ELI LILLY IN INDIA: RETHINKING THE JOINT VENTURE STRATEGY
CASE SYNOPSIS
Eli Lilly in India documents the evolution of an international joint venture (IJV) over a 10-year
period (1991 to 2001) between Eli Lilly, a leading U.S. pharmaceutical company and Ranbaxy,
the Indian partner that marked Lilly’s entry into an emerging market, India. The case highlights
the company. As a result, Ranbaxy had given serious consideration to liquidating its ownership in
the Lilly Ranbaxy joint venture. The relations between the partners had been kept smooth, and the
potential for their future growth together seemed to be at an all-time high — but the immediate
problems were calling for a major strategic restructuring — a possible buyout of Ranbaxy’s
ownership.
case can be used to analyse the maturity phase of the IJV and an exit strategy. (It will work well
with a set of alliance cases, which can take the class through the different phases of an IJV.
1
)
Specifically, the following objectives can be accomplished using this case:
1. An understanding of how changes in firm-level strategy and institutional environment impact
the firm’s international strategy, specifically how the strategy relates to its alliances and joint
ASSIGNMENT QUESTIONS
Students will take either the Lilly side or the Ranbaxy side assuming the role of either Dr.
Tallarigo or Dr. Brar (the instructor may assign the role). Use the following questions to analyse
the case.
1. Did Eli Lilly pursue the right strategy to enter the Indian market?
The reasons for Lilly’s entering through a joint venture include:
It made sense for Lilly to join with a strong partner. Lilly could leverage the local partners’
current environment:
Ranbaxy believed in technology and innovation and had high ethical standards. Lilly’s JV with
Ranbaxy helped the company:
2. Carefully consider the evolution of the joint venture. Evaluate the three successive IJV
leaders. Identify the unique challenges faced by each leader.
The question is aimed at identifying three phases of JV evolution and the corresponding general
manager characteristics that are required at each stage. See Exhibit TN-1, which can be used as an
overhead for three stages.
Shakeout Phase — Managing the Crisis of Identity
Any newly established joint venture is made up of managers from two parent organizations who
The second quality is an ability to deal with uncertainty and ambiguity, as the managers do not
fully know what they are getting into. A general manager must be able to quickly become
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venture’s mission is, in relation to the parent companies’ perspectives and to the new competitors.
As part of this clarification and communication process, attainable goals for the joint venture need
to be established.
Consolidation Phase
Chris Shaw was appointed as the GM in 1996. As per the case, he focused on building systems
and processes to bring stability to the fast-growing organization. He created a team to develop
This consolidation phase is sometimes marked by an unwillingness of partners to leave well
enough alone. There is a tendency for each partner to attribute the venture’s success primarily to
its own contributions rather than to those of the partner. In the extreme, there is a sense that the
partner in fact may no longer be contributing much to the continuing success of the business and
so the question arises, “Do we still need our partner?” In their search for more profits, parent
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million to US$100 million and created a medical and regulatory unit to handle product approval
processes with the government.
At this stage, the GM needs to constantly re-introduce (or introduce for the first time) the
advantages of the original joint venture to what is now almost certainly a new corporate
management team from one or both of the partners. One of the challenges is to ensure that those
3. How would you assess the overall performance of the JV? What did the partners learn from
the IJV?
By all accounts, it seems that the JV has done well. In 2001, the JV had grown to become the
46th largest pharmaceutical company in India. The JV has also been recognized as a company
with high ethical standards. Ranbaxy has played the role of a silent partner, allowing Lilly to
manage operations as per Lilly’s code of conduct and strategy, providing the necessary help when
required. The main achievements of the JV can be summarized as follows:
4. What action would you recommend regarding the Ranbaxy partnership? What are the
implications of your recommendation? How would you implement this?
Exhibit TN– 2 provides a brief summary of what the two companies have gained from the venture,
and the potential gains and losses that would result from dissolution. Alternatives need to be
Ranbaxy was facing financial trouble, and the sell-out would help generate positive cash flow.
Further, as per Ranbaxy, its primary interest had been with the two other ventures that did not get
formed. The new management under Brar seems to have raised questions that the former
OPTIONS
Lilly can consider several options, including maintain the status quo, liquidating the venture,
acquiring 100 per cent stake in the venture or acquiring a majority stake.
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Maintaining Status Quo
Lilly can choose to stall negotiations and maintain status quo as it has nothing to lose from
Ranbaxy’s continued involvement at the time. However, Ranbaxy has already expressed its desire
Liquidating the Venture
Lilly can choose to close operations and liquidate the venture. However, there is no apparent
reason for Lilly to discontinue operations in India. Lilly has learned from this successful venture,
Acquiring the Venture (Full or Partial Ownership)
Ranbaxy has expressed its desire to sell its stake. Lilly is faced with the opportunity to acquire a
successful venture and gain complete control of its operations. However, doing so could prove
expensive as Lilly is aware that Ranbaxy is facing a financial crisis and would be looking to use
SUPPLEMENTARY MATERIAL
SUGGESTED READINGS
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TEACHING PLAN
There are two suggested plans for an 80-minute class. The first one (immediately following)
focuses on the role of the JV General Manager and emphasizes the changing tasks and requisite
attributes of the JV GM as the JV evolves.
Eli Lilly in the 1990s and the India opportunity 10 min.
I start the class with a broad action question, asking how many in the class would go for the
choice that Eli Lilly buy out the partner. Usually, there will be students who would like to take an
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five columns tracking the environment, United States and India, and the strategy/action of the
three firms: Lilly, Ranbaxy and the IJV.
Now I move to the assignment question #1 and part of #2: assessing the decision to enter the IJV.
