Merck Continues to Thin Out

As everyone knows, Merck (MRK) announced some big job cuts Wednesday – 7,200 positions, around 10% of the work force. It’s worth looking at the details of these, because they differ a bit from what’s been going on at some other companies.

For one thing, the company doesn’t seem to be exiting any one therapeutic area, as Pfizer (PFE) has, or rearranging their whole R&D structure the way GSK is doing. Merck just seems to be thinning things out across the whole organization. And that includes management, since they’ve announced that they’re eliminating 25% of their middle and senior manager positions. (I should note, in response to some of the more nativist comments that show up to posts like this, that Merck does not appear to be replacing these people with executives from Shanghai and Bangalore).

Overall, 60 percent of the layoffs are taking place outside the U.S. That includes the complete closure of research sites in Japan (the Merck Banyu institute in Tsukuba) and Italy, as well as one in Seattle. (I have to say, I didn’t even know that Merck had research in Seattle). So it’s going to be harder to fit this one into the “traitorous execs in expensive suits send jobs to China” template.

That doesn’t mean that Merck isn’t outsourcing research work, though. The company’s press release says that they will “make greater use of outside technology resources” and “expand access to worldwide external science.” You can always make the case that job growth that might otherwise have taken place here will not, and in fact, I think that’s true. And it’s unfortunate – but it’s also true that doing the outsourced work here would be more expensive (otherwise why outsource?), so that job growth would have come at a higher cost to the companies involved.

So that’s where the argument really resides. If you believe that drug company profits are coupled to eventual productivity, then outsourcing makes sense, because it decreases costs. Of course, you then have to cut that estimate back some, because outsourcing (in a great number of cases) is not as effective as doing the work in-house. Does that cancel out the cost savings, or not? I think if you choose your outsourced work judiciously, the savings are real, even after you take efficiency into account. Handled poorly, of course, you could outsource your way into the dumpster. It’s a tool, and tools can be used wisely or well.

Then we get into the second-order arguments – the ones that go beyond money and effectiveness. I realize that there are many people who, although they may argue that outsourcing research is not all it’s cracked up to be, would still be against it even after stipulating its efficacy. For these people, it’s wrong even if it does work. I will not be able to convince anyone in this camp, just as I don’t see them convincing me. If we’re arguing about numbers, there can possibly be an end to the discussion at some point – but if we’re arguing about morals, there can’t. I’m willing to make my own moral arguments, to go along with my utilitarian ones, but the audience for whom those appeals would be crucial is the one least likely to be convinced by them.

Comments

[Mikealike:]

Merck's strategy is to layoff the Union (Read higher paid) employees up north and move more manufacturing sites south where unions aren't as strong. At least they are keeping them in America, for now.

2008 Oct 27 03:36 PM

[mIkEaLiKe! ...:]

As far as drug companies are concerned many of the developed medications and pharmecueticals are experimental- its safe to say drug companies are also test running their life span. Drug companies have only existed for less than 100 years-prior to that, merchants sold "potions"...after awhile many drugs expire or become intolerable and hazardous. What happened to thorazine and weren't there treatments and pills which are extinct before Prozac? I was on Zyprexa for years that was after clozaril- and was a sick zombie- it took me two years and several psychotic pathological breaks to ween off the years of prescribed meds...it turns out exercise, deep breathing, intensive vitamin balancing and a alternative diet does the miracle a drug couldn't do.
Drug companies made serious profits from illness and prolong the effects of sickness through repression and supression. Maybe some of the experiment is ending with the loss of the corporations corner market?



On Oct 27 03:36 PM Mikealike wrote:

> Merck's strategy is to layoff the Union (Read higher paid) employees
> up north and move more manufacturing sites south where unions aren't
> as strong. At least they are keeping them in America, for now.

2008 Nov 10 04:31 PM