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Short-Term Gain, Long-Term Pain

Readers write to say China's recent supply chain problems are down to companies' quest for short-term gain, environmental risk managers are inevitable, and biotechs can find financial security in alliances with big pharma firms.
CFO Readers, CFO Europe Magazine
November 5, 2007

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"Chinese Checking" (September) highlights an interesting debate around risk mitigation. It is true that companies have argued the benefits of manufacturing in China over the past few years but many companies have stopped focusing on China as solely a low-cost manufacturing destination and are pursuing risk-mitigation strategies that allow them to better take advantage of the vast Chinese market. Ford, GE, Volkswagen and Johnson & Johnson are examples of companies that have been developing, training and investing in local suppliers rather than just trying to cut the cheapest possible deals. This is a big investment considering the high staff turnovers that companies in China have been experiencing lately, but it's worthwhile to ensure a stable manufacturing base and long-term positioning.

By contrast, other international companies in China continue to chase after short-term gain. While their tactics might reduce supply and manufacturing costs and speed up delivery, doing so also diminishes the attention they should be giving to quality-management issues.

The recent problems that have arisen in China's supply chains that are discussed in your article are largely the result of the corporate quest for short-term gain and not a reflection of the quality of the goods made in China.

Laurence Dupras
Director of Supply Chain Services
BearingPoint
London, UK


Green Team

I read with interest the risk management article "Chief Carbon Officer" (October). I agree that, with the increased emphasis on risk coupled with green issues, it is only a matter of time before companies appoint individuals to manage risk in this area, as many have done with other risk areas such as health and safety. However, I wonder if a more appropriate designation for such a role should instead be Carbon Offset Officer, or CO2 for short.

Gareth Tancred
Finance Director, Coloplast
Peterborough, UK


Betting the Pharm

With regards to "Hard Cell," your feature in October on Europe's biotech industry, we'd like to note that from our experience as solicitors in this sector, we've found that biotech companies on both sides of the Atlantic face challenges that are unfamiliar to companies in other sectors, not least because it can take a minimum of ten years and more than £500m (€716m) to get a medicine to market.

European biotechs may find this investment proposition more difficult to sell to investors than their US counterparts, but it's not because of the medicine-approval process in the European Union, as suggested in "Hard Cell." A biotech's initial focus may be on the local market, but an aspiring company will want to exploit its assets in all major markets and so will need to confront regulatory issues around the world, not just at home. Except at the earliest stages of product development, European and US biotechs are on a relatively level playing field in terms of regulatory issues.

And biotechs on both sides of the Atlantic face the same need for cash flow and for scientific validation that will support ongoing financing. As the article notes, strategic collaborations with larger biotech/pharma firms can offer both. In addition, they can provide access to infrastructure and expertise needed to successfully develop, launch and commercialise a pharmaceutical product. A biotech firm can also use the alliance as a way to develop its own capabilities and advance its preferred business model with a more acceptable level of risk, but that can only happen in a properly structured collaboration. All this means there is a lot riding on a CFO's ability to play a pivotal role in negotiating the right terms for such collaborations.

Ed Britton and Lucinda Osborne
Global Life Sciences Group, Covington & Burling
Via email




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