From:	Baroni Limited [Baroni-Limited@tiscali.it]
Sent:	27 November 2007 14:54
Subject:	Baroni Limited - Offshoring Newsletter' - 32/07

Sensitivity:	Confidential

India to emerge as one of leading pharmaceutical  mkts:KPMG-CII
India's pharmaceutical industry is well positioned for sustainable growth and expansion, according to KPMG – CII Report titled, 'Indian Pharmaceutical  Inc.' A Continuing Success Story released today at the Pharmaceutical  Summit 2007. The industry has grown at a CAGR of 13% from 2002-2007 and is expected to grow at a CAGR of 16% over 2007-2011. Over the last couple of years, the pharmaceutical industry has grown at approximately 1.5-1.6 times the growth of economy. The rise in disposable income has a positive impact on healthcare spend. In 2005, 6.2% of disposable income was spent on healthcare as compared to 2.8% in 1995. This augurs well for the pharmaceutical  industry, as the strong economic momentum is likely to continue with the Indian economy expected to grow by 8/9% in the next few years.
On the international front, Indian generic drug makers are playing an important role in the global consolidation process and are augmenting their market presence across regulated as well as semi regulated markets through their organic as well as inorganic initiatives. In spite of increasing competitive intensity on account of continued pricing pressure, several significant opportunities are being leveraged by Indian generic players.
Contract Research and Manufacturing Services (CRAMS), is becoming one of the most promising opportunities for the Indian pharmaceutical  industry. India, with its intrinsic competitive advantages, remains as one of the most preferred outsourcing destinations and is now playing a vital role in manufacturing as well as drug development value chain of various innovator pharmaceutical  companies.
According to John Morris, Head, Global Pharmaceutical Practice, KPMG, “The Indian pharmaceutical industry is at a critical juncture given its inherent strengths and its ability to be a dominant player in the global pharmaceutical industry. It has become a strategic imperative for global pharmaceutical  companies to make India an integral part of their manufacturing value chain to maintain lean cost structures and combat intense competition in the global generics industry”.
MNC pharmaceutical  companies are increasingly focusing on realigning their manufacturing activities in order to concentrate on core activities such as R&D and brand building - thereby reinforcing the potential for cost savings through contract manufacturing. At the same time, existing global CRAMS players are facing adverse business conditions, on account of increasing regulatory compliances on environmental issues and competition from low cost countries.
According to the report, Pharmaceutical  Multinationals are also increasingly using India as a base for exports not only to the immediate neighbouring markets, but also to other markets around the world such as Japan, South Africa, Latin America and Europe. Pharmaceutical  multinationals are also exploiting India’s competencies in the field of Information Technology and its strong and low cost IT skill sets; by setting up centres for their global clinical data management functions in India.
The report suggests the following growth drivers for CRAMs:
-Contract Manufacturing - At present, the global manufacturing outsourcing opportunity is estimated at $20bn and is expected to reach $31bn by 2010
·Contract Research - Contract Research also offers significant opportunity to the Indian pharmaceutical  industry which is becoming a global R&D hot-spot for innovator pharmaceutical  companies. The global contract research opportunity was pegged at $14bn in 2006 and is expected to reach $24bn by 2010. Declining R&D productivity, coupled with an increasing number of products going off patent is expected to drive the growth of the contract research segment
-Clinical Research - At present, a majority of clinical trials conducted in India are for Phase II and Phase III. The government is in the process of considering the recommendation of the Drug Technical Advisory Board (DTAB) to allow Phase I clinical trials for the drugs discovered abroad. If this happens, then it will enable the Indian CRAMS industry to provide a wide range of drug discovery services
·Government Support - On the regulatory front, the government is also trying to promote the growth of this industry by providing a tax exemption on all services carried out by the contract research and clinical trials industry. This step is likely to further boost clinical trial outsourcing to India
Following the patent product regime, many Indian pharmaceutical companies have embarked on Research and Development (R&D) to achieve sustainable long term advantage. These companies are now adopting innovative funding models to advance their R&D activities. Currently, as many as 10-12 companies have molecules under various stages of development. R&D investments by Indian companies have also increased significantly and now account for as much as 7-9% of sales for leading pharmaceutical companies.
New drug discovery is a costly and lengthy process. It takes anywhere between (approximately) 10-12 years, for a new drug to reach the market from the laboratory and costs approximately $800M to 1.2bn. The government and other regulatory bodies can play a significant role in determining the success of drug discovery research in India. One form of government support, would be the PPP models that can give the much needed impetus to this segment.
Growth through collaborations
Various JVs have been formed between Indian and MNC pharmaceutical players for strengthening their manufacturing capabilities, technology-sharing and leveraging on the partner’s experience in product filings, regulatory compliance, etc. Recently, many Indian pharmaceutical companies have formed JVs for expanding into semi-regulated markets.
Generics
Over the last few years, Indian pharmaceutical companies have been scaling up their presence in the non-traditional business segments such as drug discovery and development, contract research and manufacturing, etc., and are focusing on building their competencies in every area of the pharmaceutical value chain. However generics continue to remain the mainstay of the industry. Globally, the generics industry is expected to grow at a Compound Annual Growth Rate (CAGR) of 11% between 2006 and 2010 and touch $94bn by 2010. At present, India has only 10% market share in this industry.
Says, Hitesh Gajaria, Head, Pharmaceutical, KPMG in India, “The Indian pharmaceutical industry is now well positioned for sustainable growth. The domestic market also has strong underlying growth drivers such as increasing spends on healthcare, increasing penetration of health insurance and changing disease profile which should sustain the double digit growth witnessed over the last few years. If government and industry act together to drive reforms that strengthen knowledge and compliance, enabling companies to follow different collaborative business models, India will be well-positioned to emerge as one of the main pharmaceutical growth markets of the world”.
Pharmaceutical companies today, operate in multiple markets spanning multiple segments and with varied business models. Collaborations will be the key to success in such a dynamic business environment. For multinational pharmaceutical companies that are augmenting their market presence (after the new product patent system), by utilizing domestic industry's skills and infrastructures to boost their research and manufacturing activities, partnerships will be crucial.	

