How did organisations in India's textile and pharmaceutical industries respond to institutional changes triggered at the global level? To what extent was their successful response co-determined by firm-level investments in developing new capabilities and the resources provided by the institutional system in which they operated? Continuing with our analysis of the three levels of the institutional system developed in Chapter 2, in this chapter we address these research questions by keeping the organisation as the central focus of attention. We develop a conceptual model that links organisational choices around resources and capabilities in response to global institutional changes with their success in global markets and test the model through analyses of fine-grained firm-level data from the Indian pharmaceutical and textile industries during the thirty-year period of 1990 to 2019. Some prior scholarly work has examined the transformation in the Indian pharmaceutical industry (for example, Pradhan 2003; Joseph 2016; Chittoor, Sarkar, Ray and Aulakh 2009; Chaudhuri 2012), and there is limited work in the context of the Indian textile industry (for example, Dhiman and Sharma 2017); however, to our knowledge, prior work has not compared and contrasted empirical evidence from two strategically important industries of India and developed a unifying theoretical framework as we do in this chapter.

As outlined in earlier chapters, until 2005, the Indian pharmaceutical industry was governed by the Patents Act of 1970, which allowed patenting based on manufacturing processes rather than end products. This regulation enabled Indian pharmaceutical firms to reverse engineer and produce drugs that were product patented in other countries at a fraction of the cost incurred by other multinational corporations. In 1995, soon after signing up with the World Trade Organization (WTO) as a member country, India consented to enforce product patents and to provide legal protection to Trade-Related Intellectual Property Rights (TRIPS) effective 1 January 2005. The implications of adopting the TRIPS framework were particularly severe for Indian pharmaceutical firms. They could no longer manufacture and sell knock-offs of patented drugs in India by exploiting the prevailing process patent regime once the new framework came into effect. In other words, these firms were deprived of not only a traditional core advantage that gave them a competitive edge but also alternate sources of competitive advantage to compete with global competition.