Third-Party Manufacturing in India: A Cost-Effective Solution for Pharma Franchise Companies

The Indian pharmaceutical industry has evolved rapidly over the past two decades, establishing itself as a global hub for medicine manufacturing and export. As the landscape becomes increasingly competitive, pharma franchise companies are seeking innovative and cost-effective solutions to streamline their operations. One such strategy gaining tremendous traction is third-party manufacturing—a model that allows companies to focus on branding, marketing, and distribution while outsourcing the production of pharmaceuticals to specialized manufacturing units.

This article explores the concept of third-party manufacturing in India, its benefits, regulatory framework, key considerations, and why it’s a cost-effective solution for pharma franchise companies.

1. Understanding Third-Party Manufacturing

Third-party manufacturing, also known as contract manufacturing, involves outsourcing the production of pharmaceutical products to a manufacturing facility that is not owned by the marketing company. The marketing company (often a pharma franchise firm) provides the formulation and branding, while the third-party manufacturer handles the production, packaging, and sometimes even regulatory approvals.

This model is commonly used in India by both startups and established pharmaceutical brands to reduce the burden of infrastructure, compliance, and operational costs.

2. The Booming Indian Pharmaceutical Sector

India is the third-largest producer of pharmaceuticals by volume and 14th by value globally (IBEF, 2024). With over 3,000 pharma companies and 10,500 manufacturing units, the country offers a robust ecosystem for third-party manufacturing.

Some key stats:

• India supplies over 50% of the global demand for various vaccines.

• The Indian pharma industry is expected to reach US$ 130 billion by 2030.

• There are more than 1,400 WHO-GMP certified plants in India.

Given this scale and capacity, India has become a hotbed for pharmaceutical contract manufacturing, attracting partners from around the world.

3. Why Pharma Franchise Companies Prefer Third-Party Manufacturing

a. Cost Efficiency

Setting up a pharmaceutical manufacturing facility involves significant investment in land, machinery, equipment, skilled manpower, and obtaining licenses. Third-party manufacturing eliminates these fixed costs, allowing pharma franchise businesses to operate with lower capital requirements.

b. Focus on Core Competencies

By outsourcing production, companies can channel their energy and resources toward marketing, distribution, product development, and customer service—areas that directly impact revenue growth.

c. Scalability

Third-party manufacturing enables rapid scalability. Companies can increase or decrease production based on market demand without worrying about underutilization or overcapacity of manufacturing units.

d. Quality Assurance

Reputable contract manufacturers in India follow stringent quality protocols and possess WHO-GMP, ISO, and DCGI certifications. This ensures that products meet both domestic and international regulatory standards.

e. Regulatory Ease

The burden of maintaining compliance with manufacturing regulations is shifted to the contract manufacturer. This is especially useful for new entrants in the pharma franchise business who may not be fully familiar with regulatory landscapes.

4. Regulatory Framework and Licensing

While the third-party model simplifies many aspects, certain legal and compliance requirements must be adhered to. The following licenses and approvals are typically involved:

• Drug Manufacturing License (Form 25 & Form 28)

• WHO-GMP Certification

• Goods and Services Tax (GST) Registration

• Non-Disclosure Agreement (NDA) to protect formulations and brand identity

• Agreement for Contract Manufacturing defining the scope, pricing, and liabilities

The Drug Controller General of India (DCGI) and State Drug Regulatory Authorities oversee compliance and ensure quality control in manufacturing units.

5. Steps Involved in Third-Party Manufacturing

1. Selecting a Manufacturer – Based on certifications, infrastructure, product range, and reputation.

2. Quotation and Terms – Finalizing cost, minimum order quantity (MOQ), lead times, and packaging.

3. Documentation – Submitting brand name approval, drug license, GST certificate, and marketing authorization.

4. Product Development – Approval of formulation and packaging design.

5. Manufacturing & Quality Control – Production under strict quality checks.

6. Product Delivery – Final goods dispatched along with batch numbers, expiry, and invoice.

6. Things to Consider Before Choosing a Third-Party Manufacturer

a. Certification and Compliance

Ensure that the manufacturer is WHO-GMP certified and follows international manufacturing practices.

b. Infrastructure and Technology

Modern equipment, clean rooms, and automated processes are indicators of a reliable manufacturer.

c. Delivery Timelines

A dependable partner delivers products on time, which is crucial to meet market demands.

d. Transparency and Communication

Open communication and regular updates are signs of a trustworthy relationship.

e. Product Range

Choose manufacturers offering a wide range of formulations—tablets, capsules, syrups, injectables, etc.—to future-proof your product expansion.

7. Economic Benefits of Third-Party Manufacturing

The cost-effectiveness of third-party manufacturing stems from multiple financial advantages:

• Zero Infrastructure Costs – No need to invest in factories or machinery.

• Lower Operational Costs – Utilities, maintenance, and salaries are borne by the manufacturer.

• Bulk Production Discounts – Larger batch orders reduce per-unit cost.

• Tax Benefits – Some manufacturers operate in tax-exempt zones like Baddi (Himachal), Sikkim, or Guwahati (Assam), offering lower production costs.

These factors allow pharma franchise businesses to maintain competitive pricing without compromising on quality.

8. Top Pharma Hubs in India for Third-Party Manufacturing

Some of the most popular regions in India for pharmaceutical contract manufacturing include:

• Baddi (Himachal Pradesh) – Known as India’s pharma capital with tax incentives.

• Ahmedabad and Vadodara (Gujarat) – Large clusters of WHO-GMP certified units.

• Sikkim – Tax-free zone with rising manufacturing infrastructure.

• Panchkula and Chandigarh (Haryana & Punjab) – Emerging pharma manufacturing hubs.

9. Case Studies and Industry References

• A 2022 report by FICCI emphasized that third-party manufacturing helped over 60% of Indian pharma startups launch operations within 12 months.

• According to a McKinsey study (2023), over 70% of mid-sized pharma franchise companies in India depend on third-party manufacturers to stay lean and agile.

• The World Health Organization (WHO) lists over 1,400 Indian facilities with Good Manufacturing Practices (GMP), ensuring global export-quality standards.

These findings underscore the strategic advantage third-party manufacturing offers to emerging and existing pharma franchise companies.

10. Bottom Line

Third-party manufacturing in India is more than just a cost-saving strategy—it is a growth enabler. It allows pharma franchise companies to expand their product portfolio, optimize resources, and maintain high-quality standards without incurring the heavy costs of in-house manufacturing. With access to world-class infrastructure, regulatory expertise, and economies of scale, third-party manufacturing has become the backbone of India's pharmaceutical success story.

Whether you're launching a new pharma franchise business or scaling up an existing one, partnering with a reliable third-party manufacturer can be the key to long-term success.

For those seeking a trustworthy partner in the pharmaceutical industry, EthixElite Lifesciences Private Limited stands as a symbol of quality, innovation, and commitment. With a diverse product portfolio, WHO-GMP certified partners, and a strong presence in the PCD pharma segment, EthixElite is empowering entrepreneurs and healthcare providers across India.