Eli Lilly and Company was started Mr. Colonel Eli Lilly in 1876. During 1940-1985 it performed as one of the leading players in the US market. From the beginning the business has remained committed to scientific and management excellence. For the past several years the business has continuously expanded in the health care and agricultural sector. During 1950s the business became export oriented and in 1980s the corporation was performing as a successful international pharmaceutical company. In 1992 the firm has its own manufacturing plants in 25 countries and its products were sold in more than 130 different countries.
During the same period several countries in Asia specifically India opted for liberalization policies where tax breaks were given and FDI was highly promoted. The business considered it as an opportunity and decided to perform clinical testing where it R&D (research and development) functional unit has contributed a lot. Ranbaxy Laboratories: The business was started during the decade of 1960s in India. It has consistently performed as serious research-oriented company which evolved as one of the leading pharmaceutical firm.
During 1977 the business was transformed into a global corporation with its broader scope, vision and leadership capabilities. For decades it has emphasized on the solitary principle of effective marketing research both indigenously as well as internationally. Throughout 1990s it performed as the largest player in generic drugs in India. The competitive edge exists in the aptitude for chemical synthesis. The capital cost was also immensely lower as compare to that of USA. In USA there exists a strict quality control requirement therefore the business specifically relied on exporting its products in 47 different countries.
The firm assumes to spend large amount on R&D in the nearest future. Eli Lilly in India: Rethinking the Joint Venture Strategy Q. 1 drawing on relevant academic sources, discuss the critical factors which lie behind the success of the Eli Lilly Ranbaxy international joint venture (ELR IJV). Ans. Critical Success factors for Eli Lilly Ranbaxy International JV (Joint Venture): It all started in 1992 when Ranbaxy approached Eli Lilly in order to go into an agreement for supplying low cost pharmaceutical ingredients. Although Eli Lilly had suppliers India but it could not create fruitful relationship with them.
During that period Ranbaxy was the largest exporter from India and the second largest exporter of Pharmaceutical products lagging behind Glaxo SmithKline. Basically strategic thinkers at Ranbaxy analyzed that it Eli Lilly is the only pharmaceutical company which do not exist in India and Ranbaxy can facilitate them by supply low cost material while manufacturing some of the Eli Lilly products locally in India. It was a fine decision where Ranbaxy opted for packaging and selling and distributing products for Eli Lilly in India.
Research findings depict that it started successfully and top management believed that there were lots of commonalities between both the companies. Mutually they were in favor of ethical standards, technological advancements, innovative ideas and distributing patented products in India. The act of kindness revealed strong candid about their employees and affirmed on continuously performing for sustainable development and green provisions. Finally the JV (joint venture) was signed in November 1992 and reflected the successful accomplishments from both the parts.
Beyond doubt Eli Lilly wanted to extend its name in Asia especially in India. It started with massive investment of $ 7. 1 million as authorized capital and $3 million as equity capital. During 1995 Eli Lilly decided to expand in generic products and went into an agreement with Ranbaxy unfortunately the business founded that it is an erroneous decision hence terminated agreement. Both the businesses resemble to each other in terms of leadership, vision, values and many more but generic requires strong learning curve and was considered different from the core business of operation.
Mutual consensus during the initial phase: The top management thought that it was the right decision and forecasted that about 200-300 million people dwelling in India belongs to the middle class and will be going to determine the future of India. The key question remained that why Eli Lilly gave more importance to India rather than Russia or China where it could have further expanded and established its business presence. Moreover due to the lack of intellectual property rights and patent protection in India, most of the products of Eli Lilly were being manufactured and sold illegally.
It required strategic thinking to come up with a new product which can grasp the attention of the majority of the population. Furthermore most of the specialists and experts were unaware of the name therefore management decided to name the JV as Eli Lilly Ranbaxy JV which reflects the foreign taste. Most interesting fact revealed that both the businesses started from the scratch and worked for improving the infrastructure of the business where Ranbaxy helped the business whenever they were faced with some sort of issues. The group worked 24/7 and expanded the workforce with key professionals.
It had a very limited budget therefore Eli Lilly excellently operated on economies of scale and made the most from Ranbaxy distribution system. In the 1993, the business had more than 200 people working on systematically performing and expanding its real essence in India. It took assistance from one its office located in Geneva and established a creative recruiting theme in order to ascertain long-term employment relationship. Furthermore the business assured new sales graduates that they will be going to be promoted in the company and customized training programs were formulated in accordance with India.
The business also developed a ‘Red Book’ and put up with its values of ethical code of conduct. They communicated both the positive and negative aspects of specific drugs and later on it helped them in building trust, faith and confidence of doctors in the company. Both the firms strictly focused on the JV and on building personal relationships with each other rather than indulging in conflicts or politics. Both the businesses specialized in their core business with an upward moving learning curve. Ranbaxy gained expertise in generic products and meanwhile Eli Lilly focused on innovation, creativity and discovery.
