The term outsourcing has been used to mean a state whereby a company takes some business activities to other companies to act as their third party operators to promote the effective management and marketing of their products (Ksmel 2005). In the outsourcing method the use of technology is the vital machine for the operational of the business services. Outsourcing is commonly known as the business processing and outsourcing technology. Consequently it can be used to mean a state of using the non-technical methods to develop the marketing of the company products between the company and the customers of the company, for example the use of the telephone services in the promotion of the business services. On the other hand the term in sourcing can be defined as a practice of business in which business work is conducted or performed inside the house. Usually in sourcing involves the method whereby the company will bring some specialist from other places of the country or the world to be used temporary in the company.
Consequently in the in sourcing category the business enterprise may decide to buy new machines or at the same time their company may decide to train the existing human force to perform the same duties which may have been out sourced for example a company may train the typists to know how to repair computer machines, rather than going outside to hire the computer engineer, thus reducing the business expenses but at the same maximizing the profits. At this time the typist has to undertake some technical course in one of the local college and then be able to repair a computer successfully when it develops any fault. Consequently in sourcing may be seen as outsourcing from other perspective depending on the location of that specific company in consideration, For example a pharmaceutical company in United States of America might open a pharmaceutical plant in India for the purpose of employing the Indian workers to manufacture the United States of America products.
From the United States of America perspective, this is outsourcing but from the Indian perspective this constitutes in sourcing. Usually the recipient of the outsourced activities exists in the same location of the business. There are two types of outsourcing, this includes thee nearshore outsourcing whereby the outsourced projects are located in the same continent but in a different country for example the United states of America company outsourcing its business to Canada. The other type of outsourcing is called as offshore, whereby the outsourced activities are located in the outside continent of the original company in consideration.
The main objective of outsourcing in the companies is to reduce the production cost but at the same time increase the business profits this is the perceived aim, other companies have learn at a loss after opting to outsource. This research paper tries to bring out the importance of outsourcing in the pharmaceutical industry and the reasons why these companies are opting for this outsourcing method. Consequently this paper will try to bring out the problems associated with the outsourcing strategies in the pharmaceutical industry and the impact of pharmaceutical outsourcing in the global market.
Importance of outsourcing in the pharmaceutical industry
Pharmaceutical industry is an overcoming industry in the health sector. The pharmaceutical industries usually are used to produce the health care products. These companies usually produce products such as the antibiotic, enzymes, vitamins, amino acids, bio foods, and agricultural chemicals in general. Most of these products are universal in nature since they are used to save the lives of people and consequently improve the health status of people. Moreover the pharmaceutical products are needed in urgency.
The main issue of outsourcing by pharmaceutical companies can not only be over looked that it is to cut the production cost, but to a large extent is to make the business learn at a quick phase and getting the market of the produced products at a faster rate compared to the company competitors who may be located at a longer distance to the customers hence getting access to the experienced workers. At the present world outsourcing has become an outstanding trend in the pharmaceutical industry. Most of the pharmaceutical companies whether a small company or a bigger company are still struggling with the high cost of hiring the full time employers, thus these companies have opted to use the outsourcing technology.
Strategic factors affecting outsourcing in pharmaceutical industry
The strategic factors which underpin the outsourcing decisions by the pharmaceutical companies include the benefits of the outsourcing, working space, technological machines available, expenses of the workers, training of the workers, hiring of the workers, administration structure. Consequently the experience, management, personal flexibility, capital conservation, time cost is another factor which affect the outsourcing decisions (Ksmel et al 2005)
Experience is the major factor in considering the outsourcing method and the destination of the outsourcing company. Usually a company with a lot of technology should be used. The companies which employ the full time workers can be used as this suits all budgets of the initiated projects. Management of the company should be considered up to the highest level possible. Focus should be aimed at the core aspects of the business and leave other non-core duties to other personalities without using extra time in the project management. This is due to the fact that most of the outsourcing pharmaceutical companies have their own organizational structure and management at large.
