ELI LILLY IN INDIA: RETHINKING THE JOINT VENTURE

STRATEGY

MAN 6635: INDIVIDUAL CASE STUDY

ZELEEN ROBINSON
Table of Contents

INTRODUCTION 3

DISCUSSION QUESTION 1 3

DISCUSSION QUESTION 2 4

DISCUSSION QUESTION 3 6

DISCUSSION QUESTION 4 7

EXHIBITS 8

2
INTRODUCTION

Eli Lilly has built a top leading pharmaceutical company which ended up doing business

in 151 countries by 2001. Their move to internationalize its operation lead them to increase

profits. When Eli Lilly was looking to expand it looked to India for its low-cost strategy, which

they saw an opportunity for in this emerging market. The differentiation strategy also used by Eli

Lilly, gave them a sustainable competitive advantage. As well as the ability to provide a unique

value such as its ethical standards, and its core marketing message which was alluded to by its

opportunities to use the world for clinical testing, which in turn would help shape the opinions of

leaders in the medical field globally.

The fundamental value creation of Eli Lilly was its business acumen, and it is product

innovation which leads to its gaining its customer's trust. This resulted in pushing them to the top

10 pharmaceutical company in 2001 according to its sales. Before reaching such pinnacle

success, Eli Lilly benefited from the economies of scale when they created a joint venture with

Ranbaxy Laboratories. This meant that pooling both resources and leveraging each other’s

strengths lead to mutual gains and the reduction of risk. The coloration of both companies, in the

end, was a successive partnership.

DISCUSSION QUESTION 1: Did Eli Lilly pursue the right strategy to enter the India

market?

In the 1990s, opportunities in India opened up in regards to foreign direct investments for

companies up to 51%. When companies were engaging in cross-border coloration, the strategic

challenges that they faced at the time were “primarily as protecting potential profits from

erosion.”1 By using the strategic alliance strategy where Eli Lilly aligned themselves with a

1
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.477

3
recognizable company such as Ranbaxy Laboratories in India was the best strategy for them to

pursue. Ranbaxy Laboratories was an already established leading domestic pharmaceutical firm

in India.2 By affiliating themselves with India’s largest manufacturer at the time with a reputable

distribution network that held a 15% market share as well as they had a presence in 47 markets

outside of India, mainly though exports3with a reputation of being the second largest exporter of

all products in India. All in all Eli Lilly did use the right strategy when entering the Indian

market.

DISCUSSION QUESTION 2: Carefully consider the evolution of the joint venture.

Evaluate the three successive IJV leaders. Identify the unique challenges faced by each.

Both companies having a 50/50 equity ownership signed the joint venture agreement in

November 1992 with equal contributions. During its joint venture, it split its management

committee pulling from both companies. One of those successive leaders was Andrew

Mascarenhas. He was the managing director for Lilly’s Caribbean basin who was then selected

to the first managing director for the joint venture. Mascarenhas practically had to build the

organization from scratch along with another successive leader Rajiv Gulati. In building the

team, they hired a financial analyst, a medical director, sales manager and a human resource

manager.

Mascarenhas was also faced with hiring a significant amount of staff such as sales forces,

medical doctors and financial people. However, the Indian pharmaceutical industry at the time

had a very high employee turnover rate. Since Eli Lilly Ranbaxy was a relatively new and

2
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.523
3
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.524

4
untested company many were taking huge risk with their careers and the lives of their families.4

Mascarenhas also had to fight the unethical Indian stigma that was associated with its

pharmaceutical industry at the time, by incorporating its ethical code called the ‘Red Book’ the

group gradually became distinguished.

