Critical Factors Determining Innovative Activities in Indian Pharmaceutical Industry

Abstract Technological progress through research and development (R&D) activities has been widely recognized as a key factor contributing to the overall growth of the economy. At the firm level R&D activities can be seen as a strategic tool for the firm to gain competitive advantage in the market. The literature of industrial organization considers R&D activities as an important conduct variable which shapes the structure of the market and performance of the firm. The decision to invest in R&D activities is crucial one and it competes with other investments. In pharmaceutical industry, the role of R&D is even more important as the market is highly competitive and well protected by patent laws. Using Tobit model this paper explores the critical factors that affect the decision to go for R&D activities in Indian pharmaceutical industry. The results shows that import intensity, royalty, profitability and advertisement play an important role in deciding on R&D intensity of the firm. Affiliation to group or business houses is not a significant factor with respect to R&D Intensity. Keywords: Research and Development, Market, Pharmaceutical Industry