 	
 Top Stories	
 	
Outsource for strategy not just savings, says Harvey Nash Survey
In its ninth annual outsourcing survey, which questioned 650 senior IT professionals, the IT outsourcing consultancy found that outsourcing is booming as businesses recognise its strategic benefit. The survey also cited that India, China, and the US, respectively, are the top three preferred offshore outsourcing destinations among the UK CIOs, followed by Malaysia, Brazil, the Philippines, Vietnam, Poland, Romania, and South Africa. About 53% of the UK CIOs are planning to increase their IT budget in 2008; and about 50% are planning to spend over 10% of their IT expenditure on IT outsourcing. In addition, about 93% CIOs are expected to either increase or maintain the same level of software development work currently being offshored.
Daimler Financial Services Selects EDS to Manage IT Environment
EDS and Daimler Financial Services today announced a three-year agreement for transition and data centre hosting services. EDS will relocate and then manage the financial services company's information technology (IT) environment so that Daimler Financial Services can focus on its Mercedes-Benz Financial and Daimler Truck Financial wholesale, retail and lease core business.
Travel group Thomas Cook signs £192M outsourcing deal with Accenture
Thomas Cook today revealed it has extended its existing relationship with IT services company, Accenture with a new $400M (£192.3M), 10-year outsourcing contract. The contract covers application, infrastructure and business process outsourcing services to drive Thomas Cook's post-merger integration of online holiday operator, MyTravel.
Insurance firm Royal & Sun Alliance completes £92M IT printing operations outsourcing deal with T-Systems
Insurance firm Royal & Sun Alliance (R&SA) has completed a 10-year, £92M-rated deal with T-Systems, the business customer unit of Deutsche Telekom, to outsource its IT and printing operations-Systems will run two R&SA print facilities in Birkenhead (Liverpool) and Easton (Bristol) and will see 63 employees transferred to the service provider.
Insurance firm cancels £160M EDS contract
Insurance company Liverpool Victoria (LV) is terminating a £160M, 13-year outsourcing deal with EDS after only four years. The deal, covering an extensive transformation programme, was signed in 2004. But from next March it will be replaced by up to five smaller partnerships working with an in-house team.
Nuetel signs managed services agreement with BT
Bahraini converged communications operator Nuetel Communications has announced a managed services agreement with BT. The three year contract, which according to a company statement is ‘multi-million dollar', will see BT providing technical support, monitoring and deployment of services, to give Nuetel access to BT's infrastructure and expertise.
CA divests security unit, HCL Tech to handle work
U.S. business software maker CA Inc. said it reached a deal for Indian technology services company HCL Technologies to take over research and product development for its business selling products to fight malicious software and other computer threats.
Aibel Group Outsources Info and Communications Tech Infrastructure to BT HP Alliance
In a contract worth an initial 335M Norway Kroners (NOK, or about $61.3M) over five years, Aibel Group, an international oil services company, will outsource its global information and communications technology (ICT) infrastructure to the BT HP Alliance.	
 	
