Analysis of the economic situation of the South East European pharmaceutical industry

Abstract

Background: The pharmaceutical industry in the countries of Southeast Europe is still underdeveloped. Despite experience and tradition as well as significant research efforts and innovation potential, there are still big differences among the companies in the pharmaceutical sector of the SEE countries. It is for this reason that the subject of the study is the analysis of the comparative advantage in exports of the pharmaceutical sector of the SEE countries.

Aim: The aim is to point out the potential of the sector and the directions of its development. The study also aims to define the position of the pharmaceutical sector in the SEE countries in today’s global context. The study has comprised the pharmaceutical products belonging to group 30 in the HS6 classification and SITC 54 classification in the period 2005–2018.

Conclusions: The results of the study indicate that the SEE countries have negative comparative advantage in exports, in the analysed period, except for Slovenia, which stands out with positive values of the RCA index. The products, dominating the foreign trade of the SEE pharmaceutical sector, belong to the group of Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses.

Keywords:

• Pharmaceutical industry
• exports
• SEE countries; comparative advantage; pharmaceutical exporting

JEL CLASSIFICATION CODES:

• F40
• C65

Introduction

Analysis of the economic situation of the South East European pharmaceutical industry is highly complex, considering the wide micro and macro impacts¹ of the industry, e.g. impacts on the consumers, the manufacturers, related industries, and finally on the global economy. Looking at the pharmaceutical industry from the macroeconomic point of view, we can appropriately treat it as a factor influencing the intensive growth and development of the economy. Investments and research and development (R&D), as the determinants of the pharmaceutical industry development, contribute to increased employment, the development of other sectors of the economy, as well as direct and indirect gross domestic product (GDP) growth². Investments in the pharmaceutical sector generate direct and indirect employment, broad sociological impact, as well as integration and interaction with other industries. Just as strong economies have a positive balance of trade, so the countries with developed pharmaceutical industry have a surplus in pharmaceutical exports.

The pharmaceutical industry seeks to satisfy changing consumption by continuously offering new products on the market. The industry is facing the eternal challenge – to improve and prolong life, and on the other side, to ensure profits increase while reducing costs.

In the transition period, the process of the restructuring and transformation of the pharmaceutical sector companies was to ensure that strict health, safety, market and other criteria were met in order to make the products competitive in the international market with an appropriate marketing strategy. The transition process in the countries of the Former Yugoslavia (SFRY), the breakup of the country and all that followed, prevented successful market positioning for most of the companies. The large companies fell apart and were replaced by small and medium-sized enterprises that were not able to finance R&D³. However, some of the companies have been successfully transformed and achieved an increase in exports of medicaments and medical products, thus contributing to a larger share of the pharmaceutical sector’s exports in the overall foreign trade of the country.

The starting point in the analysis is tradition and positive indicators Fmr Yugoslavia’s foreign trade in the pharmaceutical sector, as well as the decline in exports and the foreign trade deficit of the South East Europe (SEE) countries (all except Slovenia), after the breakup of Former Yugoslavia. Dynamic export analysis and in particular the comparative advantage of the exports in the pharmaceutical sector provides empirical data about the sector that can still attract foreign capital and perform the concentration of knowledge and experience. It is for this reason that the subject of this research is the analysis of comparative advantage of the exports in the pharmaceutical sector of the SEE countries. The aim is to highlight both the potential of the sector and the need for management, intensification and modernization. Therefore, it is necessary to define situation of the pharmaceutical sector of the SEE countries both in today’s global framework and in relation to the aforementioned sector of the Fmr Yugoslavia countries. In further research, the level of comparative advantage in exports of the pharmaceutical sector products was measured in order to determine which products have development potential, that is, which products dominate the foreign trade of the SEE countries.

