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By Agnes Shanley, Editor in Chief
What do you think about offshoring's affect on the pharma industry? Click here to take our poll.
Even if one doesn’t believe there is a workforce shortage today, there are strong signs that one is coming, as two trends collide. In the U.S. and Western Europe, the workforce is aging (at least it is outside of the Scandinavian countries, where workforce entries and exits are in balance, Lewin says). “Even if the proportion of scientists and engineers remains the same in the overall labor mix, more people are retiring from than are entering the fields of science and engineering,” Lewin says. At the same time, fewer students are graduating from U.S. high schools with the math and science training required to study engineering and science in college.
There’s clearly a need to improve elementary and secondary education in the U.S. Yet, suggesting that U.S. education is inferior or is causing the outsourcing and offshoring trend would be oversimplifying. There are differences. For instance, in Asia, students are exposed to more complex scientific concepts much sooner than students in the U.S., Mani says. However, the Pratt/CGGC study found, the best U.S. science and engineering graduates are highly creative and more likely to challenge the status quo than their Asian counterparts, who, in turn, are more likely to trump U.S. grads with their work ethic. 
While the controversy over visas and immigration continues in the U.S., pharma’s staffing picture is changing every day. If skills gaps exist in the U.S., they are also developing in some hot spots in Asia, and top technical salaries are hitting record highs in cities such as Bangalore . There’s no doubt that the hunt for talent will continue, both on and offshore, but as Lewin puts it, “Smart companies are thinking very hard about why they’d outsource, and where."
1. Gearing Up for a Global Gravity Shift – Growth, Risk and Learning in the Asia Pharmaceutical Market, PriceWaterhouseCoopers, May 2007.
2. Lewin, A., and Couto, V., Next Generation Offshoring: The Globalization of Innovation, Offshoring Research Network, Duke University Fuqua School of Business and Booz Allen Hamilton, March 2007 (link available on pharmamanufacturing.com).
3. Johnson, H. and Reed, D., Can California Import Enough College Graduates to Meet Workforce Needs? The Public Policy Institute of California, May 2007, p. 3.
4. Davis, G., “Watching a Train Wreck” December 2006, http://blog.phds.org/2006/12/13/watching-a-train-wreck-part-1).
5. Jenson, C., Career Forum, AAAS, April 2007.
6. Davis, G., "A Crisis is a Terrible Thing to Waste,” PHDS.org (blog), April 2007.
7. Gereffi, G., Wadhwa, V., et al, Framing the Engineering Outsourcing Debate: Placing the U.S. on a Level Playing Field with China and India, 2004 (available on pharmamanufacturing.com).
8. Wadhwa, V., Gereffi et al, “Where the Engineers Are,” Issues in Science and Technology, University of Texas, 2005.
9. Tucker, S. “A Bidding War Makes for Crazy Salaries Across Asia,” Financial Times Germany, May 18, 2007.
Despite the risks of setting up operations offshore, most pharma executives are optimistic about offshoring in Asia, according to “Gearing Up For a Global Gravity Shift,” a PriceWaterhouseCoopers report published in May. A growing number have seen positive results from past efforts in the region and are dedicating more resources to set up joint ventures and other operations in Asia.
Survey results also suggest that cultural and other barriers proved to be less significant than offshoring companies had expected. However, there continue to be some concerns about intellectual property (IP) protection and about the potential for fraud, in illegal extensions of the connection-making that’s summed up in the terms Bakhsheesh or Quanxi. Such extensions moved China to sentence the former director of its FDA equivalent, the SFDA, to death last month.
Half of the respondents from global pharma companies view corporate fraud as a concern and 38% said corruption had led to difficulties in existing ventures in Asia. However, most respondents believe that their corporate policies can deal with the problem. IP protection was also noted as a concern, but 74% of respondents are optimistic or very optimistic that the IP environment will improve over the next five years.
As offshoring of higher-skill jobs increases, fewer jobs are being eliminated onshore, according to "Next Generation Offshoring: The Globalization of Innovation." The Offshoring Research Network’s 2006 study, which surveyed 537 companies in the U.S. and Europe, also found that only 27% of respondents were not considering offshoring.
Since 2005, the percentage of offshore projects that resulted in the loss of jobs onshore has decreased by 48%, the survey says, and the number of jobs lost per offshore project has fallen by 70%. In general, pharma offshoring has resulted in less job loss than offshoring in other industries (Graph), and offshoring of R&D, in particular, is not expected to lead to a reduction of U.S. jobs, the study says.
Although onshore job loss was significant for offshoring of financial and back-office functions, 90% of all R&D offshore implementations did not lead to job losses onshore, the study says. However, the new innovation paradigm will require new ways of thinking. U.S. and European companies will need to better integrate globally dispersed teams of knowledge workers. Also, as offshore workers become responsible for higher skill functions, colleagues in the U.S. and Europe will have to learn how to better communicate, collaborate and compete with them.
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