INTERNATIONALISAION OF INDIAN PHARMACEUTICAL FIRMS

INTRODUCTION:
Internationalization is the process of planning and implementing products and services so that
they can easily be adapted to specific local languages and cultures, a process called localization .
The internationalization process is sometimes called translation or localization enablement.
Indian pharmaceutical firms are internationalizing by acquiring small firms as well as setting up
their subsidiaries, in order to access resources, move up value chain and enter new markets. The
leading Indian pharmaceutical firms show that high-risk strategy of acquisitions and direct
foreign entry can yield rich dividends, provided it is backed up with superior technology savoir-
faire in the targeted niches. The mainstream perspective in international business assumes that
firms will internationalize on the basis of a definable competitive advantage that allows them to
secure enough to cover the additional costs and risks associated with operating abroad. Dunning
(1981; 2001) draws together elements of previous theories to identify ownership, location and
internationalization (OLI) advantages that motivate internationalization. Ownership advantages
are firm-specific factors such as superior proprietary resources or managerial capabilities that can
be applied competitively in a foreign country (Barney, 1991). Location advantages can account
for decisions to invest in foreign countries that offer superior market or production opportunities
to those available elsewhere or opportunities to secured valued inputs. Internationalization may
accrue to firms that can reduce transaction costs by investing abroad so as to undertake
transformation or supporting processes more effectively that that can be achieved through market
transactions. The benefit of internationalization advantage depends on ownership capabilities and
in general this has been a dominant explanation for the emergence of internationalization by
firms.

The Indian Pharmaceutical Industry:

Although India currently represents just US $6 billion of the $550 billion global pharmaceutical
industry, its share is increasing at 10 % a year. The organized sector of India’s pharmaceutical
industry consists of 250 to 300 companies, which accounts for 70 % of the market, with the top
ten companies representing 30%. The Indian pharmaceutical industry has developed wide
ranging capabilities in the
complex field of drug process development and production technology. It is well ahead of other
developing countries in process R&D capabilities and the range of technologically complex
medicines manufactured. There are 3 developments which are pushing expansion of the Indian
pharmaceutical industry into overseas markets;
a. Opportunities opened in the US generic market due to the Hatch-Waxman Act,
b. Increasing outsourcing by MNC pharmaceutical firms and
c.. strengthening of patent laws in the domestic market.

These three developments are creating new challenges and opportunities for Indian industry and
internationalization is one of route adopted by Indian to succeed in this new environment.

Some of the well established Indian Pharmaceutical firms are Ranbaxy Laboratories, Dr.
Reddy’s Labs, Wockhardt, Nicholas Piramal and Sun Pharmaceuticals Ltd.
RANBAXY LABORATORIES LIMITED
COMPANY PROFILE:

Ranbaxy Laboratories Limited (Ranbaxy), India's largest pharmaceutical company, is an

integrated, research based, international pharmaceutical company, producing a wide range of
quality, affordable generic medicines, trusted by healthcare professionals and patients across
geographies. Ranbaxy today has a presence in 23 of the top 25 pharmaceutical markets of the
world. The Company has a global footprint in 46 countries, world-class manufacturing facilities
in 7 countries and serves customers in over 125 countries.

Ranbaxy started as a manufacturer of active pharmaceutical ingredients (API) and soon began
looking at international markets for exporting these ingredients. By 2006 Ranbaxy has world-
class manufacturing facilities in eight countries namely China, Ireland, India, Malaysia, Nigeria,
Romania, the US & Vietnam.

In June 2008, Ranbaxy entered into an alliance with one of the largest Japanese innovator
companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical
powerhouse. The combined entity now ranks among the top 20 pharmaceutical companies,
globally. The transformational deal will place Ranbaxy in a higher growth trajectory and it will
emerge stronger in terms of its global reach and in its capabilities in drug development and
manufacturing
.
Ranbaxy is focused on increasing the momentum in the generics business in its key markets
through organic and inorganic growth routes. Growth is well spread across geographies with
focus on developed and emerging markets. It is the Company’s constant endeavour to provide a
wide basket of generic and innovator products, leveraging the unique Hybrid Business Model
with Daiichi Sankyo. The Company will also increasingly focus in high growth potential
segments like Vaccines and Biogenerics. These new areas will add significant depth to the
existing product pipeline.

