Can a CMO compete effectively if it does not have reliable sources of water, electricity and communications? Can a CRO conduct clinical trials effectively if it can't move the drug - or the patients - to the clinic?
That's the problem faced by CMOs and CROs in India because of the country's chronic infrastructure problems. In a recent article in Business Week, reporter Steve Hamm spotlights the infrastructure problems that have plagued India in recent years: dilapidated roads, gridlocked air and seaports and a lack of steady electricity production. Infrastructure development has lagged job growth in India, adding substantially to the costs of doing business there. The extra costs include building and operating back-up power generation and water purification systems, long lead times for shipping and receiving goods, the bribes that inevitably get paid to expedite shipments and paperwork. The lack of infrastructure and associated costs are starting to take a toll on India's competitive position, outweighing the perceived labor cost advantages the country enjoys. Just last year, Intel announced that it had picked Vietnam over India as the site of a new chip assembly plant in large part due to "the lack of reliable power and water in India."
The infrastructure deficit, and its associated costs, is a big factor holding back India's rise in the pharmaceutical services industry. It's a small problem when doing discovery chemistry or processing data from clinical trials, since the work product for these activities generally travels over the internet or in small packages carried by companies like DHL and FedEx.
However, for companies looking to compete for manufacturing services or clinical trials, the inability to move people or shipments in a timely way can be a serious problem. How effective will these companies be if the patients do not keep appointments because it takes them five hours to drive fifty miles? Or if manufactured drugs cannot be shipped out of the country because of a lack of dock space for cargo carriers? Or if clinical trial materials sit in un-refrigerated trucks because of paperwork delays at state borders?
Western CMOs and CROs need to take the competitive threat of low-cost producers in India and China seriously, but it would be a mistake to overestimate their competitiveness. Until India can solve the problems of rolling blackouts and commutes lasting up to four hours, China and Western companies will hold a distinct advantage in the race to capture outsourcing contracts.
