Recently, the business press has been full of articles about manufacturing workers in China demanding higher wages and better working conditions. The highest profile developments have been at the electronics contract manufacturer Hon Hai Precision Industry (Tucheng, Taipei County, Taiwan), which makes a broad range of products, including Apple's (Cupertino, CA) iPhone and iPad. A spate of suicides in recent months has shown a spotlight on the company's employment and led the company to promise a doubling of wages for many of its 800,000 employees. Around the same time, Honda (Tokyo) faced strikes at its Chinese plants and those of some of its suppliers, which forced it to grant a 24% wage and benefit increase.  

Government policies are also driving up labor costs, according to press reports. Local governments have decreed increases of 5–25% in the minimum wage paid by companies operating in their jurisdictions, and they are getting tougher in their enforcement of labor, worker safety, and environmental laws. New government policies are also making it harder to fire or lay off workers. 

The rapid rise in labor costs is a result of economic and demographic factors in China. The rapid growth of the Chinese economy, which grew almost 12% in the first quarter of 2010, has made it tougher for companies to attract new staff as competition for labor increases. According to the 

, job vacancy postings in China were up 35% in the first quarter.  

The pressures have been particularly extreme in Beijing and the coastal cities where much of China's industrial base is located. Costs of living in cities such  as Shanghai and Shenzhen are growing rapidly. Although companies and the government are looking to make more investments in inland cities, where wage rates are currently cheaper, it is expected that the wage increases will be felt even there, thanks to fewer people entering the labor force as a result of the government's one child policy. 

Rising wages are likely to be accompanied by an appreciation of China's currency, the renminbi. The exchange rates between the renminbi and the US dollar and the euro have been managed by the government to protect the export sector. China has been under growing international pressure to let the currency rise, and the need to control domestic inflation is another driving factor for revaluation. 

While causing near-term dislocations, most observers believe that the improving wages and work conditions and appreciating renminbi will create a more sustainable Chinese economy, one driven more by domestic spending and less by volatile exports. That's good news for global bio/pharmaceutical companies because it validates one of the major legs of their corporate strategies: pursuing growth opportunities in emerging markets. As they have faced declining opportunities in North America and Europe, global bio/pharmaceutical companies have focused their strategic resources on emerging markets, especially the BRIC countries (Brazil, Russia, India, and China). The key underlying assumption for that strategy is that rising incomes and living standards in those countries will trigger greater spending on drugs. Industry-watcher IMS Health has projected that spending on drugs in China will grow 20% during the next five years.  

To take advantage of that growth, global bio/pharmaceutical companies have been investing heavily in those countries through acquisitions, establishment of research and development (R&D) and sales organizations, and in-licensing of products to build their local pipelines. The wage increases in China are an indication that the assumptions and projections underlying those investments are sound. 

European and North American service and materials providers will be inclined to welcome the rising costs in China because it will improve their cost position relative to their competitors in China. A 25% increase in labor costs, combined with a 10% appreciation in the renminbi, would have the effect of raising the cost of sourcing in China by 25–35%. European providers may get an even bigger gain in competitiveness in light of the rapid devaluation of the euro and British pound. After factoring in the additional costs of managing long-distance sourcing relationships, bio/pharmaceutical companies will see the costs advantages of sourcing from China narrow and may be more inclined to stick with local providers. 

However, the second-order effects of the rising wage costs may cause service providers in mature markets even more pain than they are facing today. That's because Chinese service providers and manufacturers will respond to their eroding competitive cost position in starting materials and simple chemistry by moving to higher value-added products and services such as formulation, advanced chemical intermediates, and biologics. This move to higher value-added services is exactly the strategy that North American and European companies have used to stay in business in the face of low-cost competition from the BRIC countries. They will now be looking at lower-price competition in the more sophisticated services and technologies that have been their refuge in recent years. 