BASIC PRODUCTS OF RANBAXY:

The basic products of Ranbaxy are:-

• Valacyclovir
• Simvastatin
• Donepezil
• Atorvastatin & Combinations
• Co-amoxyclav & Combinations
• Ciprofloxacin & Combinations
• Ketorolac Tromethamine
• Imipenem+Cilastatin
• Ginseng+Vitamins
• Loratadine & Combinations

Ranbaxy Laboratories: Domestic Growth

Since a firm comes into being in the domestic market before it expands into the international
market, understanding firm’s growth in the domestic market is a precursoring step to understand
its international growth. In the domestic market a firm emerges to satisfy human wants by
organizing production and allocating resources and thereby maximizing its objective functions
like profit, sales or growth. Once a firm emerged in the market, whether it will survive or grow
shall depend upon its capability to create and accumulate a set of firm‐specific competitive
capabilities like technology, skills and marketing strength to favourably discriminate ones’
product from the others. Once a firm captures a dominant share in the national market based on
its created and accumulated strategic assets, it tends to explore market opportunities overseas.

The company came into being in Amritsar in the 1950s as a distributor company for A. Shionogi,
a Japanese pharmaceutical company17. It was promoted by Ranjit Singh and Gurbux Singh,
former employees of the said Japanese company’s trading branch in India. This period was the
first stage of internationalization of the Indian pharmaceutical industry where multinational firms
were dominating the domestic market and domestic firms like Ranbaxy used to distribute
imported medicines from the global firms. In early 1960s, Bhai Mohan Singh acquired the
company and got into manufacturing of
antibiotics in 1960 through collaboration with Italian pharma company Lapetit Spa (Milan). A
few years later, the company overtook the joint venture antibiotics plant in Okhla and became a
public limited company in 1973 to raise resources from Indian Stock Exchange. These resources
were utilized to finance bulk drugs manufacturing facilities at Mohali, India.

The enactment of a soft patent regime in 1973, a discriminatory drug and pricing policy with
respect to foreign firms, have been the instrumental factors that nursed Ranbaxy’s dramatic
growth in the domestic market and eventually in the global market. The company copied
technologies from other countries like Hungary and developed newprocesses from patented
products of multinational firms in India. The enlarging size of human capital like chemical
engineers, technicians, scientists, pharmacists and chemists due to national investments in skill
formation has played a great role in enhancing
Ranbaxy’s ability to invent cost‐effective processes. The launching of the sleeping pill,
Calmpose, a generic formulation of the hugely popular Rocheʹs patented Valium tranquillizer,
has strongly enhanced Ranbaxy’s presence in the domestic market. In 1978 and 1985, Ranbaxy
developed novel processes for the manufacturing of the antibiotic doxycycline and ranitidine
respectively. Eventually, this growing technological strength has provided Ranbaxy with
significant cost advantages in next 30 years or so and
increased its market share significantly. This also led to the starting of the internationalization
process of the company through greenfield outward investments into developing countries.
Ranbaxy Laboratories: Internationalization Process and Emergence of
Outward Investment

In 1977, Ranbaxy established a subsidiary in Nigeria through a joint venture and in 1984 it
expanded operations to Malaysia. In Nigeria Ranbaxy supplied equipments against its share
holding in the joint venture unit in 1978. Due to FDI laws prevalent in country, the company’s
equity contribution has to be in the form of exports of Indian made capital goods and know-how.
The main motives of Ranbaxy’s Nigeria venture were to exploit its process advantage by
supplying cheap drugs to the unmet demand in a developing country (Pradhan, 2006). The joint
venture in Malaysia was formed by the Indian and Malaysian government. Compare to the 10%
holding in the Nigerian joint venture, Ranbaxy had a 53% holding in their Malaysian joint
venture. Since then Ranbaxy has expanded its geographical presence through joint ventures to
new countries like Thailand, Canada and China and through wholly own subsidiaries in countries
like the Netherlands and Hong- Kong. At the end of 2005, the number of subsidiaries and joint
ventures of Ranbaxy stood at 50 covering a total of 30 countries (Pradhan, 2006). By 2006 in 48
overseas ventures, Ranbaxy holds a majority or full ownership showing a preference towards full
ownership in overseas expansion.

The firm was listed on the Luxembourg Stock exchange in 1994 and raised money to establish a
global presence in generic drugs manufacturing through a combination of overseas investments
and foreign acquisitions. After euro issue Ranbaxy invested close to $100 million over a four
year period globally and created physical infrastructure in different parts of world.

Ranbaxy entered the US in 1995 by acquiring an FDA-approved manufacturer, Ohm

Laboratories. In 1996, it started a joint venture with another US based firm Schein
Pharmaceuticals for marketing Ranitidine in US. In 1998 Ranbaxy established a 100 percent
subsidiary in the US and started marketing products under its brand name. Within just four years
of starting its US operations, Ranbaxy touched the US $ 100 million mark for sales in the US.

