Pharmaceutical Outsourcing: Opportunity for India!

By Industry Journalist DR.Shikha Suman Monday, 18 May 2009

The global pharmaceutical markets were estimated at US$712bn in the year 2008 growing at 6.4 percent over 2006. This has grown at a compounded annual growth rate (CAGR) of 10.7 percent for the period 2002-07. The market size of USA is estimated at US$295-305bn with an estimated growth rate of 4-5 percent. It is followed by Top 5 European countries (EU-5) with an estimated market size of US$135145bn growing at 4-5%, emerging markets VIZ., Brazil, China, India, Mexico, Russia, South Korea and Turkey with an estimated market size of US$8590bn.
(growing at 12-13%) and Japan with an estimated market size of US$64-68bn (growing at 1-2%). The pharmaceutical market size of the rest of the world (ROW) is estimated at US$125-135bn which is estimated to grow at 7-8 percent in the coming years. The Indian Pharmaceuticals sector has come a long way, being almost non-existing during 1970, to a prominent provider of health care products, meeting almost 95% of country's pharmaceutical needs. The pharmaceutical sector is emerging as one of the major contributors to Indian exports with export earnings rising from a negligible amount in early 1990s to Rs.29,139.57 crores by 2007-08. The exports of Drugs, pharmaceuticals & fine chemicals of India were growing at a compounded annual growth rate (CAGR) of 17.8% during the five year period 2003-04 to 2007-08. The Indian domestic pharmaceutical market size is estimated at US$10.76 bn in the year 2008 and is expected to grow at a high CAGR of 9.9% percent till 2010 and thereafter at a CAGR of 9.5% till 2015.

Currently, the Indian pharmaceutical industry is one of the world's largest and most developed, ranking 4th in volume terms and 13th in value terms. The country accounted for 8 percent of global production and 2 percent of world markets in pharmaceuticals. Most of the domestic pharmaceutical drug requirements are met by the domestic industry. In the seg ment of Active Pharmaceutical Ingredients (APIs) India ranks third in the world producing about 500 different APIs. Currently, India is recognised as a highquality, low-cost skilled producer of pharmaceuticals. It is seen not only as a manufacturing base for APIs and formulations, but also as an emerging hub for biotechnology, bioinformatics, contract research, clinical data management and clinical trials. India has achieved the distinction of providing healthcare at very low cost while maintaining profitability. India exports full basket of pharmaceutical products comprising intermediates, APIs, Finished Dosage Combinations (FDCs), biopharmaceuticals, vaccines, clinical services, etc., to various parts of the world. At present, India is among the top 20 pharmaceutical exporters world-wide and with the largest number of US FDA inspected plants (119 plants), outside the USA. Various other agencies like MHRA UK, MCA South Africa, TGA Australia , HPB Canada have approved scores of plants in India. India accounts for over one third of drug master files (DMFs) in USA. Thirty percent of all approved ANDAs in the US are from India, ranking the country number 2 next only to USA. Needless to mention scores of approvals by UK MHRA and various other agencies are also being filed from India. India ranks only next to USA with a share of 21 percent of patent challenges. This justifies that India is an emerging leader in pharmaceuticals. The indigenous pharma market in value terms accounts for 1% of global pharmaceutical market and 8% in volume terms. Market growth be ment of Active Pharmaceutical Ingredients (APIs) India ranks third in the world producing about 500 different APIs. Currently, India is recognised as a high-quality, low-cost skilled producer of pharmaceuticals. It is seen not only as a manufacturing base for APIs and formulations, but also as an emerging hub for biotechnology, bioinformatics, contract research, clinical data management and clinical trials. India has achieved the distinction of providing healthcare at very low cost while maintaining profitability. India exports full basket of pharmaceutical products comprising intermediates, APIs, Finished Dosage Combinations (FDCs), biopharmaceuticals, vaccines, clinical services, etc., to various parts of the world. At present, India is among the top 20 pharmaceutical exporters world-wide and with the largest number of US FDA inspected plants (119 plants), outside the USA. Various other

