The Problem
Joint Ventures do not always work and when they do they don’t work indefinitely. What Eli Lilly and Ranbaxy are facing now is the dilemma of rather to continue with their JV, Eli Lilly Ranbaxy, or should they separate and continue each one by its own means. The situation represents both a problem and an opportunity to both companies, as there are important trade-offs to be considered before any decision is taken.
The Environment
In the last decade the environment for the pharmaceutical industry changed radically in India. Before the 1990’s there were no regulations for patent recognition and the government had an active role in establishing drug prices through the DPCO, which were situated amongst the lowest in the world. Profit margins were also regulated at around 6% of sales. As a result many of the multinationals started exiting the Indian market. As India enter the GATT and the WTO in 1994 patent protection would become active in India from 2004-2005.
In the international arena, patent regulation was also little by little becoming stronger and many of the big players were going through M&A processes that further increased the sales concentration in few companies. These companies had a hard time competing with local laboratories that produced generic drugs with no R&D expenses and at a fraction of the price.
Eli Lilly Ranbaxy portraits the example of the traditional JV in which Ranbaxy, a company from less-industrialized country, offered the knowledge and distribution infrastructure of the local market, relations with the government as well as some products that would serve as ingredients for the final drug and on the other hand Eli Lilly, a company from an industrialized country, would provide know-how.
Recommendations
The Eli Lilly Ranbaxy JV was well founded since the beginning. Two companies with similar ideologies and with complementary