| Summary: | “Outsourcing has been touted as the ideal way for organisations to reduce cost, focus
on core business processes, improve services, enhance skills, reduce time-to-market
and increase overall competitive advantage,” (Power, Bonifazi and Desouza, 2004). A
pertinent question is therefore ‘Can South African companies in the pharmaceutical
industry remain competitive by outsourcing, what is driving these companies to
outsource and how effective has the initiative been?’
The purpose of the study is to identify the extent to which various key factors play an
influential role in motivating pharmaceutical companies in SA to outsource. South
African pharmaceutical companies as part of the global arena, have to continually
assess the feasibility of manufacturing their products in-house or allowing contract
manufacturers to manufacturer and or pack on their behalf. The research questions
posed in this research were: why are companies outsourcing, what is outsourcing and
what is happening amongst the South African pharmaceutical companies? The results
of this qualitative rich study have shown that outsourcing in SA is not just about cost
savings or reduction in product costs but that this process is able to afford the contract
giver the ability to tap into additional capabilities (facilities, technology and skill) of their
outsourcing partner.
Outsourcing has enabled the contract manufacturers in SA to assist the contract givers
in numerous areas such as cost reduction, cost saving, reduction in capital investment,
increased flexibility and allowed the contract givers to focus on their core competencies.
The implementation of off shoring may result in South African contract givers incurring
additional ‘hidden costs’ which may be attributed to quality problems, reduced flexibility
of transport, product write-offs (due to large volumes ordered), currency fluctuations and
additional resources that may required (technology transfer, documentation review, and
validation). The responses from the research questionnaires indicate that the key
drivers of outsourcing in South African are aligned with those identified in global
ii
marketplace by Jiang and Qureshi; Copestake and Lau and Zhang (2006). The main
drivers being profitability increase (cost reduction, cost saving and capital reduction),
strategic considerations (focus on core competence, increased flexibility and to
facilitate market penetration) and access to knowledge and skills.
The key for the South African outsourcing service providers lies in ensuring that their
clients are kept satisfied so that they can minimise the threat of offshore providers. The
results of the study are line with Momme and Hvolby (2001) suggestions in which they
advocate that organisations only outsource when suppliers have a comparative
advantage and that an organisation proactively have a stronger focus on its internal
core business areas. In SA governmental changes in regulations/ laws such as those
addressing parallel importation, patents, foreign investors and trade would impact on
the countries national competitive advantage. However although outsourcing is highly
beneficial, organisations need to carefully manage the process, identify hidden costs,
risks and initiate preventative measures to ensure success.
This study was the first step towards conceptualising the impact of the key drivers,
decision making and strategic issues on the South African pharmaceutical
manufacturing industry. === Graduate School of Business Leadership === MBL
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