The firm also began expanding its production facilities in Europe by setting up a subsidiary in
the UK (1994) and establishing a manufacturing plant in Ireland (1995). These have proved
instrumental in Ranbaxy’s forays into other European markets; the company first entered UK
and created a critical size which provided the company with a platform to expand it further in
Europe. After UK entry it swiftly expanded into Poland ($ 6 million), Hungary ($ 4 million), the
Czech Republic ($ 8 million) and the Slovak Republic ($ 8 million); each of which were million
dollar businesses during expansion. The manufacturing plant in Ireland provides the backbone of
Ranbaxy’s European business. In recent years Ranbaxy has pursued an aggressive acquisition
strategy for the internationalization of its operation. In 2004, the company consolidated its
position in the European market further by acquiring the fifth largest generics company in
France.
In 2006 Ranbaxy acquired two generic companies namely, Terapia in Romania and Ethimed in
Belgium and followed that by buying a large unbranded generic product portfolio of Allen S.P.A
in Italy.

In order to protect its international investments, Ranbaxy also applied for patents all over the
world for its innovative production processes. The experience gained also developed regulatory
skills needed to obtain approvals for its products under Para 2 of the Abbreviated New Drug
Applications (ANDAs) scheme in the US. In the case of Ranbaxy joint ventures, acquisition and
organic route have emerged as key part of Ranbaxy’s internationalisation strategies. Ranbaxy
began with joint ventures in developing countries first and then in other developed countries.
This has proved an importance source of learning for operating in international markets. At the
heart of strategy was sequential expansion; first prioritise market in overseas country, then export
in that country or form joint venture to understand dynamics, then set up infrastructure and
finally start expanding.

RANBAXY GLOBAL STRATEGIES:

In India, the Drug Price Control Order (DPCO) was introduced in 1970 to ensure adequate
availability of essential drugs at reasonable prices through direct control over drug prices by the
Indian government. About 22 drugs and their formulations were under price control. The DPCO
was amended in 1979 increasing the number of drugs under price control to 347.

These price controls limited the growth opportunities for Ranbaxy, and encouraged the
company to expand abroad. Ranbaxy's journey towards globalization began in 1975. The
company initially concentrated on selling bulk drugs and intermediates in the overseas markets.
However, the gross margins in exporting bulk drugs were as low as 10% in the overseas
markets, and at times, this was insufficient even to cover the cost of overseas sales and
distribution (Refer Table I for the details of gross margins in global pharmaceutical industry in
1999). Parvinder once said to his colleagues who had doubts about the feasibility of succeeding
in Western markets, "Ranbaxy cannot change India. What it can do is to create a pocket of
excellence. Ranbaxy must be an island within India..."

The Globalization Strategy

Ranbaxy's globalization efforts were carried out in a clear sequence. It started by prioritizing
markets, followed this by entering these markets to understand the business environment, and
then proceeded to set up infrastructure and finally expand into these markets. To establish a
noticeable presence, Ranbaxy made huge investments and also adopted the route of alliances.

The strategy Ranbaxy adopted was to acquire generic brands overseas, emphasize brand management,
and enter markets with high potential. Ranbaxy's entry strategy varied depending on the country it was
targeting. Several factors like gross national product (GNP), per capita income, health expenditure, and
the local pharmaceutical market were taken into consideration. Ranbaxy looked at the range of products
available in the market, patents, and demand for new and existing products. Then, it decided on the
product that it would like to launch in the market. In some countries, Ranbaxy made acquisitions in
order to strengthen its product portfolio. For instance, Ranbaxy acquired OHM Laboratories in the US in
1995.
Ranbaxy in the US
Ranbaxy entered the US in 1993-94 with its 100% subsidiary - Ranbaxy Pharmaceuticals Inc.
The company managed its operations with a small team for a period of four years. The team
worked to gain understanding of the market and what the company would need to do to gain a
foothold in the market, gaining in-depth knowledge about FDA approvals, regulatory processes
and the functioning of American markets.

The company concentrated on developing its own infrastructure in the US rather than depending
on its partners. Emerging opportunities in the US generic markets were used by Ranbaxy as its
launch pad for establishing operations in the country. Between 1995 and 1998, the company filed
16 abbreviated new drug applications (ANDA). The company acquired Ohm Labs, a generics
company with experience in FDA approvals and formulations, in 1997.

This helped form a base for Ranbaxy's foray into the US generics market. In 1998, Ranbaxy
started marketing its products. In fiscal 1998, Ranbaxy's US operations incurred annualized
losses of US$ 2.5 billion...