and more sophisticated biology.chemists. The FDI in pharma industry is estimated at US$ 172 million during 2005-06. recording a CAGR of 62. quality control personnel -. The indigenous pharma market in value terms accounts for 1% of global pharmaceutical market and 8% in volume terms. Needless to mention scores of approvals by UK MHRA and various other agencies are also being filed from India.6% during the period beginning 200206.agencies like MHRA UK. The Indian market started to attract a number of foreign players with the implementation of product patent in January 2005. targeted and cutting edge clinical trials. Around 2013-2015. The first wave basically focuses on developing drugs "faster and cheaper" and extends from chemistry research to clinical trials to manufacturing. MDs.providing end to end Market. HPB Canada have approved scores of plants in India. ranking the country number 2 next only to USA. which is likely to become mainstream over the next 3 to 5 years. including adaptive and proof of concept trials.Database management. will extend the breadth of capabilities to include more complex manufacturing to produce injectables.D from IIT Kanpur in Innovation and Technology Management. Thirty percent of all approved ANDAs in the US are from India. About the Author Ph.Heads Sampling Research Pvt. Market growth be fore 2005 of domestic pharma industry was primarily driven by a number of new product launches by both Indian and foreign company. the third opportunity wave is expected to occur when Indian drug manufacturers are likely to start manufacturing biologics (recombinant proteins) and offer cutting-edge disruptive R&D platforms such as pharmacogenetics and cheminformatics.based research platforms.field operations & Outsourcing solutions.Business.along with the ability to expedite recruiting for trials due to a large naïve patient base. TGA Australia . India has the advantage of offering three distinct waves of opportunities in offshoring over the next decade. nurses. This justifies that India is an emerging leader in pharmaceuticals. India ranks only next to USA with a share of 21 percent of patent challenges.Industry & Financial Research. . The sources of advantage are twofold: a cheaper skilled talent base -.Ltd. The second wave. India accounts for over one third of drug master files (DMFs) in USA. MCA South Africa.

• Greenfield outsourcing : Without hiring the service provider the organization can directly hire an imminent company which can execute their business which was not done in the organization internally.What is Outsourcing? “Contracting with a vendor to provide a service rather than providing it yourself” Outsourcing. Common types • Information Technology (IT) Outsourcing o Web site development o Software development o Network backbone services o • IT remote support Business Process Outsourcing (BPO) o Call centers o Payroll . means sourcing from outside. Principle types • Traditional outsourcing : Here the routine jobs or tasks that the staff of the organization does not perform are identified and the service provider usually hires staff for this job. It is the contracting out of a company's non-core. non-revenue producing activities to specialists. in literal terms.

o Finance functions and activities o E-publishing o Book keeping services o Accounting o Human resources o CAD services Factors For an organization the decision to outsource can be brought about by a number of factors: • Heavy workload • Lack of time or urgency .

or technical limitations • Return the focus of staff to core capabilities • Hasten benefits by rapidly employing services or projects • Trim down costs in an explicit functional area • Increase service levels • Reduce capital costs • Cut recurring operational costs • Enable business tactics and/or transformations . functional.• Lack of expertise • Deplorable cost to perform services • Shift to new technologies and/or existing technologies • Add to existing staffing levels hastily • Focus on operational.

By outsourcing. More and More companies are making use of outsourcing and technology to get competitive advantage. procedures and documentation • Rapid deployment o • Proficient and skilled man power Lowered costs o Reduced capital investment o Reduced in-house inventory Benefits of Outsourcing Globalization and de-regulation has changed the entire face of business and the companies are about to receive the new business model. you can typically save 40-50% over prevailing US Costs. Outsourcing means "obtaining a product or service rather than producing it yourself " Every Organization looks for • Expertise in latest technology o Tools & techniques o More structured methodology. ‘outsourcing'. .Why Outsourcing? Every business gains massively through outsourcing.

eliminating administration costs and improving efficiency. • Better communication facilities • Mature development processes • Well-integrated teams . • Cost saving by 40-50% • Reduce investment risk • Get access to specialized skills • Faster development and start up • Overcome human resource crunch • Ability to concentrate on core functions What makes it possible? It is now possible to have global development teams working round the clock on time critical projects.The new atmosphere speeds up business processes.

going to be more and more of a mainstream phenomenon. The next wave in globalization is focused on the transplantation of entire IT departments offshore. Recent trends suggest that the outsourcing market will continue to grow. Contracts are awarded incessantly and study indicates that companies are expanding the range of IT services they outsource. it could be worth looking at other areas to deal out.Next Phase in Outsourcing If you've successfully outsourced part of your business. . is now a business essential. In short o utsourcing: • Enhance out-of-control functions • Reduces staffing demands • Provides access to a new collection of advanced skill sets and technologies • Guarantee shared risk and reward • Respond quickly to changing organizational priorities • Creates an improved and more reliable level of service Outsourcing Trends "Outsourcing is nothing less than a full-blown mega-trend all around the world" Outsourcing.

