The Lure of Asia: Lower Costs and Much More

New agreements provide improved IP security, adding to the benefits of outsourcing in Asian countries such as India.

Medical device companies are struggling with the high costs of clinical trials, marketing, and manufacturing their products. In order for U.S. medical device companies to survive in such a competitive global market, these companies are exploring outsourcing options in Asia.

Asian medical markets and expanding Asian economies offer significant growth opportunities for medical companies in comparison with the United States and Europe. While the U.S. and European medical markets are mature, sales revenues of U.S. medical companies are increasing in Asia. Pharmaceutical and medical device companies are choosing to outsource research and development, clinical trials, manufacturing, healthcare services, and even drug discovery. By turning to outsourcing in Asia, medical companies reduce their product development expenses and produce medical products that can be sold throughout the Asian region.

Asian countries have many engineers, scientists, and technicians, a number of whom have trained or studied in the United States or have received an equivalent education in their home country. Some are even trained in good manufacturing practices and are familiar with the U.S. Food and Drug Administration (FDA) regulations and International Organization for Standardization (ISO) standards. India, which provides considerable opportunities for outsourcing with its huge population of highly skilled English speakers, now graduates approximately 25,000 chemists per year. In Chennai, India, Sanmar Specialty Chemicals’ contract research business will soon employ 130 researchers even though the operation was established only two years ago. The company often looks for Indians who completed postdoctoral studies in the United States or Europe and then returned to India for employment.

In the past, a significant concern for western medical companies outsourcing to Asia was intellectual property (IP) protection. Now, with the World Trade Organization’s agreement on Trade Related Aspects of Intellectual Property Rights, member countries are required to establish minimum standards concerning the scope and use of IP rights and the procedures for enforcing them. India has complied with the agreement, but has until January 1, 2005, to tighten its patent process and make it more secure. Contract research organizations (CROs) in Asia are also enforcing stricter IP procedures. At WuXi PharmaTech in Shanghai, China, workers who fail to follow IP protection procedures are fired after two warnings. I am from the United States; I know about IP protection, says Ge Li, WuXi PharmaTech president and CEO.

Clinical Trials

Historically, clinical trials have been done in the United States and Europe. As the benefits and advantages to outsourcing in Asia increase, that trend is changing. Asia has more than 4 billion people in a genetically diverse population; many people have never received medication to treat their conditions. Hence, these patients may be more suitable for trials because they have not been influenced by previous treatment. This type of setting makes clinical trials much easier, faster, and more efficient. It is only a fraction of the cost of conducting a trial in the West. For example, Germany’s Mucos Pharma GmbH (Geretsried, Germany) asked Siro Clinpharm (Bombay, India) to help with a clinical study for a drug to treat head and neck cancer. To find 650 out of 750 volunteers for the trial, Siro Clinpharm went to only five hospitals in India and found the volunteers within 18 months. To find the remaining 100 volunteers in Europe, Mucos Pharma spent nearly twice as much time and recruited patients from 22 hospitals.

Some Asian countries now offer incentives to clinical trial volunteers. For example, India provides free medication and, in many cases, better medical attention to clinical trial patients than the average hospital would provide. Research groups have been established to address concerns about informed consent for patients. These groups provide materials and consent forms translated into local dialects. The groups also train the workers in how to clearly explain the materials.

Nevertheless, some standardization issues for clinical trials still exist. For example, not all medical procedures are uniform in India, and testing is not always sufficiently documented. Another disadvantage western companies should consider is that Indian healthcare officials today do not allow companies to conduct the first phase of clinical studies on patients in which drugs are tested for safety.

Research and Development

With fewer new drug discoveries every year, rising drug prices, and generic competition, drug companies are under intense pressure to contain their research and development expenses. According to Chemical & Engineering News, in 2003, a PhD chemist at a U.S. CRO costs a drug industry customer $250,000/year (including salary, benefits, prorating of space, etc.). In India, the same chemist costs a customer $65,000–$70,000/year, and in China, $45,000–$70,000/year. Even though western CROs can boast advantages such as close proximity to major drug markets and better safety with IP protection rights, the cost savings that Asia offers has slowed the growth of western CROs significantly, while business for CROs in China and India is booming.

