To What Extent and in What Manner Do Chinese and Indian Contract Research Organisation Learn and Upgrade with the Unbundling the Global Pharmaceutical R&D Value Chain?

Friday, June 24, 2016: 2:30 PM-4:00 PM
83 Dwinelle (Dwinelle Hall)
Paulina Ramirez, University of Birmingham, Birmingham, United Kingdom
Qiang Wu, Aston Business School, Birmingham, United Kingdom
The paper applies the GVC framework to analyse the organisational and geographical reconfiguration of the global R&D function of leading US and European pharmaceutical MNCs. Though pharmaceutical MNCs have been outsourcing clinical trial activities since the mid-1990s, the outsourcing of discovery research tasks is a phenomenon of the 2000s (Ramirez 2013). Moreover, in the context of a crisis of R&D productivity and increasing pressure from shareholders, a number of US and European pharmaceutical MNCs are breaking up their R&D function in an attempt to increase flexibility and reduce risk as well as costs and are thereby restructuring the global architecture of their R&D function. This break-up, or unbundling (Sako 2006), of the R&D function is particularly interesting given the prevalence of market failure in innovation (Howells et al 2008), the non-modular nature of the R&D process in this industry (Pisano 2006) and the strategic important of this activity to the core competence and long-term competitive advantage of firms in this sector.

The focus of this paper is on the outsourcing of R&D activities to Chinese and Indian independently-owned contract research organisations (CROs) and the way these firms are becoming integrated as service providers into the global R&D function (or R&D value chain) of pharmaceutical MNCs. Above all the paper is concerned with the development of capabilities of CROs from these two countries and the dynamics of upgrading in GVCs in knowledge-intensive functions. The paper therefore discusses the role of both knowledge flows within global pharmaceutical R&D value chains as well as national innovation systems on the development of capabilities of Chinese and Indian CROs.  Our analysis is based on data from semi-structured interviews collected from senior R&D managers from a sample of ten US and European pharmaceutical MNCs and owners and senior R&D managers from five Chinese and five Indian CROs who are providing research services to MNCs in this industry. We discuss the emergence of R&D outsourcing in this industry and the nature and mechanisms of knowledge flows within R&D value chains. The embeddedness of CROS in the national innovation systems of their home countries is also discussed.

 Howells, J., Gagliardi, D., and Malik., K, 2008, The growth and management of R&D outsourcing: evidence from UK pharmaceuticals, R&D Mnagament, 38,2, 205-219

Pisano, G, 2006, Science Business, Harvard Business School Press

Ramirez, P., 2013, The new modes and geography of pharmaceutical R&D: Implications for policy, Servicegap Discussion Paper 49

Sako, M, 2006, Outsourcing and Offshoring: Implications for Productivity of Business Services., Oxford Review of Economic Policy, 22 (4): 499-512.