The pharmaceutical industry is at a turning point. While global demand for active pharmaceutical ingredients (APIs) is rising, more and more medium-sized manufacturers in Europe are coming under pressure. Skyrocketing location costs and crippling regulations, as well as dependence on Asian suppliers, are making life difficult for them. The market is growing, but not for everyone. In their article, Dr. Stefan Frings and Marius Stenzel explore why some companies are constantly losing ground despite rising demand and what they can do now to adapt their production, supply chains, and organization to the new challenges.
For many established manufacturers of active pharmaceutical ingredients, the development is ambivalent: while demand and product diversity are increasing in terms of the number of valid CEP certificates, more and more certified suppliers are coming under pressure—especially small and medium-sized enterprises.
Various factors are responsible for this critical development. One of them is the high cost of doing business in Germany. Despite a slight easing, prices for energy and raw materials remain volatile, while rising wages and competitive bidding in the generics sector are putting pressure on margins. The tariff dispute with the US is also weighing on companies. Surcharges of up to 100 percent on imported drugs would make European exports in particular massively more expensive. Added to this is the current uncertainty caused by geopolitical tensions and reshoring programs, which have a strong influence on location decisions.
There is also no sign of relief in sight in the area of regulation. On the contrary, the EU pharmaceutical package, chemical strategy, and stricter FDA/EMA requirements are creating ever greater complexity, as the requirements involve costly adjustments to processes and IT systems for many companies.
Risky dependency, technological opportunities
The massive and constantly increasing dependence on Asian upstream suppliers is also proving to be a real cluster risk for the entire industry. The import quota for intermediate products, known as APIs, is now as high as 80 percent. This means that any bottleneck or political conflict has a direct impact on companies. Diversification is urgently needed.
But there is also good news. Automation, digital process control, and AI are opening up new potential for competitiveness and greater regulatory certainty. Growth is therefore fundamentally possible, provided that companies have the necessary strategic foresight, operational excellence, and a clear focus.
Transformation in the pharmaceutical industry: The most important levers for greater resilience and competitiveness
The following five areas are where the greatest pressure to act exists, particularly in medium-sized companies in the industry:
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Location strategy & cost burden
High energy prices, volatile raw material costs, and strict regulations make Germany, Austria, and Switzerland challenging locations for production—but not necessarily unsustainable. The key factor is whether companies can optimize their plants in terms of costs and strategy. Which products justify high location costs? Which capacities can be relocated, bundled, or modularized? It is important to rethink locations with modular production networks and clear portfolio management.
- Dependencies in the supply chain
Pharmaceutical manufacturers are highly dependent on a small number of suppliers, mostly from China or India, in many areas. Purchasing and SCM are well organized operationally, but strategically underdeveloped. Forward-thinking companies rely on dual sourcing and nearshoring concepts based on transparent risk assessment, strategic SCM anchoring, and targeted supplier development.
- Digital and regulatory overload
Regulatory requirements are constantly increasing, but internal processes often lag behind. Hardly any other industry is as documentation-intensive and data-sensitive, yet still as paper-heavy as the pharmaceutical industry. Batch documentation, traceability, and change control are not systematized in many places. This delays approvals, overloads QA teams, and increases the likelihood of errors. Internal processes remain unnecessarily sluggish. Digitalization is often treated as an IT project—not as a lever for compliance, efficiency, and scalability.
- Loss of expertise and staffing issues
The retirement of the baby boomer generation is affecting many key functions such as production, quality, and regulatory affairs. At the same time, there is a lack of structured succession plans, digital knowledge systems, and modern role models. In medium-sized companies, critical knowledge is usually concentrated in the hands of a few key individuals, valuable experience and expertise are irretrievably lost when employees retire. What is still a personnel issue today will become a growth risk tomorrow.
- Geopolitics & trade risks
The presence of Chinese suppliers of high-quality products is growing. Bolstered by US tariffs and government subsidies, they are pushing ever more forcefully into the EU market. This is intensifying price pressure and putting European manufacturers under margin pressure. At the same time, global subsidy competition is growing, for example through demands for relocation: locations are no longer competing solely on cost, but increasingly on political stability. Those who do not actively adapt their supply, sales, and location strategies to these dynamics risk being overtaken by foreign policy decisions.
Tap into new growth opportunities with external expertise
Many successful companies in the industry are medium-sized businesses. They combine technological specialization with regulatory excellence, think in terms of platforms rather than individual molecules, and operate within an international network. Their example shows that growth is possible, even for medium-sized businesses.
With a partner who speaks the language of small and medium-sized businesses and knows how to identify and apply the right levers, you too can improve your competitiveness in the long term and take advantage of new growth opportunities.
