Human Capital: Can India Bridge the Knowledge Gaps Needed for Research?Published: November 21, 2005 in Knowledge@Wharton
The rapid growth in the market for outsourced research services from India destined for the U.S. and Europe is beginning to expose weak links in the chain. Depending on the nature of the research being outsourced, Indian companies are preparing for the next level of growth by bridging gaps in skills across the organization with investments in training and development.
At one end of the spectrum are easily transferable, cookie-cutter skill sets in data collection and reporting formats. At the other are high-end research programs that involve extremely sensitive and closely guarded insights into corporate business strategies. Softer skills that involve communication, business culture and general professional standards also form part of the equation, separate from concerns about general business hygiene that keeps such work on the right side of business ethics.
Although these issues cut across all industry groups, pharmaceutical research is perhaps one of the most sensitive and involves concerns at every link in the value chain. Using life sciences as the broad backdrop, Knowledge@Wharton spoke with research organizations, academics and businesses on either side of the outsourced services industry to understand how they are getting their arms around bridging the knowledge gaps.
The picture that emerges is one of a growing desire among companies in the U.S. to conduct sophisticated research projects in India. To be sure, this thinking is guided not just by issues of wage arbitrage, but also by Indian research and engineering education, the availability of large talent pools, and perhaps most significantly for the pharmaceutical industry, the relatively easy access to participants in clinical trials. American and European firms also feel more emboldened by the recent reforms in India's patent regime that bring protection of intellectual property closer to their standards.
The sheer numbers of India's talent force make a compelling case for outsourcing R&D to India. India has some 22 million graduates, including 6 million science graduates, 1.2 million with engineering degrees and 600,000 doctors, according to data compiled by The Economic Times Intelligence Group, the National Association of Software and Service Companies (Nasscom) and other industry sources. That population is growing rapidly, with nearly 2.5 million graduates added in 2004 alone, including 25,000 doctors and nearly 600,000 science graduates and post-graduates. By way of comparison, China had more than 2 million students graduating from its universities in 2003. That included 600,000 in engineering, 200,000 in science and 100,000 in medicine.
Evalueserve, an outsourcing firm in Chappaqua, N.Y., has offices in India and Europe; its clients include several prominent pharmaceutical companies. Alok Aggarwal, its chairman, explains why India is a hot destination for pharmaceutical research. He estimates the cost of creating a new drug can be as high as $900 million, of which between $350 million and $500 million is what it takes for a "new chemical entity" to pass through all the stages of clinical trials and reach the market.
"Research indicates that conducting drug-related studies in India can lower drug discovery costs by as much as 10%," he says, attributing that in large part to rapid enrolment volumes (of participants in trials) and shortened enrolment timelines.
"Each time we start a study we train our clinical investigators to ensure compliance with protocol and ethical standards," says Betsy Raymond, assistant director of media relations at Pfizer Global Research and Development, which is headquartered in New London, Conn. Pfizer has a 100-member captive operation in Mumbai that manages and analyzes data gathered from clinical trials. Apart from the clinical investigators who conduct the trials -- typically physicians -- the company also works to "educate and aid" others such as medical personnel, health authorities and even local leaders with technical knowledge and the requisite infrastructure.
Search for Talent
Louis Kacyn, the Chicago-based managing partner of the global life sciences practice at executive search firm Egon Zehnder, visited India three months ago and met with executives at pharmaceutical companies. He says his company has been retained by quite a few U.S. and European clients who want to hire talent in India. He found "huge opportunities" for conducting clinical trials in India, given the cost advantages and the large supply of physicians and people to participate in trials.
Kacyn doesn't worry too much about gaps in skills in India. "Middlemen such as Quintiles and other contract research organizations have been growing, and they will take care of skills issues and provide a relatively safe passage for companies that outsource," he says. Quintiles, based in Research Triangle Park, N.C., is arguably the largest contract research firm specializing in clinical trials. Its eight-year-old Indian operation, with offices in Mumbai, Bangalore and Ahmedabad, has so far conducted more than 100 clinical trials at 700 sites involving 15,000 patients.
That expanding market opens up new opportunities for training and education of Indian researchers, scientists, managers and others. An immediate market is for programs specific to the pharmaceutical industry, such as compliance with U.S. Food and Drug Administration regulations and "current good manufacturing practices."
Demand is expanding across industry groups to include programs to bring Indian managers up to speed with their western counterparts on business culture, professional standards and work ethics.
A case in point: the Wharton School's Aresty Institute of Executive Education, which aims to "engage individuals and companies in partnerships that transcend the classroom," and which has become increasingly active in India. It launched its first program in India on June 30, and is planning to ramp up quickly around the country. The Institute has been getting requests for training and orientation programs from private and public sector companies, and state governments that want to position specific cities to compete with business centers such as Shanghai.