The global market To improve business performance outsourcing of business processes and functional activities is one of the options available. not an outsourcing supplier. Companies that employ outsourcing are more financially stable than are those that do not. compared with only 5 percent this year. • Outsourced ecommerce: Sending ecommerce out of house is an increasingly popular choice for businesses. • The growth of the captives. • 35-55 percent savings in relevant costs for some global companies. • 23 percent of IT services will be delivered from offshore centers by 2007. Here the offshore workforces are employees of the parent company. but today outsourcing is more prevalent. organizations owned and operated in a foreign country by a parent firm.Recent Trends • Offshore outsourcing is increasingly being accomplished as global sourcing or global delivery. • Cannibalization of work : Earlier work was outsourced to a supplier who stayed at home. .

2 trillion by 2006. global IT-enabled services market will account for revenues of $1. ‘outsourcing'. • Cost saving by 40-50% • Reduce investment risk • Get access to specialized skills • Faster development and start up • Overcome human resource crunch • Ability to concentrate on core functions .• According to International Data Corporation (IDC). eliminating administration costs and improving efficiency. Globalization and de-regulation has changed the entire face of business and the companies are about to receive the new business model. The new atmosphere speeds up business processes.

Global outsourcing • Creates and expands new markets • Effectively and efficiently promotes global citizenship • Recognizes the benefits of a global economy • Enhances technological creativity and diversity • Makes good social. . and economic sense Trend setting factors • Conservative companies to experiment with going offshore to withstand competition. • Broadening of the IT services offered by the experienced vendors. financial.

when the rewards and revenues are higher. more efficiently Do's and Don'ts Why to review Outsourcing Do's and Don'ts? Offshore outsourcing is a necessity and also we have to make sure that it is managed effectively and proficiently and that we draw on mistakes made in the past by other companies. if certain crucial issues are not managed properly • Like any other business. • Like any other battle. The main three facets. o Availability of aptly skilled resources o Lower costs of manpower o Ability to create better quality of work . to ensure projects and services are delivered with the highest quality. • Onshore IT technology and services vendors setting up shop in locations like India and China to widen their services. outsourcing also needs some contractual considerations . the struggle over choosing a partner shouldn't be entered into without a strategy • Like any venture. there are chances of deviations.• The launching of captive offshore centers by user companies for business process outsourcing (BPO).

Selecting the right service provider • Do's Pick established partners. What you are aiming to find is a company that will generate a good quality result Don'ts • Never ever trust an unknown company • Failing to talk to a provider's current and former clients . Talk to their existing customers • Familiarize with the services providers' way of doing business • Target service providers with relevant experience • Be aware of the benefits new technology can bring • Be sure you get what you pay for. Check them out.

do not impose. • Convey project specifications and issues between both parties without misunderstandings creeping in. It is crucial that all parties can understand each other. time differences. and treat the consultant with respect. language barriers. how and when. your provider is part of your company. • Establish good lines of communication. as this is essential to a good working relationship. Conducive working relationship Do's • Be precise and exhaustive on what you need from the services provider. Once you outsource. Give them a sense of 'ownership' of their tasks. There can be many things that can cause problems here such as. • Appreciate and encourage good performance. treat it that way. • Keep in mind the industrial and technological limiting factors affecting the provider.• Failing to consider the long-term relationship dynamics • Think before you run for cheaper services • Not to use old business models and superimpose new technology on them. New technologies demand new business models. cultural and economic environment differences. • Work with. Be very clear on what is not expected. . • Be realistic.

Don'ts • Not clearly defining the desired results and how they'll be measured. Balancing the different agendas Do's • Concerned party has to learn how to nicely nudge. persuade. • Treating the provider as an outsider. They also have to learn how to listen to the advice and insights their suppliers provide to accomplish their corporate goals. • Remain passive on good performances and very critical of minor errors • Not making sure that services provider has understood you in particular. • Buyers must pay attention to cultural differences . and insist. • Not planning up front for how the relationship might end. • Buyers must stay aware of technological and process advances so they know to ask their suppliers to provide these services before they develop a standard service offering that's not exactly what they need. This applies vice versa.

if they seem minor • Try to manipulate metric figures . Failure to do so raises the cost of undefined services to the buyer.• Define an exit strategy before accomplishing an outsourcing agreement • Make a chart of best options and negative aspects and choose the best overall service/offer • Buyers must clearly define what they are outsourcing before signing a contract. • Expect and accept change and new ideas and methodology • Provide training support via different media • Openly discuss all matters • Renegotiate. if changes expected are of critical nature • Plan transitions • Recognize and adapt to changing market trends Don'ts • Ignore the issues raised by the services provider.