Personal flexibility of the personnel of the outsourcing companies is of much importance and should be put in to consideration. The outsourcing specialist should be ready to be kept off when not wanted and to be re instated when. Capital conservation of the pharmaceutical companies needed should be considered. The financial resources should be concentrated on the core company activities other than investing in other things such as machines and office spaces. Consequently time factor will be considered while deciding on the outsourcing destination. Regardless of the location of the outsourcing company, performance on time is the major interest (Arlington, S 2005)
Financial credibility of any pharmaceutical shall influence the strategic choice of any company. inancial status is the major driving force of any business. The destination of outsourcing companies is determined by the amount of money at hand, this will influence the number of the workers to higher, the technology to employ and the type of structures to put in place. Globalization of the pharmaceutical companies and their products influences the strategy to be taken by the outsourcing companies. The higher degree of globalization will make them to have a lot of market. Competition between the pharmaceutical companies affects the strategy which has to be put in place to get more customers.
Effect of Information and technology driven strategy in the pharmaceutical outsourcing industry
Information and technology driven strategy affects the outsourcing in the pharmaceutical industries. Peter Drunker had brought about the rise of the “knowledge worker” in the year of 1950, where he consequently illustrated how very few workers can perform physical labor by using their mind tactics. In the year of 1984, John Nesbitt said that the future would be controlled by the information, thus those companies which had well established information will have a greater advantage. Daniel Bell in the year of 1985 identified the sociological effects of information technology and at the same time Gloria and Shoshana emphasized on the psychological factors. Zuboff studied the effect of information technologies in the employers, managers and the organization at large e confirmed the Drucker s earlier suggestions. Manuel Castells brings out the network society with organizations having a lot of structural networks and a divide between those who posses the information technology and those who lack. Stan Davis and Christopher Meyer in the year of 1998 combined three variables which were speed change, internet and the general knowledge which constituted a society at large. Regis McKenna suggested that life would change due to the increased technological advancements.
Customers would have immediate services according to their needs and would be charged for the usage of that technology. At the same time he suggested that the competition between the companies would be time based. Access to the information technology systems has increased the performance of the pharmaceutical industry in general. This allowed the managers to make a comprehensive view of the strategic managements. It influences the financial production of the products and the general organizational development of a company. In the field of business outsourcing improved information technology is the major factor affecting the strategic management. Thus the information and technology driven strategy has a great application in the outsourcing by the pharmaceutical companies (Lithicum, D.S 2000)
Unfortunately some of the pharmaceutical companies have a negative effect in other industries in the information management areas. According to the director of GlaxoSmithKline, in charge of the information technology, they are on the bar end of developing the training at the end corners of their management at the same time developing the development strategies. The negative effects can be avoided by having constant information exchange between the outsourcing partners (Ohmal, 1982)
Factors to consider while choosing a pharmaceutical outsourcing company
Pharmaceutical business company may hire an outsourcing company to undertake the business on its behalf, several factors have been taken into consideration. It has to be remembered that this step whereby it entails the choosing of a business partner. The outsourcing partner must work in uniformity with your company and should have the same working structure which shall be dedicated to making profit. At the same time the companies should have a lot of talents and with a lot of the technological know how such as e mail and telephone services (Rowe, R 2001)
Glaxosmithkline Pharmaceutical Company Outsourcing In R&d (Research And Development)
GlaxoSmithKline pharmaceutical company is one of the companies with its origin in the United States of America which has embarked on out sourcing to other countries with much of its emphasis based in India(Gsk.com). Pharmaceutical industry has dramatically undergone a critical change compared to the past. Some times back the pharmaceutical industries had strategies which did not encourage the outsourcing strategies. Companies used to make all the products in their internal factories and the third parties did not access the manufacturing information. Thus during those times the patents of the companies were protected compared to the present times. This past arena is constantly changing and at the same time the many of the pharmaceutical medicines are loosing their patents thus reducing the company sales and at the same time reducing their competitiveness. Usually it takes duration of more than twenty year for a drug to enter into a market which is an expensive excise (Degu, E 2001)
Research work on the new drugs is the major problem in the pharmaceutical industries such as the GlaxoSmithKline (www.outsourcing-pharma.com).A threat which has arisen from the presence of the generic drugs in the market, high production cost, and external imports has posed a major problem of the GlaxoSmithKline Company in R&D. Global outsourcing cost of R&D is on the rise every year which has led to the business prospect increase for the contract research institution. The current pharmaceutical outsourced product cost is $thirty three billion, whereas R&D outsourcing expenditure is approximately 50% 0f the total market of the products (Traverso, D 200)
Global R&D Outsourced Market in GlaxoSmithKline Company (Source: Frost & Sullivan).