In a recent essay posted on the Project Syndicate website (

), two distinguished economists, Mohamed El-Erian, CEO of the investment giant PIMCO, and Nobel Prize winner Michael Spence, stated that if global trends continue, "not much more than a decade is needed for the share of global GDP [gross domestic product] generated by developing economies to pass the 50% mark when measured in market prices." This change would be a fundamental transformation of the world economy and a dramatic shift in where the greatest opportunities for growth will be in coming years. 

Surprisingly, pharmaceutical service providers, especially those offering nonclinical development and manufacturing services, have been slow to recognize this shift in the world balance of economic power and to respond to the new opportunities. Most continue to maintain an "us versus them" mentality and ignore the fact that their most important customer base, the global bio/pharmaceutical companies, are making major commitments to the emerging markets. The roster of Western active pharmaceutical ingredient and dose manufacturers that have embraced the emerging market opportunity is small, and includes Lonza (Basel, Switzerland), Evonik (Essen, Germany), AMRI (Albany, NY), and DSM (Heerlen, The Netherlands). Those companies got a head start on exploiting the new opportunities that the emerging markets offer. 

The rising costs of doing business in China and other emerging markets may provide a momentary competitive reprieve to pharmaceutical service providers in North America and Europe. However, those companies may end up being sorry that they got what they wished for  because the response to those rising costs may be more even challenging. Rather than fighting the tide, they need to learn how to rise with it. 

 is president of PharmSource Information Services, Inc., and publisher of 

Articles

Outsourcing

Rising labor costs in China may result in increased competition for higher value services.

Be Careful for What You Wish

The participants of the United Nations Global Compact, a corporate-social-responsibility initiative launched by the UN in 2000, recently partnered with the management consulting firm Deloitte to provide a management model that businesses can use as framework for implementation of the sustainability principles of the UN Global Compact. 

The UN Global Compact is a leadership platform, endorsed by chief executive officers to serve as strategic platform for participants to advance their commitments to sustainability and corporate citizenship. The compact has more than 7700 corporate participants in more than 130 countries and is structured as a joint public and private initiative. It serves as a policy framework for the development, implementation, and disclosure of sustainability principles and practices by offering participants specialized work streams, management tools, resources, and topical programs and projects to help advance sustainable business models and markets as part of a broader goal to build a more sustainable and inclusive global economy, according to the UN. The UN Global Compact has two objectives: mainstream 10 UN principles evolving human rights, labor, the environment, and anticorruption in business activities around the world and to catalyze actions in support of broader UN goals, including the Millennium Development Goals, which are eight major objectives of  the UN and UN member states to address the needs of poor countries. 

The 10 principles of the UN Global Compact are divided into four main areas: human rights, labor, environment, and anticorruption as outlined below:
   • Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights
   • Principle 2: Businesses should make sure that they are not complicit in human rights abuses 
   • Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining 
   • Principle 4: Businesses should support the elimination of all forms of forced and compulsory labor
   • Principle 5: Business should support the effective abolition of child labor
   • Principle 6: Businesses should support the elimination of discrimination in respect of employment and occupation.  
   • Principle 7: Businesses should support a precautionary approach to environmental challenges
   • Principle 8: Businesses should undertake initiatives to promote greater environmental responsibility
   • Principle 9: Businesses should encourage the development and diffusion of environmentally friendly technologies. 
  • Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. 

"While the UN Global Compact has evolved in countless ways over the past decade, there has been one unshakable and nonnegotiable constant—the central aim of translating the core ten principles into value-enhancing management practices," said George Kell, executive director of the UN Global Compact, in a letter announcing the launch of the management model in late June 2010. "We have always recognized that the ten principles and the four issues they represent—human rights, labor, the environment, and anticorruption—will find expression in different ways as companies and industries can vary significantly. In this sense, there really is no 'one-size-fits-all approach.'"

 are in the areas of human rights, labor, the environment and anticorruption are derived from four major policy documents: The 

International Labor Organization's Declaration on Fundamental Principles and Rights at Work

Rio Declaration on Environment and Development

United Nations Convention Against Corruption

Deloitte, a signatory to the UN Global Compact since its inception in 2000, said the model integrates leading practices from companies who have been making progress in the 10 principles during the past 10 years. Designed to be "practical, scalable, and straightforward," the model consists of six management steps (i.e., commit, assess, define, implement, measure, and communicate), which companies use as part of good management practices. The six steps are designed to promote continuous monitoring and improvement in sustainability performance and across the 10 principles of the UN Global Compact. The steps are detailed below. 

