Assignment 2 —Eli Lilly in India: Rethinking the Joint Venture Strategy
Eli Lilly entered the Indian market in a joint venture with Ranbaxy, in order to capitalize on increasingly favourable market conditions, low costs and to gain a foothold for entering other Asian markets. This move succeeded because of a commitment to values for the two partners, cooperation and excellent management. Ranbaxy smoothed the way with existing distribution networks, government contacts and local market knowledge. Lilly provided foreign expertise, competent managers and capital. The venture earned both firms significant advances in market share and earnings, and the relationship ...view middle of the document...
Additionally, even with the government opening up the industry in the 1980s to increased FDI, its holdover structure and price controls from the 1970s made profits abysmally low (often 1/60th) as compared to the global market. With no market presence, manufacturing or brand recognition, Lilly was at a distinct disadvantage to go in alone. Partnering with Ranbaxy provided them local manufacturing, distribution and brand recognition; additionally they had access to regulatory and health officials. Ranbaxy gained increased market share and revenue from Lilly's innovative drugs, and also from manufacturing and distributing some of their finished products.
The partnership flourished despite challenges due to the combined efforts of Misters Mascarenhas and Gulati, who represented both halves of Eli Lilly-Ranbaxy (ELR). Both managers struggled with getting the JV running, but because of a close, positive work relationship they were able to succeed. Mascarenhas dealt with manpower issues, fighting high turnover with in-house promotion and benefits, de-unionizing the workforce and getting more effective employees. Gulati meanwhile was coping with growing the JV in a challenging environment- ELR had relatively low profit in keeping with government design, as well as competition from generics firms and weak patent protection. While putting systems and protocols in place for the future he developed a strategy of focusing on drugs difficult to copy and specialty areas in oncology and therapeutics.
This groundwork was instrumental in supporting ELR out of infancy as it began to take off profitably in 1996, with its own facilities, a sustainable growth rate of 8%, and the introduction of Chris Shaw who took over from Mascarenhas and Gulati. Shaw's work was to build ELR into a major player; as Gulati said, “[We had to] prepare ourselves to go from sales of US $10million to sales of US $100million”. By putting in place more processes and streamlining the marketing and sales activities in ELRs therapeutic areas, he was able to bring stability to the growing organization. Additionally he hired management consultants and planned for future expansion and growth in the Indian market. Lilly’s willingness to trust the expertise of its local partner, Ranbaxy’s cooperation with a firm of international prestige and incorporation of Lilly’s values into the JV, combined with a close, productive working relationship all contributed to an incredibly successful partnership. Both Lilly and Ranbaxy more than doubled their volume of sales over the course of the JV, in 2000 Eli Lilly moved into a Top Ten position globally among pharmaceutical companies, and Ranbaxy was the top earner in India.
With a solid foothold in India, and having moved up to become the 12th largest pharmaceutical company in the world, Lilly didn't need to hide behind Ranbaxy's name anymore, and with the industry allowing for full foreign ownership and a global trend of...