Case 6-3 Eli Lilly in India: Rethinking the Joint Venture Strategy Essay

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Pages: 13

The case consists of two major pharmaceutical companies that joint to collaborate their research and pharmaceutical technologies to start a joint venture in India. Both have valuable resources that have benefited both companies during the joint venture. Now both are questioning if there is still any value in maintaining the joint venture in India and will be deciding what will be the best route to take. Ranbaxy Laboratories wants to be bought out, but Eli Lilly is worried of the financial implications of such move. There were two pharmaceutical companies that were looking for ways to expand globally to position themselves in a competitive advantage from their competitors. One was located in the United States, which was Eli Lilly and …show more content…
These key issues were important to both companies because both wanted to expand, but were facing the challenge of cost in the process of discovering. 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).
Another point to the importance of the key issue was that both having different business focuses. Ranbaxy was a company driven by the generics business. Lilly, on the other hand, was driven by innovation and discovery.
Once India JV was formed, they were faced with the ministry of health provided limitations on Lilly’s pricing, and even with the margin the Indian government allowed, most of it went to the whole-salers and the pharmacies, pursuant to formulas in the Indian ministry of health. Once those were factored out of the gross margin, achieving profitability was a real challenge, as some of the biggest obstacles faced were duties imposed by the Indian government on imports and other regulatory issues.
Because India JV did not have a distribution network and Lilly not wanting to invest in creating one, Ranbaxy was able to provide the distribution network needed.
Also with the uneasy of the patents dilemma in India,