Cultural Challenges of Integration: Value Creation and Daiichi Sankyos Indian Acquisition Harvard Case Solution & Analysis

CULTURAL CHALLENGES OF INTEGRATION: VALUE CREATION AND DAIICHI  

SANKYO’S INDIAN ACQUISITION

INTRODUCTION

The case presented here focuses on the deal that was finalized of Daiichi Sankyo Ltd, a Japanese innovator drug company, acquiring Rambaxy Laboratories Ltd, a generic drug manufacturer in India. During the first decade of 2000, major innovator companies in the drug industry were acquiring the generic drug companies to boost their sales, maintain market shares, promote their drugs and market them efficiently and at low cost. The main reasons behind these acquisitions were that the Patents of most of the companies were about to expire by 2012, research and development costs were increasing which increased the risks for producing more drugs. Also the expiry of the drug patents meant that the generic drug companies will soon start to manufacture these drugs and threaten the revenue base of the innovator drug companies.

Generic companies were starting to sell the same branded drugs of innovator companies at much lower prices which severely affected the profit margins and revenues of innovator drug companies like Daiichi Sankyo Ltd. The US Food and Drug Administration (FDA) considered these generic drugs similar in strength, quality, dosage form and its intended use similar to the branded drugs of innovator companies. Due to the burdens on the budgets of the developed countries, these countries welcomed the drugs of the low-prices innovator drug companies. Increasing population of countries and to fulfill the health care needs of poor people of these countries, these generic drugs were becoming more important.

Therefore, to address these issues many innovator companies were searching for strategies to minimize the threat caused by generic companies. Such strategies included cutting the expenditures on research and development, entering new markets, maintaining new generic facilities that would manufacture low-cost generic drugs. To implement these strategies, the innovator started to acquire the generic drug manufacturers so that synergies could be created in the areas of marketing and sales, supply chain, manufacturing and distribution.This model of integration of the innovator companies with the generic drug companies is known as the ‘Hybrid Model’.

This case summarizes the acquisition of Ranbaxy by Daiichi Sankyo. It highlights the post- acquisition challenges faced by Daiichi Sankyo and the cross cultural issues arising between both the companies arising due to workforce diversity, personality clashes and different visions of the two firms.There were several leadership changes at Ranbaxy in the senior management. For example, the CEO and the CFO of Ranbaxy resigned from the company soon after its acquisition due to the differences of opinions regarding the future course of Daichhi Sankyo. It leaves us with a question that how could the cultural issues of both the companies be resolved and integrated to produce the planned synergies of this acquisition.

QUESTION 1: .

Using Hofestede’s Dimensions of Culture, compare and discuss Japan and India culture. Relate these dimensions to the impact on the merger integration process and specifically, comment on impact on corporate/managerial values.

ANSWER:

            Hofestede Cultural Dimension model is a model developed by Geert Hofestdede for cross cultural communication. The Hofestede’s Dimensions of Culture are comprised of 6dimensions which are: Power Distance Index (PDI), Individualism Versace Collectivism (IDV), Masculinity VersaceFeminity (MAS), Uncertainty Avoidance Index (UAI), Long Term Orientation Versace Short Term Normative Orientation (LTO), IndulgenceVersace Restraint (IND). Each of these dimensions is discussed in the context of Daichhi Sankyo below:

1.)    Power Distance Index (PDI):

This dimension of Hofestede’s Cultural model focuses on how much or the degree to whichthe low power members of an organization accept and expect that power is distributed unequally. PDI focuses on the equalities within the organization with regard to power and how the high power people behave and communicate with the low power people.It seems that the PDI of Daiichi Sankyo management is very much high and Ranbaxy is low. That is the reason that post acquisition most of the employees and senior management people, including the CEO and CFO left the company.

Cultural challenges of integration Value creation and daiichi sankyo’s indian acquisition Case Solution

2.)    Individualism Versace Collectivism (IDV)

Individualism focuses on the individuals and their respective family members. They think and work for their own individual rights and personal achievements. On the other side is collectivism in which people work in groups and not just for their own rights, but for the lifelong goals of the group or the entire organizations. It seems that the management and employees of Daiichi Sankyo follow an individualistic approach and they take care of only themselves. They do not want to accept the ideas of Ranbaxy management who desire to work in a collectivist environment.

3.)    Masculinity VersaceFeminity (MAS)

This focuses on the distinction of roles of males and females in different cultures. Indian women place more importance on quality of life and relationships while Japanese women are slightly more assertive and competitive. Focusing on the case there are no female management people mentioned in the case in either of the companies. In an..............................

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In early 2000, major global innovator pharmaceutical companies were purchasing or collaborating with the general pharmaceutical companies. Daiichi Sankyo was the first major Japanese pharmaceutical company to test this "hybrid" business model in early 2008, when it acquired a controlling stake in Ranbaxy, India is the largest company on the basis of general and global generic drug manufacturer and exporter of drugs. In Ranbaxy, the acquisition was then quickly a few changes to the manual. Chairman / CEO Malvinder Singh, the grandson of the founder of Ranbaxy, resigned in May 2009; Atul Sobti who took over as CEO, resigned in the following year, citing disagreements with the Japanese company on the functioning of Ranbaxy. In early 2011, Ranbaxy president and chief financial officer, Omesh Sethi also left the company. On the financial front, the Japanese firm estimate of the losses booked a U.S. $ 3.9 billion as a result of the acquisition in the third quarter of its fiscal 2008 and recorded a net loss of U.S. $ 2.21 billion, fiscal year. With the acquisition, Daiichi Sankyo managed to expand its global business and reduce the concentration of assets in Japan from 78.96% to 53.7% in 2011. However, in 2011, the Japanese firm has not fully take advantage of their vision of the value chain in an integrated hybrid business model. Was transformational organizational changes required to implement this? This study examines the cross-cultural challenges of integrating the two businesses, worked as a guide for the implementation of a hybrid business model. "Hide
by Wee Beng Geok, Wilfred Chua Source: CCP in Nanyang Tech University 16 pages. Publication Date: April 13, 2012. Prod. #: NTU027-PDF-ENG

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