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International trade influences a whole range of activities including jobs, consumption and
the fight against poverty. It also affects the environment and relations among countries. In
turn, trade is shaped by a host of influences ranging from natural resources to fashion.
Trade-related issues can give rise to strong feelings, and trade measures such as banning
or limiting imports are often called for to respond to major economic problems. An
understanding of the benefi ts and downsides of trade, and of what trade policy can and
cannot achieve, will help us to form our own opinions on debates about international trade.

Every nation in the world participates in international trade to some extent. And practically
every product is either traded or relies on components from international suppliers. Trade is
not just about physical goods, though. Knowledge and experience can be bought and sold
internationally as well. So too can the many services we rely on each day. The world’s
richest countries still dominate international trade, but their position is being challenged by
emerging economies in what is still referred to as the “developing world”.

International Trade - Protectionism? Tariffs and Other

Barriers to Trade
Goods and services do not flow completely freely among countries, even among those with excellent relations. Countries
put up barriers to trade for a number of reasons. Sometimes it is to protect their own companies from foreign competition.
Or it may be to protect consumers from dangerous or undesirable products. Or it may even be unintended, as can happen
with complicated customs procedures. Tariff barriers have been reduced considerably over the past few decades but other
obstacles remain. Getting rid of unnecessary trade barriers would give a great boost to global economic welfare.
The most direct way is through tariffs on imports. But other means are also important, including
subsidies to domestic producers and exporters or non-tariff measures such as product standards or
customs procedures.

International Trade - Trade and Employment

Jobs are created and lost all the time. When the jobs that are lost reappear again soon
afterwards in another country, it can seem that international trade makes unemployment
worse or that it makes jobs less secure and lowers wages. There is clear evidence that open
economies achieve higher levels of wages and economic growth. But trade is only one of
many factors at play. A wide array of policies is needed, from education and health to
infrastructure and innovation. Effective labour market policies are needed to ensure that
the benefits are shared equitably.

Producing goods, consuming goods and moving goods all have an environmental cost that
is rarely included in the price we pay. This is also true for trading goods internationally. But
it is by no means always the case that a locally sourced product is more environmentally
friendly than one that has travelled a long distance. Trade can also help to reduce the
negative consequences of economic growth by making environmentally-preferable products
and technologies more easily available.

Trade affects practically everything we buy at some stage, and influences many aspects of
our daily lives. Whether this influence is good or bad depends on how you look at things.
Trade can be a powerful force for positive developments, but it can also bring problems and
uncertainties. It may not be the most important factor determining the prosperity of
countries and people, but prosperity has rarely if ever been achieved or sustained without
it. Trade must therefore be an important component in any overall economic strategy that
aims to generate sustained growth and prosperity.

Indian Pharma Industry: Riding the Barometer of Success

The Indian pharmaceutical industry today is leading India’s science-based industry with wide ranging
capabilities in the complex field of drug manufacture and technology. The Indian Pharma Industry has
grown consistently at 9.5 percent CAGR in last five years and is presently estimated to be worth a little
over $ 5.7 billion and expected to reach $ 9.48 billion mark by 2010. 

As the Indian Pharma Industry grows and more and bigger players gear up to bring global blockbusters
in the Indian market, the competition is definitely going to heat up. Many of these MNCs are
collaborating with Indian companies, which often offer as much as 30% to 50% savings in total drug
discovery and development costs. Recent amendments to India’s patent laws have also made India
more attractive as a drug discovery destination. In 2005, India amended its patent laws to comply with
the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS), an international treaty mandating minimum standards for trade and intellectual
property protection. These amendments allowed, for the first time, patent protection in India for
pharmaceutical products. The earlier law provided patent protection only for the process of making the
drug, not for the drug itself.

Companies in India offer two types of opportunities for drug discovery and development: outsourcing
and true collaborations. The outsourcing model entails an alliance between one or more entities to
perform discrete tasks or specific operations and processes previously done in-house. In this model, the
company soliciting the research typically maintains control over the technology and related assets,
including intellectual property. 

