It is now a well-known fact that outsourcing has become an integral part of the agrochemical and pharmaceutical Industry resulting from the pressures of global competition. This especially applies to their R&D activities. Initially, only Building Blocks were being outsourced to third parties but this activity has spanned to the degree where entire research projects are now being outsourced. The management philosophy of “we’ve got to do it all in-house maintaining top secrecy” has given way to “let’s do it all outside.” The major outsourced activity is usually the synthesis of organic molecules. First, simple Building Blocks were outsourced, then simple libraries, then large libraries, then more sophisticated libraries, and now, whole aspects of medicinal chemistry are being outsourced to third parties.
Outsourcing not only provides significant cost savings for the company but it also provides a faster and less complex approach to getting research done, keeping in-house resources focused on core business while providing greater flexibility. The types of outsourcing partnerships formed tend to vary from company to company. Some companies outsource research only within their country’s borders to ensure greater accessibility and confidentiality, while others have reached far and wide in search of lucrative partnerships. Some have the outsourcing process completely centralized whereas others prefer it completely decentralized, leaving the decision to individual department heads.
While contract synthesis companies have existed in the west for at least a decade, some outsourcing companies had early insight into the eventual off-shoring of custom syntheses projects to countries like India and China to beat growing research costs. Although it sounded easy enough, only few survived the initial challenges of doing business across the miles and across business cultures that are as varied as it gets. One such company, a forerunner among its German counterparts, is Taros Custom Chemicals, a well-known Dortmund-based outsourcing partner for chemical, crop and pharmaceutical companies. Taros set up its extended laboratories, Mithros Chemicals, in the former pearl capital of India, Hyderabad, now famous as India’s leading IT hub popularized by Microsoft’s presence there.
The founder of Taros Chemicals described this move as a giant step towards providing its customers with top quality research, increased capacities and timely service at a far better price. Moreover, Taros’s CEO, acted as a “human bridge” for German clients wanting to outsource custom synthesis projects to its subsidiary, Mithros, in India (A human bridge is a person who has roots in one country but has lived long enough in another to understand its culture and modus operandi). The challenges therefore, of cross cultural business practices and the quintessential red tape were duly overcome.
While some companies prefer to work with FTE’s, others choose to work on a molecule to molecule basis. Matters get even more complex when a single project is splintered and sectioned to be handed off to multiple contractors in different countries in order to keep costs low while simultaneously increasing delays and administrative costs. Very often there are unexpected costs in a new business environment that were not anticipated and a quick venture can quickly turn sour for all parties involved. Top management expects remarkable savings at greater yields and middle management faces the frustration of being caught in between and eventually bearing the bad news of lower margins. The search resumes for a fresh partnership resulting in the same repeated failures with increased losses and delays and a general disillusionment about the outsourcing practice.
Initially, Mithros Chemicals offered a “service product” like its competitors, in the form of mutual coorperations with clients until it realized that this arrangement, for the most part, led to increased costs and administrative difficulties for both sides thereby defeating the very purpose of outsourcing. Following that, FTE’s or Full Time Equivalents were introduced which seemed to work better as clients had better control over their projects together with increased flexibility.
Prior to outsourcing, it is very important for a company to understand the outsourcing market within and without its borders, to analyse the key players in the field and determine their strengths in order to match projects with compatible partners. Only then, can the long-term benefits of outsourcing or off-shoring be gleaned and sustained. While off-shoring, it is essential to choose a partner who understands both worlds. Taros Chemicals, for example has been in the contract synthesis area since 10 years and has worked with the major agrochemical and pharmaceutical companies with a seasoned understanding of what customers want. Taros is the only European company to have the privileged position of running its own laboratory in India with a central logistical processing unit that tracks projects to ensure they are processed in a timely manner.
A client can optimise its process and reduce costs by involving Taros in deciding which projects should be processed by Mithros. Taros sources and provides starting materials, managing projects closely from start to finish making it easy for partners to keep projects cost efficient. There are no communication barriers and cultural misunderstandings as projects outsourced to Mithros are managed by the german management team. Based on experience, Taros can select the project-flow and keep failure rate very low. There is also only a minimal of travel involved on the part of the contracting company saving both time and money while facilitating optimal use of its internal resources. Delays are avoided through an excellent internal logistics system which optimizes raw material sourcing, processing and shipping for the Mithros site. As a result, projects are processed significantly faster than the local service provider. When there are synthetic difficulties the process is hauled to Germany for completion as the availability of Fine Chemicals is higher and the project originally outsourced to India can be completed without long delays and a better success rate than if one were to depend solely on Indian partners.
Taros Chemicals’ two pronged approach with its German and Indian research facilities takes the “second guessing” out of research management for clients who want to reap the benefits of outsourcing. This scenario is also an excellent platform for biotech companies to take advantage of the cost savings benefit to process their research projects in India without the financial risk involved and the administrative effort needed. In the face of stiff global competition, it is wise for pharmaceutical and chemical companies to seek differential, value-added and sustainable partnerships and outsource smartly, not blindly.
