ABSTRACT“Outsourcing has been touted as the ideal way for organisations to reduce cost, focuson core business processes, improve services, enhance skills, reduce time-to-marketand increase overall competitive advantage,” (Power, Bonifazi and Desouza, 2004). Apertinent question is therefore ‘Can South African companies in the pharmaceuticalindustry remain competitive by outsourcing, what is driving these companies tooutsource and how effective has the initiative been?’The purpose of the study is to identify the extent to which various key factors play aninfluential role in motivating pharmaceutical companies in SA to outsource. SouthAfrican pharmaceutical companies as part of the global arena, have to continuallyassess the feasibility of manufacturing their products in-house or allowing contractmanufacturers to manufacturer and or pack on their behalf. The research questionsposed in this research were: why are companies outsourcing, what is outsourcing andwhat is happening amongst the South African pharmaceutical companies? The resultsof this qualitative rich study have shown that outsourcing in SA is not just about costsavings or reduction in product costs but that this process is able to afford the contractgiver the ability to tap into additional capabilities (facilities, technology and skill) of theiroutsourcing partner.Outsourcing has enabled the contract manufacturers in SA to assist the contract giversin numerous areas such as cost reduction, cost saving, reduction in capital investment,increased flexibility and allowed the contract givers to focus on their core competencies.The implementation of off shoring may result in South African contract givers incurringadditional ‘hidden costs’ which may be attributed to quality problems, reduced flexibilityof transport, product write-offs (due to large volumes ordered), currency fluctuations andadditional resources that may required (technology transfer, documentation review, andvalidation). The responses from the research questionnaires indicate that the keydrivers of outsourcing in South African are aligned with those identified in globaliimarketplace by Jiang and Qureshi; Copestake and Lau and Zhang (2006). The maindrivers being profitability increase (cost reduction, cost saving and capital reduction),strategic considerations (focus on core competence, increased flexibility and tofacilitate market penetration) and access to knowledge and skills.The key for the South African outsourcing service providers lies in ensuring that theirclients are kept satisfied so that they can minimise the threat of offshore providers. Theresults of the study are line with Momme and Hvolby (2001) suggestions in which theyadvocate that organisations only outsource when suppliers have a comparativeadvantage and that an organisation proactively have a stronger focus on its internalcore business areas. In SA governmental changes in regulations/ laws such as thoseaddressing parallel importation, patents, foreign investors and trade would impact onthe countries national competitive advantage. However although outsourcing is highlybeneficial, organisations need to carefully manage the process, identify hidden costs,risks and initiate preventative measures to ensure success.This study was the first step towards conceptualising the impact of the key drivers,decision making and strategic issues on the South African pharmaceuticalmanufacturing industry.
