Earning Sustainable Competitive Advantage Through Outsourcing Commerce Essay


The crux of the company's success or fall down is the Competition. Multiple activities of the company contribute to its performance and their appropriateness is determined by the competition faced such as innovation, manufacturing, and implementation of strategies, partnership and outsourcing. "Competitive advantage" develop primarily out of the value an organization is capable of generate for its buyers that surpass the costs of generating it. "Value" is the factor for which customers are ready to spend and superior value shoot from making available at less prices then competitors for similar benefits or offering Unique benefits that more than balance an elevated price. Moreover Sustainable Competitive Advantage is an advantage that enables your business to survive against its competition over a long period of time. There are two principal modes of obtaining competitive advantages:


Cost Advantage

Differentiation advantages through outsourcing

Differentiation is a model employed in business strategy and explained as one of the three means to create competitive advantage. In pharmaceutical industry earlier the discovery and launch of blockbuster drugs remained the core competence to gain competitive advantages for firms. This "uniqueness" is now vanishing from the industry as the drug discovery is becoming narrower, complex and longtime work. As work become to be more complicated, and the prospects to stand out in many detailed activities increase, pharmaceutical companies find they cannot be best at each activity in the value chain. As they extend further than three to five activities or skill sets, they are incapable to match the performance of their more focused competitors or suppliers. This situation leads to strategic outsourcing as the best strategy to concentrate at core and gain competitive advantage.

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Core Competence Specialization: The main motive for outsourcing is to gain functional specialization of core competencies. The financial depression of the 1980s and early 1990s put pressure on organizations to cut costs and to restructure their operations. The result is not prominent but important economic transformation. (The Economist, 1994) Competitive advantage for a firm after specialization in company's core competence comes from the "economies of scale" and the "investment intensity of functional specialists". In specific specialized slots, external companies have developed to such size and refinement that they have developed "economies of scale", "scope and knowledge intensity" so remarkable that neither smaller nor more big pharmaceuticals can lucratively compete with them. The grouping of "specialization" and "market competition" is particularly powerful: it guarantees that every underlying prospect for efficiency acquire is strongly chased. (Quinn and Hilmer 1994: 51 ) Sanofi-Aventis Research & Development required an Electronic Data Capture that could unify the results of clinical tests carried out by doctors all over the place the world. IBM Global Technology Services supplied the infrastructure of servers. In result Sanofi-Aventis R&D limited the hardware expenses linked and at the same time acquire the best available capability by IBM. Cost saving for Sanofi-Aventis core competence specialization and getting sophisticated technology will add in the competitive advantage of the firm.

Increase Flexibility to meet Changing Business Conditions, Demand for Products and Technology: today's changing research and business environment put pressure on pharmaceutical companies to be flexible to adapt new trends and developments even within a single product. To outsource 2nd and 3rd phase of product development in countries like China and Indian, where companies are on a steep learning curve, is providing competitive advantage to firms. In India, already an important international player in the software and information technology industries has low manufacturing costs and a deep pool of well-educated scientists and supplying competitive advantage to big pharmaceuticals. The amalgamation has driven numerous US and European companies to outsource with Indian firms for drug-development research, clinical trials, and research-data analysis. Eli Lilly, Novo Nordisk, Roche, Aventis of France, and German drug maker Bayer are among other multinationals turning to India for research collaborations and outsourcing.

Transform the organization: Outsourcing is in particular associated with change process. outsourcing has the capability for extravagant changes in the type of work, control, and organizational design. Mergers, restructurings, and downsizing are possible outcomes of the outsourcing process. (Bettis, Bradley, and Hamel, 1992). Restructuring announced by GSK, a leading firm in pharmaceutical industry, is to reduce costs and release fixed assets to maintain it competitive advantage in phase one drug discovery and high quality manufacturing.

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Exploits the existing skills and resources: Investment in more competent production techniques craft enthusiasm to discover new and new productive methods, which is key factor to gain competitive advantage for any organization. Outsourcing these process developments and buying developed production techniques and technologies can save cost and time and efforts of the management. The scarcest organizational resource is recognized as management's time. Management has to devote time and energy to all activities performed in house either primary or intermediate. (Porter 1990: 246) Outsourcing intermediate production process can reduce the work pressure from management and their skills can be used as most efficient way.

