Offshoring trend threatens Western employment

By Kirsty Barnes

- Last updated on GMT

Related tags: Cent, Employment

Continual price pressures within the pharmaceutical industry are
driving more Western firms to turn to offshore employment.

The practice is expected to increase 16 per cent annually to include 21,000 employees by 2008 – a doubling of the current figures, according to a report by research firm McKinsey & Company. "Eighty per cent of the world's pharmaceutical industry employees are currently working in Western countries – 60 per cent of them for the top 20 firms,"​ said Dr Ajay Bakshi at the recent Association of Clinical Research Professionals (ACRP) conference in Brussels. "The future will see a lot of opportunities for the industry to save money by basing some of their employees in low-cost offshore locations, although clearly this will have an impact on employees in the Western labour market."​ The sectors that are at most of risk at being deployed offshore are IT services, research and development (R&D), commercial analytics, and general and administrative back-office functions, said the report, titled: "The Emerging Global Labor Market: Demand for Offshore Talent in Pharmaceutical Services."​ The specific occupations under threat are associated with functions that are more amenable to global resourcing, including generalists, life science researchers, IT engineers, and support staff. "The question is not how we can stop this from happening, but how we can manage it effectively,"​ said Bakshi. "Companies need to avoid a goldrush mentality, and first decide how much globalisation is suitable for their needs and implement the changes under a three to five year plan."​ Meanwhile, roles such as sales, procurement, supply chain management, and those that require interactions with regulators are positions that still need to remain local and for now will largely be unaffected by the trend, said the report. Staff costs are currently carving a large chunk out of drug company profits. The average large drug company in Europe employs 84,000 people to the tune of $7.8bn (€6bn) a year. "Approximately 35 per cent of costs in the industry are employee costs, representing about 25 per cent of total sales – on average about $100,000 per person,"​ said financial analyst Stewart Atkins, speaking at the "Change management" meeting in the UK earlier this year. Atkins is in strong favour of the staff offshoring trend, insisting that this should be a key area of focus in the industry's bid to cut costs and offset eroding sales. "Approximately 35 per cent of costs in the industry are employee costs, representing about 25 per cent of total sales – on average about $100,000 per person,"​ said Atkins. "Sales per employee are now $350,000, but a 25 per cent cut in drug prices would see profits per person shrink dramatically to $12,000."​ Atkins mused that if 70 per cent of production staff, 30 per cent of R&D staff and 20 per cent of admin staff were used from cheaper markets such as India and China, $1.1bn a year could be saved, adding four per cent to profit margins.

Related topics: Markets & Regulations

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