The initial product that resulted through joint venture was human insulin but it faced major confrontations from formal institutions and government regulations and there were financial constraints as well. There were regulatory issues and Indian government imposed substantial import duty. The government imposed price limitations and profits margin got shaken. Rather than opting for the localize strategy as it was adopted by Glaxo and Pfizer, the business went for niche marketing. Furthermore it could not launch some of its most valuable drugs in India because of the threats of poor intellectual property rights.
It requires huge production capacity whereas profit ratio was low. During the initial period Eli Lilly deployed its marketing capabilities around two major groups. The business added momentous value to one of the off-patented drugs and emphasize on two world-class drugs where barriers to entry were high. The JV surpassed break-even in the end of 1996 and started earning profit. Chief organizational changes: During mid 1990s several changes were brought. It was one of the fastest growing organizations and a separate model was structured to instill stability.
A proper SOP was formulated and the 50-50 partnership continued. Both sales and marketing functions were streamlined. The corporation hired McKinsey for management consultancy and identifies growth opportunities in India and showed consistency with the immense growth rate of 8% on annual basis. In order to transform into a major organization the business established a separate medical and regulatory function which operates in collaboration with the government to assess and give approval for specific drugs and the entire manufacturing process. The beginning of a new dimension:
It has been said that during 2001 the business outshined the overall Indian pharmaceutical industry growth rate. Some of the achievements are as follows: • Due to the JV Ranbaxy got famous worldwide and Eli Lilly established itself in India. It had a unique culture where employees of both the organizations never got cannibalized with each other. The growth rate further increased to 10% and major pharmaceutical corporations got further strengthened due to mergers and acquisitions. Major firms focused on more profitable core businesses and divested non-core set of functions and operations.
• Eli Lilly achieved 12th position in the pharmaceutical industry however one its successful drugs got off-patented in 2001 and it started working on its potential products. • Major changes took place in India and China and the business came up with new strategies with proper evaluation and control system to overcome major issues. During the same period the management of Ranbaxy decided to transform into an international pharmaceutical company with the strong research-based platform. It went into JV with other firms in Canada, United States and Ireland. Ranbaxy further considered China, Russia, United Kingdom and USA as major foreign markets.
Due to quick expansion throughout the globe it faced financial issues and the business found sudden decline in its cash flows and it started thinking for dissolving its JV with Eli Lilly. Ranbaxy considered itself as a global firm and said that it has participated at its utmost to create value for Eli Lilly in India. • The JV revealed that it has attained world-class sales management process. They further penetrated into valuable directions and key areas like diabetes, oncology, and expertise in clinical trials in accordance with international standards. Moreover the entire workforce performs with high caliber and confidence.
Numerous changes in Ranbaxy after JV: Ranbaxy (2010) instigated that the business experienced major changes after the JV and explored new market in different dimensions of NCS (new chemical entities) and NDDS (novel drug delivery system) mainly related to Urology, respiratory problems and formulated a plan for further expansion in developed countries specifically in UK and USA till 2012. It further went into mergers, acquisitions, JV and alliances in Brazil, China, South America, Germany, Spain, and Canada with MNCs like Bayer, Glaxo SmithKline, Ohm, Aventis and many more.
It was successful in establishing global presence. Some of the learning factors were as follows: • Major attempts were made to increase the productivity and the business came up with breakthrough advancements and minimized R&D cost. It brand image was further promoted when it introduced important drugs to contest against malaria. • It achieved economies of scale and successfully produced effective drugs at low cost and developing economies could purchase them in an affordable manner. It remained adaptive to the industry pattern, invested heavily in R&D.
It mostly got benefited due to low material and labor cost in India and patented several chemical compounds in developed countries. • The business attained technological expertise, successful culture and further diversified into laboratory testing business and conducted clinical trials in Mumbai, Bangalore and many more. It established 2000 centers throughout South Asia. It further entered into service business and facilitated companies by testing a new product and provided approval for ingredients, manufacturing processes and the entire products.
• The business gained competitive edge in generic products. It was considered as the 7th largest growing corporation in the world. It gained expertise in distribution network, finance and different processes in the pharmaceutical industry. Q. 2 assesses the alternative options open to senior management on the future of the ELR IJV and recommend how you think they should proceed. Ans. Alternative Strategic options: In order to further enhance the collaborative performance between both the companies, the top management came up with the strategic thinking option.
The business must formulate a task force which can look inside the future direction. However it must include top management from both the firms rather than involving key personnel from the JV so that day-to-day operations can be performed. In this way important scenarios can be developed and implemented. More importantly it was assumed that Ranbaxy was going to divest its JV with Eli Lilly. It was also highlighted that Ranbaxy favored to sell-out the business and it will generate funds to further expand the portfolio of Ranbaxy but Eli Lilly considered it as a negative option.