The literature review

There are different approaches to pharmaceutical sector research. Accordingly, some authors conduct research from the point of view of its relevance to economic growth or its impact on the health sector, at foreign direct investments (FDI) level. Other authors in the analysis start from the analysis of competitiveness. In the process of bidding on the market, pharmaceutical manufacturers must offer a quality and often innovative product, reduce costs over competition, and opt for a product or product line in accordance with the wishes and needs of consumers. Competitiveness factors are numerous and affect the position of the company (microeconomic level of competitiveness) or the state (macroeconomic level of competitiveness). We also find in the literature the term of industry competitiveness – the mesoeconomic. Noe et al.⁴ and Békés and Ottaviano⁵ competitiveness at the sectoral level is linked to the results of international trade, while Yaacob⁶ and Safiullin et al.⁷ include in the analysis the term of a comparative advantage of industry and links it to the ability of the industry to gain and maintain market share in the domestic and export markets. For this reason, economic analysis of the state of the pharmaceutical industry in a country or region is also an analysis of the competitiveness indicators of the pharmaceutical industry and indicates the position relative to the same industry in other countries or regions. The study of the competitiveness of the Croatian pharmaceutical industry was conducted by Buturac⁸, who pointed to strong comparative advantage and significant added value in the exports of pharmaceutical products. Econometric analysis was used to assess the main determinants of the exports of the European Union (EU) pharmaceutical products, so Blanc⁹ points to the importance of the size of the country and its health sector, the amount of health expenditure (% of GDP), the degree of infrastructure development, and the like. According to Galović¹⁰, the pharmaceutical sector is the capital-intensive sector of the economy, where the determinants of development are FDI and multinational companies (MNCs). MNCs are constantly looking for new markets¹¹, more favourable business conditions, and also for more flexible laws regarding production and environmental protection¹². On the demand side of the pharmaceutical sector, there are several participants, some of whom acquire their market power through the establishment of legal monopolies, brand loyalty, and adverse selection¹³.

For the purpose of further intensive development of the pharmaceutical sector, it is necessary for the pharmaceutical industry to: promote the transfer of know-how and R&D¹¹, improve the knowledge of the distinctive characteristics of new markets, market performance and competition, establish partnerships with large clients¹⁰. Yu¹⁴ highlight the product quality and qualification level of the workforce as factors that have positive impact on the development of the pharmaceutical sector, while the lack of FDI has the negative impact on export results of the companies. According to Barbosa et al.¹³ the factors that have a limiting impact on the development of the pharmaceutical sector are high production and qualified workforce costs, lack of investment, and long distribution channels due to numerous intermediaries. In this situation, the country appears on the one hand as the importer of raw materials for the production of generic medicaments, and on the other hand as the exporter of low complexity medicaments. This is exactly what Sushmita¹⁵ confirms and indicates that the country compensates its low production volume by the import of pharmaceutical products and develops foreign trade relations mostly with surrounding countries¹⁶. Also, the improvements in infrastructure and technology will provide a long-term increase in comparative advantage. Considering the problems of the internationalization of pharmaceutical companies, Ji and Ye¹⁷ point out that the strengthening of the companies in the domestic market, that is, the overcoming of the problems of low-profit business, is a starting point for success on the global market. Finally, the authors conclude that it is especially important to overcome market barriers, enable the mobility of the factors, and create an innovative environment. Andrijević Matovac¹⁸ points out that companies wishing to become competitive on international markets, bearing in mind primarily pharmaceutical companies, must have innovative action as their strategic goal. It means that they must work on introducing new products in existing markets, introducing existing products into new markets, development of new technology, motivation and continuous education of employees. Knowledge and experience is also of particular importance for reducing risk on the international scale, as pharmaceutical companies on the market enter the processes leading towards capital consolidation¹⁹. Bakić²⁰ points out that it is exactly the pharmaceutical companies who have shown that success depends on how well they cope with the competition and how much they have adapted to the changes in demand.

Adolfsson²¹ analysed the impact of the membership of a country in a union, such as the EU, on the value of exports. The author points out that there is no statistical significance of the impact of the membership, but that the countries that are members of the customs union pay a lower price per kilogram than other countries. In the pharmaceutical market, the participants exercise their power on the basis of legal monopoly, brand loyalty, and adverse selection²². The authors point out that the pharmaceutical sector depends on the management within healthcare institutions²³ of the country’s health care system, or on the fact whether the dominant health care and pharmaceutical sector in the country is private or public. They conclude that strong interactions between manufacturers and distributors create multiple distribution channels, while the legislation related to market concentration often ignores the specific characteristics of the sector²². The importance of the proper functioning and connection between the state and the pharmaceutical sector is also pointed out by Sudershan²⁴.

