The pharmaceutical sector may have been a late bloomer in the shared service centre (SSC) and business processing outsourcing (BPO) industry, but in the past two years the sector has been one of the most active, says multinational outsourcing and insourcing advisory firm Equa Terra.

“Most of the pharmaceutical companies are actively moving away from internal captive centres to outsourced centres,” says Bob Cecil, managing director of Equa Terra. “It is by far one of the hottest industry sectors for outsourcing of shared services activities.”


The pharmaceutical (pharma) industry alone accounts for nearly 11% of all outsourcing contracts greater than $50m. The reason: the pharma industry is facing a confluence of challenges such as a weak pipeline for drugs, pricing pressure, demands from an ageing population, higher healthcare costs, patent expiries, tougher regulations and continued consolidation. Consequently, companies are tapping into sophisticated design and management capabilities offshore to squeeze costs, explore better information technology, instil innovation and expand opportunities.

Among the primary functions that are being outsourced are clinical trial data management, finance and accounting functions, human resources, drug manufacturing, logistics and IT. In 2004, for example, Wyeth Pharmaceuticals transferred its entire clinical testing operation to Accenture to cultivate an organisational culture focused on personal performance accountability. Wyeth also employed Accenture to help co-ordinate its four research centres. As a result, Wyeth’s R&D drug discovery output has increased 300%.

In November 2006, US-based Eli Lilly and Company entered into a BPO contract with Tata Consultancy Services (TCS) to provide drug development services, including clinical trial data management, statistical analysis and medical writing to advance Lilly’s clinical R&D efforts. To perform the work, TCS established the Lilly-TCS Medical Information Sciences Centre at its Noida site near New Delhi, India.


“The goal of our relationship with TCS has several dimensions beyond reducing cost and risk, including gaining access to a global talent pool, increasing flexibility and scalability of our resources and maintaining a global workflow that is operational 24 hours a day,” says Dr Steve Ruberg, Eli Lilly’s group director for global medical information sciences.

Equa Terra’s Second Quarter 2006 market survey indicates that pharmaceutical companies save about 55% in costs by outsourcing functions, thereby resulting in roughly a 43% improvement in results and shareholder return on investment. Consequently, major global companies are increasingly considering outsourcing.

Equa Terra pegs the global pharmaceutical outsourcing business at $66bn, $13bn of which is attributed to research accounting and $30bn to manufacturing. According to Harvard University’s McKinsey Global Institute, the size of the market for offshore clinical operations is $600m against a backdrop of $52bn that the top 40 pharma companies spend on R&D.

Equa Terra projects that by 2010, more than 40% of all R&D will be outsourced. The reasons are many: outsourcing enables pharmaceutical companies to maintain a strong and vital pipeline efficiently for new blockbuster drugs; allows for rapid access to R&D resources and therapeutic expertise; and provides efficiency, cost effectiveness and speed by removing conventional habits and processes. IT, in particular, gives pharma companies an opportunity to streamline and standardise operations, and to focus on procurement and manufacturing as well as on back-office functions, such as finance, human resources and facilities. In the past two years, IT has led all business functions outsourced by the pharma industry.

That is why GlaxoSmithKline (GSK) awarded Affiliated Computer Services (ACS) a $105.3m, five-year contract in 2005 to provide remote server management and monitoring services for more than 5000 servers at GSK data centres in the US and UK. This year, GSK announced a $171m contract with ACS to provide human resource BPO services.

“Our work with GSK, in addition to our existing human resources BPO clients, will enable us to break new ground in this fast-growing arena,” says Lynn Blodgett, ACS president and CEO.

Site shift

In the past, when pharma companies set up internal captive centres, they often coupled the location decision with a tax structure decision (for example, commissionaire structure), especially in Europe. “Therefore, they ended up in locations such as Ireland, with favourable tax treatment,” says Mr Cecil.

Pharma giant Pfizer, for example, established its European financial service centre in Dublin, Ireland, in 2003 for processing financial activities for the company’s European operations. Services include purchase payments, travel, transactional tax and treasury and general accounting. Its functions are distinct from those at Pfizer’s treasury centre and banking activities, which operate from the International Financial Services Centre (IFSC), also in Dublin.

Pfizer chose Dublin because of its ample skilled workforce and resources. Its main objectives in setting up the centre were to provide world-class service levels via a single pan-European financial services organisation. The company already had a significant presence in Ireland, ranging from the production of bulk active ingredients and finished pharmaceutical products, through the sale and marketing of these products, to the treasury and banking operations conducted in the IFSC.

Similarly, Eli Lilly chose Copenhagen for its Nordic SSC in 2002. The city was selected for its qualified workforce with specialist expertise. Eli Lilly also operates an SSC in Switzerland for customer support, finance and accounting, human resources, procurement, IT, and tax and legal functions.

“Besides very favourable corporate taxes, high worker productivity and an excellent telecommunications infrastructure supporting our shared services activities, we found the skilled and multilingual workforce we were looking for, a fast and responsive support by authorities, and a business-friendly legal and regulatory environment,” says Laurent Falvert, associate director of the Geneva service centre at Eli Lilly Export.

Following footprints

As pharma companies move to outsourced centres, Mr Cecil points out, they are following the global delivery footprints of the major service providers: locations that can offer a less expensive alternative to current practices. For finance and accounting shared services activities, this means India, the Philippines, eastern Europe (Poland, Hungary, Czech Republic, the Slovak Republic and Romania), Costa Rica, Brazil, and China (for Japanese, Chinese and Korea), and Vietnam (emerging).

“For human resources shared services, the primary locations tend to be less offshore-centric,” Mr Cecil says. “While there is still work done in India, the push tends to be more toward the eastern European and Central and Latin American countries, along with onshore sites. Cultural literacy versus language literacy is paramount,” he says.

Leaders of the pack

India still dominates for IT shared services, although Brazil is up and coming. And, according to Mr Cecil: “Russia, Israel and Ireland are attractive for software development, but these locations are typically not used for shared services activities.”

Depending on the specific activities, companies tend to use a mix of locations for procurement shared services. “For sourcing activities, you may see locations such as China and onshore sites where you can get sourcing expertise close to the markets where goods and services are procured,” says Mr Cecil. “For transactional activities, the footprint largely mirrors that of finance and accounting functions.”

Specific to human resources functions, these centres need to be able to deal with retirees and their dependents, Mr Cecil emphasises. This is because accents and cultural differences can be big stumbling blocks to effective communication and servicing.

With all of its complexities, the future of pharma outsourcing looks bright. A 2006 Equa Terra study indicates that 44% of pharma companies plan to maintain their current levels of outsourcing, compared with 28% of industry in general, 39% plan to expand their current and new processes offshore, and 22% will expand into new areas.