Video #22 - China: Outsourcing Pharmaceutical Trials/ Boom in Scrap Metal Demand
Tuesday, January 10, 2006BACKGROUND INFORMATION
Global pharmaceutical companies are increasingly outsourcing their research and development (R&D), to China. A workshop on this subject, sponsored by the China Pharmaceutical Industry Association, was held in Beijing in September and attracted more than 100 drug producers from across China.
Major pharmaceutical companies are looking to subcontract their R&D operations to Contracted Research Organizations (CROs) in developing countries such as China in an attempt to cut costs. At present, developing a compound into a medication takes about 10 years of work and costs about $800 million. Developed countries' ethical and regulatory realities make it very difficult to conduct clinical trials for developmental drugs.
Ulrick Wandschneider, a partner of Deloitte Consulting, notes that "the knowledge, experience, human talents and equipment of Chinese pharmaceutical industries make them good CROs." Reportedly, Roche (Swiss pharmaceutical giant), Astrazeneca (US based), Servier (France's largest private pharmaceutical firm), and Novonordisk (Denmark's leading drugmaker), have all established innovative research facilities in China in the past two years. The savings can be considerable, as a US-trained Ph.D. in life sciences in China makes between $8,000 to $10,000 a year-- less than a quarter of what his or her salary would be in the US.
This is just one example of how China's huge labor force and the cheap cost of this resource have made China extremely attractive to other labor-intensive industries-- in particular, those involved in manufacturing. The growth of the manufacturing sector has led factories to operate at full capacity, and therefore, to look toward expansion. Other factors that are causing Chinese construction to boom are building for the 2008 Olympic Games and the unprecedented growth of urban areas.
These factors have caused Chinese demand for steel to skyrocket-making China the biggest importer of steel and raw materials like scrap and iron ore. This has increased demand for steel worldwide (In fact, some observers say this has "saved" the world steel industry). One result is a rise in the price of scrap metal from $120 a ton in 2003 to more than $300 a ton in early 2004. In China itself, steel production last year was 220 million tons, the largest output in the world. However, China's demand for iron ore imports has grown 45 % over the past year. To make up the shortfall, steel and copper imports have grown 30 % during the same time period, and its imports of scrap metal have doubled since 2002. However, Fitch Ratings analyst Philip Miall says there are risks for global steel producers over both the short and longer terms. Over the short term, he says China could deliberately act to slow its overheating economy, reducing demand for steel. Over the longer term, he says China could increase its steel production capacity, making the country "go from a net importer to a net exporter."
SOURCES
"Chinese boom causes growth pains for steel." The Age, February 28, 2004. http://www.theage.com.au/articles/2004/02/27/1077676961646.html
"Chinese Raw Material Imports Subside: What is the future for Chinese steel?" FriedlNet, June 18, 2004. www.friedlnet.com Anonymous.
"Pharmaceutical giants outsourcing R&D." chinadaily.com.cn "The Passage to Outsourcing in China." Retrieved October 31, 2004. Faegre & Benson LLP.com
Chambers, Matt, "Sims May Spend $500 Mln Expanding Scrap Business." Bloomberg.com, October 24, 2204.
Furniss, Todd, "China: The Next Big Wave in Offshore Outsourcing." Outsourcing Center, June 2003. www.outsourcing-international.com
Schaffer, Paul, "China tightens grip on US nonferrous scrap." Looksmart, November, 2004. http://www.looksmart.com
LESSON PLAN
GRADE LEVEL/SUBJECT:
10-12 grade Economics, International Relations, World History, Geography, International Baccalaureate Programs (IB), Current Events.
PURPOSE:
To present activities to be used in a variety of classroom situations in order to enhance student understanding of the Malaysian economy and its significance globally.
OBJECTIVES:
Students will be able to:
- Describe the reasons why American companies are increasingly outsourcing work to China.
- Illustrate the current trend for economic growth in China.
- Evaluate the effect of China's membership in the World Trade Organization on its current economic growth.
- Explain China's role in the growth of the steel industry world wide./li>
MATERIALS:
- Background information provided.
- Resources on the China available at your school's Media Center and the Public Library System in your area.
- Background information available through Internet "search engines."/li>
ACTIVITIES:
May be assigned as group activities or as individual tasks. They may also be designed as preparation for related presentations either by individuals or groups.
- Create a list or chart illustrating the growth of outsourcing by foreign pharmaceutical companies in China.
- Use MTG Imports advertising on the Internet as a model to create your own brochure for outsourcing to China. www.mtgimports.com
- Use charts and graphs to illustrate the economic growth registered in China in the last five years.
- Use the above information to write an editorial expressing your opinion on the effect of the World Trade Organization requirements on China's economic growth.
- Create a scenario describing the effects of the Chinese building boom on the global steel industry for the next five years.
EVALUATION:
Individual assignments should be graded by the teacher using established criteria.
Group activities, presentations and projects may be evaluated by teachers and students using the following criteria and scale: Content 1 = Superior (A) Creativity 2 = Excellent (B) Clarity 3 = Good (C) 4 = Fair (D) 5 = Poor (F)
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