On the other hand, the issue of quality is particularly important and pharmaceutical companies are making efforts to offer the patients safe and effective medicaments²⁵. The issue of quality is related to the increase in production on condition that strict directives, continuous monitoring and fighting against counterfeiting and smuggling are observed. In the developing countries in Africa, Asia, Latin America and Eastern Europe, the problem is really serious, as 50% of the medicaments used by the patients are counterfeit, unlike the EU, where it is only 1%. The most frequently counterfeited medicaments are antibiotics, which adversely affects the outcome of the treatment and the development of resistance, C vitamin in Serbia, followed by steroid hormones and anabolics. Ignjatijevi·²⁶ associates the quality of pharmaceutical products with storing of medicaments and concludes that sensitivity of medicaments further complicates their storing, as the storing conditions of pharmaceutical products differ significantly from other types of goods. The general conclusion would be that, in the coming period, the pharmaceutical industry should: foster knowledge and technology transfer, enhance marketing and other promotional activities, encourage R&D, provide training for researchers, raise awareness of growing markets and competition, especially from Asian countries, and establish strong partnership with large clients.

Methods

The subject of the research is the analysis of the comparative advantage level of exports of the SEE countries’ pharmaceutical sector in the international market. The aim of the research is to define the present position of the sector and to point out the products that dominate the foreign trade of the SEE countries.

The research into the comparative advantage of the pharmaceutical sector exports was conducted in accordance with Buturac⁴ and Ignjatijević et al.²⁷ study, that is, the logarithmic form of the comparative advantage of exports was applied. For the purpose of this study, UN Comtrade and ITC data for the respective years were used. According to the UN Conference on Trade and Development classification, pharmaceuticals belong to Group 30 of the HS6 classification (product cluster at digits 2 and 4) or 54 SITC classification (digits 2). Formula for calculating strong comparative advantage²⁸: $$\mathit{RCA}=\text{In}\left[\frac{X_i}{M_i}\right]\times \left[\frac{\sum _{i=1}^n{X}_i}{\sum _{i=1}^n{M}_i}\right]\times 100$$

In the above formula, X means the value of exports and M means the value of imports. Index i means the pharmaceutical sector as a whole or its products. In case the country specializes in the production of pharmaceuticals and has a surplus in foreign trade, the RCA indicator has positive values and indicates comparative advantage.

Data

Today, the production and trade of pharmaceutical products are dominated by a few countries, which indicates that most countries satisfy their needs by imports. In order to satisfy the ever-increasing demand of the market and to increase profits, the pharmaceutical companies are continuously improving their offerings.

The research results indicate positive movements. According to EFP IA data in the period 2005–2018, in Europe, the pharmaceutical sector production was increasing by an average of 10.89% per year, exports and imports were increasing by 22.59% and 20.27% per year respectively, and the most important, there was the increase in R&D area by an average of 13.84% per year compared to 2005 (Table 1). Considering EU countries, it is important to highlight the increase in production in Switzerland, Germany, Italy and Ireland¹⁰.

Table 1. Pharmaceutical industry indicators (values in millions of EUR unless otherwise stated).

	2005	2010	2015	2018	Growth rate (%)
Production	171,952	199,131	238,437	260,000	10.89
Exports^a^,^b	181,560	276,357	365,303	410,000	22.59
Imports	145,766	204,824	269,012	305,000	20.27
Trade balance	35,794	71,533	96,291	105,000	30.87
R&D expenditure	21,732	27,920	33,557	36,500	13.84
Employment (units)	634,546	670,088	739,499	765,000	4.79
R&D employment (units)	99,859	117,036	113,713	115,000	3.59
Total pharmaceutical market value at ex-factory prices	129,515	152,991	193,742	220,000	14.16

Source: EFP IA for relevant years, member associations (official figures) – (e): EFP IA estimate; Eurostat (EU-28 trade data 1995–2015).

^aData relate to EU-28, Norway and Switzerland since 2005 (EU-15 before 2005); Croatia and Serbia included since 2010; Turkey included since 2011.

^bData relating to total exports and total imports include EU-28 intra-trade (double counting in some cases).

