Standing Out in the Crowd

Supplier differentiation is increasingly important in the highly competitive arena of pharmaceutical outsourcing.
Jul 31, 2011

Patricia Van Anrum
The outlook for pharmaceutical outsourcing, as evaluated by the PharmSource—Pharmaceutical Technology annual outsourcing survey, is generally positive but with caution. Although bio/pharmaceutical companies report a likelihood to increase their spending on outsourced services, competition for available business is intense. As contract-service providers work harder for new business opportunities, they must find ways to differentiate themselves.

That task of differentiation is certainly not unique to the pharmaceutical outsourcing arena. Harvard Business School professor Michael Porter and leading expert on competition and strategy introduced more than 25 years ago in his book, Competitive Advantage, the activity-based view of a firm and the concept of the value chain as a general framework for thinking strategically about the activities involved in any business and assessing their relative cost and role in differentiation. In his earlier book, Competitive Strategy, Porter put forth a framework for analyzing industries and competitors. In these works, he described three generic strategies for achieving sustainable competitive advantage: cost leadership, differentiation, and focus. Cost leadership and differentiation strategies seek competitive advantage in a broad range of industry segments while focus strategies seek to achieve cost advantage or differentiation in a narrow segment (1, 2). The challenge for any firm is to decide what type of competitive advantage to pursue and how to achieve that differentiation.

So what is competitive advantage in the pharmaceutical outsourcing arena? Obviously, there is no simple answer, but in this year's Outsourcing Resources supplement, we seek to examine some of the issues at play and specific approaches used to create and sustain competitive advantage.

Fundamental to any strategy is an understanding of the business conditions and trends affecting the industry in which a company operates. Jim Miller, president of PharmSource Information Services and contributing editor to Pharmaceutical Technology, provides insight into pharmaceutical outsourcing from the perspectives of bio/pharmaceutical companies and contract-service providers. The PharmSource—Pharmaceutical Technology annual outsourcing survey evaluates business conditions and the factors that are influencing demand for contract services (see "Healthy Outlook for Pharma Services"). The survey showed that almost two-thirds (64%) of bio/pharmaceutical company respondents expect to increase their spending on contract services in 2011 compared with 2010, and 44% of respondents expect it to grow by more than 10%. Despite this optimism, however, contract-service providers face an increasingly competitive environment, marked by pricing pressure, overcapacity, and an overall less-than-robust global financial and economic environment.