A joint venture (JV) is a business partnership where two or more business partners agree to join together only for a period of time to work on a project. In this kind of venture, the partners agree on the amount of power sharing and divide the expenses and assets amongst the partners in the joint venture.
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The business partners must agree and sign legal documents that are used as proof of their venture together and they agreed powers over the project.
A joint venture can be either equity-based or contractual. It may be on the long term in working on the project or on a short term basis for the realization of the project’s objective. The underlying facts and characteristics are the major factors that determine the nature of any particular joint venture. In addition to that, the nature of the joint venture depends on the resources and wishes of the involved parties.
In reference to the given cases study, this paper will conduct a strategic analysis of the situation presented in the case study and thereby give recommendations.
India is the twelfth largest economy at market exchange rates and the fourth largest in purchasing power. According to economic reforms, it is the second fastest growing large economy in the globe. Today the emerging markets in India have become the most exciting in the world. Industrial licensing requirements have been substantially reduced by policy reforms.
Joint venture is the most preferred corporate entity by companies in India and all around the world. The joint venture companies in India are broadly divided into two types which are; financial collaborations which involves the foreign collaborations that have taken place in India.
The other type of joint venture in India is Technical collaboration which basically involves the licensing of technology by the foreign collaborators based on the compensation. There being no separate laws for joint venture in India, operations in India are set up by foreign companies by entering into collaborations with Indian partners.
The joint venture between Eli Lilly Company and Ranbaxy Laboratories was one of the most common cases in India. Lilly supplied active ingredients to the pharmaceutical companies in India and so in 1992 Ranbaxy approached Lilly with a proposal of providing low-cost sources of getting the ingredients that were being supplied by Lilly.
On the other hand, Ranbaxy had risen to become the second largest exporter of pharmaceutical products in India. The first meeting of the two partners in the joint venture was held at Lilly’s corporate center in the 1990. The directors of the two exportation companies were present in the meeting (Celly 7).
It was at this meeting that Lilly decided on forming a joint venture. The main focus of the joint venture was to market Lilly’s drug in India. In the event that one of the partners required to get rid of some shares in the joint venture, the agreement provided for the transfer of shares. The other objective of the joint venture was in marketing the generics and the two partners entered into another agreement in regards to this.
The joint venture came into force in March 1993 and an American citizen of Indian, Puerto Rico, was appointed as the managing director of the joint venture. Rajiv Gulati was appointed as the director in charge of marketing and sales (Celly 8).
The joint venture began launching products and moved to an independent place. It also hired more than 200 employees. All this happened by the 1993 and within a year after that it began gaining the trust of doctors and other professionals in the pharmaceutical industry.
The joint venture was a huge success in India in that most the professionals in the pharmaceutical industry in India opted for the products that were delivered by the joint venture than others (Celly 8).
Relevant “strategic imperative (s)” driving the global Pharmaceutical industry
The global pharmaceutical industry as we know it today came about through the forward integration of some of the organic chemical producing companies. The rapid growth of this industry has been as a result of demand from the entire world for a better health care. Drug discovery was a very expensive process. This meant that leading firms would have to spend more than 20% of their sales in research and development of the drugs.
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Patent process was relied upon by most countries although it had a negative factor. It was very difficult to prove the originality of the process when it came to the patent process. The governments put price controls on the products in the pharmaceutical industry which made it difficult for the pharmaceutical companies to sell their original products in the market to be able to get money for further research of these drugs.
There was also the problem of the generics and Unbranded drugs which became more common in the markets because they were cheaper than the original drugs and thus meant that consumers went for them. In addition to that, the production of generic and Unbranded drugs was not expensive because no research had to be carried in order to manufacture these drugs.
Expenditures in the pharmaceutical industry in developing countries such as India was not that high because most of these countries did not conduct research on their own and wholly relied on import of these products from countries that had the production of these pharmaceutical products.
This in turn prompted the government of India through the Ministry of Finance to move in and substitute the import of these pharmaceutical products with the export of the same.
The government started recruiting skilled labor and persuaded pharmaceutical companies to go into joint ventures with foreign companies to enable them to conduct research and development in the pharmaceutical industry. The foreign ownership in the pharmaceutical industry in India rose from 40% to 51% as a result.
Relevant “organizational challenges” faced by the JV in India
Some of the challenges that the joint ventures faced in India include; lack of trust between the joint venture partners. When a joint venture is agreed upon by two different partners, for it to be able to achieve the objectives of the project there must be trust amongst the joint venture partners.
With the formation of joint ventures in India, the Indian companies lacked trust with their foreign counterparts in that they entered into joint ventures but did not trust the intentions of the foreign companies.
On the other hand, the foreign companies had a huge challenge of language communication with their Indian counterparts in that it was very hard for them to communicate appropriately and had a few misunderstandings during the time they were setting up the structure of the joint ventures.