The positive tax policy of the countries, harmonized with the inflow of investments has contributed to the efficient development of the pharmaceutical sector in these countries. Thus, the total production of the pharmaceutical sector increased by 45.89% in 2017 compared to 2005, and the employment rate increased by 19.9% (Table 2). Considering the first 5 countries, the largest increase in production is shown in Switzerland, Germany and Italy, and a decrease in production in France and the United Kingdom. When it comes to Ireland, the tax incentives for innovation must be highlighted, which has made the country a leader in pharmaceutical sector investments. There is a 27.46% increase in production, resulting in 24.03% increase in employment in the pharmaceutical sector. The research results show that of the first 10 pharmaceutical companies 7 are in Ireland. In Germany, it is important to point out that the chemical and pharmaceutical industries have a very high share in total exports, as indicated in earlier studies by Ignjatijević²⁶ and Galović¹⁰. The Swedish pharmaceutical sector employs about 5,000 people²⁹, and as a result of increased investments in R&D, it has steady increase in production and exports. It is Adolfsson²¹ who points to a growing trend in exports with some oscillations, concluding that the pharmaceutical industry accounts for 6% of Sweden’s total exports. Also, in the case of Sweden, investments play a significant role, with part of the funds being provided by the companies themselves and part funded by the state. A commitment to investment in R&D, resulting in a decrease in imports, has had a positive effect on the decline in trade balance of the country³⁰.

Table 2. Production, Employment in the pharmaceutical industry and the number of pharmaceutical production companies in the world (production in millions of EUR; Employment in units).

	2005		2010	2015	2017			%
	Production value	Employment	Production value	Production value	Production value	Employment	Enterprises – number	Production 2017/2005	Employment 2017/2005
1. Switzerland	16,034	32,038	29,195	42,479	44,944	46,503	182	180.30	45.15
2. Germany	22,653	113,100	26,888	29,536	30,555	117,013	521	34.88	3.46
3. Italy	21,589	74,000	24,996	29,326	31,200	65,400	456 (2016)	44.52	−11.62
4. France	34,316	101,500	23,485	20,554	21,900	98,786	252 (in 2009 there were 859. In 2015 there were 537)	−36.18	−2.67
5. UK	22,935	68,000	19,263	19,313	20,609	63,250	636	−10.14	−6.99
6. Ireland	15,146	24,000	19,700	19,305	19,305	29,766	155 (u 2014)	27.46	24.03
Total	171,952	634,546	200,050	238,437	250,868	760,795		45.89	19.90

Source: EFP IA for relevant year, member associations (official figures) – (e): EFP IA estimate; Eurostat (EU-28 trade data 1995–2015).

Note: All data based on SITC 54; Denmark, Hungary, Norway: 2012 data, Cyprus, Netherlands: 2010 data, Croatia, Denmark, France, Ireland, Italy, Netherlands, Norway, Portugal, Slovenia, Spain, Sweden, Switzerland: estimate Bulgaria, Croatia, Cyprus, France, Germany, Hungary, Ireland, Latvia, Norway, Poland, Portugal, Romania, Slovenia: veterinary products excluded. Database does not include data related to Serbia, Slovakia, Czech Republic, Estonia, Lithuania and Malta.

The research below shows the pharmaceutical sector production of the leading countries in the world. The production of pharmaceuticals in the EU is at different levels depending on the country.

Exports of the pharmaceuticals sector of the EU countries are at high levels, with Germany leading with EUR 75.1 billion, followed by Switzerland with EUR 68.4 billion in 2017 (Table 3).

Table 3. Leading pharmaceutical exporting countries (in millions of EUR).

Item	Country	2005	2010	2015	2017
1	Switzerland	25,705	43,959	58,127	68,374
2	Germany	30,696	49,832	68,706	75,118
3	Italy	10,573	13,291	19,052	23,855
4	France	18,457	26,304	27,857	28,653
5	UK	18,077	25,965	33,343	29,776
6	Ireland	14,531	24,156	30,231	35,451
7	Belgium	28,164	38,864	41,003	40,294
8	Netherlands	9,548	11,990	27,434	31,729

Source: UN Comtrade and EFPIA.

