ reputation as a Reliable supplier.

As we have seen in other industries, low-end suppliers often do not remain at the low end if there are attractive opportunities to move up the value chain.

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THE SOURCES OF STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.