|The Pfizer-Wyeth campus at Grange Castle, West Dublin, Ireland.
Ireland’s four-year recovery plan puts a focus on continuing export growth
and the star performer in exporting in recent years has been the mainly US-owned pharma sector.
However, rising exports in the sector have coincided with “job-shedding.”
The recovery plan promotes an export-led strategy and the idea is to
introduce measures to assist the export sector. These measures will assist
export recovery through enhanced competitiveness and sector specific
Export growth will in turn deliver high value employment and act to stimulate
the domestically trading sectors of the economy. These developments will in turn
boost consumption, reduce unemployment and increase tax revenue. Confidence in
this strategy is supported by the recent performance of the internationally
traded sector. The government estimates exports have grown by over six percent
Given the importance of the pharmaceutical industry to Ireland’s economy and its
large share in Ireland’s exports, it is useful to take a closer look at the
developments of this sector and their implications for the recovery plan.
The Irish pharmaceutical industry has been performing strongly throughout the
economic crisis. CSO external trade data show that exports in the combined
chemicals and pharmaceuticals sector (which is dominated by the pharmaceutical
sub-sectors) grew from €44.2bn in 2008 to €49.4bn in 2009 (+12%). The most
recent CSO release shows further export growth by 4% in the first eight months
of 2010 (compared to the first eight month in 2009). This compares with falling
exports in other important manufacturing sub-sectors, notably the office
machines sector (computer hardware), which experienced a drop of 32% in exports.
As a result the combined chemicals and pharmaceuticals sector now accounts for
60% of Ireland’s manufacturing exports.
Now let’s take a look at the employment figures of the CSO. Between Q4 2007
and Q4 2009 employment in basic pharmaceutical products and pharmaceutical
preparations (NACE 21) dropped by 9%, from 30,800 to 27,900. How can we explain
this apparent paradox?
Part of the job losses are related to corporate merger activity and the
concomitant reorganisation of global manufacturing capacity. Other job losses
are related to pharmaceutical companies losing markets when some of their
products reach the end of their patent life. I discussed the implications of
this “patent cliff” issue for Ireland
elsewhere. These processes were responsible for the recent high profile
job-losses and plant closures at Pfizer and GSK in Cork. But one would expect
these processes to translate in a drop in pharmaceutical exports, not an
Based on interviews at a number of pharmaceutical
companies, I believe the answer to the puzzle lies in a parallel development
which may be termed “fat pharma going lean”.
Traditionally, because of obscenely high pharmaceutical prices, pharma
companies’ main concern was to have a sufficient supply of product. Pharma
companies paid little attention to production efficiencies. However, product
prices have come under serious pressure due to increasingly stringent price
controls in many markets, as well as increased competition. In addition, changes
in the regulatory environment have significantly increased the cost of bringing
a drug to the market. In reaction, following the example of the electronics
industry, most pharmaceutical companies are now introducing more efficient
processes. As a result, Irish plants are starting to produce significantly
more output, while at the same time reducing their head count. In some Irish
plants, staff numbers have been reduced by over 10%, completely under the radar
of the media.
One might argue that this development will make the plants more efficient and
put them in a better position to attract future investments by the parent
company. However, efficiencies are implemented globally, not only in Ireland.
The recent growth in Irish pharmaceutical exports has not been jobless, it has
been job-shedding. At least in the context of the pharmaceutical industry, the
Government’s export-led recovery strategy may be problematic. In this sector,
in the short term, increased exports are unlikely to lead to significant number
of new jobs. Without new jobs, there will be no boost to consumption, no
boost to the domestic sector, and no boost to income tax. Pharma is, of course,
a specific case. The increasingly important internationally traded services
sector may lend itself better to the export-led recovery plan.