Feature

India and China: Outsourcing Beyond the Comfort Zone (continued)

The benefits: time and money Why push the outsourcing envelope? Although cost-cutting often is the first reason cited—and certainly a key concern—global outsourcing can yield various benefits. First, time is money, and outsourcing can save time. If companies can shorten today's long lead times for drug development by handing off tasks to third parties that can perform them more quickly because of fewer constraints or additional resources, they will find themselves in an advantageous position. For example, companies conducting clinical trials in India and China can take advantage of a large population base and a diverse pool of currently untreated patients, which are two factors that can accelerate clinical trials. Global and domestic outsourcing can play a key role in shortening the drug development process by enabling pharmaceutical companies to hand off selected tasks, thereby freeing up resources to devote more time to additional strategic activities. Global outsourcing also can enhance the quality of and access to talent. Many firms are tapping into India's pool of scientists, who have solid capabilities and strong expertise. AstraZeneca, for example, recently built a research facility in Bangalore that focuses on tuberculosis. The company plans to invest another US$30 million during the next five years for laboratory equipment and operations costs. "Our investment here in Bangalore is definitely not based on cost, because the cost of doing research is mainly a small part of the total global research and development efforts," Sir Tom McKillop, AstraZeneca's chief executive, told India-based pharma portal pharmabiz.com. "The only reason for opting for India is the quality of scientists." Of course, the savings are compelling. The costs of direct and indirect personnel, depreciation costs, and material are roughly 40% lower in countries such as China and India (see Figure 2). Our analysis assumes that indirect staff includes both local offshore and US corporate oversight; local offshore oversight helps lower costs. One example is clinical trial costs. ClinTec International, a privately owned full-service contract research organization with headquarters in Germany, for example, reports that recruiting 200 patients in the United States for a one-year study would take approximately 3–6 months. ClinTec claims this time can be cut in half by recruiting patients in India. The time required for data analysis also can be significantly shorter, from 6–10 weeks in India versus nearly four months in the United States. According to the company, the estimated cost savings may reach 50–60% compared with the costs of conducting the trials in the United States. Lower costs are a result of lower wages of key personnel involved in conducting clinical trials and data monitoring (e.g., clinical research assistants, project management, clinical data management, and biostatisticians) and lower investigator grants (i.e., payments to physicians for their expertise and time in monitoring clinical-trial patients). In addition to these savings, companies can avoid significant fixed costs and capital outlays. For instance, by partnering with a local pharmaceutical company for selected drug discovery efforts, companies can minimize capital investment associated with setting up their own R&D facilities in offshore locations. For labor-intensive activities, the low costs of labor and infrastructure abroad are more than enough to offset such added expenses as additional travel and higher telecommunications costs. (continued)