Outsourcing Partnerships: Factors You Need to Consider

by Ted Corrigan

There are few examples of truly innovative outsourcing partnerships in the life sciences. These partnerships bring together two or more companies in a structurally integrated manner to yield untapped efficiencies. The most innovative of partners completely rewrite the course of each business, for the better of the unity.

Outsourcing is not as simple as selecting a vendor and handing over the keys. Developing an outsourcing partnership can be extremely time-consuming, as you must construct procedures from the ground up and develop a training plan if the potential vendor is not intimately aware of your business needs. If you’re not prepared to be invested for the long-run and committed to a team relationship, I would encourage you to rethink the goals for the outsourcing endeavor. If you are prepared to put in the work, then read on!

Before making the commitment, here are 8 factors to ponder:

1.) Lower Wages

The cost to bring a new drug to market is said to be on average, $1 billion. The bulk of that is devoted to human clinical trials — the most crucial and time-consuming phase of drug development. Everyone in this arena is faced with tight regulations and shrinking profits due to expiring drug patents. As a result, western drug makers are increasingly looking to expedite the process by outsourcing safety and efficacy studies to developing countries,

As the old saying goes, it’s all about the money. Most companies wouldn’t be sending jobs overseas if they weren’t saving money. To demonstrate, in a 2010 study, India’s per capita income was $1,371, which puts it at 133rd in the world. By comparison, the United States placed tenth, with a per capita income of $46,860. It’s obvious that labor costs are much less expensive in India as well as other countries (I realize this is 2010 data, but real time data in life sciences is hard to come by).

The outsourcing of clinical trials gained pace roughly a decade back; since then, many questions have been raised. For western drug companies, it’s a boon. For instance, India’s vast pool of qualified, English-speaking doctors and lower labor costs make clinical trials up to 50% to 60% cheaper there.

It’s important to be particularly careful here, because lowest price is rarely a determining factor of successful partnerships. Reliable vendors may charge more due to their expertise. They’ll steer you clear of pitfalls, roadblocks, and potential legal issues. That alone, can save you a bundle.

2.) Focusing on Core Business

The second biggest reason that companies choose to outsource is to free up time to focus on core business strategy and processes. Capital and people are becoming higher commodities as the economy picks up some mild steam and skilled workers become harder to find and train. Companies need as many good people as possible to focus on what really matters with their business. By outsourcing services outside their own core competencies, companies simply have more time and capital to advance their business.  In the end, isn’t that our goal?

As a key decision maker, you are expected to work on what really matters inside your business, like increasing work flow, efficiencies, accuracy, content expertise and finishing projects faster, all of which should result in increased profit.  Ask yourself, am I really the expert at this particular process, or can someone else do this more efficiently? You may even feel that you have learned the skills to be “pretty good” at those things, but the change of business, regulations, technology is accelerating. Will you have the time to keep up on those things and still work your core competencies? How costly are oversights?

3.) Lower Regulatory Costs

Significantly lower regulatory costs also drive down the outsourcing price tag. Experienced vendors can help you lower your overall costs because in most cases they have “been there, done that”. They have seen the breadth of regulatory issues with other clients. They will also be aware of changes to regulations before you do, keeping you clean from potential fines and, even more important in the case of publicly help companies, the morning news. This should be an important part of your selection criteria, and should not be left out of your overall “what if” cost calculations.

4.) Tax Breaks

Countries like Ireland, Hong Kong, Singapore and Taiwan have very low corporate tax rates, which can have a dramatic impact on a company’s bottom line. A word of wisdom here: engage your finance, tax, and/or legal departments when considering these options. Start early and utilize their expertise to ensure that a savings in one area does not expose the corporation to costly taxes in other areas. These resources are trusted partners that you will want to lean on to ensure that the savings you are looking for will be there.

5.) Improved Service

Outsourcing offers crucial time savings. A drug patent lasts 20 years; during the first seven or eight years of that period, typically, the drug is tied up in human trials. That leaves little time for the drug maker to market and profit from the product.  Having an outsourced partnership that can handle non-core business activities usually leads to better service, more time spent on science, and increased profit. Make sure you work with the vendor up front to determine what metrics you will use to evaluate success. Remember, we are looking for a partnership and we want the vendor to succeed. Identifying the desired metrics up front helps to set expectations and define success.

6.) Risk Management

Risk management is another top reason why companies choose to outsource. If a business is launching a new product or offering something new, having employees in developed nations offers little in terms of risk management if the product does not do well on the open market. However, outsourcing certain operations can allow skyrocketing demand or a reduction in demand to be quickly fine-tuned without having to hire or displace employees. Having access to resources that can scale quickly can thwart the risk or missing deadlines, and/or responding to un-anticipated events.

7.) Peace of Mind

The uncertainty surrounding outsourcing contract negotiations can be unsettling; companies often report that they feel a sense of relief once they understand who is on their outsourced partner team and what skills they are bringing to the table. It is that early process of meeting, training, and engagement that helps us feel more comfortable and even excited to “sign on the dotted line”. Those Contractual agreements are necessary and offer protection for both parties, They protect us from any unforeseen human interactions or miss-communication in the partnership. Part of that process of hammering out the details is going to include what happens if things go wrong. What action would the vendor need to take in the unfortunate event of negligence or poor performance? The answer should already be worked out in your legally binding contracts.

8.) Flexibility

Flexibility is key in today’s global economy; companies need the ability to expand or downsize quickly. Unfortunately, that’s not always possible with today’s labor laws, as employee lawsuits are at an all-time high. By outsourcing, companies can mitigate some of that risk, allowing businesses to flex more quickly to rising or slowing demand. If the business has cycles, be sure to help your vendor understand how you see those cycles play out. Here again, help them predicate your needs as best as possible, because as your partner, you need them to do well and to turn a profit as well. You have invested a lot of time in developing this partnership. It’s important they succeed to remain viable.


What other qualities do you look for in a partnership?


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