The economic logic behind offshoring is the reduction of cost. People who use their skills for lesser pay have an advantage over those who demand more wages. Countries should freely trade the items that cost them less to produce.

In today's cost competitive environment, organizations are working overtime to maximize their efficiencies worldwide. As a result, firms are focusing more on their core competencies and relying on outsourcing of non-core activities to cost-efficient locations such as India and China, that provide low-cost pharmaceutical and IT services due to economies of scale.

In the Life Sciences industry, majority of the multinationals or top-tier companies outsource services such as clinical research, manufacturing and marketing. The reasons for outsourcing differ for each service. India's agreement in 2005 to respect global patents have encouraged multinational pharma companies to bring newer drugs into the country. Indian companies with strong marketing networks and well trained teams are looked upon favorably by overseas companies for "in-licensing" alliances, which allows Indian companies to market patented drugs produced by overseas companies. In return, the foreign partner gets a cut from the drugs' turnover in India. Due to patent protection, the product would have minimal competition enabling the company to penetrate the market at premium price, enabling larger margins. Apart from these factors, marketing alliances with Indian companies provide an excellent growth opportunity for smaller innovator companies that may not want to build in India and will enable them to gain a quick entry into the lucrative Indian market, without risking a high investment. Other option is to buy a company or establish a subsidiary which would involve significant costs and time. In case of manufacturing and clinical research, faced with rising cost pressures, innovator companies have little choice but to outsource non-core activities. Contract Research and Manufacturing Services (CRAMS) pertain to outsourcing services/products from low-cost providers. Pharmaceutical multinationals have traditionally been outsourcing intermediates, APIs (Active Pharmaceutical Ingredients) and formulations (finished dosage forms). Since the late 1990s, CRAMS has gained more importance, as the MNCs have come under pressure to maintain their profitability. CRAMS basically consists of the following two activities: Contract research (including custom chemical synthesis and clinical trials) and Contract manufacturing.

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