Outsourcing: Offshoring to China: What Should Your Model Be? - - BioPharm International

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Outsourcing: Offshoring to China: What Should Your Model Be?


BioPharm International
Volume 19, Issue 12

But shouldn't IP protection worry medical technology and biotechnology companies going over to China? Not necessarily, says Sévigny. In his experience, the products at the greatest risk of IP infringement in China are luxury items and simple technology-based items. That's not to say that medical technology companies are safe from IP risk, which is why a close local partner, with good connections to the government, is a must; a company must have a partner that can voice complaints effectively. DGel believes it has found such a partner in GSBS.

MODEL 3: CAPITAL INVESTMENT

Adaltis Inc. ( http://www.adaltis.com/) is an international in vitro diagnostic company. Headquartered in Montreal, Canada, Adaltis has offices in China, Hong Kong, Italy, Germany, and Mexico. The company develops, manufactures, and markets in vitro diagnostic systems and reagent products to detect viral infections, diagnose immune system diseases, and measure human hormone responses.

In 2003, Adaltis made the strategic decision to build a manufacturing facility in Shanghai. This facility manufactures reagents for its existing clients in Europe, South America, and India, while providing a platform to penetrate the high-growth Chinese diagnostic market.

What are the key drivers that led Adaltis to build a 100%-owned factory in China, rather than develop a partnership with a local company? Historical reasons factor in. One of its strategic shareholders, China International Trust and Investment Corporation Pacific, out of Hong Kong, is heavily involved in the Chinese market already, and was able to reduce the barriers to entry. Citic Pacific, which now owns approximately 13% of Adaltis's equity, became a key partner, providing Adaltis with timely assistance that facilitated Adaltis's quick entry into China.

Yet, Adaltis's management felt that the necessary local production expertise was not available. As a result, Adaltis decided early on to develop its own Chinese expertise and to build its own facility to go with it. Also, by building a team from the ground up, management believed the company would have a better chance of retaining that developed expertise over time, thus reducing copyright infringement risks.

The company also was unable to find a suitable facility, so it decided to build its own. Jacques Deforges, vice president of finance and chief financial officer for Adaltis, explains: "The high quality and modernity of the industrial park [where we built our site] made it a far more logical choice for us to build a new industrial unit than buying a 20-year-old building, recycling it to comply to European regulations, and putting new equipment in it."

Staffing a new production facility from scratch presented some significant obstacles, however. The initial project team included members in China, Canada, and Italy, so ensuring effective communication across different time zones was the first challenge.

Also, it was difficult to find local personnel with the required experience. The products manufactured by Adaltis in China are high-quality reagents based on a lot of know-how, and key employees at Adaltis's other plants have over 30 years experience in the in vitro diagnostic industry. The greatest challenge was transferring knowledge from existing production facilities in Italy and Canada to China.

Deforges continues, "We had to train local personnel to a level allowing this facility to become 'CE mark' certified and teach them our quality assurance and quality control standard. There is a limited amount of local knowledge related to European certifications in China presently."

The CE Mark is a mandatory marking which is required for products in various fields, including medical devices and in vitro diagnostics, sold in the European Economic Area. The mark certifies that the product conforms to the essential health and safety requirements set out in European Directives.

To address these challenges, Adaltis adopted a dual strategy of concentrating its efforts on transferring established products to China while preserving the development of new products in Europe. This strategy allows Adaltis to use its state-of-the-art manufacturing facility in Shanghai to produce diagnostic instruments and high-quality reagents at a low cost while attention in Europe is dedicated to research and development. Therefore, Adaltis has entered China with its stable product lines while preserving its knowledge in Europe. This strategy protects Adaltis from copyright infringement.


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