Recipes for Success in India and China

Dr Frank Floether provides a no-nonsense guide to securing a successful alliance in Asia.

Finding the right partner in Asia–Pacific is a very complex business and there is no uniform answer. Firstly, you need to tackle some basic questions:

• What is your strategic intent of offshoring? (eg, cost saving, market access in Asia, being closer to Asian customers, tapping into Asian talent pools, etc.) • What is the nature of the business you want to offshore? (eg, R&D, manufacturing, regulatory, finance support, IT, etc). If it’s R&D, then is it clinical R&D, medicinal chemistry, or chemical and pharmaceutical development? • What is your risk tolerance? For instance, is intellectual property an issue? Is there an operational risk or an investment risk involved? • In the case of investments related to offshoring, are you aiming for short-term returns or not?

Answering these questions will determine what direction you should be heading in. For example, for pharmaceutical development activities, India is the preferred spot for a variety of reasons. For manufacturing of an API based on fermentation, you may prefer to go to China, with its wealth of experience and lack of power interruptions. And for back office support, you may decide on Singapore, which is attractive for expats. Further, it is not as important to be close to customers for back office work as it is for manufacturing or R&D.

Once you've decided on a country, you need a the specific location. For example, is proximity to any governmental offices important? What about logistics, such as infrastructure, proximity to airports, and the time difference? Would electrical power interruption be an issue? Labour costs can also be a deciding factor, with costs varying greatly between hubs, such as Shanghai and Mumbai, compared with tier 2 or 3 locations. Language-based communication also needs to be considered, particularly in China. Finally, if you don’t want to invest in an offshoring location then thoroughly check your potential Asian CRO/CMO.

 The important features are: • experience in dealing with western companies.• GMP compliance.
• how long have they been in the business you are interested in?
• has at least part of their management been trained in the west?
• status of their facilities.
• are there any tax incentives (tax-free zones, industrial parks, etc)?

Identifying the right partner is probably the most important decision you have to make. The key is to deal with a local professional representative in Asia who knows the landscape, the culture, the language and the pharma industry, or to seek advice from a person in the west who is experienced in both pharmaceuticals and has Asian expertise.

Although many in the industry are concerned about counterfeit APIs in Asia, it’s worth remembering that approximately 80% of the APIs supplied worldwide come from India and China,1 which offers good evidence of the countries’ capability and reliability. When it comes to generic drug products - manufactured illegally if the API is still subject to intellectual property laws -it is a different ball game. In China, the vast majority of local medicaments sold domestically are still generics. In terms of avoiding potentially problematic Asian vendors or domestic pharmaceutical companies, however, it is probably best to screen their portfolio for instances of possible counterfeits.

Coping with long-distance locations
A general guideline to dealing with Asian partners should be “what works in North America and Western Europe may not work in Asia.” Likewise, “what works in one Asian country does not work in another.” This applies to both work-related subjects and cross-cultural behaviour.

The following discussion of differences between the western world and China and India is based on general guidance; for more information you can look to books and papers written by experts or people who professionally deal with the subject of cross-cultural differences. Generally, you will find that your Asian partner has a bold ‘can do’ mentality combined with ambition and an eagerness to learn. You may also call it a ‘want to prove themselves’ mentality. It’s often impressive how hard-working most employees are, but on the flip side of the coin you sometimes observe the ‘no problem’ problem, such as underestimating the complexity and difficulty of certain problems or the time it takes to accomplish certain projects. In particular, with partners who haven’t been exposed to collaboration with western companies before, you may occasionally encounter a ‘wait and see’ mentality and a habit that can be described as ‘work not done + good excuse = work done.’ This often leads (at least in the settling-in phase of a collaboration) to reduced turnover and efficiency.

In India, you should bear in mind that most scientists - as well educated as they may be - have a background in pharmaceutical generics only and it will take time for them to get used to new standards regarding the development of new molecules. The golden rules to be aware of are: • to hear to understand• to understand to agree• to agree to execute• to make execution repeatable and sustainable.

There are also a couple of very concrete things it is advisable to do:
• Training: don’t just teach it, but show it - beforehand and on the job.• Adjust Indian/Chinese management structure to turnover, which is generally much higher than in the west.
• Make provision for sufficient internal resources for control/coordination/training.
• Try to predefine format, structure and expected content of any report to high detail.
• Seed an Asian organization with expatriates - at least for the start-up phase.
• Care for personal involvement: work on personal relationships, and build trust to reduce cultural and hierarchical barriers.
• Don’t just rely on trust - proactive checks are very helpful.
• Care for meticulous project planning/tracking.
• Clearly define rules and regulations.
• Be patient.

Most important is to adjust your communication style to ensure you are getting concrete answers to all your questions.As well as those general rules, you should also be aware of some specific issues in certain countries.

China
• Interpreter is often a must; language is a huge barrier.
• Chinese companies aren’t responsive to direct enquiries.
• National law gets often interpreted locally.• Be prepared to work with governmental offices a lot.
• Guanxi (having the right connections) is very important.
• Localization to run your own operation or to deal effectively with your partner is a must.• No experience in developing new molecules.
• IP still an issue.
• War for talent in major areas such as Shanghai or Bejing.
• Job hopping is common.
When Chinese refer to “FDA approved”, they often mean the Chinese FDA - the SFDA; check in advance whether they are talking about their domestic authority or the US FDA.

India
• Job hopping is common.
• Inefficiency caused by red tape.
• Still an extremely weak infrastructure with electrical power interruptions
• Intellectual property laws are not as weak as in China.

Auditing
In essence, auditing a supplier in Asia isn’t different to doing the same in the west - both in terms of preparing the audit and conducting it. As mentioned previously, language will probably be a hurdle in China so having somebody with you who is fluent in Mandarin is a must. Likewise, when it comes to reviewing documents and SOPs etc, you must have an interpreter. Apart from that, in general having somebody with Asia experience included in the preparation and conduction of any audit will be extremely helpful. Benefits of offshoring

The reality of shrinking profit margins, drying pipelines, patent expirations, intense generic proliferation and increased R&D costs has made offshoring an attractive strategy, particularly for R&D activities. As well as conducting clinical trials and API-related activities such as chemical research offshore, an increasing number of western companies are also establishing full end-to-end R&D activities in Asia. The business models applied are manifold, such as acquiring local companies, forming strategic partnerships and, increasingly, setting up wholly-owned R&D subsidiaries.

However, western companies are also right to be wary of offshoring sensitive and vital operations. There is low tolerance for error industry-wide; simple mistakes can compromise results, or even harm patients, resulting in massive and expensive liability. On top of that, the cost of an unsuccessful partnership is more than just a financial issue because the company loses crucial time and opportunities that could have been used elsewhere.

By outsourcing to a third party, there is also a loss of partial control as work passes from client to provider, and working across multiple languages and time zones can also introduce extra complexity. Poor communication can also lead to problems with quality and delays. Nevertheless, given the objective constraints in the pharma industry, the globalizing world and the importance of newly emerging markets, offshoring and expansion towards Asia is unavoidable. Realizing its benefits, however, will require more than just sustained investments and the development of management experience; endurance and adaptability to cross-cultural differences will be crucial.