Ranbaxy Case Project
Eli Lilly Ranbaxy is an example of a joint venture that was pursued with the right strategy, which was a result due to a changing US pharmaceutical market and a rapidly expanding India market. The two companies in this IJV were both significant players within their home countries, Eli Lilly and Company in the US and Ranbaxy Laboratories Limited from India. When the possibility of establishing a joint venture was approached in 1992, the Indian market for pharmaceuticals was becoming more open to foreign direct investment.
Also India at the time was putting a limit on the amount of foreign ownership, from 40 percent to 51 percent, creating less foreign competition in the region. With numerous of opportunities opening up within the Indian market, Eli Lilly saw this as a stepping-stone for future clinical testing. Both companies having common backgrounds and goals of being a research oriented international pharmaceutical company, embarking on a joint venture seemed ideal. Eli Lilly would establish a presence in the region and gain access to the distribution network enjoyed by Ranbaxy.
Furthermore, this JV would result in lower costs in production as well as basic research, which are considerable factors in their broad strategy. The evolution of the international joint venture was strategically handled with early success, starting off with the name of the company, Eli Lilly Ranbaxy; it was strategically named for future success within the region. Mascarenhas stated, “The reason for this was based on my earlier experience in India, where ‘good quality’ rightly or wrongly, was associated with foreign imported goods.
Eli Lilly Ranbaxy sounded foreign enough! ” With Ranbaxy being the largest manufacturer of bulk pharmaceuticals in India, and with a domestic market share of 15 percent, they provided the knowledge needed for the local market and helped establish a name in the region for Lilly. Mascarenhas and Gulati had a good working and personal relationship; they had good interdependent communication, which was a crucial factor in the JV implementation and because Ranbaxy provided Eli Lilly with easy entrance and networks to the Indian market.
After the establishment of the joint venture the two companies focused on creating an organization where there was strong support from both sides. Many employees had an opportunity to establish a legitimate career within the Eli Lilly Ranbaxy Corporation. Indeed, this was refreshing considering the high turnover rate within the industry, where the union served as a crutch. Within a year after building the infrastructure from the ground up, the JV was able to launch different products and had more than 200 employees.
The joint venture provided product and marketing strategies, in which they employed successful corporate social responsibility of providing the physicians with relevant medical information Ranbaxy and Lilly were two companies that were successful in establishing a joint venture because they had a lot of the same common values. They both had high ethical standards, when presenting their products to doctors within the market; they would answer all questions correctly and to the best of their knowledge.
Since their products were not known within the local market, Eli Lilly used a strong sense of honesty called the “Red book values”, with local doctors and began to gain their respect and trust. Andrew Mascarenhas, from Eli Lilly and Company was the first successful managing director for the joint venture. Throughout his tenure he helped shape and build the joint venture from the ground up. With a driven initiative and was responsible for the hiring of the sales force and recruitment of medical doctors.
As a leader, Mascarenhas was faced with unique challenges; he had to deal with cash flow constraints, limitations on pricing and other government regulations. Also within the Indian market there was low recognition and high turnover rates for sales jobs. Mascarenhas and his team had to strategize on how to appeal to a wider range of employees through future opportunities amongst the company. Eli Lilly Ranbaxy invested in a training program. The program was created for the employees to hold strong values for the positions they were hired for and the positions were customized to Indian standards.
Mascarenhas brought Eli Lilly’s values to the joint venture; he was instrumental in the training program and made sure those values were shared. When Mascarenhas was promoted in 1996, the new managing director was Chris Shaw. Having a significant background in operations, Shaw helped the company focus on establishing stability through new systems and processes. He expanded the product line and organized a team to make sure there were standard operating procedures (SOPs). These procedures would help the joint venture maintain a productive flow. Aided by his knowledge in marketing, the JV saw an improved growth in sales.
Rajiv Gulati was shortly promoted after Chris Shaw. Already having history with the joint venture Gulati was initially the director of marketing and sales. He saw his time as the director an opportunity for growth, which was achieved by implementing medical and regulatory units which helped the company exceed the average growth rate in the Indian pharmaceutical industry. One of the challenges faced by Gulati was Lilly’s name was not commonly known amongst doctors in the market. Gulati and his team came up with the idea of using Ranbaxy’s name to lead as a foot in the door, and helped the company gain brand recognition.
Also Gulati faced the challenge of trying to distribute a product that was already being sold amongst manufacturers. Through marketing and establishing trust with the doctors the company was able to establish their presence in India. The initial start up of the joint venture was faced with constant challenges, many in the form of government regulations but because of the functional working relationships between Mascarenhas and Gulati, the JV reached their break-even point in 1996 and soon realized profitability. With the growth of the pharmaceutical market the company also went through significant changes to keep up with innovations.
New managers were introduced during the course of these changes and launched multiple new successful units, which saw a steady annual growth rate of 8 percent. The joint venture also became the world’s 12th leading pharmaceutical supplier in over 150 countries by 2001, and continuously developed new drugs through extensive research and development. Overall the performance of the IJV was a success. Each company learned from the joint venture that marketing network was important to have in order to enter the market in India.
They also learned the importance of patent protection and how much a role the government can play in the protecting that proprietary knowledge. A patent is needed in order to price their products, and to protect their innovation for a certain time. When they learned the patent laws changed in India, it encouraged them to establish a joint venture there. The experience brought about by the international joint venture helped both companies enhance its overall market line and its potential of innovation and discovery.
Eli Lilly and Company gained experience in the market perspective of Asian countries while establishing India as their hub. Also they gained significant experience in how to introduce their products within a market where they were not commonly known. Overall Eli Lilly Ranbaxy gained vital cooperation and communication amongst each other. Establishing a very accessible management staff contributed to the early on success of the joint venture. The commonality of the two companies also created ease within the company and allowed the company to grow in profits and outputs without any disruption or disagreements.
Though the two companies have established a very successful lucrative company amongst the pharmaceutical industry the action that would be wise to do is to establish a 100% wholly owned subsidiary for Eli Lilly. The main reason for the they separation, is that each company started to focus on different objectives when the industry started to grow, Ranbaxy focusing on generics and Lilly focusing on research and development. To implement this action Eli Lilly would have to buy out Ranbaxy’s stake within the company.
With Indian regulations favoring towards a more foreign owned market, this strategy would allow Eli Lilly total ownership and control over their present and future products specifically because of enhanced patent protection for the pharmaceutical industry. Though this is action could lead to potential profits in research and development for Lilly, the implications of these actions could come with potential losses, not factoring in the cost of the buyout. If the IJV were to break apart there is no clear explanation on the future financial outlooks of their company.
Furthermore, it can create an unforeseen competition. However, it would allow each company to focus on their own agendas and it would also inject much needed cash flow for Ranbaxy and allow them to concentrate on the generic market. In order keep up with success a company must keep up with the market, and the market was clearly leading Lilly into the path of a fully owned subsidiary. There are risks associated with this but because the JV was already in such a strong position and aided by the new laws, the potential profits of this action is well worth the consideration.