Dear Colleagues! This is Asrar Qureshi’s Blog Post #1320 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to pharmaveterans2017@gmail.com for publishing your contributions here.
Preamble
A highly concentrated market creates winners, survivors, and a strategic problem for everyone else Pakistan’s pharmaceutical market presents a fascinating paradox.
On one side is an industry with hundreds of pharmaceutical companies, a large manufacturing base and a growing domestic demand for medicines. On the other is a market in which a relatively small number of companies capture the overwhelming majority of sales.
Industry data has consistently shown this concentration. A 2023 VIS sector report estimated that the top 50 companies held nearly 90% of the market, leaving more than 750 small and medium-sized enterprises to compete for roughly 10%. A 2024 sector analysis similarly described a market of more than 700 pharmaceutical firms, with the top 50 accounting for around 90%. More recent market data suggests that the long tail is gaining some ground, but concentration remains substantial: reporting based on the latest available assessment indicates that 102 companies generated 96.63% of pharmaceutical retail sales.
The numbers raise an important question.
What does such an uneven distribution mean for strategy and competition in Pakistan’s pharmaceutical industry?
The answer is more complicated than simply saying that large companies are successful and small companies are struggling. A highly concentrated market changes the strategic game for everyone.
The first problem: size becomes a competitive advantage
In pharmaceuticals, scale matters. Large companies can distribute products across a much wider geographical area. They can maintain larger sales forces, invest in marketing, support stronger brands and absorb regulatory and operating costs over a larger revenue base. They can also carry broader product portfolios.
This creates a reinforcing cycle: More sales → more resources → greater investment → stronger brands → better market access → more sales.
A smaller company can find it extremely difficult to break into this cycle. If a company has only a small market share, it has fewer resources with which to build the capabilities necessary to increase market share. This is the classic problem of scale economics. And it means that competition in Pakistan pharma is not necessarily occurring on a completely level playing field.
Fragmentation at the bottom can coexist with concentration at the top. That is not necessarily healthy competition. It may instead produce an industry with a relatively small group of powerful competitors and a large number of marginal players.
The survival strategy can become “more products” This is perhaps one of the most important strategic consequences. When a company has insufficient scale in its existing portfolio, management may respond by adding more products. One product does not generate enough revenue, add another, then another, and another. Eventually, the company may have dozens, or even hundreds of products, each generating relatively small sales. The result can be a portfolio that is broad but shallow.
Industry research has previously described this phenomenon in Pakistan, noting that some smaller firms become focused on survival, producing a larger menu of less-profitable products rather than having the time and resources to pursue forward-looking business management and planning. This is a dangerous strategic trap. More products do not necessarily mean a stronger pharmaceutical company. A company can have 200 brands and still have no strong competitive advantage.
The strategic problem can be expressed very simply: A weak company often needs focus, but competitive pressure encourages it to diversify.
The second problem: price competition can become destructive
When differentiation is weak, companies often compete on price. That can create a vicious cycle.
Lower prices reduce margins. Lower margins reduce the resources available for investment. Reduced investment weakens competitiveness. The company then has even greater pressure to reduce costs. Eventually, management becomes focused on survival rather than development.
The lowest-cost producer is not automatically the most efficient producer. There is a difference between cost efficiency and cost cutting. While efficiency improves productivity, cost cutting may reduce capability.
The concentration of market share also raises a broader industry question: Can smaller companies invest sufficiently in quality and technology? A study of Pakistan’s pharmaceutical industry found that the skewed market structure has implications for quality and technology levels and the viability of smaller firms operating with narrow margins.
Modern pharmaceutical manufacturing is becoming increasingly demanding. Regulatory expectations are rising. Quality systems are becoming more sophisticated. Data integrity is critical. Automation is expanding. Analytical capabilities are improving. International markets demand compliance with increasingly rigorous standards. All of these require capital. A company operating on thin margins may find it difficult to make these investments.
This creates a strategic divide. The leading companies can increasingly compete through capability; smaller companies may remain trapped competing through price and relationships.
The third problem: R&D becomes difficult
There is another consequence of concentration. Innovation requires money, and, more importantly, patience. Research and development is inherently uncertain. A company may spend heavily on a new product or technology without knowing whether the investment will produce adequate returns. Large companies are generally better positioned to absorb this uncertainty. For smaller firms, the immediate commercial return may dominate management thinking.
The strategic question therefore becomes: Should the company invest in innovation or invest in the next product that can generate sales within months? Under financial pressure, the second option usually wins. This helps explain why Pakistan’s pharmaceutical sector has historically been much stronger in manufacturing and commercialization of medicines than in original drug discovery.
The fourth problem: talent concentration
Market concentration can also produce talent concentration.
Large pharmaceutical companies can generally offer better career structures, more sophisticated training, international exposure, stronger management systems, specialist functions, better technology, and more attractive professional development opportunities. The best talent therefore tends to gravitate toward organizations where there are opportunities to learn and grow.
This creates another reinforcing cycle. Strong companies attract strong talent → strong talent builds stronger organizations → stronger organizations attract more talent.
Smaller companies must therefore find alternative ways to attract and retain capable people. Salary alone is unlikely to solve the problem. They may need to compete through responsibility, autonomy, learning, entrepreneurship and faster career progression. In fact, this could become one of the most important competitive advantages available to smaller pharmaceutical companies.
What does this mean for competition?
The most interesting development may actually be happening below the headline numbers.
Recent data suggests that concentration is not completely static. The latest reported market assessment shows that companies outside the very largest group have been growing, with 102 firms collectively accounting for 96.63% of the market. This suggests that the market is capable of producing new competitive forces.
The strategic question is whether today’s smaller and mid-sized companies can move upward. Can a company with 0.2% market share become a 1% company? Can a 1% company become a 3% company? More importantly, can it do so by building genuine competitive capability rather than simply adding more brands? That is the real test.
Pakistan Pharma Needs Fewer “Survival Strategies” and More “Growth Strategies”
There is nothing inherently wrong with having hundreds of pharmaceutical companies. The problem arises when too many companies are structurally unable to invest, innovate and build sustainable competitive advantages.
An industry needs a healthy pipeline of companies moving through different stages. If companies remain permanently trapped at the bottom, the industry becomes stagnant. But if smaller companies can successfully move upward, competition becomes more dynamic.
That is good for the industry. It is also potentially good for patients, provided competition remains grounded in quality, safety, affordability and regulatory compliance.
The Strategic Choice
Pakistan’s pharmaceutical industry therefore faces an interesting strategic question.
Should the objective simply be to have more pharmaceutical companies? Or should the objective be to build stronger pharmaceutical companies?
Those are not the same thing. A market with 700 companies is not necessarily more competitive than a market with 100 companies. Competition is meaningful when companies have the capability and incentive to challenge one another on various counts.
The current market structure suggests that Pakistan has a very large pharmaceutical “long tail” but a relatively narrow group of companies with substantial scale.
The future of Pakistan pharma will ultimately depend not on how many companies operate in the market, but on how many companies are capable of becoming genuinely competitive.
Concluded.
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