It is impossible not to be aware of the big, scary stories about goods manufactured in China: diethylene glycol in toothpaste, melamine in everything from dairy products to dog food, and children’s toys tainted with lead paint. According to Bloomberg, Mattel lost at least $30 million in 2007 from the recall of toys that contained excessive levels of lead.
Beyond the shadow of these consumer-oriented, shock-inducing headlines, businesses and institutions face the daily reality that offshoring is a necessary tool for cutting costs in an ever more competitive global economy. Striking the right balance between managing risk and shoring up the bottom line is essential for companies and institutions that are considering this move.
Offshoring continues to grow dramatically in the area of life sciences. For example, researchers from MIT reported that R&D outsourcing to other countries in the biopharmaceutical industry has been growing steadily since 2000 and is expected to continue to grow at a rate of approximately 14% annually. In addition, Thomson CenterWatch projects that by the end of this year, the global outsourcing industry will reach $21 billion annually. It makes fiscal sense for life science companies and institutions to offshore certain functions of their operations.
China has an extensive pool of scientists to conduct research, many of whom were educated at American universities and have experience with U.S. companies. These researchers are instituting American standards and practices into Chinese companies and research entities, while China continues to invest in its research infrastructure to support a booming life science industry and has constructed many state-of-the art facilities. Chinese research teams may also provide specialized expertise to American researchers.
While a strategic approach to offshoring is required to remain competitive, the practice continues to be fraught with considerable risk. Deciding what functions to offshore and where requires significant orchestration, with plenty of attention paid to managing the risks associated with doing business in China.