Back in May of this year, I wrote that:
. . .Everyone keeps mentioning that "China isn't as cheap as it used to be". And that's going to continue, I think - I'm not expecting them to reach US/EU cost levels any time soon, but the bottom-line advantages of doing contract work there, which a few years ago were immediately apparent, are starting to become more of a matter for thought. . .
I went on to wonder if some of the big investments in China might turn out to come on line about the time the cost advantages disappeared. Well, it's happening right on schedule. Via FiercePharma, we have this piece from Life Science Leader:
A 30% to 50% cost savings was the main driver for sourcing starting materials, intermediates, APIs, and (to some extent) finished drugs. Cheaper labor, tax advantages, undervalued currency and lower capital, and overhead costs all contributed to this. All of these advantages are expected to erode in the coming years as inflation in China rises, currency appreciates, and tax rebate structures start to evolve. . .
. . .With these changes China’s current gross cost advantage of 30% to 50% could easily go down to 13% to 25%. Factor in supply chain complexity (lead times and inventory implications), rising costs of quality assurance, and upcoming stringent environmental regulations, and Western pharmaceutical companies will start to rethink their China outsourcing strategies. Accommodating for these factors, the net cost advantage for some pharmaceutical firms could easily vanish.
This does not mean, of course, that pharma outsourcing is going away. It's just going to keep moving to the cheapest suppliers that can deliver the goods. India may well pick up some of this business (although their costs will be increasing as their wages rise), and other countries could well move into this space. (Thailand? The Philippines?) And then their costs will gradually grow, as they get richer, and someone else can move in. No, no one gets to sit back, set things on automatic pilot, and watch the money roll in, which is how it should be.