Here I try to draw out the two perspectives, Lilly’s and Ranbaxy’s. I introduce the rationale for
between the GM’s personal traits and strengths and the tasks at hand. As the case reaches the
point where it is in 2001, I steer the discussion to an evaluation of this JV. I ask the students to
provide criteria, and on the basis of their criteria, to evaluate the success of this JV (assignment
question # 3).
Typically students tend to evaluate the JV with high marks. The instructor may use Exhibit TN–1
to illustrate gains from the venture for both Lilly and for Ranbaxy. At this stage, I ask the
question, “If the JV is so successful, why is there this desire to restructure?” That leads to the
Although getting the price right is not critical, the discussion draws out an important element of
value in the IJV. Then I lead them with a question: What other ways could you potentially use the
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ALTERNATE TEACHING APPROACH
Start the class by suggesting that students assume that they are assembled in the board room at Eli
Lilly, Indianapolis (USA) — with a mandate to make the final recommendation to Tallarigo with
reference to the Lilly Ranbaxy JV.
Then pause and after allowing the class time to think about the implication of this decision for the
future, pose the question — “What went wrong? Here is a JV which has been working quite well
for us for the past seven years — Was it the country decision? Or was it partnering decision? Or
partner choice? Or structure? Or management?” In so doing, lay out the structure for the next
1. Was the country wrong?
This provides the opportunity to bring up some potential thorny issues when dealing with
developing countries — one, the buying power, two, the regulatory issues, and three, intellectual
property rights (IPR). A good class will bring up all these points. Use the discussion to reinforce:
• Per capita income may be an inappropriate measure to use for large markets. — Is there a
2. Was deciding to partner wrong?
Of course, in 1993 the laws did not allow wholly owned investments. And there was little choice
that Lilly had on this issue. To drive home the point of partnering – ask the class; “Suppose there
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was no regulatory requirement in 1993, would you have still chosen partnership?” Try to
3. Was the partner choice wrong?
Here, you can use the discussion to get students to think through the criteria for partner selection.
You can use the 5 C’s to reinforce critical issues and a big 6th “C” to highlight partnering with
competitors:
– Coexistence of competition and cooperation is common in most settings. (Use the
analogy of a sports team which competes with another team for victory, but also
collaborates with other teams to develop norms of the game. Even members within a team
4. Was the JV structure wrong?
This gives an opportunity to talk about 50-50 shared JVs. Point out the misconception among
managers that 50-50 are hard to manage and 51-49 is easy to manage. Managers often pay a huge
premium to get the controlling stake one per cent — but invariably it is of no avail when it comes
to day to day decisions.
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5. Was the JV leadership wrong?
Lilly has been the more active partner in the JV — Ranbaxy has been a supportive partner. The
three executives (GM) seemed to have contributed well — appropriate to the needs of the
emerging JV. It may be worthwhile to bring up the changing needs of the JV as it grows. But the
At this point, show the 13-minute video of Lorenzo and others discussing the final decision.
End the case with a summary reinforcing three major points:
1. Joint ventures are vehicles that enhance your organizational capability. Don’t look at the
WHAT HAPPENED?
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On July 4, 2001, Eli Lilly bought the 50 per cent stake owned by Ranbaxy Laboratories in the
Lilly India’s growth has been phenomenal — revenues surged from a modest Rs. 8 crores in 1994
to more than Rs. 150 crores with 550 employees in 2003 and was ranked among the top 50
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Exhibit TN-1
REQUIRED GENERAL MANAGER CHARACTERISTICS
ROLES AND FUNCTIONS
Phase
Characteristics/Roles
Functions
Shakeout
(Crisis of
Identity)
Entrepreneurial
Ambiguity-tolerant
Integrator
Clarify and
communicate
goals
Consolidation
(Crisis of
Control)
Mediator
Implementer
Set performance
metrics
Maturity
(Crisis of
Continuity and
Purpose)
Strategist
Internal Sales Rep
Ensure learnings
are understood
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Exhibit TN-2
GAINS FROM THE VENTURE
Gains from the Venture
Lilly
A foothold into the India market
Lilly learned of the importance of critical mass
and how to operate in a low price, volume
intensive market
India became a source of talent and best-
practices for Lilly
Conducted low-cost, high-quality clinical
research.
Ranbaxy
Added sheen to Ranbaxy’s efforts as a
global player, as the Lilly name had
enormous credibility
In financial terms, Ranbaxy got a good ROI
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Exhibit TN-3
OPTIONS FOR ELR
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Exhibit TN -4
GAINS/LOSSES IF 100 PER CENT ACQUIRED BY LILLY
Potential Gains
(if 100% acquired)
Potential Losses
(if 100% acquired)
Lilly
Complete control
over subsidiary
Independent
management
Lose a partner they could
work well with
Lose Ranbaxy’s
manufacturing and
logistics support
Possible high price for
the buyout
Ranbaxy
Revenue may boost
cash flow
Invest cash in
growing portfolio of
generics
manufacturing
business in
international markets
Lose a steady pipeline of
drugs post-2005
Negative (reputational)
impact of breakup with
Lilly
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Low
Time
Crisis of
Continuity &
Purpose
High
Exhibit TN-5
EVOLUTION OF A JOINT VENTURE
Degree of Conflict
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Exhibit TN-6
BOARD PLAN — ELI LILLY IN INDIA: RETHINKING THE JOINT VENTURE STRATEGY
Decision Issue: Reason to revisit: Implication for Future:
Country?
Partnering (vs Wholly
owned)?
Partner choice?
JV structure?
JV Leadership/
Management?
Home Country
Environment (US)
Host Country
Environment (India)
Lilly’s Strategy
Ranbaxy’s strategy
1990’s
2000’s