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Background of business and its current situation
Eli Lilly is a global pharmaceutical company based in US. The company was founded in 1876 by Colonel Eli Lilly, a pharmaceutical chemist, after whom the company was named. He committed to create a high-quality medicine. Chairman Dick Wood decided to take the company global in the 1980s. By 1992, Eli Lilly manufactured in 25 countries and sold in more than 130 countries. The company is committed to technical and managerial excellence. Gerhard Mayr, head Lilly international in 1992, wanted to expand operations in Asia including India because of their opening of market for foreign investment and opportunity for clinical testing (Lilly, 2018).
Ranbaxy Laboratories Ltd began as a family business in 1960s with a visionary management grew rapidly to emerge as the leading domestic pharmaceutical firm in India. Dr Parvinder Singh, who held a doctoral degree from the University of Michigan, the form evolved into a serious research-oriented firm. Singh, who joined Ranbaxy to assist his father in 1967. By 1987, Singh had become the managing director of the company. By 1990, it becomes India’s largest manufacturer of bulk drug and generic drugs. In 1996, Ranbaxy had 15% of domestic market share. The company’s capital cost was typically 50% to 75% lower than those of comparable US plants. Higher prices in other countries provided the impetus for Ranbaxy to pursue international markets, the company had a presence in 47 markets outside India, mainly through exports. As a Ranbaxy entered the international market in 1980’s. R;D was responsible for registering its product in foreign markets. R;D expenditure ranged from two to five per cent of annual sales with future targets of seven to eight per cent (Ranbaxy, 2018).
Eli Lilly ; Ranbaxy joined venture start and signed in 1992. Each company had 50% stakes with an initiative investment of approximately $10 million. Board of Directors of joint venture was 6 directors, 3 from each company. Manging committee of joint venture was 2 directors, 1 from each company. Eli Lilly retained right to appoint the CEO of joint venture and alignment of broad values. Ranbaxy would supply certain products they already made under joint venture then formulate and finish some of Lilly’s product locally in India. Ranbaxy also package and distribute Lilly’s products. Agreement provided for transfer of share in case of any partner desired to dispose a part or its entire share in the company. Ranbaxy was driven by the generic business and Lilly was driven by innovation and discovery (Ashish, 2013).
Global Pharmaceutical Industry
Pharmaceutical Industry rapid growth was aided by increasing worldwide incomes and a universal demand for better health care. It was mainly concentrated in North America, Europe and Japan. The largest four firm claims 20 per cent of sales. The top 20 firms claimed 50 to 60 percent and the 50 largest companies accounted for 65 to 75 per cent of sales. Drug discovery is an expensive process, with leading firms spend their 20 percent of the sales in research and development R;D. It took approximately 10 to 12 years from discovering to launch of drug in market, and typically cost approximately US$500 to US$800 million. In most countries, all activities related to drug research and manufacturing were strictly controlled by government agencies, such as Food and Drug Administration (FDA) in United States, The Committee on Proprietary Medical Products (CPMP) in Europe, and the Ministry of Health and Welfare (MHW) in Japan. Product patent cover the chemical substance itself and it offers approximately 20 years of protection. Usually a lag time of 10 to 12 years by the time the patent was obtained and the launch date. Whereas process patent covered the method of processing or manufacturing the product with little protection because it is easily to modify the process (Statista, 2018).
Environment: External and Internal Factors
In any business, if they want to success in marketplace it is necessary to understand what factors impact on the development of their company. Once they know the both positive and negative effects within and outside company, they can produce suitable strategy to handle any situation. Therefore, internal and external factors are considered most important task in any business before they launch any strategic marketing plan. Internal factors consist of five things. They are Human Resources, Capital Resources, Operational efficiency, Infrastructure and Innovation. External Factors consist of four things. They are Economic Situation, Laws, Surrounding infrastructure and Customer Demands (Mageplaza, 2018).
Internal factors
Human Resources: It can be said that human element is among the most important factors that internally exert impacts on the growth of the company. The employees can be either a strength or weakness of the company depending on the level of practical skills, attitudes toward work.
Capital Resources: Of course, money is the vital part for any enterprise to perform its plan. No company can survive without having capital resources. Once a company has enough budgets, they can easily launch their projects and expand its scale. There are also several ways for an enterprise to maintain stable budgets by some resources such as investment opportunities, funding, and annual income.
Operational Efficiency: The way an enterprise operates directly affects their success in the marketplace. The operation of a company includes a bundle of contributing factors such as products, employees, customers.
Organizational Structure: To have a suitable organizational structure requires the owners must consider carefully set up a system to work smoothly within the company. Whether it is a centralized or decentralized system, the most important thing is how effective the structure is when applied for the company.
Infrastructure: When you already have well-trained and motivated workers, an effective operational and organizational system, make sure that the infrastructure of the company is good enough for all your functions. With the modern and high-quality facilities, stable power, internet and wifi connection, and so on your company is likely to perform better.
Innovation: With the fast pace of the fourth industrial revolution, the world is on the ways to strongly change the life of people including how they work, they communicate with each other (Mageplaza, 2018).
