Analysts concur: Manufacturing downturn fueling growth in offshore outsourcing

By Manufacturing Business Technology Staff July 7, 2008

The manufacturing sector is struggling with a slowdown in global spending as well as rocketing fuel and food prices, yet offshore outsourcing is alleviating some of the industry’s woes.

Hardeep Garewal, president of strategic accounts at U.K.-based outsourcing company ITC Infotech , believes outsourcing’s biggest growth is yet to come because of the decrease in global spending.

“Offshore outsourcing was once seen as a way to simply manage projects; now it’s becoming the norm and not the exception to reduce costs and boost the bottom line. And even though many companies are experiencing hard times, we are predicting growth in the next 18 months,” says Garewal.

This defiant trend is largely due to many western manufacturers facing pressure from stakeholders to offshore their business to cut costs and remain profitable. Yet many services that aren’t being outsourced to India are still occurring internationally, and business process outsourcing in this sector is latent—particularly in product development work.

The change in how manufacturers are doing business in Europe is having a profound effect on outsourcing, however ITC Infotech is still investing and growing in key sectors despite current market conditions.

According to a report from New York-based Kalorama Information , outsourcing in fact may be the ailing pharmaceuticals industry’s $5-billion remedy to the costly drug discovery process.

The pharmaceutical industry has a long history of outsourcing non-core functions, as well as a number of core functions, such as clinical trial management and manufacturing, for the past two decades.

Enhancing the productivity of the drug discovery process, while also reducing costs, is imperative if the pharma industry is to resolve the dilemma of rising R&D expenses and slowing pipelines. Toward this end, companies are turning to outsourcing to access new technologies and expertise.

According to Kalorama’s report, Outsourcing in Drug Discovery ( 3rd Edition ), the global drug discovery outsourcing market reached $5.4 billion in 2007 and should continue to grow 16 percent annually through 2013.

More recently, outsourcing has expanded into the drug discovery process—an area that has gained complexity since the 1990s, following advances in molecular biology and the emergence of new generation biological therapies. These advances, plus the emergence of new technologies used to accelerate the discovery of new drugs through enhanced data reliability and analysis, have made it unsustainable for companies to undertake all drug discovery functions in-house, as most do not have the expertise or programs to fully utilize these novel technologies.

“Outsourcing isn’t a new idea, but in recent years it’s become essential in widening the bottlenecks in the drug discovery process,” says Bruce Carlson, publisher, Kalorama Information. “Double-digit growth will be seen in a wide range of advanced processes, including genomics, proteomics, and integrated crystallographic data collection and computation techniques.”

However, issues over loss of control, intellectual property, and confidentiality remain a concern for some companies. To this are added worries about regulatory compliance, political stability, and contractor’s reliability when dealing with offshore research organizations. Nonetheless, the benefits outweigh concerns, and since 2001, growth in spending on contract drug discovery has outpaced that of global R&D spending.

The Kalorama report covers outsourcing of various functions of the drug discovery phase, and details the current and future global market, technology developments, and offshoring in China, India and Eastern Europe.

Download the report.