As executives across industries grow used to cost savings from low-cost offshore labor, they're exploring ways of tapping this workforce to generate additional revenue, improve core business processes, and offer more value to customers (see "Taking offshoring beyond labor cost savings"). Credit card companies, for example, use offshore workers to lower the threshold for identifying fraud, while airlines use them to rebook passengers on connecting flights if the first one is delayed. Inexpensive labor is what makes these opportunities possible, but the value of the new services extends well beyond cost arbitrage.

Most pharmaceutical companies came late to offshoring, but a few leaders are already moving quickly to capture gains beyond labor cost savings in back-office operations. Eli Lilly and Novartis, for example, have conducted several significant clinical trials in India. Bristol-Myers Squibb, Merck, and Pfizer are moving some basic chemical-synthesis functions there and to China as well.

Most of the industry, however, has been more cautious. Some pharma companies are outsourcing selected functions (such as certain IT activities) only for cost savings rather than looking more broadly at the development of new processes that would improve business productivity or generate revenues. Many executives still worry that it...