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Indian BPOs get new growth pill

A growing number of multinational pharma companies are seeking to establish their R&D operations in India.

india Updated: Jun 12, 2006 16:01 IST

Pharmaceutical Research and Development (R&D) is slated to become the next big thing in the offshore services market in India with a growing number of multinational pharma companies seeking to establish their R&D operations in the country.

According to the international strategy and management consulting firm Boston Consulting Group, India would soon become a vital hub in the multinational pharmaceutical firms' global R&D network.

US-based BCG said in its latest report 'Harnessing the power of India' that partnerships between Indian and global pharma companies are on the rise and almost all top global firms are heading towards India with plans to set up their R&D divisions.

India ranks among the top nations for R&D spending by MNCs across all industries, and biopharma companies in the sub-continent nation have been increasingly active in securing their share of this interest and investment, the report added.

The country would no longer be considered a developing country in the pharma R&D market, as its hubs acquire equal status with their European and US-based counterparts, the report added.

A separate study by global strategy consulting firm Booz Allen Hamilton and France-based Business School Insead, said that more than three-quarters of the R&D sites to be set up over the next three years would be located in India or China.

The two Asian countries are ready to overtake Western Europe as the most preferred location for foreign R&D operations of US businesses and by the end of 2007 they would account for approximately 31 per cent of global R&D staff, up from 19 per cent in 2004, the study said.

The domestic pharma sector is gradually shifting its focus from the generic drugs towards innovative drug discoveries on the back of recent changes in the patent protection and other industry trends globally.

This focus shift has led to a significant upturn in the partnerships between domestic and MNC players of the industry, BCG said.

While the MNC players were initially seen tapping the proven capabilities of the Indian pharma sector, such as process scale-up, they are now exploring further expansion to their relationships in India after facing declining productivity in their internal R&D departments, it added.

BCG's senior vice president and Asia-Pacific region chairman John Wong, a co-author of the report, said that India's greatest attraction is near-immediate gratification for MNC pharma who are seeking to enhance their chemistry-related activities and accelerate the clinical trials.

Indian vendors demonstrate established capabilities in these areas and MNC companies could quickly tap into and reap the benefits of this experience, he added.

However, the potential benefits of offshoring R&D operations to India comes along with certain challenges too and the MNCs pursuing opportunities in the country must be aware of the pitfalls, the report said.

Besides major advantages sich as cost savings, smoother- flowing pipelines, and expedited clinical trials, the concerns related to weaker IP protection, a resource-draining bureaucracy, and infrastructure related issues are some of the possible spoilsports, it added.

However, the overall risk/return profile for offshoring in India is favourable, while the challenges are hardly menacing and are on a decline with positive regulatory and industry initiatives, Wong said.

The global pharma companies are advised to come to India with a long-term perspective, the report added.