S. Korea's pharmaceutical exports grew for a decade, but over-reliance on generic drugs and mid-income markets poses risk: KITA

South Korea's pharmaceutical exports have grown consistently over the past decade, but the gains have been driven largely by higher volumes of existing generic products rather than high-value goods, a new report shows. Analysts say the country must raise the share of technology-intensive products and expand into high-income markets to sustain export growth.

According to a report released Tuesday by the Korea International Trade Association's Institute for International Trade, South Korea's synthetic pharmaceutical exports grew at an average annual rate of 2.7 percent over the past decade, reaching $880 million last year. The analysis excludes biopharmaceuticals, vaccines and traditional herbal medicines.

Volume expansion, not price increases, drove the growth. KITA's breakdown of export growth factors found that volume contributed 130.7 percentage points — the largest share — while product-mix effects added 2.9 percentage points and price effects dragged growth down by 33.6 percentage points. Selling more of the same existing products accounted for the bulk of the overall expansion.

The product mix has also shifted further toward generic treatments. Generic drugs — including cold remedies and allergy medications — rose from 68.1 percent of total pharmaceutical exports in 2016 to 77.6 percent last year, a gain of 9.5 percentage points. Over the same period, antibiotics' share fell 10.0 percentage points and hormonal drugs edged down 0.1 percentage points.

Export markets have also become more concentrated in middle-income countries such as China, ASEAN nations and Latin America. The share of exports going to middle-income markets climbed from 55.6 percent to 60.9 percent over the same period, while the high-income market share slipped from 43.4 percent to 37.7 percent. Given that global pharmaceutical demand is concentrated in high-income markets, the report said a gap has opened between South Korea's export structure and the direction of the global market.

KITA said the global pharmaceutical market is rapidly reshaping around the expansion of technology-intensive treatments, stronger supply chain resilience and the wider use of AI, and that Korean companies need to move beyond an export structure anchored to existing markets and product lines.

The association said companies should maintain their existing export base in generic drugs and middle-income markets while gradually expanding into high-value products with high technology barriers and into high-income markets.

To that end, the report recommended diagnosing and resolving bottlenecks in production processes, strengthening technical support linked to overseas regulatory approvals, and expanding AI pilots in manufacturing and quality control. It also called for developing market-tailored products that account for dosage form and ease of administration, and for broadening the provision of information on local demand and regulatory difficulty by ingredient and formulation.

The report also proposed market-specific support measures, including halal certification assistance for companies seeking to enter Islamic markets.

It further argued that the government's "K-consumer goods export drive policy" should be linked to pharmaceutical export support. Just as brand image and consumer reputation have grown in importance for food and cosmetics, the report said pharmaceuticals need a full-cycle support framework — from production and quality upgrading through overseas regulatory compliance to local market establishment.

"Pharmaceuticals have ample potential to drive South Korea's exports, much like K-food and K-beauty, but growth so far has been based mainly on volume expansion of generic products," said Kim Mu-hyeon, a senior researcher at KITA. "If pharmaceutical companies' technology upgrading is combined with full-cycle government support, K-pharmaceuticals can establish themselves as products that are not easily replaced in the global market."