More recently, a growing number of MNCs have entered into more collaborative ventures with Indian
pharmaceutical companies and contract research organizations, extending well beyond task-driven
outsourcing. These transactions involve more complex intellectual property considerations. 

A recent Price Waterhouse Coopers report indicates that India could well become one of the top 10
global pharmaceutical markets by the year 2020. Thus, any pharmaceutical company doing research
and development in India will likely choose to patent its technology in India and, therefore, will need
to be familiar with Indian patentability standards1.

Indian Pharma Industry- Current Scenario

India currently represents just U.S. $6 billion of the $550 billion global pharmaceutical industry but its
share is increasing at 10 percent a year, compared to 7 percent annual growth for the world market
overall. Also, while the Indian sector represents just 8 percent of the global industry total by volume,
putting it in fourth place worldwide, it accounts for 13 percent by value, and its drug exports have
been growing 30 percent annually.

The “organized” sector of India’s pharmaceutical industry consists of 250 to 300 companies, which
account for 70 percent of products on the market, with the top 10 firms representing 30 percent.
However, the total sector is estimated at nearly 20,000 businesses, some of which are extremely small.
Approximately 75 percent of India’s demand for medicines is met by local manufacturing. According to
the German Chemicals Association, in 2005, India’s top 10 pharmaceutical companies were Ranbaxy,
Cipla, Dr. Reddy’s Laboratories, Lupin, Nicolas Piramal,Aurobindo Pharma, Cadila Pharmaceuticals, Sun
Pharma, Wockhardt Ltd. and Aventis Pharma.

India’s potential to further boost its already-leading role in global generics production, as well as an
offshore location of choice for multinational drug manufacturers seeking to curb the increasing costs of
their manufacturing, R&D and other support services, presents an opportunity worth an estimated $48
billion in 20082.

The pharmaceutical industry in India has made phenomenal progress in the past 10 years. With over $ 8
billion in domestic sales and another $ 5 billion in exports in the year 2006, both growing at double
digit, it has acquired its place in the sun. It has also started making global footprints and over $ 2.5
billion worth of acquisitions were made overseas in past couple of years. Undoubtedly, the major
inflexion point in the history of Indian pharma industry is the passage of product patent law in 2005.
This has resulted in many pharma majors almost doubling their R&D investment and it is likely that
New Chemical Entities (NCEs) will start trickling down from Indian R&D labs, in few years time.
However, before we start patting ourselves on the back for these commendable achievements, we
must remember that India contributes less than two percent of the global pharmaceutical sales of
about $ 650 billion. While McKinsey has projected a domestic sale of $ 20 billion by the year 2015, we
need to identify key strategic drivers for growth and use these levers to accelerate the pace. While
robust economy with eight-nine percent GDP growth will certainly give right business environment,
there are other internal factors which will act as catalysts. These are Intellectual Property Rights (IPR),
government pricing policies, regulatory reforms, scientific and technical manpower and capital
funding3.

The Indian Pharmaceutical industry is currently the largest amongst the developing nations and one of
the flagship sectors of the Indian economy. Indian pharmaceutical companies continue to move to the
center stage of the global pharmaceutical market. There is a worldwide structural trend evolving in
pharmaceuticals and Indians companies play a key role in this framework, driven by their superior
biotech and drug synthesis skills, high quality and vertically integrated manufacturing assets,
differentiate business models and significant cost advantages. The pharmaceutical industry in India has
emerged, as a prominent maker of healthcare products, currently meeting almost 95% of the domestic
healthcare needs. From a modest beginning in 1970, today the total Indian pharmaceutical sector is
valued at US $ 8.8 billion with a growth rate of 8 %. The Indian pharmaceutical industry is a net
exporter of bulk drugs and generics and ranks 17th in the world in terms of bulk drug and formulation
exports. In 2004-05 the net pharmaceutical export was more than US $ 3.75 billion, formulations
accounted for 55% while the remaining 45% came from bulk drugs. US, Germany, Russia, the UK and
China are the top five export destination for the Indian pharmaceutical sector4. 

