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Factors Affecting Location Decisions for International Offshore Manufacturing on the Example of Pharmaceutical Industry

Student: Agata Popova

Supervisor: Alexandra Zhukova

Faculty: Faculty of World Economy and International Affairs

Educational Programme: International Business (Master)

Year of Graduation: 2020

Offshore manufacturing represents a driving force of efficient distribution of production assets of companies operating in various industrial sectors of the economy, since it allows them to partially shift manufacturing facilities to regions with relatively cheap labor and production costs. Thus, companies often consider offshoring exclusively from cost optimization point of view, neglecting the potential implications of production handled in another country. As a result, companies are faced with a number of issues that not only hinder the implementation of cost-cutting measures, but also require additional expenditures and even entail losses. Therefore, the current study aims to identify specific characteristics of countries that should be considered when making decisions related to transfer of production to other regions. By means of both quantitative and qualitative analysis on the example of the pharmaceutical sector, we have identified a number of factors that determine the choice of offshore production locations for international companies, that should be subsequently taken into account when making strategic decisions associated with relocation of production facilities abroad. Above all, maintenance of quality standards turned out to be a matter of high importance in terms of shifting production processes to the cheaper regions. For the pharmaceutical sector in particular, product quality issues can not only pose financial risks, but also contribute to loss of intangible assets and reduced competitiveness in the global market. Thus, despite the primary goals of the studied practices, involving cost optimization, the current research emphasizes the need for continuous quality control of products manufactured offshore. Given the fast-growing pharmaceutical market and rapidly developing technological processes, we believe that our study not only contributes to the theoretical framework behind offshoring production location matter, but also facilitates the management decision-making process for the existing international companies competing in the global market.

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