Introduction
Eli Lilly and Ranbaxy separately had different focuses within the drug and pharmaceutical market, but shared aligned values and a willingness to work together to pursue their organizations’ strategic objectives. Eli Lilly is a US based company focused on “innovation and discovery” (Bartlett & Beamish, 2014, p528). Ranbaxy is an Indian organization that is a “generics business” (Bartlett & Beamish, 2014, p528). The two organizations recognized that each were unable to reach their objectives alone, and therefore, entered into an international joint venture (IJV) with one another, in November of 1992, to form Eli Lilly Ranbaxy (ELR). However, various external and internal factors changed throughout the duration of the IJV’s existence, which changed the dynamics of the partnership and lead to the necessity of a thorough analysis.
Assessment of Foreign Market Entry Strategy
India
Eli Lilly’s effective strategic decision to enter the Indian drug and pharmaceutical industry was supported by the following factors. The organization was in the midst of furthering its global expansion and its sights were set on Asia. India’s emerging market and large population 800 million people offered vast opportunities to Eli Lilly in terms of its clinical trials. Although historically India’s government enforced strict regulations in regards to patents and price controls, liberalization was occurring at the time Eli Lilly was pursuing market entry.
Effect of Government Regulation
The Indian government discouraged foreign market entry by implementing a regulation that stated foreign ownership could not exceed 40% in the pharmaceutical industry. This regulation made it imperative that Eli Lilly enter the market with a partner. However, if this regulation had not existed the organization would still have benefitted greatly from choosing to enter via a joint venture. There would still be political, cultural, and operational challenges to overcome that would be mitigated to a large extent with a local partner. Eli Lilly would particularly benefit from utilizing a partner’s local manufacturing and distribution network in order to decrease their costs. Furthermore, financial risk and market knowledge would be shared between Eli Lilly and their partner.
Partner Choice-Ranbaxy
Eli Lilly and Ranbaxy were highly compatible and functional as IJV partners. The organizations were leaders in their domestic markets and brought different, but complementary, strategic objectives to the partnership. From the onset of the IJV, the organizations found common ethical ground and developed a deep mutual respect for one another due to their organizational values. The partnership granted Eli Lilly access to the Indian market and its distribution networks based on Ranbaxy’s local roots. Eli Lilly Ranbaxy (ELR) utilized Ranbaxy’s reputation in India to build its own reputation. ELR was therefore able to capitalize on providing extra services to differentiate itself from the competition. These extras became a core competency of the IJV. Ranbaxy benefitted from the IJV through Eli Lilly’s extensive human resources training programs.
JV Structure
The JV’s successful structure was equitable in nearly all instances. This structure enhanced Eli Lilly’s and Ranbaxy’s commitment to the partnership. The companies founded ELR as equal contributors and owners of the $10 million IJV (Bartlett & Beamish, 2014, p525). The structure of ELR was also 50-50 in terms of each company’s product contribution and even numbers of board and management committee members. However, Eli Lilly did one-sidedly retain control over appointing the CEO. Operationally, the IJV purchased the required active ingredients for production, Ranbaxy would then finish the packaging, and the IJV sold and distributed the products (Bartlett & Beamish, 2014).
JV Evolution
Throughout the evolution of the JV, ELR’s leaders responded effectively and took appropriate actions to mitigate or solve the challenges presented. The challenges were unique to the various phases of the JV; beginning with its startup and followed by two distinct growth phases. Mr. Mascarenhas was hired as the first managing director of the JV. He faced challenges unique to entering into a JV. India’s drug market was already saturated with generic versions of Eli Lilly’s drugs, so determining which products to offer was a significant challenge. Eli Lilly lacked brand recognition with Indian doctors. He faced hiring not only his initial team, but also over 200 employees, a sales force, and regulatory group. Mr. Shaw encountered a different set of stabilization challenges in response to ELR’s high-intensity growth rate. In 1999, Mr. Gulati responded to growth and regulatory challenges by assembling a medical and regulatory unit to interact and work with the Indian government.
Overall JV Performance
ELR was extremely successful in the Indian market. It developed one of its competitive advantages due to its “honesty and integrity,” which was based on its Red Book code of ethical conduct (Bartlett & Beamish, 2014, p526). In 2001 ELR exceeded the average growth rate of the Indian drug and pharmaceutical market, was the 46th largest Indian pharmaceutical firm, and improved its sales by 56.5% from 1998 (Bartlett & Beamish, 2014, p526). Furthermore, the IJV accomplished Eli Lilly’s goal of entering and creating relevancy within the Indian market and Ranbaxy heightened its global credibility (Bartlett & Beamish, 2014).
Future JV Recommendations
Changing external variables within the Indian and global drug and pharmaceutical markets are creating the need for a reassessment of Eli Lilly and Ranbaxy’s JV. The Indian government created new regulations allowing 100% foreign ownership within the industry and allowing patent protection in 2005 (Bartlett & Beamish, 2014, p534). The patent protection would allow Eli Lilly to offer more of its products without risking them being copied by competitors. Through the JV, Eli Lilly has built a strong reputation within the Indian drug and pharmaceutical market and appears that it could successfully operate on its own. Ranbaxy has shifted its focus on global markets, particularly in the US and UK, to focus on its mission to be a “research based pharmaceutical company” (Bartlett & Beamish, 2014, p532). Ranbaxy has also created other JVs in order to continue its global expansion into developed countries, such as the US, Canada, and Ireland (Bartlett & Beamish, 2014, p532). The international expansion was creating financial issues for Ranbaxy, which would make selling its shares of ELR attractive.
Since the beginning of the JV, Eli Lilly and Ranbaxy were realistic about the possibility that it may eventually not be beneficial for one or both organizations. Therefore, the entities included an exit option, which stated that there would be a “transfer of shares in the event that either partner wanted to dispose of some or its entire share in the company” (Bartlett & Beamish, 2014, p525). Eli Lilly assuming 100% ownership of ELR and becoming a wholly owned subsidiary would incur production and distribution challenges. The firm would have to decide if they would internally assume these operations or create an agreement with external local organizations. The JV was built upon a successful and positive relationship between the firms, which should assist in a positive transition of Ranbaxy’s shares to Eli Lilly. Once Eli Lilly assumes the shares, the organization must ensure that it does not become lost in the plethora of subsidiaries owned by the company (Eli Lilly and Company, 1999).