Case study
Assignment 2 —Eli Lilly in India: Rethinking the Joint Venture Strategy Unit 2: International Business and International Firms In Assignment 2, you will analyze the case of Eli Lilly in India, which documents the evolution of an international joint venture between a leading US pharmaceutical company, Eli Lilly, and Ranbaxy Laboratories of India. If you haven’t already done so, review the Assignment Tips and Requirements and the Note on Case Analysis (links are on the instructions page for this assignment). The Eli Lilly in India case provides an illustrative example of the opportunities and challenges presented by one of the fast-growing emerging markets, India. Completing this assignment will enable you to see the interconnectedness among foreign direct investment, business-government relations, and international trade. You will be able to explore how changes in strategic objectives of joint venture partners and how institutional changes in a joint venture’s operating environment necessitate evaluation of a partnership and change. The Case To read the case, click the link below (will open in new window). Eli Lilly in India: Rethinking the Joint Venture Strategy Case Analysis Questions The following questions are just a starting point that will help you organize your thoughts and better analyze the case. DO NOT simply answer these questions—rather, you must write a thorough case analysis as outlined in the "Assignment Tips and Requirements." 1. Did Eli Lilly pursue the right strategy to enter the Indian market? 2. Carefully consider the evolution of the joint venture. Evaluate the three successive international joint venture leaders. Identify the unique challenges faced by each. 3. How would you assess the overall performance of the joint venture? What did the partners learn from the international joint venture? 4. What action would you recommend regarding the Ranbaxy partnership? What are the implications of your recommendation? · Executive summary (200 words): provides a coherent overview of the document it attempts to summarize. The executive summary, which should be written after completing other sections of the case analysis report, must contain a brief statement of the core problem, pertinent details, and the recommendation. The case Eli Lilly is about two pharmaceutical companies one being Eli Lily located in the United States and the other being Ranbaxy Pharmaceuticals located in India. These two pharmaceuticals started a joint venture in India called Eli Lily-Ranbaxy Private Limited (ELR). Both companies had a goal to expand globally. The problem looked at is how the joint venture has caused financial loss. This loss has affected Eli operation and alternatives need to be looked at such as operating solely or agree to a different partnership. Looking at what will be the best decision and outcome that is positive results for Eli Lilly. · Problem statement (50 words): identifies the core problem or issue facing the decision-maker. What is she or he trying to solve? Do not confuse the problem with its underlying causes. Likewise, do not "change" the problem. For example, if the problem is deciding whether a firm should enter Mexico via a joint venture, do not argue that China would be an ideal country for the firm to enter. Due to the financial losses, Eli Lilly had to cancel the joint venture. The losses were clear that they came from the partners. The problem arises on how Eli Lilly can go operate solely individually without ruining any relationships with partners. · Analysis (600 words): identifies the underlying causes of the core problem. It should provide a well-balanced and detailed analysis of the situation by examining all relevant factors. Remember that unless you correctly identify the causes of a problem, it will be difficult to find a solution that "really" solves the problem! · Discussion of alternatives (400 words): includes two feasible and mutually exclusive alternatives that can be utilized to solve the core problem. Do not discuss alternatives that the decision-maker has rejected or about which she or he is not enthusiastic. Discuss all important advantages and disadvantages of each alternative briefly. · Recommendation (250 words): explicitly identifies your recommendation. Ensure that it is specific and feasible, and briefly explain your rationale for advocating a particular recommendation. Make sure as well that your recommendation is consistent with the rest of your report. Check to see if you have really addressed the core problem! Recommendation is that Eli Lily operates solely individually to prevent further financial issues. This allows for the company to be managed easier. Decisions such as processes and financial decisions can be made without involving another company. Eli Lily would also then be able to set the direction of the company meaning if there is a change for demand in the market then the company can change to adapt to the economy needs. ADMN417v5Assignment 2BMarch 22/2018 9B04M016 ELI LILLY IN INDIA: RETHINKING THE JOINT VENTURE STRATEGY Nikhil Celly prepared this case under the supervision of Professors Charles Dhanaraj and Paul W. Beamish solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e)