, company leadership publicly signals its commitment to the UN Global Compact by making the 10 principles part of company strategy, culture, and day–to–day operations with oversight. Under the 

 step, a company evaluates the risks and opportunities as well as the impact on operations in order to refine its goals, strategies, and policies. Based on this risk assessment, under the next step, 

, a company develops and refines goals and metrics specific to its operating context and creates a roadmap to carry out the program. 

—involve putting the action plan into place, providing ways to measure specific programs, and developing a continuous improvement loop to identify and continue progress. Under the 

step, a company establishes and ensures ongoing adjustments to core processes, engages and educates employees, builds capacity and resources, and works with supply-chain partners to address and implement strategy. Under the 

step, a company adjusts its performance-management systems to capture, analyze, and monitor performance metrics and to make adjustments to evaluate and improve performance. Under the 

 step, a company communicates its progress and strategies and develops ways to achieve continuous improvement. 

The management model details the process for each step that companies can do to proceed with that step as well as provides links to UN Global Compact resources that may help. The management model also details for each step the leadership practices needed to be carried out under that particular step. In that way, the model provides a guidepost for companies in either establishing or further refining their models for sustainability and corporate social responsibility in alignment with the principles of the UN Global Compact. 

Several major pharmaceutical companies are participants in the UN Global Compact, according to an UN database. These companies include: Pfizer (New York), Merck & Co. (Whitehouse Station, NJ), GlaxoSmithKline (London), sanofi-aventis (Paris), Novartis (Basel, Switzerland), AstraZeneca (London), and Eli Lilly (Indianapolis, IN).

CSR and Sustainability Forum

The UN Global Compact, a corporate-social-responsibility initiative, releases a management model to help businesses implement sustainability principles.

A Management Model for Sustainability

Manufacturing  competitiveness is a key concern for the pharmaceutical industry. It is an  issue that the industry is grappling with as many large pharmaceutical companies  reconfigure their manufacturing networks amid company restructurings led by  cost-savings initiatives, mergers and acquisitions, intensification in product  development of biologics, and a greater strategic emphasis on emerging markets.  In making decisions on manufacturing-facility rationalization and investment,  pharmaceutical companies must consider not only their individual organizations’ strategies, but also broader factors in global manufacturing competitiveness. A recent analysis by Deloitte Consulting, 

, offers perspectives from more than 400  senior manufacturing executives in various industries (including  pharmaceuticals) on the drivers for manufacturing competitiveness and the  countries which are the most competitive currently and which will be the most competitive in the  near term (1). 

Drivers for manufacturing  competitiveness 

Overall,  the classic elements of production—labor, materials, and energy—are the most  important factors of global manufacturing competitiveness, according to the  Deloitte report. Talent-driven innovation was ranked as the number-one driver  for achieving global manufacturing competitiveness, followed by costs of labor  and materials and energy costs and policies. 

The next  four drivers may be classified as “contributory” factors, or issues in which  governments play a role in providing. The report identified four crucial  factors: economic, trade, financial and tax systems; quality of physical  infrastructure; government investment in manufacturing and innovation; and the  legal and regulatory system. The final three factors relate to the local  manufacturing network: suppliers, local business dynamics, and quality and  availability of healthcare (1). 

 Given these  factors, the report evaluated the relative competitiveness of four major  regions—the United States and Canada, Mexico and South America, Europe, and  Asia—based on feedback from executives in those regions. Talent-driven innovation was ranked as the top driver of manufacturing  competitiveness in the United States and Canada, Europe, and Asia, although it  ranked second in Mexico and South America, where executives ranked quality of  physical infrastructure as the most important factor in manufacturing  competitiveness (1). 