In the period after the 1960s and 1970s of the last century, the pharmaceutical companies of developed countries positioned themselves on the market and modernized their production, which was followed by capital consolidation and intensive investment in R&D. In the former socialist countries, the transformation of the pharmaceutical industry was conducted through the transition process, and only a small number of the companies positioned themselves successfully on the market. In the SEE area, large companies such as Galenika, Zdravlje Leskovac, Alkaloid Skopje, Pliva Zagreb, Bosna Lek, Hemofarm and other, found themselves in the throes of foreign competition and faced the problems of the disintegration of the common country in which they operated. The large companies started falling apart, and only small and medium-sized companies remained in the market, but they were not able to invest in R&D.

In the year preceding the breakup of the SFRY (or Fmr Yugoslavia), the total exports of the pharmaceutical sector amounted to US$485 million. It was a significant increase compared to 1970, when exports amounted to only US$25.8 million with a deficit of US$7.51 million. In 1990, exports from the pharmaceutical sector generated a surplus in foreign trade and the sector accounted for as much as 28.9% of total exports. Having analysed the foreign trade indicators in the 20-year period, we can conclude that exports increased by US$459 million and the deficit swang to a surplus of US$223.9 million (Table 4). Some of the countries continued to benefit from exports of medicaments and medical products. Croatia had surplus and a positive comparative advantage of exports for a short period of time, more precisely before the start of the transition process²⁹, and later the deficit in trade became significant and the country lost the comparative advantage of exports. Further development of the pharmaceutical sector depended on the ability to acquire modern technology, investments, and development strategies. When it comes to Serbia, the unsuccessful transition and the absence of a long-term development strategy hindered the intensive development of the pharmaceutical sector. The restructuring process of the third-world pharmaceutical companies was in full compliance with the principles of good manufacturing practice, with the aim of meeting the hygiene and quality criteria by domestic laboratories, or meeting the technical criteria in order to produce, with appropriate marketing strategy, the products that would be competitive in the international market.

Table 4. Exports and imports, share of the country exports and RCA index of pharmaceutical sector of FMR Yugoslavia in the period 1970 to 1990.

Year	Country	Exports ($)	Imports ($)	Share in exports (%)	RCA
1970	Fmr Yugoslavia	25,818,412	33,328,404	0.18	−0.19
1975	Fmr Yugoslavia	66,586,040	72,534,128	1.64	−0.05
1980	Fmr Yugoslavia	178,002,224	106,786,040	1.98	0.30
1985	Fmr Yugoslavia	182,020,240	99,323,512	1.71	0.53
1990	Fmr Yugoslavia	485,071,000	261,128,000	28.89	0.36
Change in 1990 comparing to1970		+459,252,588	+227,799,596	+28.71	+0.55

Source: UN Comtrade and calculation by the authors; https://comtrade.un.org/db/mr/rfCommoditiesList.aspx?px=H1&cc=TOTAL.

Finally, it can be said that, during the analysed period, the development and restructuring of the pharmaceutical sector of the SEE countries were influenced by many internal as well as global (international) factors, which resulted in different production growth rates. After many years of preparation, the transfer of production from the Western European countries to the SEE countries followed, along with the integration of foreign pharmaceutical companies and domestic factories (e.g. Hemofarm became a part of the STADA Group). The newly set goals were to ensure production under controlled, clearly defined and standardized risk-reducing procedures (all aspects of production, from raw materials, materials, space, process, equipment to personnel). However, the aforementioned trends were not sufficient to sufficiently raise the level of production and ensure a significant share in exports.

An important indicator of the competitiveness of the pharmaceutical industry of the SEE countries in international trade is the maintenance of export orientation and a foreign trade deficit (except for Slovenia). Relatively low coverage of imports by exports is present as a result of significantly higher imports than exports, as well as decline in the share of the SEE countries in the total world exports. All this speaks of insufficient export orientation and utilization of export potentials. The question is whether export oscillations are an indicator that encourages and indicates a long-term trend. However, the trend of a slight increase in exports, which has been observed in the last few years at the level of the SEE group, must be positively assessed. In addition, the sustenance of pharmaceutical industry exports in the total exports and economic activity of Southeast European countries has been observed as well.

Comparing the data of the analysed countries, we conclude that in Slovenia the pharmaceutical sector exports averaged 7.88%. Croatia followed with 3.51% (Table 5), and the share of other SEE countries ranged between 0.93 and 2.48%. With regard to other export indicators (export per capita, share of total countries export, trade balance), Slovenia has the best competitive position.

Table 5. Exports of pharmaceutical sector measured by share in country exports (%).

