A Study on the Impact of the External Environments on Innovation and Competitiveness in the Pharmaceutical Industry of Selected Nations

by Sudeshna Pan


This study presents a theoretical and empirical investigation on the impact of the external environments on innovation and competitiveness in the pharmaceutical industry. The literature review revealed that macroeconomic environments greatly influence the innovation and competitiveness in the pharmaceutical industry.

These observations led to the following two research questions: (1) Which external environments stimulate or inhibit innovation and competitiveness in the pharmaceutical industry? (2) Are there differences between developed and developing countries with respect to factors that affect innovation and competitiveness in the pharmaceutical industry? 14 measures were constructed for the external environments.

The industry data of 42 countries were collected on the 14 measures. This made the sample size of 588 observations. Of these 42 countries, 20 countries were developed nations and 22 countries were developing nations. This mix of developed and developing nations gave clear perspectives on the external environments effecting pharmaceutical innovation and competitiveness. The time frame over which the data examined was for a four year period (2007 to 2010). Data used in this study were obtained from secondary sources since most data used were objective data. These sources were identified after a thorough review of the literature, both academic and trade journals.

The regulatory environment data were collected from various publications and reports on the current regulations for several countries. When measuring the role of price regulation, approval time and cost containment on innovation and its impact on competitiveness, the objective data was not possible. The data was validated and verified through questionnaires with two pharmaceutical regulatory experts in each country from leading multinational pharmaceutical firms.

Path models were developed to test the research questions using SPSS-AMOS, a structural equation modeling program. Based on the conceptual model, a model was designed to test the factors affecting innovation that impacts the competitiveness in the pharmaceutical industry of the selected nations. Several significant results were obtained. The external environments like economic, regulatory, industry and R&D environments were found to have significant effects on the ability of the pharmaceutical industry to innovate and competitive.

Developed and developing countries were found to differ significantly with respect to the effects of various factors affecting competitiveness of the pharmaceutical industries in those countries. This study made some contributions to the theoretical, empirical, managerial and public policy implications on the innovation and competitiveness in the pharmaceutical industry.

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