 Service Provider News	
 	
South African Govt, Telkom agree on special call-centre tariff
The South African government has signed an agreement with Telkom that requires Telkom to decrease the telecom services charges for the country's BPO companies. The move will allow the government to develop and strengthen the BPO industry and generate employment opportunities for thousands of people in the country
China to ease restrictions on foreign investments in service sector
China will gradually scrap restrictions on the destination, stock ownership and business scope of foreign investment in the service sector, a senior economic planner said here on Saturday. Chong said his ministry had named 10 cities where 'conditions are mature', the 'base cities' of outsourcing services. They are Beijing, Dalian, Xi'an, Shenzhen, Chengdu, Wuhan, Nanjing, Shanghai, Tianjin and Jinan.
Microsoft to build data centre in Ireland
Microsoft intends to set up a data processing centre in Ireland (to be operational by end-2009) and another data centre at Chicago, the US, (to be operational by June 2008) with a total investment worth up to $1bn. It will provide support for Web-based applications to serve clients across EMEA and the US. Moreover, the facility is expected to accommodate various servers that will offer information and Web-based applications to Internet users.
ACS Awarded E-ZPass Contract in New Hampshire
Affiliated Computer Services, Inc. today announced an extension of the E-ZPass electronic toll collection contract with the New Hampshire Department of Transportation.
CSC gets DHS Citizenship order
The US Department of Homeland Security (DHS) has awarded CSC with a $34M task order to offer technical and process support services for the US Citizenship and Immigration Services' (USCIS) Information and Customer Service Division (ICSD). According to the task order, CSC will provide information support services to about 32,000 daily callers seeking information about benefits and immigration services from ICSD's National Customer Service Centre (NCSC). The IT company will provide these services in association with Irving Burton Associates.
TCS bags $200m Mexico deal
Tata Consultancy Services (TCS) announced that it had won a $200-million outsourcing contract from the Social Security Institute of Mexico (IMSS), which runs pensions, public health and social security for the Mexico government.
IBM Portugal and Logoplaste Sign Five-Year Information Technology ...
Logoplaste focuses on the development of innovative solutions for manufacturing solid plastic packages and serves market-leading clients in various sectors around the world. Due to Logoplaste's functional and geographical dispersion, they will utilize IT to support its business with greater reliability and security. Logoplaste selected IBM to provide a flexible IT infrastructure with the ability to meet its future business needs.
Infosys to foray into LPO business
Infosys Technologies plans to venture in the legal process outsourcing (LPO) business segment in the near future. The LPO practice will become an integral part of the company's knowledge process outsourcing division, which currently accounts for about 9% of the total revenues.
Satyam to open development centre in Tier II cities in Tamil nadu.
Satyam Computer Services has earmarked an amount worth INR 8bn to expand its operations in the Tier II cities in Tamil Nadu, the Southern part of India, over the next 3-4 years. The company plans to establish new campuses at Chennai and Madurai, and double its Chennai-based headcount from 8,000 to about 20,000 over the next few years.
Tech Mahindra setting up centres in Chandigarh, Noida and Jaipur
Tech Mahindra plans to open 3 software development centres at Chandigarh, Jaipur, and Noida in India with a total investment worth INR 10bn in the future. The centres will offer IT and IT-enabled services in addition to software development services, and are expected to provide employment opportunities for over 15,000 professionals over the next few years. The Chandigarh-based centre is expected to receive investment worth INR 2bn, while the remaining INR 8bn will go to the centres in Jaipur and Noida.	

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