Published Originally in Chemical Industry Digest August 2023
Abstract
India’s burgeoning manufacturing prowess extends to its Contract Development and Manufacturing Organization (CDMO) sector, specifically in agro-chemicals. Fueled by factors like robust R&D, expertise, and geopolitical shifts, India aims to become a top CDMO hub. However, challenges like low R&D investment, infrastructure gaps, and supply chain integration must be addressed for sustained growth and global dominance.
Introduction
India has emerged as a formidable force in the global manufacturing landscape. The country’s growing manufacturing might and expertise, is positioning it to break through as a veritable global manufacturing hub diverse range of industries. From automobiles and textiles to electronics and aerospace components, India is making it all.
The same is true for its Contract Development and Manufacturing Organisation (CDMO) industry.India’s CDMO industry is poised to disrupt the global agro-chemicals market, as a confluence of factors converge to drive its emergence onto the world stage as a sourcing hub for active ingredients. While the country’s share in the global agro-chem CDMO sector currently stands at a relatively modest USD 1 billion-USD 1.2 billion, it is poised to skyrocket in the coming years. A number of factors will drive this growth.
India’s lure as a global hub
For starters, global players, faced with a costly patent cliff on their drugs and agrochemicals, are ramping up their R&D efforts. They are increasingly harnessing the speed and cost effectiveness of Contract Research and Manufacturing (CRAM) to aid their drugs and chemical discovery push and are turning to outsourcing to do so. And Indian companies are emerging as preferred partners in this outsourcing boom.
On the back of along-standing relationships with companies around the world, Indian companies have established a reputation as a credible partner. At the same time, the country’s expertise has moved up the value chain with its vast pool of engineers, chemists and scientists giving the sector the heft to develop active ingredients and advanced intermediaries.
Strong process chemistry skills, low operational costs, and the protection of IP rights only add to the country’s lure as an outsourcing partner.
The geopolitical situation, meanwhile, is also in India’s favour. China and the West are increasingly at odds with each other. As the relationship between the West and what was once the factory to the world has frayed, western companies have begun to scout around for alternative sourcing hubs.
This diversification away from China has widely come to be known as the China + 1 strategy and India has emerged as the leading contender to become the ‘plus one’.
Proactive steps taken by the government have further strengthened India’s position. The introduction of a production-linked incentive (PLI) scheme, for instance, combined with budget provisions to the Department of Chemicals and Petrochemicals have boosted India’s attractiveness as CDMO hub. Government policies and support have created a conducive environment for Indian CDMOs to thrive and bolstered their growth potential.
“global players, faced with a costly patent cliff on their drugs and agrochemicals, are ramping up their R&D efforts. They are increasingly harnessing the speed and cost effectiveness of Contract Research and Manufacturing (CRAM) to aid their drugs and chemical discovery push and are turning to outsourcing to do so. And Indian companies are emerging as preferred partners in this outsourcing boom”.
Going Beyond the ‘Plus One’
But the country’s ambition should be to go beyond simply being the ‘plus-one’ alternative. We should set our sights on being the go-to CDMO hub. There are still some roadblocks and hurdles that need to be removed for that to be attainable.
Investment in Research and development (R&D) is need of an hour. Most of Indian agrochemical companies typically dedicate a small percentage of their revenue to R&D ~1% in India compared to the global average of 11%–12%. Hence Indian companies need to take pivotal steps to attract business from abroad. Strengthening R&D efforts for innovative, sustainable solutions highlights their expertise, while state-of-the-art manufacturing facilities underscore their reliability. That said, adherence to quality and compliance standards will help to build credibility with safety-conscious clients.
Another road block is the lack of world-class infrastructure, particularly for containerised cargo. These inadequacies in our infrastructure are manifest in the higher costs for container freight from India to the key international markets. Such costs act as a serious impediment to raising market share there.
We also need to de-risk our supply chains. Efforts by Indian fine and specialty chemical companies to integrate more closely with global supply chains are yielding positive results and these need to be stepped up. A closely integrated supply chain will after all not only speed up logistics and movement of material, but it will also bring down costs.
However, despite its challenges, there’s no denying that India’s CDMO industry has evolved significantly. With planned investments in infrastructure, a skilled workforce, and favorable government policies, India possesses the necessary ingredients to become a key player in the chemical manufacturing landscape. However, addressing infrastructure inadequacies as well as continued investments in innovation, R&D, and capacity expansion are imperative for Indian chemical companies to really step up and solidify India’s position as a favoured outsourcing destination in the agrochemical sector.
