Title:

Medical R&D Outsourcing in China:

Important Role China May Play in Providing Services for New Medical Product and Technology Development

James Li, M.D., Ph.D.

President & CEO

American International Clinical Research & Development, LLC

Abstract

If manufacturing outsourcing in China has played an important role for China’s fast economic development in the last 30 years, providing outsourcing services in higher value added areas, such as research and development (R&D) in the pharmaceutical industry, will be the next main area of economic growth for China as it enters the league of developed nations with high-skilled labors with better pays. Increasingly, international corporations whose products depend on intense R&D efforts that require a better educated workforce, such as companies in the pharmaceutical and biotechnology industry, have been trying to outsource some or all of their R&D activities to countries like India and China in their efforts to reduce cost, long before the recent world economic turmoil. As its advantage in low cost, labor-intense manufacturing sector steadily decline in coming years along with rapid improvement of living standards in China, how to make the transition from providing outsourcing services of low profit margin to higher value-added areas such as new medical product and technology R&D will be a great challenge for business leaders and government policy makers alike in China, as this will be critically important if China is to continue its fast economic growth for the next 10-20 years. Several factors may continue to contribute to China’s advantage as a major player in the world arena of service outsourcings: a much improved educational system that is superior to that of many other developing nations, a modern national infrastructure for transportation, communication and information exchanges critical for R&D activities, and millions of college graduates each year that help to keep the overall labor cost down. In the specific area of medical product and technology development, China has a centralized healthcare system with a quality workforce, research institutions with world-class researchers, and large patient pools of many diseases, all essential ingredients for conducting medical and clinical R&D activities, and these factors will help companies in China to compete for more business in the international medical R&D outsourcing market. Unfortunately, current share of this vast world outsourcing service market for all Chinese companies combined accounts to less than 1% of the estimated annual revenues of hundreds of billion US dollars. In order to significantly increase China’s share in this area of service outsourcing, the Chinese government must get more involved, with appropriate policy changes that assist and facilitate Chinese companies in obtaining more businesses from international corporations overseas.