GUIDE TO OUTSOURCING Opening the Doors to India: Medical Device Offshoring Although medical device firms that offshore to India, face numerous challenges, firms that do it the right way benefit greatly
Market Overview The U.S. market for medical devices is expected to reach $ 89 billion in 2007 representing a promising opportunity for manufacturers and service providers. But with this opportunity comes the added pressure for medical device companies to stay ahead of the competition. To gain a competitive edge, medical device companies are faced with the challenge of developing new, innovative products. Alternatively, they can create new versions of existing products that adopt the latest methods of treatment and conform to the highest quality standards. Either way, firms are pushed to accomplish their goals at a reduced cost. To compete in this attractive market, many medical device makers are successfully partnering with offshore outsourcing firms and collaborating on device development and manufacturing. They are offshoring processes such as application development, systems engineering, hardware design, software solutions, and manufacturing. This way, U.S. OEMs can focus on more-strategic, value-added projects and divert substantial funds to R&D. The benefits of partnering with an overseas outsourcing company are substantial. However, there are also risks and obstacles that should be Benefits of Outsourcing to India Many consider India to be an excellent outsourcing destination. With more than 380 universities, 11,200 colleges, and 1500 research institutions, India has the second-largest pool of scientists and engineers in the world. More than 2.5 million graduates are added to the workforce every year, including 300,000 engineers and 150,000 information technology (IT) professionals. India s workforce is also one of the world s youngest. Among Brazil, Russia, India, and China, India is expected to stay the youngest. Its working-age population is estimated to represent 70% of the total population by 2030 the largest in the world. By then, the country is expected to have an additional 200 million people entering the job market. It is because of this impressive pool of well-educated, highly qualified, English-speaking professionals that many experts consider India a good outsourcing destination for manufacturers and service companies. India offers a mix of engineering expertise, comparatively lower wages than those in the United States, high-quality product development, and proven experience with long-distance project execution. Furthermore, the United Nations predicts India will overtake China to become the most populated country in the world by 2035. This forecast indicates the prospect of continued growth is promising, to say the least. India s economic and political stability have also contributed to its rise as an outsourcing destination. With a fast-growing economy, robust financial system, and stable political system, companies can reduce the risk of external economic or political issues affecting their business. 2
Being a democracy ensures a stable policy environment, and India s independent institutions guarantee the rule of law. In the medical device industry, products introduced or upgraded within the last five years typically drive a company s profits. Patent protections and the long cycle of clinical trials are key factors for newly released products. In addition, public acceptance is necessary for achieving a return on investment (ROI). And although the task of collaborative product design and manufacturing may seem daunting at the outset, the benefits can greatly outweigh the initial hurdles. Leveraging the services of an Indian offshore partner that specializes in finished-device manufacturing is often a good choice. Such partners can help a company improve quality while shortening the product development cycle and reducing time-tomarket. In addition, it can decrease costs by as much as 60%, according to HCL estimates. Although some may worry that lowered labor costs could result in longer development cycles, for many of the established and experienced offshore companies in India, this is not actually the case. Many of these companies have years of experience working at this capacity. Therefore, robust offshore development processes have been created, tested, retested, and fine-tuned to reduce costs and shorten development cycles. Some Indian companies have expanded their manufacturing capabilities by developing an infrastructure and adopting manufacturing processes that uphold the strictest of standards. And some have added clinical trial and FDA regulatory certification processes to their portfolios. Finally, with the implementation of a highquality telecom and connectivity infrastructure in India, it has become convenient for these companies to provide maintenance and field support as well. Risks of Offshoring to India Although there are benefits in outsourcing to India, there are always risks that should be considered. When seeking an Indian outsourcing partner, it s important to be cautious. Many vendors are