Free Eli Lilly In India: Rethinking The Joint Venture Strategy Case Study Example
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The 1980s and 1990s were a different era for the pharmaceutical companies in comparison to the present day situation. The differences are even more apparent in an examination of India’s pharmaceutical arena in the period. The conditions that were present at the time necessitated the formation of a joint venture between Eli Lilly, an American company and Ranbaxy and Indian company to conduct operations in India. At this stage, Eli Lilly lacked a strong presence in India despite having conducted business in human and animal insulin in India. The joint venture was set up with the agreement to buy active ingredients from Ranbaxy; Ranbaxy would also package the products and at that point, the joint venture would distribute and sell the product. The joint venture has a capital of 7 million US dollars that had both Eli Lilly and Ranbaxy contributing unequally. A management committee that comprised of six directors with each company producing three would run the joint venture. The joint venture would also have two directors, with both companies producing one.
Various leaders ran the joint venture in its various stages that this paper has categorized into three, Andrew Mascarenhas, Chris Shaw, and Rajiv Gulati. All these leaders will have their decisions and the challenges that faced them examined. In addition, this paper shall also examine the alternative paths that the company could have taken and their possible impacts on the joint venture's future growth.
Since the initial approaching of Ranbaxy to Lily in 1992, various and numerous strategic plans and even their implantations have resulted. The decisions made have been proven to have been prudent or errors in time. However, the main question, that this paper seeks to answer, is whether the Eli Lilly strategy to enter the Indian market was the right strategy especially in light of the evolution and the consequent developments.
Evolution of Eli Lilly in India
Eli Lilly was founded in United States by Colonel Eli Lilly in 1876 and attained leadership among the pharmaceutical companies in the 1940s to 1985. The marked progress and growth was based on the company philosophy of commitment to managerial and scientific excellence. It was in the mid-1980s that Lilly began making critical moves into the global markets under the leadership of Dick Wood the then Chairman. The expansion was conducted by a separate division within the company called Eli Lilly International Corporation. The expansion into the global markets culminated in the companies having manufacturing and distribution of its products in 25 countries and its market base expanding to cover more than 130 countries by 1992. Ranbaxy, on the other hand, began in 1960s as a family business in India and soon became the leading pharmaceutical firm in India. Despite the Indian government’s tough patent regime in the 1990s, Ranbaxy adapted and became India’s largest producer or manufacturer of generic drugs and bulk drugs. Among the key competencies of Ranbaxy in India was its chemical synthesis capacity. With lower capital costs that ranged from 50 to 75 percent lower than the US companies of similar stature meant that the company had an edge in the International markets in addition to the Indian markets. As a result, in the 1970s Ranbaxy had a market presence in over 47 countries around the globe.
As previously mentioned, Ranbaxy approached Lilly in 1992 on the possible partnership where Ranbaxy sourced intermediate products and supplied particular active ingredients. While Lilly had had previous arrangements with other Indian Companies the for the production of animal or human insulin and the exportation to the Soviet Union, the arrangement never blossomed into an on-the-ground operations in the Indian markets. Ranbaxy sought out Lilly for the primary reason that despite many multinational pharmaceutical companies being established in India Lilly was absent. Lilly could then use Ranbaxy knowledge and familiarity with the Indian market to establish a joint venture in manufacturing and distributing their products. Ranbaxy would source specific products for the joint venture that were already in manufacture in India and finished some of the Lilly’s products domestically. In summary, the joint venture would buy active ingredients, and Ranbaxy would finish the package allowing the joint venture to sell and distribute that products.
At the start-up stage, the leader appointed was Andrew Mascarenhas, who was an American citizen, but had Indian Origins. At the time, 1993 he had been the general manager for the Caribbean basin of Lilly and was based in Puerto Rico. In addition, Rajiv Gulati was chosen as the director of sales and marketing from his previous job as the head of business development and marketing at Ranbaxy.
The first challenge to the joint venture emerged in the resistance from the recognition Indian manufacturers was already selling Lilly products because of the absence of patent and intellectual protection by the Indian government. The main question arising from this challenge was to the products that the joint venture should sell in order to be competitive as the products were already being manufactured. The main solution to the challenge lay in leveraging the products markets into favoring the joint venture's products. The other main challenge was that the joint venture under Andrew Mascarenhas was the company’s turnover rate. The main reason was that the sales positions in India were regarded as mere stepping stones because any University graduate could be hired as a sales person. In addition, traditionally there were few opportunities for promotion from the sales position to a higher position. The ramification of these conditions were that the pharmaceutical industry in India was thoroughly unionized. To deal with this problem, Andrew Mascarenhas and Rajiv Gulati chose to demonstrate to the recruits that the company offered careers; this occurred through the application of internal promotions and investing in training. The program had Lilly’s values that had been tailored for Indian conditions. The successes of the first stage are largely attributable to the good and effective working relationship and leadership of Rajiv Gulati and Andrew Mascarenhas.