India's top private sector companies rate high on management skills, notes Jonathan Spector, vice dean of Executive Education at Wharton, who has made India and China his highest priorities for international programs. "Senior executives at some of the leading companies in India are every bit as good as their counterparts anywhere in the world in terms of sophistication, knowledge of management, functional skills, strategic perspective and vision," he says. "The biggest challenge is simply increasing the number of people who are globally sophisticated general managers. It's a numbers game." Spector says in that respect, India is dealing with a fundamentally different challenge than the one China faces. "There are many more role models at the top of Indian companies than there are at Chinese companies, although there are some in China," he says, adding that this represents "a huge and significant advantage" for India.
Ken Johnson, a director of executive programs at Wharton, also picked up positive vibes about India at a series of programs his unit recently organized in China and India with participation from U.S. companies and their suppliers of outsourced services. "There was comfort and recognition that there is a sophisticated set of controls already built into place in India," he says. Sandhya Karpe, an associate director at Wharton Executive Education who works closely with Indian firms, has found a growing willingness to invest in building knowledge and skills. "In our conversations with CEOs in India, we have found they are willing to put large groups of executives through programs to move them forward quickly, as opposed to just sending individuals to our programs," she says.
Learning Management Systems
Standardized educational and training packages are also available off the shelf, such as learning management systems, or LMS, from companies like two in California --SumTotal of Mountain View and Saba of Redwood Shores. Claire Schooley, a senior industry analyst at Forrester Research in San Francisco who specializes in training and education, says LMS packages are strongly recommended by the big consulting houses "because they focus on learning management over a long period of time."
Pharmaceutical companies that use LMS for skills development in their research programs are able to match requirements of individual researchers with courses or programs that take them to the next level. LMS then tracks each individual's training -- both in classrooms and online -- to help human resource departments get a big-picture, organization-wide assessment of the area, magnitude and location of skills gaps and the progress being achieved in bridging those. "LMS is heavily used in online learning of compliance and regulatory issues within the pharmaceutical industry, because the message is consistent," says Schooley, referring to standards enforced by the U.S. Food and Drug Administration in its drug approval processes.
A high degree of standardization in regulations and procedures at the U.S. FDA or its Japanese and European counterparts makes it easier for many aspects of pharmaceutical research to be outsourced to locations like India, says Laura Ramos, vice president at Forrester Research in Cambridge, Mass. "In each of the three areas of pharmaceutical outsourcing -- manufacturing, clinical trials and drug development -- most of the issues boil down to audit," she says. "Companies need to be able to document what their systems do and prove that the systems do them consistently within a certain margin of error, and they need to perform audits whenever called upon to do so by the regulator.
"You start with a template and then move forward," Ramos adds. "From that perspective, it may be advantageous for a pharmaceutical company to use outsourced work, as compared to an automotive manufacturer or an engineering company," she says. "The procedures are written down and they are auditable and you know who is supposed to be doing what and how that work is to be measured."
In ensuring all that, pharmaceutical and biotech companies involved in outsourcing research are incorporating detailed clauses into their contracts. "They are setting up integrated metrics within the outsourcing relationship with clear deadlines, standards for accuracy and database lock (where the data cannot be reopened after it is finalized)," says Ellen Julian, research director at Life Science Insights, which is part of market intelligence company IDC in Framingham, Mass. "There are hundreds and thousands of line items that are agreed upon, involving lawyers and procurement specialists, and all that takes time." Julian says moves are currently underway to create industry-wide, standardized agreements.
Bothered by BLOB
Ravi Aron, a professor of operations management at Wharton who has been researching trends in business process outsourcing, makes a distinction between standardized procedural and verification work in pharmaceutical research and that which focuses on drug discovery. "Over the last 18 months or so, a new concern has emerged over what I call BLOB -- or business line objectives," he says. "Concerns about BLOB far outweigh those about the loss of research data. Companies don't want their competitors to know what their business trajectory is."
Pharmaceutical firms that outsource research grapple with a host of concerns that are common across several industry groups. These include the misuse of "residual knowledge" about a company's market strategy or best practices that an analyst gains during a project. "It is a concern that can be mitigated," says Aggarwal of Evalueserve. He says large investment banking companies have long dealt with these concerns by requiring researchers to be "quarantined" after sensitive projects, which means they cannot work with rival companies for a limited period of time.
Aggarwal says earlier concerns about protection of intellectual property in India have diminished significantly after the Indian government introduced patent protection reforms earlier this year. Through a presidential ordinance in January that was ratified four months later by the Indian parliament, the laws now allow applicants to obtain patent protection on almost every aspect of drug development, from molecules and microorganisms to processes.
In the final analysis, companies are not dealing with skills in the conventional sense; it has more to do with knowledge, says Peter Cappelli, a professor of management and director of Wharton's Center for Human Resources. "It's about tacit knowledge; it's 'how we do things at our company,'" he says. He points out that the loss of tacit knowledge has for long been a concern with companies that restructure and lay off employees. "Outsourcing to India is so much cheaper that companies are tempted to think about doing it without worrying about tacit knowledge," he says. "That could be a real problem."