[email protected]; www.iveycases.com. Copyright © 2004, Richard Ivey School of Business Foundation Version: (A) 2017-03-13 In August 2001, Dr. Lorenzo Tallarigo, president of Intercontinental Operations, Eli Lilly and Company (Lilly), a leading pharmaceutical firm based in the United States, was getting ready for a meeting in New York with D. S. Brar, chairman and chief executive officer (CEO) of Ranbaxy Laboratories Limited (Ranbaxy), India. Lilly and Ranbaxy had started a joint venture (JV) in India, Eli Lilly-Ranbaxy Private Limited (ELR), that was incorporated in March 1993. The JV had steadily grown to a full-fledged organization employing more than 500 people in 2001. However, in recent months Lilly was re-evaluating the directions for the JV, with Ranbaxy signaling an intention to sell its stake. Tallarigo was scheduled to meet with Brar to decide on the next steps. THE GLOBAL PHARMACEUTICAL INDUSTRY IN THE 1990S The pharmaceutical industry had come about through both forward integration from the manufacture of organic chemicals and a backward integration from druggist-supply houses. The industry’s rapid growth was aided by increasing worldwide incomes and a universal demand for better health care; however, most of the world market for pharmaceuticals was concentrated in North America, Europe and Japan. Typically, the largest four firms claimed 20 per cent of sales, the top 20 firms claimed 50 to 60 per cent, and the 50 largest companies accounted for 65 to 75 per cent of sales (see Exhibit 1). Drug discovery was an expensive process, with leading firms spending more than 20 per cent of their sales on research and development (R&D). Developing a drug, from discovery to launch in a major market, took 10 to 12 years and typically cost US$500 million to US$800 million (in 1992). Bulk production of active ingredients was the norm, along with the ability to decentralize manufacturing and packaging to adapt to particular market needs. Marketing was usually equally targeted to physicians and the paying customers. Increasingly, government agencies, such as Medicare, and health management organizations (HMOs) in the United States, were gaining influence in the buying processes. In most countries, all activities related to drug research and manufacturing were strictly controlled by government agencies, such as the Food and Drug Administration (FDA) in the United States, the Committee on Proprietary Medicinal Products (CPMP) in Europe, and the Ministry of Health and Welfare (MHW) in Japan. A ut ho riz ed fo r us e on ly in e du ca tio na l p ro gr am s at A th ab as ca U ni ve rs ity u nt il S ep 1 2, 2 02 0. U se o ut si de th es e pa ra m et er s is a c op yr ig ht v io la tio n. Page 2 9B04M016 Patents were the essential means by which a firm protected its proprietary knowledge. The safety provided by the patents allowed firms to price their products appropriately in order to accumulate funds for future research. The basic reason to patent a new drug was to guarantee the exclusive legal right to profit from its innovation for a certain number of years, typically 20 years for a product patent. There was usually a time lag of about eight to 10 years from the time the patent was obtained and the time of regulatory approval to first launch in the United States or Europe. Time lags for emerging markets and in Japan were longer. The “product patent” covered the chemical substance itself, while a “process patent” covered the method of processing or manufacture. Both patents guaranteed the inventor a 20-year monopoly on the innovation, but the process patent offered much less protection, since it was fairly easy to modify a chemical process. It was also very difficult to legally prove that a process patent had been created to manufacture a product identical to that of a competitor. Most countries relied solely on process patents until the mid-1950s, although many countries had since recognized the product patent in law. While companies used the global market to amortize the huge investments required to produce a new drug, they were hesitant to invest in countries where the intellectual property regime was weak. As health care costs soared in the 1990s, the pharmaceutical industry in developed countries began coming under increased scrutiny. Although patent protection was strong in developed countries, there were various types of price controls. Prices for the same drugs varied between the United States and Canada by a factor of 1.2 to 2.5.1 Parallel trade or trade by independent firms taking advantage of such differentials represented a serious threat to pharmaceutical suppliers, especially in Europe. Also, the rise of generics, unbranded drugs of comparable efficacy in treating the disease but available at a fraction of the cost of the