growing rapidly, which could compromise the quality of their services. Visiting the facility and meeting in person with the project teams before selecting a partner or vendor can give OEMs a better understanding of the vendor s capabilities and the resources that would be dedicated to their project. Regular communications and visits will help validate the vendors skills. Managing the Entire Life Cycle of a Medical Device Indian outsourcers can help OEMs compete in the industry with quality products at a reduced cost, as they are able to manage the entire life cycle of a medical device (Exhibit 1). The management should start from the product concept phase, when emerging and next-generation products are conceptualized. This phase brings together the skills of technology and the domain knowledge of physicians and research team. 3
Then, the vendor in India should create a detailed requirements document in close collaboration with the OEM. This document is often reviewed by the OEM s marketing department for market feasibility, as well as by user groups such as physicians, patients, and regulatory bodies. Once the requirement document is finalized, the outsourcing company in India can develop a prototype along with a detailed architecture. Once the architecture is approved, the India-based outsourcer develops and consults on the software development, mechanical design, and electrical considerations of the product, depending on the needs of the device should create a detailed requirements document in close collaboration with the OEM. Upgrade Replacement Product Concept Requirements Definition Prototype Architecture Product Maintenance Launch & Field Support Testing Certification Release Product Development Re-engineering Exhibit 1 : Entire Life Cycle of a Medical Device Evaluating the Viability of an Offshoring Model To determine whether offshoring is a viable option,certain critical factors should be carefully evaluated, including regulations, accountability, the total cost, and resource optimization. This industry is heavily regulated, so understanding the regulations that will affect the relationship is vital. It is also advisable to obtain background information on potential offshore partners experience and track record for compliance with specific regulations. A number of reputable research firms,such as Gartner and AMR Research, can provide information, research, and analysis about the companies that work in the device field and their respective processes. It can also be helpful to talk to companies that have already outsourced overseas. Many large medical device companies are already working with a number of Indian contract manufacturers. Speaking with those involved with the implementation and execution of an offshore project is an excellent way to gain insights into such collaborations. In addition to the compliance and regulation challenges, OEMs need to ensure that a potential offshoring model allows them to achieve the benefits of offshoring without compromising the quality of their products. With an approach known as risk sharing, an OEM and an offshore partner use a model centered on output based pricing. With output-based pricing, the OEM pays only for output or results. It examines factors including managing expectations, establishing communication processes for all levels, identifying appropriate contacts from both companies, establishing formal progress reviews on a regular basis, and striving for cultural synchronization. 4
Many quality control problems can be managed, and timely deliverables can be achieved, by structuring the OEM-vendor relationship around these principles and fundamentals. With offshoring, one of the most difficult areas to assess is the total cost of ownership. The traditional ROI equation is based on subtracting net costs from net benefits. However, because of the complexity of these relationships, it is important to conduct a careful analysis of the costs of outsourcing. Then compare those results with the costs of an in-house solution. The results can help shape a device OEM s strategy. Anotherbenefit of offshoring is resource optimization. Indian contract manufacturers can leverage certain resources as necessary during the progress of a project. For example, during the testing phase, additional resources can be brought in to perform the testing and then be reallocated once their work is complete. However, this flexibility can have both positive and negative effects. Mapping out plans for internal and external resources and understanding the value they offer to the model in both the short and long term is critical. Also essential is managing expectations with respect to the effect offshoring can have on an organization. Choosing an Outsourcing Partner However, certain steps can minimize the risk and help OEMs reap the benefits of offshoring in India. Choose an FDA-registered partner with capabilities and experience across all classes of devices, as well as a proven track record. Device OEMs should also look for certifications, such as the medical quality management system (MQMS) certification,per