Downsizing, Offshoring and Pharma's Lost Generation

Let’s get our priorities straight before looking for easy fixes through downsizing and offshoring.

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By Agnes Shanley, Editor in Chief

In the U.S. today, few words provoke a more visceral response than downsizing and “offshoring,” the movement of U.S. jobs to other countries. News of drug company mega-mergers and layoffs only fuels a growing sense of anxiety. So do dire predictions from analysts like Forrester Research, which expects 15 million U.S.-based jobs to move offshore over the next 15 years.

Offshoring is really the wrong word for an industry as global as pharmaceuticals. But, call it whatever you want, the trend isn’t going away. Today, across all industries, 3.4 million more jobs are offshored than brought into the U.S., and that gap is widening.

As drug profit margins narrow, arguments for moving more U.S.-based drug development and manufacturing operations to India and China will become even more compelling. Outsourcing a new drug’s development to India, for example, could save a typical U.S.-based pharmaceutical company up to $200 million, according to McKinsey & Co.

No doubt there are cases where offshoring or job cutting is the way to go. However, these should be last resorts, rather than the first steps, toward efficiency.

Companies pay a high price for moving jobs offshore or overzealously downsizing. The wrong priorities are to blame — in particular, an excessive focus on short-term advantage and shareholder value, as extolled by Albert “The Chainsaw” Dunlap in Mean Business.

Misplaced priorities have led some pharmaceutical companies down a number of ethically-challenged and economically destructive paths. We see the signs everywhere:
  • Poorly conceived merger and acquisition strategies, where a company snaps up another firm to acquire a key product, then fails to integrate different corporate and compliance cultures.

  • FDA compliance problems, where management is so bent on making product and generating revenues that it fails to ensure safety or quality.

  • Bloated sales and marketing budgets. Today, some companies spend twice as much on sales as they do on R&D.

  • Lack of focus. Remember what Enron did before its foray into e-commerce? Many drug companies seem bent on re-inventing themselves as consumer products companies. How many treatments for “E.D.” did the world really need?
Finally, though, misplaced priorities erode staff loyalty and dedication, sabotaging any company’s key competitive advantage: its workforce.

Ironically, at a time when more baby boomers are retiring and U.S. pundits wring their hands about the coming shortage of manufacturing expertise and skilled labor, many experienced technical experts, typically in their 50s, are suddenly being cast adrift. More often than not, they’re in that situation because corporate management had the wrong priorities.

After years of putting noses to the grindstone, suppressing their own entrepreneurial instincts and surrendering any intellectual property they’ve developed, they’re suddenly cut loose and urged to become entrepreneurial. Then, they’re offered entry-level salaries. At a time when life expectancy approaches 80, they become a lost generation, and the world loses their skills and experience until they can find a reasonable position, a process that can take years.

At the same time, as fewer young people in the U.S. choose careers in science and engineering, or pursue vocational training for manufacturing, and security concerns stem the flow of foreign talent into U.S. universities, the U.S. stands to lose its edge.

Generations X and Y are extremely pragmatic. They’ve heard about corporate loyalty and some have seen what it cost their parents. For them, it’s all “what’s in it for me?” Companies are the worse off for it.

Before considering eliminating any R&D or manufacturing job or moving any operation offshore, why not exhaust every possible option to make the position, or the plant, profitable? Some managers are doing the difficult work required, but many aren’t. At this point, many senior corporate executives have yet to endorse true “lean” efforts, whose goal is not to lay people off but to eliminate wasteful processes.  And only a minority are embracing the concepts of risk-based compliance or funding Process Analytical Technologies at their companies.

One can’t pursue “business as usual” — or, as an industry, spend $90 billion a year on manufacturing — and then just “give up” on trying to change. Efficiencies could be right here, at home.

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