Indian Pharma Industry: Scenario- 2020

The pharmaceutical industry in India is expected to grow from $5.5 billion now to $25 billion by 2010
and $75 billion USD by the year 2020. By 2020, global integration of most sectors in the world economy
would be much more pronounced, and the pharma industry will not be an exception. In fact the Indian
pharma industry, which currently has strong linkages with the global pharma market, will become even
more strongly integrated. Globally the pharma market is undergoing a transformation led by change in
demand patterns, realignment of supply chains, and global regulatory shifts. In order to predict the
state of the Indian pharma market in 2020, it is useful to understand the current global environment of
the pharma market and its key trends and analyse the implications that these factors will have on the
global as well as on the domestic pharma market. Key trends of global pharma industry are declining
R&D productivity, increasing spread of generics and increasing outsourcing5. 

India is expected to host 30% of the world’s contract research within the next 10-15 years, driven by
the attractions of low cost and high quality standards, says the India Brand Equity Foundation, IBEF.
The IBEF quotes a McKinsey forecast for the value of pharmaceutical clinical trial outsourcing in India
at $1.23 billion by 2010. This would represent 7% of the total world market, projected by Biopharm at
$18.5 billion in 2010. 

India offers a huge cost advantage in clinical trials compared with Western countries. A multinational
company moving R&D to India could save as much as 30-50%, IBEF says. Indian companies can conduct
clinical trials at less than one-tenth of US costs. 

The US National Institutes of Health trial registry (www.clinicaltrials.gov) lists 272 trials actively
recruiting patients in the country, of which 60% are Phase III. There are currently 70 CROs in India,
according to Biopharm’s Contract Research Annual Review 2006 – a number that is projected by to
increase in the coming years. 

Several western CROs, including Aptuit (US), Synergy Research Group (Russia) and ethica Clinical
Research (Canada) have formed alliances or joint ventures with their Indian counterparts in recent
months. Investment has also flowed in the opposite direction, with US CROs Radiant Research and
Taractec both being acquired by Indian groups this year6.

India is likely to be in the league of top 10 pharmaceutical markets by 2020. As per the Government of
India’s annual report 06-07 the Indian pharma industry is worth about $12 billion (over Rs 55,000
crores) as of now which includes $4.5 billion in exports of drugs, pharma and fine chemicals. The
pharma industry needs to focus more on R&D and better productivity to capitalise on the immense
existing opportunities. India, with its inherent competitive advantages and cost-effective
manufacturing capabilities, has now become one of the most preferred destinations for Contract
Research and Manufacturing Services (CRAMS). As per the KPMG report, India holds huge potential to
tap the $20 billion CRAMS business, which is expected to reach $ 31 billion by 2010. India with its
intrinsic competitive advantages remains as one of the most preferred outsourcing destinations and is
now playing a vital role in manufacturing as well as drug development value chain of various innovator
companies7.

The Indian Pharma Industry is entering an era where the value chain components are reassessed and
redesigned to realize optimum value. While the cost of doing business is increasing, the customers are
demanding more innovative pharmaceutical products at more competitive prices. The change in patent
regime has also become heralded a change in the industry dynamics. On one hand, patents on
blockbuster drugs are expiring and on the other hand, there are insufficient drugs in the pipeline. The
changing industry dynamics both at the domestic level as well as the international level has forced the
pharma players to rethink their traditional business strategies. 

Conclusion
The Indian market has some unique advantages. India has a 60-year-old thriving democracy. It has an
educated work force and English is business language. It has a solid legal framework and strong
financial markets. More than 9,000 companies are publicly listed. Professional services are easily
available. There is already an established international industry and business community. It has a good
network of world-class educational institutions and established strengths in information technology.
The country is now committed to an open economy and globalisation. Above all, it has about 200
million middle class market, which is continuously growing. Over time the international pharmaceutical
industry has been finding great opportunities in India.

