Post-acquisition integration issues: Dai-ichi Sankyo and Ranbaxy
In 1937, Ranbit Singh and Gurbax Singh launched Ranbaxy Laboratories as an India-based distributor for Japanese company Sionogi. By the 1960s, Ranbaxy had grown into a successful company known for producing high-quality but inexpensive generic versions of branded drugs. By then, more family members have joined the company. In the 1970s, Ranbaxy began building an international distribution network by driving export sales of low-cost generic drugs to developing countries. Ranbaxy developed a global presence through acquisitions of foreign companies and marketing generic drugs worldwide. By the early 2000s, Ranbaxy became a respected small MNE. Still, limited access to capital and innovative products constrained its growth and it sought a strategic partner to continue its development. Until 2000, Dai-ichi Sankyo (D.S.), Japan’s third largest pharmaceutical company, had focused on domestic Japanese markets. When the Japanese Ministry of Labor, Health, and Welfare began taking actions to limit drug company profit margins on impact drugs, D.S. felt pressured to seek opportunities elsewhere. Pressure increased when the Japanese government established a goal of a 30% targeted market share by volume for generic drugs by 2012, products D.S. did not make. Also, patent rights for several of D.S. blockbuster drugs were set to expire. Sensing these challenges, D.S. sought to improve earnings and maintain growth through global acquisitions. Ranbaxy was one of its first targets, and in 2008 D.S. acquired a majority stake in the Indian firm for $4.6 billion. Ranbaxy offered the Japanese pharmaceutical giant R&D expertise using Ranbaxy’s low-cost manufacturing base. However, shortly after the acquisition, the US Food and Drug Administration (FDA) issued two warning letters to Ranbaxy announcing a ban on more than 30 generic drugs sold by Ranbaxy in the USA. Further prohibitions were issued by the FDA worried about manufacturing lapses at the Indian plant. To fix these problems, D.S. fired Ranbaxy’s former executives and formed a working committee to design and implement a new global quality organization at Ranbaxy led by one of Dai-ichi Sankyo’s former quality control officers. It also sent over a team of Japanese employees to clean up the manufacturing processes, but problems persisted. In 2013, The U.S. fined Ranbaxy US$500 million after it was found guilty of misrepresenting clinical trial results and selling adulterated drugs in the US market. Further problems emerged and soon all of Ranbaxy’s products were barred from the US market. While D.S. benefited from Ranbaxy’s help to launch new products and expanded to emerging markets such as Malaysia, Romania and Mexico, the company had lost trust and revenue in the world’s largest pharmaceutical market. In the years that followed, D.S. tried with little success to turn Ranbaxy around. The Japanese parent company had hoped to implement a hybrid model to develop synergies through greater transparency, information sharing, and collaboration of R&D, manufacturing, and marketing departments. The Nikkei Asian Review believed that the Japanese parent company lacked an understanding of Ranbaxy’s corporate culture and used decision-making processes that were alien to the Indian subsidiary. In an interview, Atul Sobti, Ranbaxy’s new CEO said, “The Japanese are very process oriented. They have a tremendous respect for teamwork. On compliances and quality, there can be no compromise. And those are the areas we need to work on. Culturally, those are also not our country’s (India’s) biggest strengths. We will be sharply focusing on these areas.” A supplier to Ranbaxy also explained that Indian companies did not work in a team the way that Japanese companies did and normally there was a lack of solidarity and a lack of trust between supervisors and subordinates. A second supplier observed that employees in India were different from those in Japan in that, if Indian employees were asked for documentation from the authorities, they would not put the information very thoroughly. In view of this, it was difficult for the Japanese parent company to understand what was going on in its subsidiary. As a result, the acquisition of a generic drug maker in a promising emerging economy, which was supposed to launch D.S. into the pharmaceutical industry’s big leagues, proved to be a failure. Financial losses in the billions of dollars began to mount, as did the departure of several of Ranbaxy’s new executives. D.S. sought arbitration in 2012 with the dispute settlement arm of the International Chamber of Commerce, alleging that Ranbaxy’s owners, the Singh brothers, had hidden critical information and misrepresented problems facing Ranbaxy when D.S. purchased a major stake in the Indian drugmaker. Seven years after its acquisition of Ranbaxy, D.S. called it quits. In 2014, D.S. sold its stake in Ranbaxy to Sun Pharmaceuticals, an Indian multinational pharmaceutical company headquartered in Mumbai. Today, the expanded Sun Pharma is the world’s fifth largest specialty generic pharmaceutical company, exporting products to 125 countries with ground operations in 43 countries and manufacturing facilities in eight. Adapted from: Lu, Y. in Steers, R.M. (2017). Management Across Cultures: Challenges, Strategies, and Skills, Cambridge University Press. Additional information is extracted from Nikkei, Business Standard and Economic Times.
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1. Compare the organizational cultures of Ranbaxy and Dai-ichi Sankyo (D.S.) before the acquisition. Apply relevant frameworks and cultural dimensions to analyse whether they are a good fit – what are the common grounds and potential for frictions? (5 marks) 400 WORDS
2. Considering both D.S. and Ranbaxy were managed by educated and globally-competent executives, how could post-acquisition integration result in such a poor outcome? What were the main reasons for these problems? How did situational and environmental factors impact collaboration between D.S. and Ranbaxy? Analysis is expected in the answers. (5 marks) 400 WORDS
3. What did D.S. seek but fail to achieve in the deal with Ranbaxy? Do you think that D.S. and Ranbaxy could have collaborated differently and better? What lessons do you think other Japanese and Indian firms have learned from this case? (5 marks) 400 WORDS
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Post-acquisition integration issues: Dai-ichi Sankyo and Ranbaxy