A joint venture involves a business partnership between two businesses that intend to benefit from the partnership but also deal with the risks of cooperating. The venture is guided by law that defines the nature of attachment. The following analysis involves a joint venture between Eli Lilly and Company from the United States and Ranbaxy Laboratories from India. It involves a strategic move for Eli Lily to penetrate the Indian market and benefit from low costs and a big market. Ranbaxy Laboratories would benefit from the international spread of Eli Lily’s operations, business ethics, and technological advancement. Together the companies form a big partnership that would generate business economies of scale and leverage each other’s strengths for mutual gains and the reduction of business risks.
Eli Lilly’s strategy to enter the Indian market
When the joint venture was signed in November 1992, India had great opportunities for investments from foreign firms. However, the Indian laws aimed to protect local manufacturing companies and ensure that all profits generated within the country are not taken back by companies to their native countries. Given the situation, the approach by Eli Lilly and Company to form a joint venture with Ranbaxy Laboratories was the most suitable. By forming a joint venture with the local company, Eli Lilly benefited by having a recognizable local presence in India. Ranbaxy Laboratories is a well-established and top pharmaceutical company in India. In addition, Ranbaxy Laboratories had a vast and reliable distribution network and helped about 15 of the local market share. The company had also established a presence in 47 other foreign regions where it exported a high volume of pharmaceutical products, making it the second-biggest exporter at the time. Therefore, it afforded Eli Lilly the much-needed competitive advantage upon which it would grow its pharmaceutical business.
Eli Lilly would also benefit from the patent rights owned by Ranbaxy Laboratories, especially for Cefaclor medications. Eli Lilly itself had attempted to apply for the same patent rights, but the regulators declined its application. The opportunity would give Eli Lilly close to a pure monopoly in the manufacture of drugs. Moreover, during the period, India was enacting new laws, including the Drug Price Control Order (DPCO) and the Patents Act of 1970, to give India its distinctive drug market. The laws also provided a channel through which organizations would conduct reasonably priced clinical trials.
Furthermore, India is a vast market in which any company would desire to do business and succeed. During the time of entering the joint venture, India had a population of over 800 million people. The company also had the potential to acquire a ready market of close to 300 million people. The country also provided immense labor that came at a slightly lower cost compared to other regions (Dasgupta, 2020). Hence, Eli Lilly would be able to produce pharmaceutical products at a reduced cost that would enable it to reasonably price the commodities. Additionally, the cost of capital in India was 50 to 75 percent lower than the cost in the U.S., and research and development expenses would vary between 2 to 5 percent of the total sales revenue. On the other hand, Eli Lilly had to deal with a weak regulatory framework in India compared to the U.S., which would limit its research proficiency. Nonetheless, the joint venture strategy was a good way of establishing the business in the big Indian market.
The evolution of the joint venture and unique challenges
The evolution of joint venture
Eli Lilly and Company had developed proficiency in the manufacture of oral and injectable antibiotics, making it the market leader in producing the drug. Ranbaxy Laboratories had also established itself as a leading generics manufacturer and exporter in India. Both companies had inherent strengths, which they used to bargain for a 50/50 equity shareholding in the newly established joint venture. Three key leaders supported the mechanics and success of the joint venture;
Andrew Mascarenhas
Andrew Mascarenhas was initially the managing director for Lilly’sLilly’s Caribbean basin. He was appointed the first managing director for the newly founded joint venture. His first primary mandate was to set up the new corporation. His first duty involved hiring competent staff, including managers and staff (financial, sales, and human resources), a medical director, and sales support personnel. He also had to ensure the corporation was operative and integrated with the Indian culture.
Challenges faced by Andrew Mascarenhas
In performing his duties, Andrew Mascarenhas grappled with a challenging employee labor market in India characterized by a high employee turnover ratio. He also had to deal with a negative ethical perspective on the drug companies in India by first establishing an ethical code of conduct.