	B&H	CROATIA	MACEDONIA	MONTENEGRO	SERBIA	SLOVENIA	SEE
2005	0.61	1.88	2.02	1.91 (2004)		6.28	0.88
2010	0.92	3.47	2.28	2.00	2.01	9.05	1.65
2015	1.12	4.48	1.57	2.08	1.62	8.33	1.97
2018	1.25	6.16	1.51	5.39	1.43	8.19	1.85
AVERAGE	0.93	3.51	1.96	2.48	1.78	7.88	1.38

Source: UN Comtrade and calculation by the authors.

Results and discussion

The analysis of the comparative advantage levels of the pharmaceutical sector exports of Fmr Yugoslavia in the SEE countries has been performed here below. The results of the research on the presence of comparative advantage in pharmaceutical sector exports are shown in Tables 6 and 7. Previous research by Ignjatijevic²⁶ on the competitiveness of the Danube region countries indicated a high share of exports of industrial products in total exports of Slovenia and Croatia and a positive comparative advantage of exports in the period 2004–2011, as well as the positive comparative advantage of the Slovenian chemical sector exports in 2009²⁶, which is consistent with the conclusions Buturca⁴.

Table 6. RCA index of comparative advantage of pharmaceutical sector exports (2005–2018).

	B&H	CROATIA	MACEDONIA	MONTENEGRO	SERBIA	SLOVENIA	SEE
2005	−0.83	−0.53	−0.36	−0.48		0.69	−1.12
2010	−0.97	−0.35	−0.34	−0.42	−0.35	0.79	−0.75
2015	−0.94	−0.24	−0.49	−0.39	−0.76	0.93	−0.49
2018	−0.83	−0.13	−0.55	−0.21	−0.82	0.65	−0.55
AVERAGE	−0.90	−0.30	−0.43	−0.36	−0.64	0.84	−0.73

Source: UN Comtrade and calculation by the authors.

Table 7. List of products exported and imported by SEE countries – category: pharmaceutical products (in thousands of US$).

	Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses	Human blood; animal blood prepared for therapeutic, prophylactic or diagnostic uses	Pharmaceutical preparations	Medicaments consisting of two or more constituents mixed together for therapeutic or prophylactic uses	Wadding, gauze, bandages and the like, e.g. dressings, adhesive plasters, poultices, impregnated or covered with pharmaceutical substances	Dried glands and other organs for organo-therapeutic uses, whether or not powdered;
Exports
2005	2,507,180	122,286	120,629	240,494	109,449	1,668
2010	8,222,740	455,758	481,395	400,445	56,538	52,732
2015	10,948,137	1,327,000	729,303	494,492	234,676	53,337
2018	11,938,298	2,790,745	962,764	75,555	306,327	44,969
Share in the total exports of the pharmaceutical sector in 2018 (%)	70.96	16.59	5.72	0.45	1.82	0.27
Imports
2005	9,525,712	908,849	392,675	46,757	14,128	27,336
2010	18,110,117	2,426,151	609,017	125,041	213,144	251,152
2015	17,106,755	3,724,906	543,129	308,654	327,219	191,177
2018	21,511,734	6,111,780	662,619	43,129	415,904	231,424
Share in the total imports of the pharmaceutical sector in 2018 (%)	73.15	20.78	2.25	0.15	1.41	0.79

Source: UN Comtrade and calculation by the authors.

An analysis of the comparative advantage of exports of the pharmaceutical sector of the Fmr Yugoslavia shows a positive value in the period after 1980 followed by a breakup of the country and a drastic fall in exports. Analysis of the comparative advantage of exports of SEE countries, modeled on 22 and 23, showed that in the analysed period the comparative advantage of exports had an average value of RCA = −0.73. In fact, in the period 2005–2018, a negative balance was achieved in foreign trade, at the level of individually observed countries, which resulted in a decrease in the value of the RCA index in all countries except Slovenia.