ISO 13485:2003 and ISO 14971, which ensures that risk management standards are met. Companies should also employ an effective risk management program that includes software hazard analysis, failure mode effects analysis, and worst-case and reliability analysis. Additionally, OEMs should investigate a prospective outsourcing partner s knowledge of FDA and the Medical Devices Directive. A potential partner s experience in designing and developing medical device products in a regulated environment should also be researched. Determining a vendor s flexibility and willingness to work in different models, such as a fixed-price base, is also advisable. Finally, OEMs should require a predictable and transparent delivery model. All of these questions will be best answered through in-person meetings and ongoing site visits. Establishing an Effective Outsourcing Partnership At the onset of any partnership with an outsourcer, the structure of the relationship should clearly define expectations, communications, contact persons, reviews, and cultural sensitization. Managing expectations is important from both the OEM and the vendor perspectives. Some firms will even start by conducting an on-site requirement study. Such studies usually encompass product definitions, functionalities, technology, cost of development, staff, and standards. 5
As in any partnership, clear communication is essential. It improves efficiencies and can eliminate errors owing to miscommunication. India has the talent pool of educated, English speaking professionals, which helps ensure clear communication. However, despite the common language, there are still cultural differences that need to be understood from the start of the relationship. Different communication styles are the most common cultural issues that can cause problems or upset relationships between U.S. and Indian workers. For example, if someone in the United States says yes to a task, it is understood that the task will be completed. However, in India, yes often means, I want to do it, and I will do everything I can, but it is not a promise. Understanding differences like these are key to managing expectations and growing a successful relationship. Also, Indian companies place a very high value on face-to-face meetings. Therefore, as the teams are being established, many Indian outsourcers will encourage meetings in-person or via video conferencing. After the formal introductions, the two companies should establish protocols for transferring data and critical information. Both parties should create a communication mechanism among the key stakeholders in the executive team, operational teams, and the day-today operations team. Next, identify the right contact persons from both organizations. It is helpful to agree upon a robust review mechanism that establishes weekly, monthly, and quarterly meetings. These reviews help resolve any conflicts before they can become larger problems. And, as mentioned, Indian outsourcers will likely encourage some of these meetings to take place in person or via video conferencing. Cultural synchronization is key to a successful relationship with an Indian outsourcer. Resolving common cultural differences and establishing an open line of communication is critical. To overcome the cultural differences, some companies conduct cultural sensitivity workshops in which participants learn about the differences between cultures, verbal and nonverbal differences, etc. For example, the western norm for shaking your head from side to side means no, whereas in India, the same gesture can mean yes. Executing an Effective Pilot Program There are certainly risks in outsourcing medical products and services overseas. However, OEMs that carefully evaluate the viability of offshoring and carry out an effective pilot program are poised to see the long-term benefits of offshoring. Although not unique to India, this is an important starting point for companies to consider. A pilot program, which is a small-scale project that can last anywhere from 36 100 months, can include verifications, validations, and high-level design. Identifying projects that have the potential for early success can be a smart strategy. That way, the OEM can use the best practices of the program and work at a suitable pace to expand the relationship by scope and size. Additionally, early success will help build confidence and offer both firms the ability to refine their strategy as needed. 6
