Outsourcing strategies and organizational impact

Outsourcing

Firms outsourcing clinical research for a number of different reasons. The theory of comparative advantage underlies CRO, as firms in other countries might be able to do the research more effectively, or more efficiently. Often, CRO done in order to save money, as is particularly the case with India. In other instances, the outsourcing is done to firms that have developed particular specialties in research (Piachaud, 2002).

In India, firms are competing for jobs doing clinical research, and that competition has driven down costs. This is important for the industry, because the cost of new drug approval has reached over $1 billion, in part because of the high costs associated with clinical research. So greater competition in research, and using lower-cost labor, has helped companies contain that cost (Jayaraman, 2004). Different payers also make it easier to recruit people for trials in some countries, thus lowering the time spent on the latter clinical trial phases. At that point, the patent will already be in place, so speeding up the trials process will allow us to get the drug to market faster.

Some tasks are easier to outsource than others, however. One task that is difficult to outsource is research that seeks to determine the effects of an intervention on specific ethnic groups. Unless the outsourcing is to Canada or the UK, it is difficult to find groups that exist in the U.S. -- outsourcing to India does not give access to the world's range of genetics so it is more difficult to outsource. But with respect to trials, in general most tasks are relatively easy to outsource, because they can be performed anywhere with a decent lab and team. Some risks have been identified, such as the risk associated with transmitting data and maintaining privacy standards, but technology upgrades in the developing world can address that problem (Jayaraman, 2004).

In general, I would seek to outsource as many tasks as possible. Jayaraman notes that outsourcing can cut 40% off of the price, because trials can be done faster overseas and because of labor savings, and competitive bidding. But the oversight of the process has to remain with the home country. The design of the trials is absolutely essential in quality control, so that should be done at home. Where American genetics cannot be replicated overseas, the entire trial should remain at home.

A key issue is the ethical considerations. If regulations in a country like India are lower, and that is helping to lower the cost of the clinical trials, this raises the issue of whether people are being put at risk because of the lower levels of these regulations. The reality, though, is that it is usually quicker and cheaper because it is easier to find recruits, because there are fewer patients with insurance companies or government health care. The result is that a drug can be brought to market sooner, giving it more time before the patent runs out to exploit the monopoly. This should not raise too many ethical issues, if the same quality standards are used overseas as in America -- the cost savings do not come from putting people at risk (Singh, 2008).