September 2008
	Offshoring -Things to Consider Health care marketing researchers employed by pharmaceutical companies, as well as the research agencies that service them, are pursuing new paths in an effort to increase efficiency and do more with less in terms of marketing research spend. In this month's column, I will discuss offshoring as one such direction. A practice that has been around for years, offshoring, as the name would suggest, takes advantage of significantly lower pay rates in other countries by having work formerly performed in the United States shifted there. Since companies first put their toes in these waters some time ago, much has been learned that we in the health care industry, slow as usual to pick up on business trends, can use to guide our efforts as we get deeper into these practices. First, while many processes offer apparent efficiencies that are never seen in reality, correctly orchestrated offshoring does, in fact, offer real cost savings, typically in the range of 15 percent to 30 percent. How much savings is realized depends primarily upon the kind of work sent abroad. For example, if we are conducting a one-off attitude and usage study on the Internet, the project conceptualization, through questionnaire design, will typically be handled locally. Offshoring the implementation, from questionnaire programming through quality control, charting, etc., will typically result in a 10 percent to 15 percent savings on the project cost. Quite simply and correctly, clients usually expect their local marketing research agency personnel to work closely with them on the early stages of such a project, and to be actively involved in adding insights to the research findings. Where larger savings are available, on the other hand, is when a relatively standardized questionnaire is administered in several waves over time, thus lowering the percentage of the project that is allocated to local project design and interpretation efforts and increasing the percentage of implementation work amenable to offshoring. In health care marketing research, for example, the classic example of such a situation is seen in tracking studies, where basically the same information, using basically the same instrument, is collected quarterly for a year or more. Here, savings of 30 percent or more on the total cost of the project can be realized through offshoring. Second, at the present time we are seeing these percentage savings begin to shrink slightly. Quite simply, though Costa Rica, Eastern Europe, China, etc., are being discussed as potential sources of offshoring work, the reality is that offshoring in 2008 – and likely for the foreseeable future – means sending work to India, since India is the only country with the infrastructure and trained labor pool available in sufficient size to support our needs. In fact, sufficient amounts of marketing research are now being offshored to India that the principles of supply and demand are beginning to apply, leading to higher prices charged by the subcontractors to the researchers in other countries who must increasingly compete for these scarce resources. To date, however, while prices are creeping up, cost savings in the 10 percent to 30 percent range can still be realized. Third, those considering offshoring work for the first time should understand that it takes time to transition from doing implementation work domestically to doing it offshore. Rather than being an all-or-nothing shift, a transition period is required that often lasts six months or more before an effective working relationship is established between local researchers and their Indian colleagues. To facilitate this process, Jim Calandrillo, the management team member most responsible for the GfK U.S. Healthcare Companies’ efforts in this area, recommends the establishment of a single point of contact within the research agency doing the offshoring. This associate should be responsible for coordinating all work sent offshore and be the go-to person for any researcher in the agency using such services. Having this single point of contact obviously makes it easier for the research agency to come up the learning curve in terms of its offshoring partners’ strengths and weaknesses, and to more quickly learn their procedures. It also ensures that the agency, through this single point of contact, is consistent in its communication of procedures, requirements, etc., to its offshoring partner. Also extremely helpful in quickly coming up the learning curve is, for obvious reasons, to commit enough work to the Indian partner that one or more people are dedicated to that agency’s work. Fourth, while the purported cost advantages of offshoring are real, and there are significant time savings to be recognized, theoretical advantages in expediting the conduct of a project are more difficult to come by. While it is true that many offshoring companies work multiple shifts, the following of the dedicated-personnel recommendation stated above typically means that your direct contact(s) there cover one shift only and that, not unlike the United States, the better workers want the day shift. Therefore, communications not carried out early in our business day wind up being dealt with tomorrow in India. Speaking of offshoring personnel, a cultural difference we must keep in mind is that unlike the United States and other developed countries, where work force stability is a key goal of the management of most companies, Indian offshoring firms actually count on attrition as a strategy for keeping costs, and thus prices, down. Thus, since these managers are dedicated to always paying entry-level wages, we must be ready to constantly train new partners about our preferences and requirements. That having been said, none of the above would matter if the work done by offshoring partners were not of the highest quality. The good news is that, as long as one selects the right partner and follows the procedures outlined above, work performed by Indian subcontractors is generally excellent. Questionnaire programming, hosting, quality control, charting and even high-end marketing science analytics are well within their grasp. Again, however, anyone considering offshoring must remember that their Indian partners will have no understanding of your clients’ marketing issues, the marketplace in which you are interested and its special features, etc. Thus, you must provide careful guidance on these issues as they pertain to the implementation process, and be ready to add any insight required to the dataset when it arrives. Perhaps the best testimonial that this combined approach is generally working well is that we are now frequently receiving requests from clients to implement their work offshore to improve its efficiency, i.e., to provide top shelf research findings at considerable cost savings. As a final comment, we understand and respect the argument that we are shifting American jobs overseas, but we are a global company, with offices around the world, and thus are agnostic in terms of country borders. Additionally, we need to be competitive in an increasingly cost-sensitive marketplace, and offshoring is a key approach for us to utilize in meeting this goal. Richard B. Vanderveer, Ph.D. Group Chief Executive Officer GfK U.S. Healthcare Companies