Case Study IHRM Assignment 1 Ranbaxy

Ranbaxy Laboratories
Although the global pharmaceuticals war is driven by large doses of R&D, the `
1,065.70 crores Ranbaxy Laboratories’ success has been attained through a
different route. For his company, CEO Parvinder Singh, has developed
capabilities in manufacturing and marketing fanning out into seven developing
markets, and growing strengths in product engineering. Being a low-cost
manufacturing is Ranbaxy’s highest priority in order to compete with global
players in foreign waters. While economies of scale and low-cost research help,
much of the advantages come from a holistic approach to costs. Instead of
trying to cut .
Cultural Aspect of International Assignments costs at each stage without
factoring in possible increases in downstream costs, the company Notes
employs the concept of total activity cost to optimise its expenses. Many of the
cost benefits also flow from benchmarking against international competitors.
Cost data from the world’s four most competitive generic drugs-manufacturers
—Mylan and Ivax of the US, Teva of Israel, and Doffar of Italy—are constantly
fed to the process design, manufacturing, and product-development teams.
While some of its domestic rivals are fixated on basic research, Ranbaxy is
differentiating itself by designing Novel Drug Delivery Systems (NDDS). The
NDDS—an unconventional way of administering a drug such as helper
compounds or polymer implants—makes differentiation easier to achieve than
developing innovative new drugs would. It is also cheaper and quicker, taking
between ` 72 crore and ` 108 crore, and between three and five years to
develop, versus an average of ` 1,800 crore and between 10 and 12 years for a
new drug. Moreover, it offers an opportunity for Ranbaxy to leverage a
competence it does possess. Ranbaxy is actually two companies rolled into one.
Globally, it is determinedly focused on generic molecules, and refuses to
venture into other areas. That, naturally, gives it a sharp business focus. At
home, where its market-share of 5.60% market it is second only to the ` 731
crore Glaxo Welcome’s 7%.
It takes the conventional route of branded products, with seven brands
enjoying market shares of over 2.70%. To make it more difficult for new
competitors to enter, Ranbaxy is eschewing the highly competitive pockets in
the market. Since almost every generic player keeps blockbuster drugs—which
deliver high returns to their inventors during their patent lifetime—in its sights,
the consequent flood of generic offerings saturates the market. But by veering
away from them and focusing on complex molecules—which attract only one
or two competitors—Ranbaxy is counting on the relatively smaller size of its
target market to deter new entrants. Confirms Singh: “We aim to make
products involving complex chemistry”. Moreover, the skills required in its
product lines aren’t easy to acquire. In its very choice of product with which to
go global-general—lies Ranbaxy’s understanding of the competitive
environment.
The generics business, which has been sparked off by cost-containment
pressures from the developed markets, opens up as soon as a patent expires.
Typically, generic drugs cost between 50 and 70% less than patented ones, and
account for 32% of the total drug market in the US. Since the competition is
intense, critical to the business of generics are process capability and
manufacturing powers. Understanding these requirements, Ranbaxy has
focused its internal development on these two areas. One of Ranbaxy’s
greatest strengths lies in the fact that is vertically integrated through five
stages of the value chain, which helps it manage cost and quality across the
chain. Naturally, that ensures this the benefits from efficiencies can be soaked
up from every activity in the chain.
Thus, raising capacities is a natural way of maximising the gains from
vertical integration. But high capacities also need large-enough markets to
sustain them, which is why Ranbaxy operates in 26 different countries. And by
raising scale and redesigning processes, Ranbaxy has been able to cut the costs
of production of some its key bulk drugs—6APA, 7ADCA, fluoroquinolones, and
cephalexin—by half. For Ranbaxy, the strength in servicing its global customers
comes not from deep distribution or selling skills, but from developing
relationships with them. Among its major global customers, for instance, are Eli
Lilly and Genpharm. What Ranbaxy promises them is exclusive marketing rights
for its products, gaining their loyalty in exchange.
Without chasing the chimera of developing new drugs, Ranbaxy uses
guerrilla skills. A classic example: it synthesised cefaclor—a complex molecule
patented by the $ 7.30 billion Eli Lilly—through an alternative route, becoming
the only company in the world to develop a process for the product without
infringing on the original patent. Alarmed, Eli Lilly had no choice but to strike a
joint venture with Ranbaxy to protect its turf, which allowed the Indian
company to access the transnational’s distribution network in the US. And
Ranbaxy has now perfected the art of developing drugs by setting up teams
that work on parallel processes for producing generic drugs. Having consciously
opted out of the mainstream drugs business, Ranbaxy has developed
competitive advantages in areas where most large companies are only
marginally involved. Applied in the developed markets, it is now targeting that
focus will make Ranbaxy’s prescription even more potent.
Questions
1. What strategies did Ranbaxy adopt to compete with global players?
2. What generic competitive strategies did Ranbaxy adopt to emerge as one of
Asia’s top pharmaceutical companies?
3. “Ranbaxy seems to be committed to its mission of becoming a research-
based, international pharmaceutical company”. Do you agree with this
statement? Substantiate your answer.
4. Does the company use leading-edge technology? How does the company
develop or acquire such technology? How strong are its research capabilities?

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Ranbaxy Laboratories

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