Acquire innovative ideas: cornerstone for competitive advantage in pharmaceutical industry is always innovation. Biological discovery, biotechnology or chemistry processes are promoted with heavy investments. Drug discovery process is recognized as risky and time-consuming and able to provide uncertain economic return. Even for the key players of pharmaceutical industry few blockbuster drugs embellish their portfolios. The affect of these drugs is difficult to measure from firm's business outcome such as sales, profitability or market share. In current context pharmaceutical companies outsource their R&D for example contacting with Bioimagene. (Manila Bulletin, 2006)This company is considered as a leader in advanced image informatics, producing biological image data which are tools for greater productivity in drug discovery and development of healthcare practices. Bioimagene is a supplier for Pfizer, Aventis, GSK, Lilly, Roche, and Merck.

Cost Advantages through Outsourcing

Cost benefit is the sole most significant motive to outsource. In effort to shrink R&D global biotechnology companies are outsourcing operations to Asia including clinical trials and at some extent manufacturing. Many pharmaceutical companies are looking for establishing Asian headquarters. Asian countries are competing and proving attractive packages for investors. Singapore and Malaysia are new competent for pharmaceutical low cost R&D and manufacturing although China and India already have reputed fast-growing biotechnology industries. These Asian countries like Singapore have a significant advantage collectively in infrastructure and the implementing of intellectual property rights. Some biomedical multinationals with manufacturing operations in Singapore include GlaxoSmithKline, Sanofi-Aventis, Schering-Plough, Baxter, Becton Dickinson, and Kaneka. Low cost R&D and manufacturing cost, make the companies to able of Expanding sale and production capacity during production periods and Reduces investments in assets and freeing these resources for other purposes , create competitive advantage for the firms in today's high competition and dynamic business environment.

Improve risk management: pharmaceutical companies' faces elevated risks and invest substantial capital for product development (clinical trials); an optimum solution may seem outsourcing. An increased function of CROs is reflected in the drug development process for success in the industry by gaining experience in areas of strategic competence. The potential of a number of the bigger CROs, grouped with their cash positions and stable income pour out from long-term agreements, made them evolve as risk-takers and co-investors in the drug development process. A survey by Center Watch including 31 foremost CROs in 2000 demonstrated that risk-sharing in CRO contracts are increased. These reports are verified from latest news of pharmaceutical industry that trends toward investment and risk-sharing in products by CROs are increased. Improvement in risk management furnishes great advantage for their performance in current competitive market.

Improve operating performance: outsourcing could increase operational effectiveness and lowering unit costs as all organization are directly or indirectly connected with production. For all times there is an option among in-house production and market transactions bur now in pharmaceutical companies use management tool of Repositioning organizational boundaries to gain maximum advantage Outsourcing organizational activities shape the manner in which an organization functions, in the chain of production -- the value chain. Market transactions allow acquiring specialized services which can be produced in-house to improve operating performance which eventually leads to gaining competitive advantage. (Besanko et al. 1996: 60). Take IT, for example: as many pharmaceutical firms decided like Sanofi-Aventis, GSK not to produce the service itself but to contract instead for more efficient overall production process.

Reduce costs through superior provider performance: Because specialization in today's context means the activity which it should you undertake in grater Scale. These enlarge scale leads Economy of scales which in turn decrease cost of every unit and certainly increase capacity of production. As an example when an IT firm provide sophisticated soft wears for specific purpose is also providing the same to others developing economies of scale for their product. Because their output is several times larger then from a firm developing software for their inter use and the specialist does not have to reinvest in developing the capabilities each time it takes on a new customer. (Besanko et al. 1996: 80) But more importantly, the investment in this capability might never have taken place in the self-supplied organization because such investment at that scale either too costly or even not required. as GSK is taking IT services from outsourcing to free their assets and management, to reduce cost and to acquire an efficient and latest technology.

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