The recent volatility in financial markets, combined with reports of stagnant US economic growth, point to less-than-optimistic prospects for a recovery. The underlying weakness in the US economy reveals structural flaws, which are not likely to be amerliorated in the short term, one of which is a lack of private-sector investment in domestic manufacturing. Are there lessons that can be learned from emerging markets in fostering growth in domestic manufacturing?

Looking at recent pharmaceutical industry investment, we see a pattern that not only exists in the pharmaceutical industry but in other manufacturing sectors as well: when companies are investing, they are doing so primarily in emerging markets. Pharmaceutical Technology’s annual manufacturing investment update shows a trend that has been occurring in the industry for some time: rationalization of manufacturing facilities in established markets in the US and Western Europe and investment in manufacturing in emerging markets either through greenfield investment or partnerships with domestically domiciled suppliers.

Perhaps the US should take a cue from these emerging markets on how to develop and maintain domestic manufacturing and the related supply chains. Looking at one emerging market, Russia, for example, we see specific public policy requiring domestic participation as a condition to do business in that country. Russia’s Pharma 2020, a state-initiated plan, seeks to boost output of local medicines from 25% of gross sales in 2010 to 50% by 2020, upgrade domestic pharmaceutical manufacturing operations to GMP standards, and increase the level of innovator pharmaceuticals in the Russian market. As a result, we see greenfield pharmaceutical investment in that country, such as a $500-million, five-year investment by Novartis in healthcare infrastructure in Russia and plans by AstraZeneca for a new Predictive Science Center in St. Petersburg, the company’s first such center in Russia. In addition to Novartis and AstraZeneca, Sanofi announced in late 2009 that it is participating in the Pharmpolis Project through a new insulin factory, and in 2010, Sanofi bought a controlling interest in the Russian insulin producer Bioton Wostok. In late 2010, GlaxoSmithKline formed an alliance with JSC Binnopharm for local secondary manufacture of several GSK vaccines in Russia with GSK supplying the bulk vaccine and related support and technology.

Admittedly, these projects are small relative to the total level of pharmaceutical investment in established markets, but they engender a broader philosophical argument when considering a national manufacturing strategy. In short, does the US do enough to oblige domestically domiciled manufacturing, whether by domestic or foreign companies, when serving the US market?

That question is not just a revisitation of the historical debate of free trade versus protectionism. Trade barriers and tariffs are generally counterproductive to overall economic growth, but “bricks and mortar” investment, which often is a de facto requirement in emerging markets, seems to be lacking in a US national manufacturing strategy. China’s recent attention to bolster its domestic demand to sustain growth amidst slowing export growth to the US and Western Europe shows that getting back to the basics of attending to domestic markets may be something that US public policy should be more attentive to in putting forth a cohesive national manufacturing strategy.