Cost-related  drivers also were ranked differently according to regions. Costs of labors and  materials were ranked second by US and Canadian executives, but were placed  fifth in importance by executives from Mexico and South America and Asia and  fourth by executives in Europe. European executives ranked energy costs and  policies as the second most important consideration in manufacturing  competitiveness. US and Canadian executives ranked this factor fourth,  executives from Mexico and South America third, and Asian executives fifth (1).  

The  rankings from each region are provided are as follows: (1) 

1. Talent-driven innovation2. Costs of labor and materials3. Economic, trade, financial, and tax systems4. Energy costs and policies5. Legal and regulatory system6. Quality of physical infrastructure7. Government investments in manufacturing and innovation8. Supplier network9. Local business dynamics10. Quality and availability of healthcare.

1. Quality of physical infrastructure2. Talent-driven innovation3. Energy costs and policies4. Economic, trade and financial, and tax systems5. Costs of labor and materials6. Legal and regulator system7. Government investments in manufacturing and innovation8. Quality and availability of healthcare9. Supplier network10. Local business dynamics.

1. Talent-driven innovation2. Energy costs and policies3. Quality of physical infrastructure4. Costs of labor and materials5. Legal and regulatory system6. Economic, trade, financial, and tax systems7. Supplier network8. Government investments for manufacturing and innovation9. Local business dynamics10. Quality and availability of healthcare.

1. Talent-driven innovation2. Government investments in manufacturing and innovation3. Costs of labor and materials4. Economic, trade, financial, and tax systems5. Energy costs and policies6. Quality of physical infrastructure7. Legal and regulatory system8. Supplier network9. Local business dynamics.10. Quality and availability of healthcare.

 To quantify country competitiveness, manufacturing executives were asked to rate the overall manufacturing competitiveness of 26 countries currently and in five years. The rankings were based on weighted feedback based on a company's global manufacturing experience as indicated by a company's physical geographic presence for global manufacturing, sales, service, and distribution operations. The resulting rankings, the Global Manufacturing Competitiveness Index (GMCI), for current competitiveness are as follows: 1. China2. India3. Republic of Korea4. US5. Brazil6. Japan7. Mexico8. Germany9. Singapore10. Poland.The GMCI in five years shows the following rankings:1. China2. India3. Republic of Korea4. Brazil5. US6. Mexico7. Japan8. Germany9. Poland10. Thailand

China’s  position as the number-one country in global manufacturing competitiveness is  based on several factors. A highly skilled labor force, which includes  scientists, researchers, and engineers, contributes to the company’s  talent-driven innovation, a crucial factor for competitiveness cited by  executives. The country also benefits from a low-cost labor force. The report  concluded that the country’s ascent has occurred as it moves from a regional  hub for foreign outsourced production to include technological-based value-added  production. A similar situation is occurring in India, currently ranked second in  the GMCI and second five years from now. The report cited the movement by India  from a focus on low-cost back-office operations to a role as a fuller participant in research-driven and innovative product development and services as a key reason  for its competitiveness. Led principally by its auto industry, Korea gained  favorable marks as well. The report cited the vertical integration of many of  its manufacturing companies to enhance those companies’ positions in the  production value chain and a supportive industrial policy by the Korean government  for infrastructure development, including industrial parks, ports, and  transportation systems (1). 

Although  the report cited concerns over the erosion of US manufacturing competitiveness,  it noted some positive signs. The US is currently ranked fourth in global  manufacturing competitiveness, but that position is projected to slip one spot to number five  in looking at the GMCI five years from now. The US is the largest manufacturing  economy in the world, accounting for 20% of the world’s manufactured outputs,  followed by China with 12%. Estimates suggest that technological advancements  account for as much as 85% of US growth in per capita income. The country’s position,  however, is hurt by increased levels of manufacturing outsourcing, offshoring  of research and development, offshoring of customer-support functions, and  increased complexity in managing longer supply chains (1). 

