The Irish pharmaceutical industry over the boom period and beyond

Abstract

The pharmaceutical industry was one of the strongest performing sectors of the Celtic Tiger era. During the past two decades, employment growth in the sector has been strong and continuous, even when, in recent years, employment in other manufacturing sectors has been contracting. Although positive in itself, from a dynamic regional development perspective it is important to explore the qualitative changes in the types of activities that are conducted in Ireland. Adopting a global production network approach, the paper examines Ireland's changing role in global production networks within the pharmaceutical industry, focusing on the different components of manufacturing and research and development (R&D). The analysis shows that Ireland's involvement in manufacturing has shifted in the direction of relatively higher value generating activities. Within R&D, although the level of value creation has increased substantially, Ireland's involvement nonetheless remains concentrated in the (relatively) lower value generating activities of the global R&D network. In addition, the sector remains strongly dominated by foreign companies so that a large share of the created value is not captured within Ireland

Keywords:

• R&D
• pharmaceutical
• Ireland
• global production networks

Acknowledgements

The research for this paper was partly supported by a grant from the Irish Research Council for the Humanities and Social Sciences. The authors would like to thank Peter Dicken, Neil Coe and Martin Hess for sharing their experience in researching Global Production Networks. In addition we would like to thank two anonymous referees for their constructive comments

Notes

1. Data from intracen.org (the International Trade Centre, a joint facility of UNCTAD and the WTO).

2. As Desai et al. (2006) point out, ‘OECD governments require firms to use transfer prices that would be paid by unrelated parties, but enforcement is difficult, particularly when pricing issues concern differentiated or proprietary items such as patent rights. Given the looseness of the resulting legal restrictions, it is entirely possible for firms to adjust transfer prices in a tax-sensitive fashion without violating any laws.’

3. Stewart (1989) provides further evidence indicative of such practices.

4. Henderson et al. 2002, for example define value as ‘a combination of the Marxian notion of surplus value with more orthodox notions of economic rent’.

5. A detailed analysis of the differences between companies is beyond the scope of this article but it is interesting to note one example related to national culture. Corporate strategy towards the management of global production networks and the level of internationalisation of R&D is believed to be strongly related to the nationality of the lead firm (Dicken 2007). The detailed case study of a Japanese pharmaceutical firm suggests that the particular spatial configuration and organisational co-ordination at this firm is indeed related to culture. The technical support group at this Japanese facility has a very limited role in process R&D. The technology transfer is carried out by staff flown in from Japan. ‘It is not a consultative process, let's put it that way. ( … ) I worked for a Japanese and American company and they both have very different ways of doing tech transfer. ( … ) If you look at European or American subsidiaries, they have a lot more autonomy and there is a lot more expected of them and I think in Japanese companies, knowledge is key and the retention of knowledge is paramount to a certain extent. So, I am not sure how much really they are going to give over. I think it is very much a cultural thing.’ (Manager, technical support unit, Japanese pharmaceutical plant)