Stringent FDA requirements, increasing operating costs, shrinking R&D budgets, and patent issues are threatening to shrink the profits in the pharma industry. In a bid to boost their competitiveness and sustainability, top companies in the pharma industry are looking for various strategic measures to improve cost savings. Multiple cost reduction strategies are available to pharmaceutical companies including usage of big data, cross-company standardization, lean process improvement, and business process management. However, the majority of the companies in the pharma industries indulge in such cost-saving strategies. To gain a competitive advantage, top pharmaceutical companies are looking at nearshoring to bring efficiencies to their cost structure.
Nearshoring is different from outsourcing or offshoring, as it often looks at nearby country or location to avoid logistical challenges posed by offshoring from a faraway location.
It is evident that different countries will have various laws, labor laws, economy, and infrastructure. Pharma companies can optimize their cost base by nearshoring operations to a country which can favor that particular process. For instance, countries such as Poland and Bulgaria rank as top destination regarding tax incentives. In Bulgaria, government grants back up to 50% of the CIT due for investment in regions with high unemployment, in addition to tax deductions for hiring long-term unemployed, elderly, or handicapped person. Also, major pharma companies in Europe are trying to reduce their employee headcount in expensive cities like London, Geneva, and Zurich and nearshore operations to popular destinations such as Leeds, Prague, Tallin, and Montevideo.
The pharmaceutical industry is highly regulated by the government as it directly correlates to public well-being. The strict requirement for adherence to quality can be maintained by nearshoring it to suitable destinations. However, outsourcing the process to countries like China and India may pose compliance issue regarding good manufacturing practices (GMP), which is a matter of concern for pharma sponsor. The US being the largest pharmaceutical manufacturer in the world, looks for nearshoring its operations to Japan as it illustrates a better understanding of regulatory and compliance requirements that are required to manufacture high-quality pharma product. The US also imports from nearby locations such as Ireland, the UK, France, and Canada, which accounts for 51% of their total imports for generic drugs.
Supply Chain Management
Pharma companies have to closely monitor the manufacturing process of drugs in order to ensure compliance. This can be possible if the destinations are close to the parent company. Nearshoring offers them the benefit of close supervision and in turn, facilitates communication so that they can reduce the time to market. Additionally, it also reduces chances of errors, grants more control and flexibility as companies have multiple transport and shipping options. Nearshoring also reduces the overall logistics and transport cost due to reduced distance between the parties.
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