One country  to watch in particular is Russia, which ranked 20th in the current  GMCI and 14th in the GMCI five years from now. Russia’s gain is largely  based on perspectives from executives from China and the increased trade and  cooperation between the countries in mineral and oil resources, raw materials  for the aviation and other high-technology sectors, and other cross-border  business. Russia also benefits from investment from countries in the European  Union, which is Russia’s third-leading trading partner (1). 

The global manufacturing competitiveness of Western  Europe, however, as a whole is declining, according to the report. Although Germany  retained the number-eight position in the current GMCI and five years from now,  other Western European countries fell in the rankings. Switzerland (from 14th  to 18th), The Netherlands (from 16th to 17th),  the United Kingdom (17th to 20th), Ireland (18th  to 21st), Italy (21st to 22nd), and Belgium  (24th to 26th) are projected to decline in competitiveness. On a  positive note, France will retain its ranking of 23rd in the current GMCI and in the GMCI  five years from now, and Spain will move from 19th to 16th. 

Part of the  reason for the relative ascending and declining positions of China and Europe,  for example, related to government policy. Sixty-nine percent of respondents cited government policy to foster technology, science, and innovation as an  advantage in China, but only 43% did so in Europe (1). In China, the report  pointed to key investment and priority by the Chinese government in investing in  science, technology, and innovation. China’s entire investment in research and  development is expected to reach 2.5% of its gross domestic product by 2020, but  science and technology will contribute more than 60% to the country’s  development. The country’s reliance on foreign technology is expected to drop  to 30% or below, and the country is expected to rank among the top five  countries in the world in terms of the number of patents granted to Chinese  nationals and academics (1). 

, the European Commission is providing EUR 521 million ($686 million) between 2007 and 2013 to foster science and technology development. It also has  initiated programs for patent reform, allocated EUR 5.5 billion ($7.2 billion) for more than  3000 projects in green innovation, and is supporting specific programs to  enhance competitiveness in communication technologies (1). 

In the US,  government policy toward science and technology investment was considered a  “neutral” policy as neither facilitating nor hurting competitiveness, according to the Deloitte report (1).  Instead, respondents cited intellectual-property protection (75% of respondents  cited) and technology transfer and adoption (61% cited as such) as the two main  competitive advantages that US government policy offers manufacturing companies. 

2010 Global Manufacturing  Competitiveness Index

Manufacturing

A recently released index based on feedback from more than 400 senior manufacturing executives provides perspectives on the current and future direction in global manufacturing competitiveness.

Senior Executives Evaluate Manufacturing Competitiveness

 (Abbott Park, IL) is providing  support through the Abbott Foundation, the company’s philanthropic arm, to 

California’s Healthcare Laboratory  Workforce Initiative

, a program initiated by the Hospital Council of  Northern and Central California, to more than double the number of hospitals  that provide onsite clinical training for aspiring laboratory science workers.  The program hopes to address the need for laboratory professionals, which are  expected to be in shortfall. Abbott cites federal estimates that put the need  for new medical laboratory professionals at 140,000 by 2012 with only 50,000  expected to be trained by that time. 

The Amgen Foundation, the philanthropic arm of 

 (Thousands Oaks, CA) is  supporting an online competition (The Patients, Choices, and Empowerment competition) with 

an  organization for connecting social entrepreneurs with projects to find solutions to improve health  outcomes for patients globally by tapping into the medical experience and knowledge  of current and past patients, healthcare practitioners, advocates, and other key stakeholders to ensure that patients have an active role in their personal  healthcare. The ideal solutions empower the patient and provide  avenues for informed decisions, according to Amgen. The competition takes place at 

 where  visitors can enter the competition, discuss and share ideas related to patient  empowerment, comment on entries, and vote for the finalists. Finalists will be  selected by an expert panel of judges based on innovation, social impact, and  sustainability. Three winners will be awarded $10,000 each. Entries will be  accepted until Sept. 29, 2010, and the winners will be announced in December  2010. Following the Changemakers competition, select entries may be invited to  submit proposals to the Amgen Foundation for future funding consideration. The  Amgen Foundation will consider awarding up to $1 million in grants to support  promising innovations in patient empowerment submitted by qualifying nonprofit  organizations.