External Factors
Economic Situation: Economy is one of the most determining factors to the success of the company even though it is an external element.
Laws: The rules and regulations from local government play an integral role in the development of the company. There are some countries which their laws prevent the development of some certain industries. That can be a threat to the company. On the other hand, some industries receive positive and continuous support from local government via their rules and regulations.
Surrounding Infrastructure: Depending only on inside infrastructure is not enough for the company to develop. If they have a well-structured and modern infrastructure, but the road to access the company is not well created will be deterrence for the business.
Customer Demands: We all know that what people want, what people need, and what they demand are usually different from each other. Customers need something to communicate with their family member outside their countries, they want to a smartphone which can perform multi-function; however, they cannot afford that smartphone with a limited budget (Mageplaza, 2018).
Conflicting global demands
Strategy implementation and its appropriateness
India offers many opportunities; decisions can be made with the interest of Lilly in mind; ELR successful, reputable company in India; revenue to support parent company; integrate technology and knowhow of subsidiary to realize company strategy (Ashish, 2013).
Technological Dimension:
•Strategy allows Lilly to take advantage of a long-term growth opportunity
•Purchasing Ranbaxy’s shares would allow Lilly to maintain a foothold in India
•ELR is an established reputable entity in the Indian market
•Market and regulatory changes provide several opportunities in India
•Increasing local demand and low-cost, skilled labour are integral components in Lilly’s strategy portfolio (Ashish, 2013)
Organizational Dimension:
•Lilly will face challenges as it lacks manufacturing and distribution – will have to negotiate with Ranbaxy or other entity or develop own capabilities
•Regulatory environment may represent challenges and uncertainty
•Cultural differences may undermine the effectiveness and success of subsidiary – however, local perception that foreign is better could also aid company success
•Trust and close relationships need to be fostered with local stakeholders (government, consumers, etc.)
•Country risk must be actively managed, as risk solely rests with Lilly (Ashish, 2013)
Transactional Dimension:
•Lilly is highly committed to scientific and managerial excellence BUT lacks access to distribution channels and manufacturing capabilities
•India’s operating environment is evolving – uncertainty and opportunity
•Cultural differences must be actively managed to function in a mutually beneficial way •Long-term growth objectives can be met by taking advantage of comparative advantage (low-cost, skilled labour) and shaping opinions and Strategy Evaluation (Ashish, 2013)
Identifying current challenges
Initially country had no indigenous production capability & was totally dependent on imports. Post-Independence HAL (promoted by WHO) & IDPL (Russian assistance) were established in 1954 & 1961 respectively. Indian Patent Act was passed in 1970, it abolished Product patent & permitted Process patent for 5-7 years. Drug Price Control Order (DPCO) instituted price control by which govt. stipulated prices for all the drugs. Many of MNCs left India which resulted in emergence of local manufacturing companies. Indian drug prices hovered around 5%-20% of U.S. prices due to these. Prime minister Mrs. Gandhi had said at World Health assembly in 1982: “The idea of a better-ordered world is one in which medical discoveries will be free of patents and there will be no profiteering from life and death.” In 1990s, post globalisation, FDI up to 51% (up from 40%) was allowed in Drugs & Pharmaceuticals industries. A suitable Environment for entry of Eli Lilly entry into India (Ashish, 2013).
Suggestion and recommendations
Conclusion: The strategy recommended will aid Lilly in retaining its foothold in India, while simultaneously enabling the company to take advantage of recent positive market developments (economic and political). Furthermore, the approach will address key issues and concerns faced by Lilly, while allowing the company to respond to global as well as local industry changes. By choosing to purchase Ranbaxy’s stake in the venture Lilly will be able to utilize its core competencies to take advantage of the many opportunities present in the Indian market. The company will also be able to meet the international sales targets needed to promote its continued success. Finally, this strategy will enable Lilly to use India for clinical testing through ELR’s medical infrastructure and expertise in clinical trials. It will allow the company “to provide clinical trial data to support global registrations” as well as proactively manage costs. Accordingly, returns will be maximized, and profitability increased, thus meeting Lilly’s strategic objectives (Kathrin, 2013).
References
Ashish. (2013, December 19). Eli Lilly Ranbaxy . Retrieved from https://www.slideshare.net/ashishthakur104855/eli-lilly-ranbaxy-case-group-4
Kathrin. (2013, July 22). Eli Lilly in India. Retrieved from https://www.slideshare.net/KathrinAH/eli-lilly-india
Lilly, E. (2018, July 19). ELi LIlly. Retrieved from https://www.lilly.com/who-we-are
Mageplaza. (2018, July 19). What Are Internal ; External Environmental Factors That Affect Business. Retrieved from https://www.mageplaza.com/blog/what-are-internal-external-environmental-factors-that-affect-business.html
Ranbaxy. (2018, July 19). Ranbaxy Laboratories. Retrieved from https://en.wikipedia.org/wiki/Ranbaxy_Laboratories
Statista. (2018, July 19). Global Pharmaceutical Industry – Statistics ; Facts. Retrieved from https://www.statista.com/topics/1764/global-pharmaceutical-industry/