The Indian pharmaceutical industry players in the future can continue to look forward with confidence.
There are immense opportunities for pharmaceutical players both at the domestic as well as the global
level, but along with opportunities are challenges which need to be overcome in order to achieve
sustainable growth in the future. The future will be extremely promising with many more milestones to
come in the journey of the Indian pharma industry.

Suzlon History
Suzlon,the Indian Wind Turbine making company has languished in red ink since the
beginning of the Global Financial Crisis in 2008.The company started by Tulsi Tanti in 1995
was a shining example of Asian CleanTech with a 10% global marketshare and ranking
amongst the top 5 Wind Turbine Makers .Suzlon buoyed by its success had bought
controlling equity stakes in Turbine Gears producer Hansen Transmission and European
Wind Turbine producer Repower.Suzlon wanted to leverage Repower’s technological
expertise to enhance its own product offering.Like other Indian companies with global
ambitions like Hindalco,Tata Steel and Tata Motors,it took on a lot of debt to buy these
companies at the peak of the global economic cycle.The GFC resulted in a twin whammy
for Suzlon.On one hand its end markets collapsed as project financing disappeared and on
the other hand its huge debt burden became unsustainable.The company has failed to
recover from the GFC as competition in the Wind Turbine industry has increased with the
rise of Chinese players like Sinovel,Goldwind and A-Power.With the 2 biggest markets of
USA and China dominated by domestic players,Suzlon has become a shadow of its former
self.While other Indian companies have recovered strongly with the Global Economy,Suzlon
continues to lose huge amounts of money.Its recent 2Q10 results were quite bad resulting
in the share shedding 6% to Rs 50.This is almost 90% below its peak price in the heady
days of 2008 .So is Suzlon a Fallen Angel which could turnaround to become a multibagger
or a Falling Knife luring investors into further losses.Here are the pros and cons of the
argument.

Pros
1) Company still has valuable assets in the form of equity stakes in RePower and
Hansen Transmission.Their have been reports that the company might have to sell them to
pay off the huge debt on its books
2) Orders recovering - The Group along with RePower has an order book worth $5
billion.Its Indian orders have started to recover with 580 MW worth of orders booked which
is the highest in company history.India has enacted a policy to promote Renewable
Energyrecently mandating  a 10% target by 2015.
3) Debt restructured - The company has managed to restructure debt of $250mm with its
bank and has reduced  working capital requirements.
4) Focus on Emerging Markets – Suzlon has focused its energies on the Emerging
Markets like Brazil,South Africa,China etc.It has recently set up a plant in Brazil to leverage
the sharp growth of the wind market.
Cons
1) Suzlon’s revenues and losses continue to deteriorate with losses of $200mm in the
current 2Q10 quarter.With no manufacturing or technological strengths,its hard to see
Suzlon recover its preeminent position
2) Blade Problems – The company has had problems with blades cracking in its
turbines.This has resulted in huge losses as the company was forced to replace the faulty
blades.Orders were also cancelled as reputation took a plunge
3) US market in doldrums in 2010 – The US Wind Energy Market has been in the
doldrums in 2010 with lower gas costs and dwindling financing.With the USA being Suzlon’s
biggest market this is a big blow.2011 might not be better if the Congress does not extend
the tax credits for wind farms.
4) The Group is still heavily indebted with $250mm in loans and $500mm  in convertible
bonds
5) Industry growth to slow from 29% CAGR in the last 5 years to around 15% CAGR in
the next 5 years.Chinese competitors expanding internationally using low cost advantage
will create additional headaches.
Summary
The company continues to operate at a below breakeven level despite order book improving
slowly.RePower is a bright spot with a good order book and gaining strong traction for its
larger turbines.It has a marketcap of ~$2 billion which gives it an enterprise value of ~$2.75
billion.This is not cheap considering it has been losing money for the last several
quarters.The stock is trading at a 52 week low of Rs 51 which is less than half of its 52
week high price.The stock might offer some  short term profits  for high risk traders on a
dead cat bounce,but it is definitely not a fundamental pick.Unless the company really makes
significant progress on the revenue and orders front,it is not a buy in my book.