 held its fourth annual Amgen Scholars US Symposium,  hosted by the Amgen Foundation in collaboration with the Massachusetts  Institute of Technology on July 17–19. The three-day symposium is part of  Amgen Scholars, a $27.5-million initiative of the Amgen Foundation,  established in 2006. More than 325 undergraduate students (268 from the US)  participated in the program and who had been selected from nearly 4700 applications.  The symposium provides mentoring to learn how biotechnology can be applied into  their research and future career paths in areas such as drug discovery and  development. Details of the Amgen Scholars program can be found 

 in New Jersey is accepting applications for the Fall 2010 Graduate Certificate Programs for Managing Sustainability, which is being offered in conjunction with the business school INCAE of Costa Rica.

Partnership for Quality Medical Donations (PQMD)

, a humanitarian alliance of manufacturers of pharmaceuticals and medical equipment and nonprofit organizations in developing countries, reported that PQMD member organizations have pledged more than $66 million as of the end of June 2010 as part of the relief efforts in Haiti, more than quadrupling the initial pledge of $15.5 million made in January 2010 when the earthquake first struck.

 (Basel, Switzerland) is inviting 100 students to  participate in Roche Continents study, a workshop aligned with the Salzburg  Festival in Salzburg, Austria, to explore the common ground of creativity in  the arts, music, and science. Launched in 2007, Roche Continents works with  students and young scientists between the ages of 20 and 29.

 US  Chamber of Commerce Business Civic Leadership Center (BCLC)

, an affiliate of the  US Chamber of Commerce, 

, a US-based alliance of  nongovernmental organizations, are working to develop a web-based mapping  platform to bring transparency and accountability to the relief efforts in  Haiti. The online platform will share critical data  about resource  allocation, program activities, and unmet needs in Haiti. A prototype currently  is being tested and shared with the broader humanitarian community in Haiti,  including agencies working on recovery efforts with the Haitian government,  InterAction, BCLC, and FedEx. The completed platform is expected by the end of  the year. The prototype can be found at 

, a nonprofit sustainability learning initiative, and 

the Center for Corporate Sustainability  Management at IMD

, a member-driven research and learning initiative, have  formed a joint partnership to assist global companies in implementing  sustainable development in their business strategies and operations. The  specific objectives of the partnership are to do the following: conduct joint forums and roundtables  on select leadership topics; organize training activities to advance learning  and competency development in advancing innovation through sustainability  management; expand the capacity of both organizations in providing sustainability  management services and in identifying emerging issues. IMD is a Swiss-based  organization whose members include BASF (Ludwigshafen, Germany) and Novartis  (Basel, Switzerland).

A roundup of developments on corporate social responsibility from the bio/pharmaceutical industry, its suppliers, and other public and private organizations.

The level  of clinical outsourcing in Asia is an important consideration for other  elements in the pharmaceutical value chain. The increased level of clinical  research in Asia has the potential to affect the supply chain of clinical trial  materials (CTM), for example, by causing a potential attendant shift in CTM supply  from companies based in North America and Western Europe to companies based in  Asia. To what degree this shift will occur is still evolving, but it is  important to consider the trends in clinical outsourcing in Asia to assess the potential impact. 

A recent  analysis, “Trends in Asia: Clinical Outsourcing,” by the management consulting  firm PRTM examines the level of clinical research and related outsourcing  activities by the large pharmaceutical companies in Asia. The report is based  on a survey of sixty-five responses from the local operations of multinational  pharmaceutical companies, Asia-based local pharmaceutical companies,  multinational contract research organizations (CROs), and locally based CROs.  The survey was conducted in the fourth quarter of 2009 and early 2010 (1).