The analysed period shows that an increase in the global medicine market was achieved, estimating an annual growth of 3–6%, as well as that developing markets will be key drivers of development, as indicated by Galović in his earlier research¹⁰, and MNK will play a key role in this, as indicated by Yeoh and Roth¹¹. The nominal consumption of pharmaceuticals is on the rise, as a result of an increase in consumption of medicaments for hepatitis C (US$12.3 billion in 2014), cancer and multiple sclerosis (US$8.9 billion in 2014) and diabetes (US$32.2 billion in 2014). Real world consumption of pharmaceuticals per capita was US$995 in 2014, nearly tripled compared to 1995. The increase in consumption is the result of the initiation of new products, innovative actions, the development of new technologies, employee education, as pointed out by Andrijević, Matovac¹⁸, the advent of new brands and innovations in methods of treating certain diseases. On the other hand, successful positioning in the domestic market and profitable business, highlighted by Ji i Ye¹⁷, affect the competitive position of companies, which, thanks to increased R&D expenditures, can adapt to increasingly complex requests and changes in demand Bakić²⁰. It is estimated that by 2020 pharmaceutical consumption will be increasing by an average of 6.4% annually in North America, by about 6.1% annually in Latin America, by only 2.2% annually in Western Europe, and in Asia and Australia by 10% as a result of the development of health programs in China. Large total investments, especially in developing countries, will result in an increase of the medical technology market at a rate of 5.0% per annum by 2020, and multinationals, said by Yeoh i Roth¹¹, and SDI will in that process take a main Yu i Kopcha¹⁴.

In order to give a detailed overview of the foreign trade in the pharmaceutical sector of the SEE countries, the exports of the commodity groups (HS-4 in HS Classification), represented in the exports, were analysed. Below is the analysis of the exports in the period 2005–2018. The results of the analysis are shown in Table 7. They indicate the commodity groups that have export potential. Comparing the data about the analysed SEE countries, it can be concluded that there is significant heterogeneity in the absolute values ​​of exports and imports of pharmaceutical products. Absolutely the largest export was achieved in the commodity group: Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses. Their share in total pharmaceutical exports in 2018 was 70.96%, followed by a 16.59% share of Human blood; animal blood prepared for therapeutic, prophylactic or diagnostic uses. At the same time, the largest imports were achieved in the same commodity groups, only nominal values ​​are higher and amount to 73.15% and 20.78%, respectively. Contrary to Adolfsson’s²¹ view that EU membership does not significantly affect the value of exports, the result of the survey indicate a positive trend of exports of Slovenia and Croatia, which coincides with EU membership. The reasons for the positive tendencies in exports are certainly related to the functionality and successful management of the health sector, as pointed out by Čavlin, Žugić Prebiračević²³ and enhanced interaction between manufacturers and distributors, once boundaries have been opened, which is in line with the opinion of Dobbelaer, Van Leuven, Raeymaeckers²². In addition, the inherited achievements of socialist management of the health care system, such as connectivity and domination of the state in the pharmaceutical sector, have subsequently enabled successful functioning, which is in line with the view of Sudershan, Muppani, Khan and Ali²⁴. It is also the fact that in the process of joining the EU, they had to adopt and meet high production standards. Other SEE countries, on the other hand, are members of the CEFTA agreement, which facilitates their competitive position in the CEFTA market, but not in other markets. Considering that the export and production structure of the SEE countries are concentrated in several businesses, it is logical to conclude that the countries of the Region are increasingly trading with each other thanks to the existing trade links and business policies of the pharmaceutical companies, which is consistent with the conclusion of Sushmita et al.¹⁵ and Narayana et al.¹⁶

The declining export competitiveness of the pharmaceutical sector of the SEE countries is expected due to the global consolidation of capital and the multiple increase in foreign trade of the most developed countries of the world. Despite the export recovery of the pharmaceutical sector and the growing competitiveness of individual countries, the latest developments in 2018 confirm the increasing competitive pressure in international export markets and the increase in imports.

Despite the increasing share of individual commodity groups in total pharmaceutical product exports, the latest trends in 2018 confirm a decline in export competitiveness with most export products: medicaments; wadding, gauze, bandages; sulphonamides; pro-vitamins and vitamins; hormones, prostaglandins, thromboxanes; glycosides; vegetable alkaloids; sugars (Table 7). The decline in competitiveness is the consequence of insufficient export orientation towards the demanding EU market³¹. Additionally, the reasons should be sought in insufficient interstate trade in pharmaceutical products, which, due to the proximity of the markets, similar preferences in consumption and the existence of trade links, could much more contribute to the improvement of the overall export competitiveness of the pharmaceutical sector in the SEE countries.

