SOCMA members slate emerging markets

With prominent media coverage of the quality issues plaguing the Chinese manufacturing sector of late, it is perhaps not surprising that the chemical industry in more established markets are critical of their fellows in emerging markets. However, in SOCMA's annual survey of its 300 or so member companies, a hefty 75 per cent of responding firms rated the product quality and technology competencies of emerging market as worse than that in established markets. The figure is 15 per cent up on last year, and over 20 per cent up on the 2005 survey. While the distrust of these emerging markets may appear more prominent as a result of the high profile quality issues in the press, SOCMA president Joe Acker believes there may be an underlying cause for the apparent deterioration of products sourced from these regions. "There's been so much supply pressure on Chinese manufacturing companies…if you're sourcing a material from one Chinese company, and you've been dealing with them for a couple of years, you have a pretty idea of what you're getting. But what's happened is that that company, all of a sudden, is out of capacity,"​ Acker explained to in-PharmaTechnologist.com at last week's Informex trade show in New Orleans. "So what they do is go out to other Chinese manufacturers, they get the material supplied to them, put it in their packages and ship it to you. So what people have seen is because all of a sudden now this stuff is out of their control as is their ability to really do due diligence, is that the quality is not consistent and also tends to be poor. ​​"I think it's the stress of the rapid growth in China that's caused this...it's growing pains." ​​Criticisms of regulatory processes in emerging markets such as China have caused seemingly extreme measures in regions trying to reassure wealthier markets that they are competent and able to guarantee the quality of their products. High profile crackdowns on industry and individuals in the Chinese manufacturing industry, for example, throw into sharp relief the differences between the established markets of the US and EU and new players such as China and India. These differences also go some way to perpetuating the suspicion of emerging markets, with their seemingly alien regulatory processes causing distrust of the products that are a result of these systems. "Europe and the US systems have developed over a period of time and they're very transparent, at least to us. We don't see the Chinese systems as being transparent, at least in our terms, so we don't understand [their system],"​ Acker said. "I think the Chinese govt needs to work on that transparency issue. And I think they will." ​ Although there have been "feeble attempts​" to establish links between authorities to ease these regulatory differences, they have yet to amount to any tangible results (though there is now the possibility of US regulators establishing a base in India). Despite these perceived quality issues, the SOCMA survey showed that it is not putting firms off sourcing products from these regions, with 34 per cent of survey respondents saying that competitive pressure from Chin and India has negatively affected their sales. Respondents also predicted emerging market companies slowing increasing grip on their markets, with estimates for this year putting these new markets' hold of SOCMA members' markets at 26.3 per cent (up from 22.2 per cent in 2006), predicted to grow to 30.3 per cent over the next year. Despite the quality concerns associated with these low-cost locations, the challenging climate of the pharma and chemical industries has meant that it has not stalled the burgeoning outsourcing movement. Anticipated levels of outsourcing by SOCMA members are on the up for the third year in a row, with 80 per cent of survey respondents expecting to increase their levels of outsourcing over the next three years, a 10 per cent jump over 2006. "What we're seeing is that a lot of people are putting their own manufacturing plants in operation because then they have total control over it,"​ explained Acker. ​​"But the other thing is that when they are outsourcing they're working with specific companies so that they really have their arms around the processes, the quality, what needs to be done, and I think that's an important thing."​ So despite perceived quality issues from manufacturers in emerging markets, these regions are still likely to grow rapidly, gaining market share and benefiting from competitive pressures in other parts of the world. If and when these regions address their quality issues and convince the rest of the world they are on par with competitors in the US and EU, presumably nothing will stand in the way of companies in these emerging markets taking an even bigger piece of the pie - giving firms in established markets a lot more to worry about.