CORPORATE SOCIAL RESPONSIBILITY

The Impact of the Corporate Social Strategy (CSR) On the Supply Chain Strategy in the Pharmaceutical Industry: The case of Mitsubishi Tenabe Pharma Corporation

CHAPTER 1: INTRODUCTION

Background of the study

To flourish and survive in today's competitive global marketplace, firms are increasingly focusing on their core competencies and turning towards outsource functions in which they possess no expertise to maintain effective cost structures and to improve their top and bottom lines. In today's hypercompetitive global marketplace no one firm can go it alone and become successful in search of market opportunities in near real-time and cost-effective fashion because of lack of key talents and knowledge experience bases (Conklin, 1994, 33).

Due to few blockbuster drugs in the pipeline chain and competition from generics firms, the pharmaceutical firms are increasingly scrutinizing their operations to improve shareholders' value and profit margins (Snee, 2006, 11). In particular, the practice of pharmaceutical outsourcing has become more than ever a viable strategic business option to gain competitive advantage. The most commonly cited reasons for the increase in pharmaceutical outsourcing include cost savings associated with cheaper labor and infrastructure, reduced burden on the firm to research and discover drugs, the shift from a fixed cost to a variable cost model and the ability to acquire new technology and knowledge via the utilization of specialized external providers. Indeed, maintaining internal pharmaceutical researchers in-house is no longer required and relevant nowadays.

The costs of producing drugs can impose daunting pressures on a firm's resources. The pharmaceutical industry has seen its R&D productivity decline significantly (Dimasi et al., 2003, Grabowski and Vernon, 2000, 20) and the traditional generation of new chemically based small molecules dwindling. Driven by the need to ameliorate R&D productivity and efficiency and to have access to untapped markets, global pharmaceutical firms have increasingly outsourced operations to contract research organizations (CROs) in India and China.

Problem Statement

The nature of outsourcing areas include information technology (IT) and IT support, human resource, R&D, procurement and logistics. Arguably, pharmaceutical firms are turning to supply chain outsourcing as a way to improve product pipeline and gain strategic competitive advantage. Pharmaceutical global outsourcing has become a viable and a lucrative business strategy that is enabling firms to transfer non-core activities to external partners in order to restructure their distribution networks, leverage resources, spread risks, focus on issues imperative to survival, competitive advantage, and future growth (Sink and Langley, 1997, Wang and Regan, 2003, 20).

Thus, R&D costs, regulatory pressure, patent expiry, declining blockbuster pipeline chain, among others have caused pharmaceutical manufacturers to focus on their core competencies by outsourcing supply chain non-core activities to contract manufacturing organizations (CMOs) and/or CROs. Firms' increasing focus on core competencies and the need to reduce cost are motivating them to turn to global outsourcing. This trend towards global outsourcing relationships has been strong in various types of firms and in different parts of the supply chain (Fill and Visser, 2000).

It has been recognized as one of the eight most prominent factors playing a key role ...