The Indian pharmaceutical market currently stands at $6 billion and is growing at a steady rate of 10-15%. About 60% from exports to about 65 countries. The estimated market size of $25 bn by 2010 with average spending of R&D of around 5.6% of sales. There are around 3000 API units, 5000 formulation units and 2000 other units (intermediates, etc.).

Pharmaceutical outsourcing is an important strategic issue for almost all pharmaceutical companies today. With globalisation, rising competition levels, cost pressures, quality standards, need for a well grounded technical infrastructure, concentration on marketing efforts to match globe; standards of excellence and innovation is increasingly becoming more important to outsource certain core traditional and non-traditional functions. There are business compulsions and motives behind boom of outsourcing.

First six motives contribute to almost more than 84% of responses. It assumes that to ensure focus on core business and reduction of overall cost to respond to price pressures, organisations are keeping outsourcing as one of the important strategic initiatives. This thinking improves services providing competitive edge and adds new skills to the totality of the organisation.

Outsourcing mindset- Paradigm shift
In the past, outsourcing was confined to things completely out of domain or core business of the organisation. MNCs treated outsourcing as giving away company strategy while they gain new dimension to the strategy. Early discovery stages were never on shopping list. Outsourcing has been championed by in the IT sector and its success has been one of the many reasons for change in mind-set.

Trends of outsourcing toward Asia Pacific
.India and China -Global growth drivers in Asia Pacific regionIndia currently adds around $45 billion in incremental output (around a tenth of the levels of the US). India's annual contribution will rise to $350 billion by 2025 and $2.2 trillion by 2050. By 2050, India will account for one-third of global economic growth - India and China together will account for two-third.

Predictions on off-shoring
According to the predictions there will be approximately 18% decrease in off shoring to countries like West Europe, North America, Japan and Korea. Thus there would be an 18% increase to India and China in outsourcing.

Both are mutually exclusive and can co-exist
.India - sustained high growthIndia is the only country to maintain growth rates in excess of 5% until the middle of the century. India is expected to surpass China and become the world's fastest growing economy by 2020. Germany's economy will be eclipsed in 2022. By 2030, India will become the third largest economy. Japan's ageing economy will be surpassed in 2030.

Factors Favouring India
India has a good mix of the all the ingredients that makes India a successful outsourcing hub of Asia.
Outsourcing models
1) Traditional IT outsourcing model (on-site + offshore) will not work in drug discovery
-Constant interactions needed between "wet" and informatics personnel
-Reluctance to let IP out of sight (e.g., target protein)
-Vocabulary for specifying problem not yet mature
-Very little incentive for developing outsourcing model (until recently)

2) Need to evolve appropriate outsourcing/costing models
-T&M is most natural (success not guaranteed)
-Customers often don't have money to pay
-Risk & reward sharing models are best

3) Predicted model
look at the latest trends and developments we can see that outsourcing companies are now becoming strategic alliance partners and this is leading a way to the outsourcing companies entering into a Merger and Acquisition.
3) Industries suitable for outsourcing

Opportunities
High R&D expense as percent of sales implies opportunity to utilize outsourcing to improve R&D productivity and increase sales. Outsourcing can help mitigate the significant and uncontrollable factors of drug development by increasing the variety of technologies, timeliness and cost of NCE introduction. If managed effectively, outsourcing can improve R&D productivity and impact sales. The key elements of successful outsourcing are:
.Specific, measurable goals exist
.Communication channels are open and effective
.Measurements must be aligned with sponsors' goalsThis model provides possible industry lists who would benefit from outsourcing Lifesciences Industry.

Pharmaceutical, retailing, packaging goods are among those where outsourcing will benefit. After the huge success of outsourcing in the business process outsourcing (BPO) sector inspite of challenges faced by the industry the benefits are well know to all. India, China and Eastern Europe are the main emerging trends for outsourcing opportunities. These countries are soon becoming an outsourcing hub for all developed nations across the globe. Relatively low cost of labour, predictable and consistent quality of work, well placed technical infrastructure, focus of the management more on core marketing than on traditional and non core functions are some of the reasons for influencing outsourcing.

Keys element of outsourcing
·Managing relationshipsThe aspects of relationship in outsourcing are as follows:
. State expectations clearly
. "Invest" in a relationship
Focus on "complementary opportunities"
. Identify the right partnering model:
. "Cost Plus" multi-year supply arrangements - "Open-Book System"
. Contract research and manufacturing (CRAMS)

Strategies in Indian pharmaceutical industry
As an organisational strategy international and national companies have started with evolving organisational strategies around outsourcing of all areas created a niche for themselves of gained competitive advantage. Following conceptual process of outsourcing which has been called as Ohmae's strategic Model will explain how organisations through this strategic angle of outsourcing gain speed and cost reduction and increased marketing communication as a value crated by this outsourcing strategy provides better productivity.
Value in outsourcing - Ohmae's Strategic Triangle

Outsourcing Development Workflow
Form this flow it is clear that discovery, clinical trials at different phases and approvals can be outsourced to different outsourcing parties.

Common areas of outsourcing
Clinical trials
India has a reliable, highly educated work force; aggressive & highly motivated research programmes; Flexibility; Cost advantage; and importantly, FDA has been viewing Indian Pharmaceutical Industry as reliable. When all these advantages are considered, there is an overall formula adding up to success.

Collaborative Research & Developments (R&D)
Recent Trends in Collaborative Research & Developments (R&D)The Indian contract research market is currently pegged at $100 mn - $120 million. It is expected to grow to $1.5 billion. Outsourcing holds a potential to gradually have a merger or/acquisitions with the outsourcing company. Some of the recent trends in merger and acquisitions and joint ventures are mentioned below:

Some latest M&A deals are:
a)Acquisition of Pune based Sterling Synergy Systems by PRA International.
b)Joint Venture between US based Parexcel International with Synchron Research Services.
c)ICICI venture funds equity (Rs.35 crores) in diagnostic chain Metropolis Health Service
d)IL&FS investment of Rs.45 crore in Manipal Acunova.

Informatics and chemistry services & contract research
.Contract manufacturing
In the context of contract manufacturing outsourcing takes place from global companies as well as within countries in the same country. More often we see outsourcing among companies in India. The latest trend observed is outsourcing contract manufacturing to developed countries. Cost, quality and huge capacity are the areas of strengths of developing countries that attract attention across the globe. The total size of global outsourcing market for contract manufacturing is estimated at around $48 billion out of which India's share is $31 billion. Out of the total cost 30% is allotted for discovery cost and 70% is for research and development cost.

India possesses huge potential in terms of mixed ethnic population, missed disease pattern, presence of a number of lifestyle diseases like AIDS. In addition, India also has a sizeable number of hospitals with clinical trials facility at Pondicherry and Madras. Recently there has been a growth of contract manufacturing organisations and strict regulations in terms of adherence to quality standards.

Although outsourcing is an upcoming hype it can also lead to a trap for the company where a part or the entire organisation can be at risk. As organisations progress on outsourcing and develop relationship with outsourced parties in all the areas of CRAMS (Contract Research and Manufacturing). To make it more flexible and add value to this outsourcing process they can decide in strategic alliance with those parties giving them freedom.

As this works well we cannot deny the possibility of M&As of these parties among themselves. The future of outsourcing what I clearly see is outsourcing companies as strategic partners which will over a period of time lead to mergers and acquisitions.
(The author is founder and managing director Interlink Marketing Consultancy Pvt, Ltd Mumbai)