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THE PHARMA REVIEW (MARCH - APRIL 2011)

Aspects to be Considered by Western MNC’s Before Creating their Asian Presence

Dr. Frank U. Floether

Introduction
Considering potential benefits and the impact of pitfalls of any Asian off shoring ambitions you need to analyze your situation and intentions first to establish the right base to unlock the value of your planned strategic partnerships or any other Asian ambitions which might be based on different business models than partnerships.The pharmaceutical industry started to offshore relatively late compared with other industries; however, pharma stands to benefit hugely because the value of off shoring lies not just in simple labour cost savings, but also in the faster development of new compounds, tapping into the Asian talent pool and penetrating huge new markets.
The reality of shrinking profit margins, drying pipelines, patent expirations, intense generic proliferation and increased R&D costs has made offshoring an attractive strategy, particularly for R&D activities. As well as conducting clinical trials and API-related activities an increasing number of Western companies are also establishing full end-to-end R&D activities in Asia. The business models applied are manifold, such as acquiring local companies, forming partnerships and, increasingly, setting up wholly-owned R&D subsidiaries. However, Western companies are also correct to be wary of offshoring sensitive and vital operations.
There is low tolerance for error industry-wide; simple mistakes can compromise results, or even harm patients, resulting in massive and expensive liability. On top of that, the cost of an unsuccessful partnership is more than just a financial issue because the company loses crucial time and opportunities that could have been used elsewhere. By outsourcing to a third party, there is also a loss of partial control as work passes from client to provider, and working across multiple languages and time zones can also introduce extra complexity. Poor communication might lead to problems with quality and delays. Additionally, there may be problems with intellectual property.
 
Location / choice of right partner / business model
The basic questions to be answered first are:
What is your strategic intent of "going East"? ( e.g. cost • saving, market access, proximity to customers, tapping into Asian talent pools etc) What is the nature of your business you want to offshore? • (e.g. R&D, manufacturing, regulatory support, medicinal chemistry, chemical & pharmaceutical development, clinical trials, support functions) What is your risk tolerance? (e.g. is intellectual property • an issue? Is there an operational risk or an investment risk involved?) In case of planned investments, are you aiming for short-• term returns or not? Answering these questions is a first step because it will determine which approaches should be considered. For example, for chemical and pharmaceutical development activities, India is the preferred spot for a variety of reasons (sufficient GMP facilities available in both R&D and manufacturing; experience in full development). For manufacturing of an API based on fermentation, you may prefer to go to China Wealth of experience; no power interruptions) and for back office support you may decide on Singapore (attractive for Expats; back office work not as relevant in terms of being close to your customers as manufacturing or R&D). None of that is set in.

 

 

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