|Global R&D Outsourcing Market||11.4||12.7||14.1||16.3||18.7||21.7||24.9|
Many of the United States of America drug manufactures are transferring their services to the foreign countries such as India, China. In this case the GlaxoSmithKline, is transferring it s facilities to the foreign research organizations. Many US Pharmaceutical companies are currently outsourcing many aspects of R&D.For instance most of the pharmaceutical ingredients found in the drugs which are sold in the USA are mostly manufactured in countries such ass India, China and in some African countries. The R&D activities which have been outsourced includes biological screening, chemical analysis Because of the high cost of production the American based scientists are used to produce these drugs in the foreign countries. According to the business perspective the GlaxoSmithKline, has a great sense for outsourcing its activities into the foreign countries. This is because the production cost is cheaper (David, F 1989)
On reality many pharmaceutical companies have embarked on the out sourcing of the R&D services so as to reduce the production cost and increase the market stock and at the same time try to insure the financial advancements by sharing the product profits. For instance GlaxoSmithKline company has started to expand R&D services in Bangalore, India whereby they are looking forward to hire less personnel. Although the GlaxoSmithKline is outsourcing its operations to the foreign countries and at the same time reducing the job cuts, it has largely reduced the competitiveness of the American scientists in the field of science an technological advancement (Tichy, Noel 1983)
As most of the pharmaceutical stakeholders and researchers are developing much advanced drugs which are comfortable to the users, the technological pyramid is one of the major focuses in the field of outsourcing (Pascale, R 1990). They are generally accessing the changes of this pyramid. Innovating the best R&D strategies and technologies is not an easy case, and this needs daily consultations with other partners who can provide help. These partners usually make the pharmaceutical companies to manage an arising change. They will establish the reasons for the changes in the R&D and solve such trend.
Impact of outsourcing on the global market for the pharmaceutical products
Outsourcing which is regarded as the current tool in the manufacturing and processing of the pharmaceutical products in the pharmaceutical industries has been used as one of the strategic tool in the business strategy to increase the production and at the same time increase the company profits (Slywotzky, A 1999). The activities which are usually outsourced ranges from one extent to the other. These fields include the discovery of the drugs, manufacturing of the drugs, clinical trials and the marketing of these products. Pharmaceutical companies are increasingly employing this principle of outsourcing so as to increase the number of product produced. Consequently some of the biotechnological companies have also contributed to this strategy for the last five years as they seek to bring their products to the market.
This technology of out sourcing which has increased in the pharmaceutical industry has brought a lot of impact in the global market of the pharmaceutical products. As many companies have started to form the pharmaceutical alliances with the foreign companies, there is a lot of the cost benefit. The cost of the production of the pharmaceutical has reduced compared with the trend of manufacturing the products at the place of drug discovery. Levinson, J (1984) argued that if cost is reduced, then profit is maximized.
This is due to the fact that some of the countries have cheaper labor and many experienced scientists who offer cheaper services. For example India and China has cheaper labor as it has a huge population and many scientists in the field of health care. At the same time the cost reduction is obtained by reducing the large amounts of money which can be used to layout the advanced technology in-house. Consequently outsourcing has enabled the pharmaceutical organizations to acquire the R&D operations at a fart rate with the minimum costs. Outsourcing in the pharmaceutical industry has tremendously reduced the overall production rate up to 50%.
The rate at which the discovery of new drugs is outsourced has developed a low cost of drug development. This is due to the fact that most of the drug discovery is done at the foreign countries which have low economic costs. Outsourcing has reduced the problems which are often faced by some of the pharmaceutical companies as most of the countries have established a lot of the regulatory framework. These frameworks have proved to be a major obstacle in the pharmaceutical market. Most regulatory procedures require a lot of financial in put in some countries like the United States of America. Most of the foreign nations, where the outsourcing takes place, like; in India; the regulation procedures are not as stiff.
Not only this technology of outsourcing has reduced the production costs but also it has proved to improve the efficiency of manufacturing. More over the outsourcing strategy has been used to improve the cash flow and the general net earnings of the pharmaceutical companies. Since the production of the pharmaceutical has become low, other available resources of the company has been diverted in to other fields such as marketing hence proving to be advantageous (Zaleznik, A 1977)
Outsourcing as enabled the pharmaceutical companies to be consistent and at the same time make these companies to navigate the international commercial and manufacturing networks. If this principle of outsourcing can be used properly and executed according to the strategic management in all areas it can increase the values of the pharmaceutical companies and make the investing community grow. Kleiner (1996) says that the major benefit of business outsourcing is the low production cost.