Conclusion

The pharmaceutical market is, on a global scale, characterized by the market concentration of several major manufacturers, with intense competitive pressure and capital consolidation, that is, the connecting of businesses. Measured by production volumes, exports and imports, investment in R&D and employment, the pharmaceutical industry in the world is recording high growth rates. In terms of production volumes and exports, the best ranking are the pharmaceutical industries of Switzerland and Germany.

The period of socialist development of the pharmaceutical industry of the common country, Fmr Yugoslavia, is characterized by the concentration and construction of new facilities, the modernization of production processes and the introduction of new technologies, the organizational and territorial changes in the structure of many enterprises and, logically, the surplus in foreign trade. In the process of preparing for accession to the EU, the restructuring and modernization of the economy, and especially of the pharmaceutical sectors of Slovenia and Croatia, was carried out, which led to a greater degree of concentration of production. After Slovenia and, a little later, Croatia joined the EU, a higher annual growth of production was recorded and later, the export growth was present. However, in the analysed period, the total exports did not increase sufficiently to be able to absorb the loss of competitiveness and the increase in imports. Although there was an increase in the share of pharmaceutical sector exports in the total exports of the SEE countries, there was a significant higher level of imports than exports. This trend is a consequence of significantly higher consumption of pharmaceutical products and preparations than production. Of the SEE countries analysed, Slovenia and Croatia have the highest share of total exports, with Slovenia having the highest export value and trade surplus. The research results show that B&H and Serbia have the lowest share of the pharmaceutical industry in the total foreign trade.

Some of the main reasons for low competitiveness are relatively small domestic markets and increasing competitive pressure. Considering the production potential of the countries and their company tradition, the goal of becoming competitive in the international market depends on their efficiency, flexibility and learning. The efficiency of the pharmaceutical sector of the SEE countries is related to the reduction of operating costs and the productivity-increasing activities of the companies. It is important to offer the products that will integrate state-of-the-art technology solutions resulting from R&D, the products that will satisfy demand, outstrip competition and generate faster productivity growth than the cost increase. However, the inflow of FDI, investment in R&D and strengthening the cooperation between science and production, were not at the level that would significantly enhance the export competitiveness of the pharmaceutical sector of the SEE group as well as the successful and proper market performance of the individual countries. The research results indicate that the companies in the leading pharmaceutical exporting countries have no problem with the efficiency of international logistics chains, that their restructuring has contributed to more efficient production and that the companies are working on the improvement of managerial competencies and education of employees.

The research on the comparative advantage of the pharmaceutical industry exports of the SEE countries as a whole, as well as of individual countries, indicates the following results: the comparative advantage of exports of the sector as a whole has been negative for many years. The total value of the exports has been multiplied many times and accompanied by a change in the value of imports, and therefore by the values of the RCA index. The question is, why have some positive changes occurred in some countries and negative trends in others, or why have the SEE countries, as a whole, lost their dominance in exports? The reasons are certainly in the sphere of inefficient transition and company restructuring. It is Serbia and B&H who show the highest negative values ​​and the decrease in the RCA index, which is the consequence of the decrease in exports due to inadequate response to customer demands in the EU and other countries. It is this research that has pointed to the decrease in the competitiveness of the pharmaceutical sector as a consequence of slow and inefficient adaptation to market needs. This is directly related to quality management, where companies need to guarantee their customers top quality of products with quality certificates and certificates of compliance with quality standards. Improvement of management or technological knowledge should contribute to effective change management, and the responsibility lies with the companies as well as the state. The role of the state in the process of improving the competitiveness of the pharmaceutical sector covers the area of education and R&D. It also includes the responsibility for creating an environment suitable to attract FDI. Fiscal measures, an efficient legislative framework and labour market flexibility are crucial here. In addition to increasing knowledge, it is extremely important to relax macroeconomic conditions and make the chaotic and unpredictable business environment attractive to investors.

Transparency

Declaration of funding

There is no funding to disclose.

Declarations of interest

The authors have no declarations of interest.

JME peer reviewers on this manuscript have no relevant financial or other relationships to disclose.

Author contributions

All authors have made substantial contributions to the development of the manuscript and have approved the final version submitted.

Acknowledgements

None reported.