Page 44 - DMGT548_GLOBAL_HRM

Unit 2: 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.

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