Through years of experience, Indian outsourcing vendors have developed effective processes, procedures, and skills that enable U.S. OEMs to overcome the obstacles and challenges that exist in this highly competitive market. And with a large workforce of young, talented, English-speaking professionals, plus a stable economic and political environment, India is well positioned to continue expanding its work with OEMs through the entire life cycle of a company s products. India has firms with years of design and manufacturing experience, the certifications required, and a talented pool of engineers, and this combination enables U.S. OEMs to reduce costs. Moreover, India has experience working with a range of different cultures and customs. Effective communication is critical to a successful outsourcing strategy. If the two companies cannot agree on one point of view or have different understandings of the same word, the relationship is less likely to succeed. Ultimately, it s important to remember that business is conducted between people. Although the technical expertise and track record of a company stands for itself, the best outsourcing relationships are built on trust, dedication, communication, understanding, and respect. About the Author Pradep Nair is Vice President & Head of the Life Sciences and Healthcare practice at HCL Technologies, a $1.5 billion IT services enterprise. In this role he is responsible for leading and improving the financial and operational performance of the practice in domestic and international markets, including setting strategy for revenue growth domestically while establishing delivery centers offshore with processes focused on quality. Pradep has delivered $ 1 Billion in total career business development revenue. Pradep has been responsible for expanding HCL s footprint in the global marketplace through relationships with leading Pharmaceutical and Healthcare providers. He has led teams providing IT services to these Fortune 500 companies with emphasis on specialized services for medical device design and development, clinical data analysis and management, and regulatory compliance. Pradep is a key leader for HCL in the Americas and during his tenure has lead teams to establish a customer focused sales and delivery organization as well as oversee strategic & tactical planning, contract management, and strategic partnerships. Pradep holds a Bachelor in Engineering and also is accredited with an MBA from J.L. Kellogg School of Management. He can be contacted at pnair@hcl.in. 7
About HCL s Medical Device Practice Innovating care since 2000 Quality DNA SEI-CMM Level 4, ISO-9000, ISO-13485, BS 7799, ISO 20000, ISO-14971 Process Compliance * 21 CFR Part 11,21 CFR Part 820, SW:68/ IEC -620304, IEC -60601-1-2-3-4 Leading Industry Standards HL -7, HIMSS, DICOM, CDISC, ACDM, SCDM, WBF, OPC Classes of Devices According to risk profile - Class 1,2 & 3 Solution Accelerators CrosSView(Computer System Validation), ELM & PAT Best in Breed Partnerships Oracle Clinical, GVK Bio (CRO), FAST Search, Day Software, Visiprise (MES), Human Factors International Strength in Numbers 776 + strong team of domain and technical consultants Key Clientele 7 out of the top 10 global medical devices companies HCL Medical Device Practice Credo * To be achieved in 6 months To be an enabler in enriching the quality of patient lives through innovative technology solutions HCL Medical Devices Outsourcing Service Offerings Concept Concept to Market to Market Services Services Concept, Design, Prototype & Validation Pre-Clinical & Clinical Manufacturing IT Sales & Marketing Enterprise IT Obsolescence Mgmt. & Legacy HL7 based Integration : UMDB Concept /Idea Generation Design & Develop. Architecture HW SW Imaging Prototyping I V & V System Bring Up NPI / Implementation / Manufacturing Design & Blueprint Implementation & Rollout Application Deve. & Management Application Support & Enhancement Consolidation Clinical Trial Management Clinical Data Management Data Analysis Factory Solutions Enterprise Solutions Automation Solutions Consulting PDM/PLM Marketing Management Sales Force Management Sales Support Solutions Consulting ERP Middleware Content Management Consulting Active Product Support End of Life (EOL) Globalized Life Cycle Services Compliance - RoHS Regulatory Inventory Management cgmp GCP GLP GHTF DHF/TCF/DMR 503(g)(1) 21 CFR Part 210,211,820 21 CFR Part 812 : IDE Embedded RFID Patient Management 21 CFR Part 11 cgmp 21 CFR 50, 54, Hazard 56, 312, 314, Analysis 510 (k) Critical 21 CFR Part Control Point 814: PMA System Post Marketing 21 CFR Part Surveillance 210,211,820 Adverse Event E-pedigree Reporting Disposables Authentication & Configuration 8
HCL is a Pioneer & Leader in Medical Device Outsourcing What makes us a leader and pioneer in Medical Device Outsourcing? 19 Top Medical Device customers, 80+ Devices worked on First Indian service provider to be ISO 13485 certified Proven track record: Works with 7 out of the Top 10 global device OEM s Largest Dedicated Medical Devices practice in India The World is talking about us "HCL is our key partner for medical devices development. Several of our projects are conducted at their design center located in Chennai, India. For us, India represents much more than those aspects of IT. Today, we rely on our partner for critical, real-time control software, as well as complex hardware design encompassing digital and analog electronics. - Al Chopeena, Vice President, Research and Development Worldwide, a Johnson & Johnson company HCL Technologies is ranked as Strong Positive on Technology, R&D and Product Engineering Services Technology collaboration with HCL accelerates our market entry in India; by working with a strategic