Outsourcing has increased in the country of India as most of the USA companies have started to invest in this Asian country. For instance the Research and Development companies have pumped their enormous resources to this country. India, presently is recorded of having the highest number of the FDA (Food &Drug Administration) assented products outside the United States of America. This is due to the fact that India amended the patent act in the year of 2005 which opened new destination of the global market for the pharmaceutical products. India has a greater advantage in the field of outsourcing compared with other developing countries. This is attributed by the advanced information technology skills owed by the Indian personnel and at the same time the Indian bioinformatics are English speaking in nature. Consequently India is one of the largest populated countries in the world which makes it accessible to market of the pharmaceutical products (Buzzell, R&Galle B 1987)
Pharmaceutical outsourcing business strategy
Strategy is a scope of a company over a long period of time, which gives that organization an advantage over the other related companies having the same challenging factors such as environment and market demands. Thus the pharmaceutical business strategies are aimed at giving the direction, the market scope, analyzing the resources and making the company perform better. Consequently the strategy is analyzed by tracing it s strength and pinpointing the external and internal factors affecting the performance of each company. David, F (1989) argues that environmental factors determines the direction of the pharmaceutical outsourcing companies
Many outsourcing pharmaceutical companies have become so successful because of various factors which include the general business structure, human resources, marketing and financial status of those companies. This has been attributed by the management organization cultures which promotes the training of their employees. Well business plan is one of the vital factor in the outsourcing industry. The companies should recruit the experienced personnel for the production and marketing. Some financial may influence the success of the pharmaceutical companies. The financial factors include the poor cash flow, poor pricing strategies and lack of enough finances. Marketing factors have influenced the success of most of the pharmaceutical companies. This includes a tendency of responding to the competition from other pharmaceutical companies. Human resources factors also influence the growth of the pharmaceutical outsourcing companies; this includes proper delegation of the company authority and hiring people with skills and experience. According to Kim, S (2002) Strategic management is a fundamental factor in outsourcing companies.
Outsourcing offers a lot of advantages in the field of pharmaceutical industries. It’s also difficult to successfully control the outsourcing between the involved companies and get the desired aim. For the pharmaceutical company to maintain the growth of profits, the outsourcing companies must adhere to the outlined regulations. Outsourcing has proved to solve the pharmaceutical problems and at the same times makes the companies to explore the invention of new drugs. Thus the pharmaceutical companies should have a symbiotic relationship for them to succeed in the marketing field. Many factors have been established which affect the pharmaceutical outsourcing in general. In formation technology is the major strategic plan of any outsourcing pharmaceutical company. Although the pharmaceutical outsourcing has some advantages, it has been found to create some disadvantages to some citizens who are deprived of their jobs and instead shifted to other countries.
Arlington, S 1998 An Industrial Revolution in R&D. PricewaterhouseCoopers, Web.
Buzzell, R. and Gale, B 1987, The PIMS Principles: Linking Strategy to Performance, Ree Press, New York.
David, F 1989, Strategic Management, Columbus: Merrill Publishing Company.
Degn, E 2001, Strategic Portfolio Management of IT. InfoTechPharma, London, England; IBC UK conferences: London, Web.
Gladwell, Malcolm 2000 the Tipping Point, Little Brown, New York.
Kim, S 2001, Strategic Information Management in Pharmaceutical.
R&D. Info Tech Pharma, London, 2001; IBC UK Conferences: London, 2001. Web.
Kasmel, Mellahi, J.George Frynas, Paul Finlay, 2005, Global Strategic management, oxford University Press.
.Levinson, J.C 1984, Guerrilla Marketing, Secrets for making big profits from your small business, Houghton Muffin Co. New York. Web.
Linthicum, D. S 2000, Enterprise Application Integration; Addison-Wesley: Reading, 77.
Ohmae, K 1982, the Mind of the Strategist McGraw Hill, New York.
Pascale, Richard 1990, Managing on the Edge, Simon and Schuster, New York, 1990.
Rowe, R. C 2001, Drug Discovery Today, pp 111–112.
Slywotzky, Adrian Value Migration, Harvard Business School Press, Boston, 1996.
Tichy, Noel 1983, Managing Strategic Change: Technical, political, and cultural Dynamics, John Wiley, New York.
Traverso, D 2000, starting Goliath, Bloomberg Press, Princeton.
Zaleznik, Abraham 1977, “Managers and Leaders: Are they different?”, Harvard business Review.