Unlocking the Value of Strategic Partnerships with CRO’s and Pharmaceutical Companies in Asia

Frank Floether


Considering potential benefits and the impact of pitfalls of any Asian offshoring ambitions you need to analyse your situation and intentions first to establish the right base to unlock the value of your planned strategic partnerships or any other Asian ambitions which might be based on different business models than partnerships.

The pharmaceutical industry started to offshore relatively late compared with other industries; however, pharma stands to benefit hugely because the value of offshoring lies not just in simple labour cost savings, but also in the faster development of new compounds, tapping into the Asian talent pool and penetrating huge new markets.

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 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 partnerships and, increasingly, setting up wholly-owned R&D subsidiaries.

However, Western companies are also correct 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 might lead to problems with quality and delays. Additionally, there may be problems with intellectual property.

Location / choice of right partner / business model

The basic questions to be answered first are:

  • What is your strategic intent of “going East”? ( e.g. cost saving, market access, proximity to customers, tapping into Asian talent pools etc)
  • What is the nature of your business you want to offshore? (e.g. R&D, manufacturing, regulatory support, medicinal chemistry, chemical & pharmaceutical development, clinical trials, support functions)
  • What is your risk tolerance? (e.g.is intellectual property an issue? Is there an operational risk or an investment risk involved?)
  • In case of planned investments, are you aiming for short-term returns or not?

Answering these questions is a first step because it will determine which approaches should be considered. For example, for chemical and pharmaceutical development activities, India is the preferred spot for a variety of reasons (sufficient GMP facilities available in both R&D and manufacturing; experience in full development). For manufacturing of an API based on fermentation, you may prefer to go to China (wealth of experience; no power interruptions) and for back office support you may decide on Singapore (attractive for Expats; back office work not as relevant in terms of being close to your customers as manufacturing or R&D). None of that is set in stone, it’s just highlighting some aspects and preferences.

After being clear about the country, you need to decide on the specific location. For example, is proximity to any governmental offices or local authorities important? What about logistics, such as infrastructure, proximity to airports, and the time difference? Would electrical power interruptions be an issue?

Labour costs can also be a decisive factor, with costs varying greatly between hubs, such as Shanghai and Mumbai, compared with tier 2 or 3 locations. Likewise language-based communication also needs to be considered, particularly in China.

Finally, if you don’t want to invest immediately in a captive centre , then thoroughly check your potential Asian CRO/CMO. Important features can be:

  • Experience in dealing with Western companies
  • Degree of 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?
  • Facilities state-of-the-art?
  • Are there any tax incentives (tax-free zones, industrial parks etc.) 

Identifying the right partner depends on a variety of aspects, but this is probably the most important decision you have to make with the biggest impact. The key is to deal with a local professional representative in Asia who knows the landscape, the culture, the language and the pharma industry, and/or to seek advice from a person in the West who is experienced in both pharmaceutical and Asian matters.

Although many in the industry are concerned about counterfeit APIs in Asia, approximately 80% of APIs supplied worldwide come from India and China, which offers good proof of the countries’ capability and reliability.

Something else you may want to do in terms of avoiding potentially problematic Asian vendors or domestic pharmaceutical companies, is to screen their portfolio in terms of possible counterfeits.

Coping with cultural differences

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. Generally, you will find that your Asian partner has a bold ‘can do’ mentality combined with an 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 combined with an attitude of hesitance to address problems which relates to a cultural tradition of avoiding to communicate bad news too directly. This eventually often leads (at least in the settling-in phase of a cooperation) to reduced turnover and efficiency. In India, you should bear in mind that most scientists - as 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.

There are a couple of very concrete things advisable to be done:

  • 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 organisation 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 importantly, adjust your communication style to ensure you are getting concrete answers to all your questions.

Apart from those general rules, you should also be aware of some specific issues in certain countries.


  • Interpreter often a must; language is still 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
  • Localisation 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
  • When Chinese refer to “FDA approved”, they often mean the Chinese FDA,i.e. the SFDA; check in advance whether they are talking about their domestic authority or US FDA standards


  • Inefficiency caused by red tape
  • Still an extremely weak infrastructure with each respect incl. electrical power interruptions
  • Intellectual property laws are not as weak as in China

Job hopping and limited company loyalty is a big issue in both countries as it is in Asia in general.

In summary, given the objective constraints in the Western pharma industry, the globalising world and the importance of newly emerging markets, creating a presence in Asia e.g. by partnering with a local company or CRO is unavoidable. Realising the benefits of “going East”, however, will require more than just sustained investments and development of management experience - endurance and adaptability to cultural differences will be crucial as well.

There is almost nobody left who hasn’t realised that global sourcing and offshoring of significant amounts of R&D, manufacturing and other core and non-core competencies is becoming an integral component of sustaining profit levels. Therefore most major pharmaceutical companies already have at least pilot programmes in place or have even  already offshored sizeable components of their operations to Asia. So the key question is not whether or not to be in Asia but how to make the best out of your presence.