Wednesday, September 25, 2013

The FDA's Reaction to Global SC Networks

In this recent article from ‘The Economist’, the author discusses the impact of dense and complex global supply chain networks on the highly – regulated pharmaceutical industry. As global conglomerates acquire and partner with companies in developing nations, their supply chain networks are growing denser. These global networks need an efficient checks and balance system to regulate the drug development and manufacturing process. 

One such partnership which has received a lot of flak in recent times, is of Japan’s Daiichi Sankyo and India’s Ranbaxy – these two independent companies joined forces in 2008 and are aiming at the United States as their next market base. However, the FDA – the regulatory body of the United States - is standing guard and expanding the regulatory agency’s outreach to these nations.

The FDA has already stepped up its audits of foreign drug factories, especially in India, where last year it conducted 18 times as many as it had ten years earlier. FDA’s presence is continuously growing. According to a new American law, the FDA can collect fees from foreign drug manufactures to help pay for the inspection of their factories. The agency now has 12 permanent staff in India and is hiring seven more.

In the last year itself, FDA has banned a few of Ranbaxy’s production plants in India and is raiding many more. Therefore, while the cost of production might be low in India, there are other costs we have to keep in mind. Other huge, additional costs include regulatory body fees, millions of dollar worth law for quality issues and a harmed reputation – costs which are not helping these companies and their image at all.

My question is, is diversification and offshoring to developing countries a boon or a bane? Keeping in mind the multiple factors which affect a company, is cost more important than the company’s reputation and image?  Also, how can a company strike the perfect balance between profit and image while ‘land-grabbing’ greener pastures?

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