There was also the lack of enough skilled human labor in India. The foreign companies had to import skilled labor from their countries to be able to train their Indian counterparts of the skills that are necessary.
About 40% of the joint ventures that were approved by the government were abandoned by the investors. This was after a lot of time was spent on the projects and a lot of money was used in the projects.
Some of the cited reasons for the failures of these projected were included: some of the local partners backed out of the joint ventures hence making the contract null meaning that their foreign counterpart had to move back to their countries of origin. In addition to that, the projects did not gauge the market prospects properly hence leading to losses within the joint ventures.
On the other hand, some of the technology that was supplied by the Indian partners was not approved by their foreign counterparts because it did not reflect the right quality of standards according to the then market.
The main reason for the failures in the projects was because the Indian companies were not able to adjust themselves to the new marketing environment. Most of the Indian partners backed out of the projected and cited inability to cope with the price competition.
Other factors that led to the failures in the projects included: poor project management where the projects were managed very poorly leading to their failures. There was also the lack of enough skilled labor to work on the projects because most of the Indian partners had laborers that were not qualified enough according to their foreign counterparts.
There was also poor operations control of both parties in the joint ventures thereby leading to the failure of the projects. There was also a lack of commitment from one of the parties in the joint ventures. This in turn led to the failure of the projects that the joint ventures were working on.
The Indian partners were not going into joint ventures again before and they did not believe in it so it was hard for their foreign counterparts to have to encourage them to join them into the joint ventures in that they had to spend a lot of time in trying to show them the advantages of the joint venture and their benefits.
The foreign companies also had a difficult time trying to source for companies that are willing to join them in a joint venture. The Indian partners did not believe in the culture of joint ventures and had a hard time trying to comprehend what the foreign companies were aiming at.
Most of the developed business had single ownership so this made it also difficult for the foreign companies to try and convince the Indians that the joint ventures would do better than the other businesses.
There was also the issue of the Indian partners not able to hold their end of the contract because they lacked the skilled labor and the equipment that was necessary for the projects and had a hard time. The Indian market also made it hard for the companies to sell their products because of the price issue. Most of the products were expensive and could only be bought by big corporation or the government.
Main “managerial implications” related to the JV and its future
Specific people that occupy specific positions
In joint ventures, the managers of the foreign companies and the managers of the local companies must be able to work together and strengthen their relationship in the joint ventures so as to able to achieve the specific objectives of the projects. The managers of the specific companies are tasked with the obligation of making sure that the relationship between the two companies remains intact.
They are to adopt a collaborative attitude. In addition to that, the managers are to acquire the right learning materials for their workers to keep them in the knowledge and must also be able to avoid opportunistic behaviours because this kind of behavior will only develop crisis between the joint venture partners thus limiting the potential of realizing the project’s dreams and ambitions.
Individuals make decisions NOT the organization
The managers who are directly involved in the joint venture process should posses skills which include; trustworthy, knowledgeable and proficient so as to be able to make decisions on their own without having to call for long meetings so as to be able to make the decisions. By possessing these skills, the managers will be able to make informed decisions that will in turn translate into higher profits in the ventured projects.
The decisions must also promote quality aspirations for the project for it to be able to make high profits in turnover. The managers must also demonstrate collaborative behaviors so as to be able to make decisions together. The decisions they make must reflect the dreams and ambitions of the projects in question.
Managers of the partners in the joint ventures should be held accountable for every decision that they make. The managers made the decision in regards to the project in question which were aimed at saving time and energy.
These decisions had to reflect the focus of the project and inspirations and were made in collaboration with the managers from the other partners in the joint ventures and this meant that if anything went wrong with the project, they were to be held accountable. The managers also had to make decisions with regard to the labor of the project which meant that they were in control of the number of workers in the project.
The managers had to negotiate with the other partners with regards to the project in that they were to know the needs of the organizations they represented.
This meant that the managers were tasked with the responsibility of having to meet the other managers and negotiate the strategies that were necessary for obtaining higher profits from the project in question. They negotiated with the other managers with regards to the labor and other cases that were related to the smooth running of the project.
The managers were also tasked with having to discuss the matters that arose from within the joint ventures and had to deliberate on what solutions were necessary in the process. By doing this, the managers had to have the dreams and ambitions of the whole project so as to be able to know what will be beneficial for the project to be able to maximize the profit margin.
The managers had to be able to motivate their employees. Communication had to be frequent and was used to create the vision of the project. In addition to that it established a connection with leadership. The managers had to explain the new rules and had to support individual transition process.
They also had to share as much information as they could and never made false promises to the employees to maximize the profit margin of the project.
Celly, Nikhil. “Eli Lilly in India: Rethinking the joint venture strategy”. PDF file, 16 Sep. 2004. Web.