Another successive leader as mention was Rajiv Gulati who was with Ranbaxy, was

chosen to be the director of marketing and sales. Along with hiring its initial managerial team,

Gulati was tasked with getting government approvals; licenses, distributions and supplies5 seeing

how weak the intellectual property laws were at the time it provided difficulties when trying to

launch some of its products. Not only that but the ministry of health provided limitations on

Lilly’s pricing. The product and marketing strategies had to be adopted to suit the market

conditions, which was a challenged that Gulati was faced with as well. Overall, the duo of Gulati

and Mascarenhas contributed to the success of the joint venture.6 By 1996, the venture had

reached its break-even and was becoming profitable.

The third successive leader was Chris Shaw who was a part of the company for three

years and managed to turn the joint venture more profitable. Shaw focused on “building systems

and processes to bring stability.7 With his background in operations he managed to create a team

to develop standard operating procedures, as well as modernized the sales and marketing

4
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.526
5
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.526
6
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.527
7
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.528

5
activities. As noted in Eli Lilly- Ranbaxy financials from 1998 to 2001, when Shaw managing

operations the sales and the marketing expenses increased which resulted in higher profits. 8

DISCUSSION QUESTION 3: How would you assess the overall performance of the JV?

What did the partners learn from the IJV?

Mutually both companies profited from the joint venture by doing a strategic alliance

especially when it came to technology exchange, global competition, industry convergence and

its economies of scale. At the time Eli Lilly was one of the largest pharmaceutical companies

that had a global presence in 130 countries, which was greatly beneficial for Ranbaxy, which had

a direct connection to those areas as well. Ranbaxy association with Eli Lilly provided them with

a good reputation due to the ethical standards that they had set. In the SWOT analysis that is

shown in Exhibit 29 it can be seen that they had issues as well such as the Indian laws at the time

and its price limitations. Overall, the joint venture was a successful one for both parties.

The ELR was recording an excellent growth rate, making it the 46th largest

pharmaceutical company in India10. The partners from Eli Lilly appreciated that Ranbaxy had

helped them build a unique culture in India, while providing them with manufacturing and

logistics support. Both companies learned valuable assets from one another. Ranbaxy learned

that being ethical has made them more trustworthy. Ranbaxy also started developing new drugs

and looked at expansion into the United States and the United Kingdom while Eli Lilly learned

that the cultural aspects of entering into an emerging market were vital to their survival.

DISCUSSION QUESTION 4: What action would you recommend regarding the Ranbaxy

8
Exhibit 1
9
Exhibit 2
10
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.529

6
partnership? What are the implications of your recommendations? How would you

implement this?

At the time of the joint venture, India did not have substantial intellectual property rights,

and the Drug Price Control Order (DPCO) had local firms make copies of drugs leading to a bulk

production.11 The lack of a structured governmental regulation regarding its health care industry

resulted in the profitability’s of the drug companies, which at the time the health care industry

had a tiny share of India’s GDP. It would recommend to hold off or push back its joint venture

until progress in Indian’s health care sector was beginning to form.

By holding off on forming a joint venture, Eli Lilly would gain even more of a

competitive edge. The venture was signed off in 1992; however, India signed the General

Agreement on Tariffs and Trade (GATT) in 1994, and in 1995 became a World Trade

Organization (WTO) member.12 In doing so, India would grant product patent recognition on all

new chemical drugs. Also, the Indian government was welcoming 100% foreign direct

investment. The changes that were made by the Indian government would have resulted in Eli

Lilly launching some of its products.

With extensive research on the potential market and knowing the familiarity of that

specific countries laws, would have made a difference in the joint venture. At the time Gephard

Mayr only had extensive experience in the European market, but wanted to expand to Asia, and

saw an opportunity to enter India. The partnership between Eli Lilly and Ranbaxy were mutually

beneficial. By doing their due diligence and waiting out the complexities of the Indian medical

sector, it would have been able to bring foreign products to India and grow to its full potential.

11
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.522
12
Bartlett, C. A., & Beamish, P. W. (n.d.). Transnational management text and cases in cross-border management
(Seventh ed.). p.532

7
EXHIBITS

EXHIBIT 1

8
EXHIBIT 2