The business further decides to invest a lot in R&D. More importantly the expanding and research work will specifically focus on cancer, infectious diseases, diabetes and cardiovascular problems. The clinical trials will be further assisted by the ministry o health. More importantly the business might go public in the nearest future. Key Analyses: Eli Lilly faced difficulties and barriers to entry while expanding in South Asia especially in India. It could not understand the culture, socio-economic factors, and political influences in the country.
Despite of being known among the largest pharmaceutical companies in USA, it was considered as a mere business in India. Therefore the business opted for joint venture with any domestic company. Major Challenges: There were numerous challenges being faced by the business: • The business has continuously faced intellectual property rights • Eli Lilly faced lots of difficulties while establishing a positive relationship with the government of India. Indian government imposed price limitations and heavy import duty was imposed. • The R&D cost was increasing day by day
• Competition was getting intensive and more organizations were entering in the industry • It took huge time for new product approval which further increased the development time • India joined WTO and from 2005 onwards it further strengthened the patent protection rights specifically pertaining to pharmaceutical products and FDI (foreign direct investment) was also highly promoted. Gradually due to intensive competition and due to increase in number of major players in the pharmaceutical industry, the growth rate decreased and lots of mergers and acquisitions took place.
During 2004-2005 it further implied stern control on patent protection. India flourished as an emerging economy which can greatly add value to pharmaceutical products. These all forced both the companies to reconsider the JV and individual strategies. Recommendation: It seemed that both the sides looked for win situation. Eli Lilly tried to establish its authoritative style over Ranbaxy. The business focused in gaining its presence in India. On the other hand Ranbaxy purely focused on generating more profits and further expanding itself globally and becoming an international corporation.
It seems that both were looking for their own benefits and they were not concerned about the other party. It seemed that Ranbaxy was more egotistical and wanted to undergo a transactional relationship with Eli Lilly for a certain period of time and decided to negate its agreements once reaching the pinnacle. In order to maintain mutual consent and undergo successful joint venture, several recommendations have been provided: • First of all both the parties must share the benefits and have the authority to control different tasks.
• Rather than relying on core business the business must diversify into strategic areas and functions. • The JV must counteract the shortening product life cycle due to advancement in technology and competition. • It must transform threats in opportunities while destroying barriers and speeding-up the process of product introduction. • The business strategy must be integrated with the corporate strategy to accomplish goals through shared values. • There must be high commitment and cross-cultural understanding between both the parties. • Eli Lilly must invest in establishing strict control due to poor intellectual rights.
The formal institutions in India lack the concept of liberal education and technological advancements. Therefore the business must set benchmark and promote sustainable development while contributing into technological advancements. • Indian government has always ruled over MNCs and global corporations. If MNCs and global corporations opt for FDI then India impose the sanction that that the MNC must share 50:30 ratio in profit. It is really difficult for international firms to enter into India and Eli Lilly need to compromise if they want to under-go market access in India.
They need to invest in infrastructure and must contribute to the national exchequer in terms of tax. The business must emphasize on CSR and opt equal opportunity among both the genders and must respect the integrity of individuals. Successful joint venture results into long-term relationships. In order to transform into a successful long-term joint venture between two massive organizations they need to adapt to the above recommendations. Conclusion: It can be concluded that it was not a holistic loom. Rather than a proactive approach it was a reactive approach.
They had not adopted the principle centered paradigm. Nevertheless both the businesses performed successfully in their core business. Ranbaxy advanced itself in generic products and gained competitive advantage and Eli Lilly prospered in the direction of innovation, technological advancement and adopted vigilant strategic thinking scheme. In order to further transform in the long-term development both the businesses must aid each other, surface key issues, formulate effective solutions and come up strategic direction where both can perform and move hand in hand. References: Sage Pulication. (2005).
Negotiating and Designing an Alliance. Retrieved July 18, 2010, from http://www. sagepub. com/upm-data/12290_Chapter_3. pdf – Powered by Google Docs Ranbaxy. (2010). Ranbaxy World. Retrieved July 18, 2010, from http://docs. google. com/viewer? a=v&q=cache:Nrn9UEPrl5AJ:www. ranbaxy. com/annualreports/newsletter-2010-ranbaxy-world. pdf+assessing+alternatives+to+Eli+Lilly+Rabaxy+Joint+Venture&hl=en&gl=pk&pid=bl&srcid=ADGEEShyidoDL1vRW7be29h-Qph0U-59nuHIR-_IrhUW1sJ-ZyblNqb-AzBDUg27j4SU_J_GISMExbHLQN0D1HB5VQCBhlroFuaSFxVIojVhRQWLT8pFXWx9qHuMfbAa92fpncoQ7oO_&sig=AHIEtbTU-0Tw2vxYx8AwIHR4SjOtdhXgEA