technology partner, we have been able to leverage our strengths and turn our ideas into action. - Surya N. Mohapatra, Ph.D., Chairman and CEO of Quest Diagnostics HCL has been ranked one of the top outsourcing providers Fastest growing SAP practice among Indian SI s For JD Edwards skills, HCL technologies is in Top 3 Equitable mix of functional and technical consultants (50:50) Largest offshore component among Indian SI s (effort) (79%) HCL has demonstrated capabilities in Lifesciences vertical in: Plant-level data collection (better than Infosys, Satyam & TCS) MES/Shop floor Control Systems Development (tied top position with TCS) Quality Management (including CAPA) (tied top position with Satyam) Shop floor ERP Integration (HCL has demonstrated capabilities) Mftg Strategy/Technology Selection (HCL has demonstrated capabilities) Custom Application development (tied top position with Satyam) 9
HCL offers a range of product development services as part of their wide offshore service lines bouquet HCL provides the full spectrum of R&D services, for which economy of scale is the prime differentiator Figure 4: Vendor Landscape Offshore generalists R&D and embedded Engineering Software HCL Technologies Tata Consultancy Services Patni Computer Systems Wipro Technologies KPIT Cummins L& T Infotech Infosys Technologies Satyam Computer Systems KPIT Cummins Wipro Technologies Most of their clients use them for product extension, management, porting, and maintenance as well as for core product development in select verticals HCL is the top choice for embedded systems engineering and product development work For companies that want to form a Joint Venture in India...HCL is a Top Choice. It is also a Top Choice for embedded systems engineering and product development work Recommended HCL Technologies ( HCL ) SAP offering as Strong, and an especially good fit for buyers looking for A partner with global capabilities and NetWeaver capabilities A vendor who can provide highly customized modules or solutions One with track record of strong SAP engagements HCL has demonstrated capabilities in Lifesciences vertical in: Pharma solution providers like HCL Technologies now offer browserbased tools as part of their conversion services to pharma customers. As part of its conversion service, for example, HCL Technologies offers a Web-based tool that copies the look and feel of the EMC/Documentum user interface, but it automatically generates the XML code and tags in the appropriate sections of the SPL schema. Product Manufacturing - The Next Leap March 22, 2007 By Rajabahadur V Arcot and Sid Snitkin Electronic equipment/product manufacturing has been adept at continually evolving and changing. The hallmark of product manufacturing is its agility in leveraging technology, and this has lead to the early adoption of computers to produce design drawings, computer aided manufacturing systems to generate NC codes, and computer aided engineering tools for carrying out engineering analysis in designing and manufacturing. This adaptability has also resulted in product manufacturing companies extensively using robotics and computer numerical control machines on the production floor. Product manufacturing is moving further into digital manufacturing (DM), which with simulation capabilities minimizes the iterations involved in taking a product from design stage to production phase. 10
Looking for further trends in product manufacturing industry, ARC held discussions with Celestica, a leader in providing electronics manufacturing services (EMS), and HCL Technologies, a leading global service provider (GSP). While Celestica provides turnkey manufacturing, fulfillment, and after market solutions through Collaborative Design, enabling OEMs to brand and sell, HCL Technologies is a global service provider with strong presence in the product design and engineering space. Recently, these companies came together to establish a joint-venture company to provide end-to-end product solutions to their clients. LifeSciences & Healthcare Pratice @ HCL The LifeSciences & Healthcare Practice at HCL delivers IT centric solutions across the pharmaceutical, medical device & hospital industries. The DNA of the practice lies in extension of this knowledge to provide focused IT services and solutions to the customers. Hcl s investments have strong focus on regulatory compliance prescribed by the PhRMA, FDA s CFR, CEC, ISO, HIPAA and meeting technology paradigms surrounding Hl7, SaaS, DICOM & others. HCL continues to invest in providing tested solutions in arenas such as pharmacogenomics, medical devices and diagnostics, contract manufacturing and hospital information systems. The LifeSciences & Healthcare team comprises 1500 people, including regulatory experts, bio technologists and pharmaceutical industry experts. HCL is already working with 9 of the top 15 leading global pharmaceutical companies including Novartis, Aventis, as well as 7 out of the top 10 medical device OEMs For more information on HCL transformational IT service offerings and case studies please write to lifesciences@hcl.in 11