The report  shows that more than 90% of clinical trials conducted in Asia are multinational  in scope. As measured by the number of multinational trials launched by the top  20 global pharmaceutical companies, South Korea, India, Taiwan, and China lead  all countries in Asia (1). 

Patient  access is the primary rationale to increase clinical research in Asia,  according to the PRTM report, but market access was also a key consideration as  well as an interest in establishing long-term relationships with national  regulatory authorities. Although cost was a factor, it was not cited as a  significant factor in companies’ decision to conduct clinical research in Asia,  according to the PRTM report (1). Survey respondents see China as the leader in  being able to recruit large volumes of patients at a reasonable low cost.  Although Japan is viewed as the least attractive of Asian locations for patient  recruitment due to cost, it provides the highest quality data for trials. The  report also cited data which showed that respondents felt that with the  exception of trials in Japan, India, and South Korea, the quality of trial data  in Asia is perceived to be inferior to that typical of Western countries (1). 

In general,  global pharmaceutical companies’ headquarters tend to  lead the  operations of global and multinational clinical trials remotely in all Asian countries  except for Japan. Looking at activities in specific countries, taking China as  an example, approximately 80% of the large pharmaceutical companies have  clinical operations in China, 50% have regulatory functions,  30% have  strategy and planning functions, and 30% have early-development activities. For India, 86%  of the companies have clinical operations in that country, 43% have regulatory  functions, and 14% have strategy and planning operations. In other countries,  the level of clinical operations is lower. For example, in South Korea, 75% of  the top pharmaceutical companies have clinical operations there, 50% have  clinical operations in Taiwan, and 57% do in Singapore (1). 

The level  of clinical outsourcing in Asia overall has increased. More than half of the multinational pharmaceutical companies surveyed currently have strategic partnerships with  CROs in Asia, compared with only 20% in 2007 (1). These strategic  partnerships often are formed with global CROs on a global basis, but they also  involve partnerships with local companies either with the global pharmaceutical  company and a local pharmaceutical company or through a global CRO  subcontracting to a local CRO. According to the PRTM analysis, 65% of the large  multinational pharmaceutical companies have formed co-development partnerships  with local pharmaceutical companies in Asia for one or more compounds. Also, 60% of global CROS have formed alliance partnerships with local CROs in  Asia (1). 

A lack of  internal resources and temporary increases in workload are the primary reasons  for multinational pharmaceutical companies to outsource clinical research in  Asia, according to the PRTM study. Seventy percent of respondents cited a lack  of internal resources as the reason for outsourcing clinical research in China,  and 75% cited it as a reason for outsourcing in India and Taiwan.

In looking  at outsourcing activity by function, certain functions stand out in terms of  the degree of outsourcing by the multinational pharmaceutical companies in Asia  (excluding Japan). More than half of the respondents said that they outsource the majority (51–100%) of their workload in Asia for the following functions: data management  (88% of respondents outsource the majority of their workload in this area);  site monitoring and data collection (56% of respondents); biostatistical  analysis (56% of respondents); site initiation and site management (56% of  respondents outsource the majority of work); quality assurance and auditing (50% of respondents); and patient  recruitment (50% of respondents) (1).

Most multinational pharmaceutical companies  operating in Asia (excluding Japan) use a mix of global and local CROs,  according to the PRTM analysis. The vast majority of multinationals take  advantage of full-service outsourcing on a protocol–by-protocol basis.  Full-service outsourcing generally refers to site-related activities, data  management, clinical supplies, regulatory support, and pharmacovigilance (1). 

Although  cost, in of itself, was not a reason to outsource clinical research, the report  does point out varying levels of costs among CROs. The report showed that many  multinational pharmaceutical companies report that almost everywhere in Asia  (except Japan), the overall cost of using local CROs is at least 40% lower than  the cost of using global CROs operating in the same country. For example, 71%  of survey respondents said that the cost of local CROs in China are more than  40% cheaper than the cost of global CROs in China (1). 

1. PRTM, “Trends in Asia: Clinical Outsourcing,”  (Tokyo, 2010).

Supply Chain

Increased outsourcing of clinical research in Asia is an important consideration in the pharmaceutical value chain.