In the past, U.S. companies showed concern about the use of Asian CROs, worried that communication and timeliness could affect business. In spite of this, many Asian CROs can claim business efficiency equivalent to that of a U.S.-based CRO. Communication between a U.S. company and an Asian CRO is typically done via email and often requires an additional 12 hours to account for the time difference. But some CROs now have in-house videoconferencing facilities, so time and speed are of less concern.

Another consideration is the logistics of moving raw materials and finished compounds between laboratories, overseas collaborators, and drug companies. However, with careful planning and frequent updates on the project’s status by both the company and the CRO, supplies can be received and shipped without difficulty, and deadlines can be met.


Asia offers many benefits for outsourcing manufacturers. For example, the cost of labor is usually much lower, yet the quality of work is typically very high. Second, some Asian countries (India, the Philippines, Singapore, etc.) have many fluent English-speaking workers. Moreover, many Asian workers have the education and skills necessary to run a manufacturing plant of equal complexity to a U.S. plant. These factors have led many U.S. medical companies to outsource manufacturing to local subcontractors in Asia, reducing costs and avoiding the difficulty of building a new manufacturing facility. In addition, many local contract manufacturers in Asia— eager to meet the requirements of their customers from the West—are becoming more sensitive to FDA regulations and ISO and other international standards.

Some western companies are establishing manufacturing facilities in Asia and are reaping considerable benefits. Respironics Inc., a U.S. medical device company (Murrysville, PA), has set up manufacturing facilities in China and in the Philippines, and the company contracts out components to Hong Kong. Both China and Hong Kong provide Respironics with a substantial number of well-trained and experienced workers, many of whom are fluent in English.

Divi’s Laboratories (Hyderabad, India) is a manufacturer of active pharmaceutical ingredients and advanced intermediates. In the mid-1990s, it built a 1000-m3 GMP fine chemicals plant on 300 acres of land for $25 million. In the United States, the same facility would have cost between $250 million and $400 million. Plus, the labor costs in Hyderabad are one-tenth of those in the West. Many Asian governments also offer investment incentives to foreign companies that establish their operations in Asia.

Companies involved in high-tech manufacturing or innovative research can often obtain special tax breaks or exemptions. For example, the Chinese government has developed special economic zones for companies in the same industry, offering favorable tax conditions. In Malaysia, incentives such as the Pioneer Status and Investment Tax Allowance are offered to foreign investors, providing tax exemptions for the first few years after establishment.

Healthcare Services

Western healthcare organizations are under intense pressure to cut service costs, and so the outsourcing of healthcare services to Asia is growing, too. In 2003, Health Partners (Minneapolis), an HMO, contracted out its medical transcription to the Philippine IT Offshore Network (PITON). PITON secured a $2.5 million contract with Health Partners, making it the largest single healthcare outsourcing contract in the Philippines. Initially, PITON will provide approximately 100,000 lines of medical transcription per day, increasing to 250,000–350,000 lines within the first year of the contract.

India is booming with the expansion of its hospital services, offering cost reductions of between 200 and 800% in comparison with the West. In addition, many Indian doctors were trained at U.S. medical schools and returned to their homeland to participate in the growing medical market. Prathap C. Reddy, MD, a physician who founded a company called Apollo in Chennai, India, has turned a single hospital into a network of more than 37 hospitals. It is now one of the largest private hospital chains in Asia. Apollo offers cardiac surgery for about $4000, compared with the average U.S. cost of $30,000. The highly skilled surgeons in Indian hospitals, along with technologically advanced equipment and significantly lower costs, are drawing westerners to Asian hospitals. In fact, about 5% of patients at private Indian hospitals are westerners.

Cultural Differences

As western medical companies increase outsourcing in Asia, foreign companies must keep in mind that cultural differences exist between Asian and Western countries. Asia is not just one country, so U.S. companies should be aware of the cultural differences within Asia. For instance, the culture of India is much different from the culture of Japan. Likewise, the culture of India differs greatly from that of the Philippines. In addition, the key to a successful business practice in Asia is building strong relationships.


Outsourcing in Asia provides a way for U.S. medical companies to reduce expenses and increase productivity and efficiency. Currently, about 25% of U.S. medical companies outsource to some extent. Although IP protection issues still linger, some U.S. companies are now outsourcing all phases of product development, including drug discovery, research and development, clinical trials, and manufacturing. U.S. companies will continue to outsource in Asia as the medical communities in Asian countries continue to become more sophisticated and cost reduction can be more clearly defined.