• Be selective and single minded on all issues • Be closed and critical • Threaten termination • Be inflexible Challenges for Outsourcing Outsourcing are countered by some important challenges • Selection of appropriate offshore location o Political and economic fidelity of the country o Language and talent set of local population o The condition of the country's existing telecommunications infrastructure Priorities for selecting an outsource partner On a scale of 1 to 5 (where 1 = extraneous and 5 = vital) .

• Selection of ideal outsourcing partner o Price o Expertise in a particular industry o Integration capabilities o Training and qualifications o Overall customer service strategy o Company information privacy o • Knowledge in latest technology Dynamic challenges o Management challenges o Cultural/language communication risks o Security risks .

but the US Chamber of Commerce ("USCC") has evidently come out sturdily in favor of outsourcing as it considers it good for the US economy and it has reportedly decided to fight legislative moves against outsourcing of jobs to countries where jobs are being outsourced.o Legal concerns o Time zone challenges o Knowledge transfer challenges o • Legal issues Outsourcing in-house problems o Sign up for projects without enough preparation o Striking big deals for the wrong reasons o Lack of legal and regulatory expertise o Appropriate recruitment o Shortage of technical expertise o Up-front investment US concerns There are some anti-outsourcing trend booming in US. .

though rising. both multinationals and service providers. Venezuela . Canada definitely gains owing to close proximity to the US and also due to favorable business climate. greater cultural compatibility and comprehensible legal system. Dell. however. Software export sales are under $1 Billion. so language isn't a barrier. remain low. Outsourcing in Ireland is driven mainly by the development centers of large technology companies such as Microsoft. total workforce. number of quality certifications. IBM etc. the most preferred destinations for IT services outsourcing include Ireland .Outsourcing Destinations “ Firms are considering outsourcing more than ever before -. . Main destinations At present. There are about 300 million English-speaking Indians. South Korea . a result of the quality work that India has provided for US companies and others. Thailand . an increasing number of companies. Malaysia . • • • • India is leading the list of the most favored outsourcing destinations across the world has a proven process maturity model and has captured major share of the offshore market. There taxes are favorable and infrastructure and educational system is very good. are heading into the business process outsourcing (BPO) arena. Canada . The significant increase in offshore outsourcing is in part. and India 's labor costs. Ireland is the one of the largest IT services outsourcing destination in the world. Philippines and South Africa. Vietnam .and their choices are growing by the minute” IT outsourcing continues to dominate. average IT employee costs. Israel has been ranked as a country that has an extremely skilled programming workforce. Singapore and Romania. Outsourcing destinations are grouped into three categories: • • • Main destinations Upcoming destinations Others: Chile . main clients and other considerations. The countries have been compared on parameters such as total size. Israel . in the global marketplace. India .

Russia . China has the numbers and the low cost structure. Argentina is an ideal location for outsourcing. the Czech Republic . becoming more popular as destination of Western outsourcing. The total outsourcing revenues from Philippines is estimated to be under $350million. Brazil . Brazil. The Ukraine is preoccupied with the challenges of economic transition from the Soviet to the Western economy model and has not as yet fully entered into the Global IT offshore. Mexico . Most of the East European countries boast of good quality engineers. Pakistan . large labor pool including solid base of engineering talent. South Africa is emerging as a noticeable destination. Poland . This may result in high end engineering jobs moving to these locations. reliability and low-cost environment makes Pakistan the hot new offshore information technology (IT) destination. The Czech Republic having cultural affinity with Western Europe .• • Philippines is India 's closest competitor in terms of low average IT employee costs. In China the Government has been taking a lot of initiatives in the recent past which has given a boost to the IT sector in China . Here the education system is on par with the US system. as well as offshoring activities from Asia and other regions owing to its cheap and efficient labor. relatively low costs and strong education system are some key factors in its favor. . shares the same socio-cultural milieu with the US . China . Argentina and Mexico. In Poland the outsourcing has identified as one of four critical export industries. Here cost is lower than Czech Republic and has good infrastructure and Government working hard to promote IT sector. the most serious contenders are Argentina . with low costs. Russia and Ukraine are still much smaller in size. Scalability. Upcoming destinations Include Ukraine . Pakistan . The IT manpower that was homegrown to achieve self-reliance is now beginning to be leveraged to serve global markets. • • • • • • • • • • In terms of size of the industry. the Czech Republic and China .

• The countries like Chile . . geo-political risks ( Pakistan ) and problems in retaining talent and poor infrastructure. Malaysia . South Korea . Singapore and Romania are prepared to compete for providing evercheaper locations for work. Thailand . Vietnam . Venezuela .Negatives for these upcoming destinations include unstable economies (Eastern European countries).

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