Clinical Research Outsourcing in Asia

In June 2010, the management consulting firm Accenture  released the results of a study on sustainability, which surveyed 766 CEOs globally.The study, 

A New Era of  Sustainability: UN Global Compact-Accenture CEO Study 2010

. was  conducted in cooperation with the UN Global Compact, a corporate-social-responsibility initiative facilitated by the United Nations. The study gained  feedback from CEOs on the importance of sustainability to their businesses and  the barriers to and facilitators of implementing sustainability in their  companies. 

The key finding was that a large majority, 93% of  CEOs, said that sustainability is critical to the future success of their  companies. On a more immediate basis, 80% of CEOs say the recent economic downturn  has raised the importance of sustainability as a potential engine of growth for  the economy as a whole or for their businesses. Other key findings on the  relationship between sustainability and the recent economic downturn are as follows: 

  • 83% said the economic crisis elevated the role of  sustainability and ethics in building trust in business

  • 80% said the downturn raised the importance of  sustainability as a leadership issue for top management

  • 77% said the downturn led them to take a  longer-term view of business and the role of sustainability.

The importance of sustainability in company strategy is growing. In a similar survey conducted in 2007, 50%  of the CEO respondents said that sustainability issues had become part of their companies’ strategy and operations. In the 2010 survey, that number increased  to 81%. According to the survey findings, three corporate attributes (brand,  trust, and reputation) were by far the primary considerations CEOs cited for acting on sustainability.&nbsp They were identified by 72% of the respondents as one of their biggest motivators, followed in descending order by: the  potential for revenue growth and cost reduction (cited by 44%), personal  motivation (cited by 42%), consumer and customer demand (cited by 39%), and employee engagement and retention (cited by 31%).

Although reporting progress in reaching their  sustainability goals, the CEOs surveyed in the study pointed to several barriers. These barriers included the following:

  • The complexity of implementing strategy  across business functions (cited by 49%)

  • Competing strategic priorities (cited by 48%)

  • Lack of recognition from financial markets (cited  by 34%).

CEO respondents also pointed to several conditions  that they felt need to be in place before sustainability is fully integrated  into their business operations. These included the following:

  • Shaping consumer tastes to build a stronger  market for sustainable products

  • Training management and employees to deal with  sustainability issues

  • Communicating with investors to create a better  understanding of the impact of sustainability

  • Measuring performance on sustainability and  explaining the value of business in society

  • Working with governments to shape clearer  regulation and create a level playing field. 

Although CEOs recognized the value of sustainability in their business, less than half said that sustainability was discussed with financial analysts and the investment  community. Additional survey findings showed that education and climate change  were identified by the CEO respondents as the “big issues” they face, with  resource scarcity and health starting to emerge as crucial issues. Education  was identified by 72% of the respondents as the most important development  issue for the future success of their business, followed by climate change at  66%. Ninety-one percent of CEOs said their companies would use new technologies  to address sustainability issues during the next five years such as by developing  renewable energy and creating greater energy efficiency. Seventy-eight percent  of the respondents said that companies should engage in collaboration with a  variety of stakeholders to address sustainability issues such as through  partnerships with suppliers, nongovernmental organizations, and governments.

“It is clear from the survey results that global  business has its work cut out in order to build sustainability programs that  become key components of a company’s core business,” said Peter Lacy, who led  the study and is the managing director of sustainability services for Europe, Africa, and Latin America, at Accenture  in an Accenture  press release. “If sustainability does become fully integrated into global  businesses within the next decade, the regulatory, technology, investment. and  consumer changes required will be staggering, creating significant winners and  losers across businesses and industries. However, it’s great to see that some progress is being made, and that the movement toward a more sustainable economy and business context is clearly gaining momentum.”

A recently released study by Accenture shows that sustainability is becoming an increasingly important part of the strategies and operations of companies.

PTSM: Pharmaceutical Technology Sourcing and Management-08-04-2010

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