Chris Shaw
He was appointed the managing director of the joint venture in 1996. His principal mandate was to build functional organizational systems and networks to drive the success of the company. Using his background in operations, he helped establish the standard operating procedures (SOPs) that helped support the solidity of the growing corporation. He also helped to make the venture profitable through new-fangled sales and marketing promotions.
Challenges faced by Chris Shaw
Cultural difficulties hampered the leadership of Chris Shaw since he was not an Indian native. In addition, steering the SOPs and building new processes and systems was quite challenging.
Rajiv Gulati
Rajiv Gulati previously worked under Ranbaxy Laboratories and was appointed to steer the new corporation’s regulatory framework, product development, licensing, distribution, and supply network. He also helped to ensure the corporation maintained reasonable growth rates. He was instrumental in hiring competent staff from India.
Challenges faced by Rajiv Gulati
Rajiv Gulati encountered difficulties in developing values and codes to help integrate the new joint venture. It was also challenging having to deal with the Indian government seeking approvals for different products.
The overall performance of the JV
The mutual collaboration between Eli Lilly and Company and Ranbaxy Laboratories was beneficial to both parties. The joint venture provided a high-quality framework upon which both companies relied to benefit from each other’s competitive advantages. As one entity, the companies had a broader reach to the market through better technologies, competitiveness, industry convergence, and economies of scale. While Eli Lilly had a global presence in 130 countries, Ranbaxy had a global presence in 47 countries.
The companies had established a good reputation, manufacturing abilities, research and product development, and distribution and supply systems in each of their operating markets that they leveraged together to achieve higher growth. Eli Lilly also benefited from the cultural background established by Ranbaxy in India, given the country’s strong cultural values and traditions. Eli Lilly helped to develop good ethical practices in the industry that benefited Ranbaxy. It also opened opportunities for Ranbaxy to develop new drugs and expand its operations in new markets, including the United Kingdom and the United States. Eli Lilly gained from the low cost of research and development and clinical trials in India. It also established a presence in Russia by relying on the networks established by Ranbaxy Laboratories.
Recommended action regarding the Ranbaxy partnership
The joint venture between Eli Lilly and Company with Ranbaxy Laboratories was signed in November 1992, when India did not have a supportive regulatory framework to support foreign firms’ operations in the country. There was no sufficient protection of intellectual property rights. The market was characterized by the theft of patents, with many companies duplicating drugs produced by other firms. The regulatory body, Drug Price Control Order (DPCO), did not have enough power to control such ill practices. Many of the drug-producing firms in the country took advantage of the feeble governmental regulation to make huge profits by conducting unethical business practices. Based on this background, Eli Lilly should hold off or push forward the joint venture until the country provides proper health care regulations.
Should Eli Lilly have waited, it would have been able to enter the Indian market without relying on the partnership with Ranbaxy Laboratories. India became a member of the World Trade Organization (WTO) in 1995 and signed the General Agreement on Tariffs and Trade (GATT) in 1994. These international treaties provided better regulations that would have facilitated the entry of Eli Lilly into India as a 100 foreign entity. The venture was signed off two to three years before the international treaties were signed, a period within which the joint venture had not sufficiently picked up its operations. The country would have provided better product patent recognition on all new chemical drugs, thereby protecting the individual company’s patent rights (Shishido et al., 2016). Therefore, the new business environment created by the Indian government would have enabled Eli Lilly to its different products independently. The company would have conducted wide-ranging research to understand the Indian market and the developments to be familiar with impending changes. Even though the leader of Eli Lilly, Gephard Mayr, had far-reaching experience in other markets, he would have taken more time to evaluate the Indian market. Nonetheless, the joint venture was very beneficial to Eli Lilly and Ranbaxy Laboratories.
References
Dasgupta, M. (2020). How to Navigate Strategic Alliances and Joint Ventures: A Concise Guide For Managers. Business Expert Press.
Shishido, Z., Fukuda, M., & Umetani, M. (2016). Joint venture strategies: Design, bargaining, and the law. Edward Elgar Publishers.