The joint venture “mid-age” began with the promotion of Andrew Mascarenhas to the Managing Director of Eli Lilly in Italy and the appointment of Chris Shaw as the new managing director of the joint venture in India. Shaw main problem, were with the stability and building systems; factors that he applied his expertise to make significant changes in these areas. Chris Shaw achieved these changes through the hiring of a senior manager and initiated the development of standard operating procedures (SOP) to ensure that the company’s operations ran smoothly. The company’s clinical organization received top0rating from Lilly allowing the expansion of its range in clinical trials. Shaw emphasized and enriched the knowledge of the company’s sales force to streamline the sales and marketing activities in the therapeutic areas. Eli Lilly India experienced a steady annual growth rate of approximately eight percent at this stage during the late 1990s.
The final stage was the period after 1999 when Chris Shaw transferred to the Eli Lilly subsidiary in Poland. Rajiv Gulati a leader who is prominent throughout the stages of development of the Joint venture became the managing director; this was after a three-year span in the Lilly’s operations in US. His main aim was to transform the corporation from a simple organization to a large corporation. In his words, “From the sales of 10 million US dollars to sales greater than 100 million US dollars.” He created a medical and regulatory unit that dealt with the product approvals by the government. In fact, rather than rely on Ranbaxy’s reputation to obtain the approvals the Eli Lilly India under Gulati developed a strong corporate and medical foundation. By early 2000s, the joint venture was recording phenomenal growth rates that even surpassed the then average growth rate of the pharmaceutical industry in India.
Discussion of the Alternatives
The Eli Lilly India joint venture’s experiences offer an illumination into the opportunities and the consequent challenges presented by a fast-growing industry in an emerging market. While the paths followed by the joint venture were excellent decisions as demonstrated by their success, it is important to realize that there are other alternatives that could have been explored to possible lesser challenges and greater advantages.
The first possible route, that Eli Lilly may have taken, was in the manufacture and production of generics. When the Joint venture was in consideration, Eli Lilly entertained the idea of entering the generic market. In fact, following the commencement of the joint venture operations, Lilly and Ranbaxy had entered into two agreements regarding the generics, in one of the agreements India was to focus on the production and manufacture of generics and in the other agreement dealt with the marketing of the generics in United States. Despite these agreements, both companies agreed on terminating the agreements that dealt with generics.
The companies’ decision to give up on the generics in the context of this paper seem defeatist ignoring an opportunity to operate in a highly profitable field. Ranbaxy already had the required infrastructure to have the production of the generic operate smoothly. Other companies around the same time had already demonstrated the viability and profitability of the generics with most having a separate division for generics. The main reason that the company provided for rejection of generics was the failure of the pilot program in Holland. However, the conditions between Holland and India were radically different and, therefore, the company should have at least tried to run a test or pilot program in the production and marketing of generics in India.
Chris Shaw’s decision to standardize operations in the joint venture was also too early to the growth stage of the company and slowed the company down rather than accelerating growth. The basis of this statement is that the company should have had the introduction of standardized policies when it was fully mature; around the late 1990s and early 2000s in the Gulati’s era. During the early stages of the production the innovation and creativity should be encouraged, this is because it is a result of these practices that the most effective standards are developed. The company would have had internally developed practices rather than external practices drafted by hired teams.
There have been critical and even radical changes in the operations of the pharmaceutical companies from the early days of the joint ventures to the present. The changes include the occurrences in the global arena of the pharmaceutical industry and the domestic developments in India. Lilly has already become one of the largest pharmaceutical companies on earth, ranking at number 12 globally. The success was largely dependent on the anti-depressant drug, Prozac sales. In addition, Ranbaxy has experienced major challenges such as the loss of Dr. Singh a visionary leader and the negative financial impact of the vast network of international sales on its financial results. The Indian scene has also changed drastically with India signing the General Agreements on Tariffs and Trade and joining World Trade Organization. Both these factors meant that the Indian government from 2005 recognizes and grants patent production to all New Chemical Entities. In addition, the government in 2001 allowed 100 percent foreign investments in pharmaceutical and drugs industry.
The emphasis on the numerous changes in the pharmaceutical industry is to set the foundation for this paper’s recommendation that is for the company or the joint venture to be flexible and dynamic in light of the changes. While the main reasons why the joint venture was set up was to capitalize on the Indian government approach to intellectual property and patents, the company must be capable of adopting and even thriving in the absence of those restrictions. The Indian market still offers numerous opportunities for pharmaceutical, drug companies, and the venture must utilize these opportunities.
The decision by Eli Lilly and Ranbaxy to enter into an agreement to set up a joint venture was excellent in the light of the conditions that were present at the time. The joint venture’s growth development and leadership provides a perfect demonstration of the opportunism and challenges presented by the fast-growing and emerging markets. In addition, it highlights the interconnectedness of the international trade, the impact of foreign direct investment and the government-business relations.
Celly, N. (2004). Eli Lilly in India: Rethinking the Joint Venture Strategy. Richard Ivey School of Business, 2-20.
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