!alue crea"ion and daiichi sankyo#s indian ac$uisi"ion
case s"udy
Module A - Team 5 Mahda Sumayyah Jeongsang Yu Yu Mahesh Kulkarni Joyce Ogunlade Rafael Carceller Zao
Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
Cultural Challenges of Integration: Value Creation and Daiichi Sankyo’s Indian Acquisition
Historically, about 75% of international mergers fail (Strategic Direction.2006, p.25-2!. "nternational mergers struggle to succee# not because of t$e business itself but because of a failure to synergie geograp$ical, structural, an# cultural #ifferences. &elo' is a critical analysis of $o' t$e aboe factors as 'ell as ot$er issues playe# a role in Daiic$i San)yo*s ac+uisition of t$e "n#ian generic p$armaceutical company, anbay. irst, it is important to eecute a S/1 34S"S to ealuate t$e strengt$s, 'ea)nesses, opportunities an# t$reats of t$e ac+uisition. 1$en 'e 'ill be able to i#entify an# analye t$e internal(S/! an# eternal (1! factors t$at can $ae an impact on t$e iability of t$e ac+uisition an# proi#e an outline for t$e strategic #ecision-ma)ing. "n t$e S/1 analysis is inclu#e# potential eents #uring t$e pre-ac+uisition an# post-ac+uisition. 1$e biggest strengt$s from anbay are strong mar)et in generics, big scale pro#uction, alliances 'it$ important $armaceutical companies, mar)eting an# business #eeloping in big mar)ets (8S, 9urope, &rail, :apan, etc.!, lo' cost manpo'er, an# strong eperience to get permission for #istribution #rugs in potential countries. or Daiic$i San)yo, t$e strengt$s before merge are $ig$ D potential, ;r# largest company in t$e $armaceutical sector in :apan, top 20 'orl# sales an# big potential in t$e creation of bloc)buster #rugs. fter t$e ac+uisition, t$e is t$e possibility of creation of $ybri# mo#el, #iersification of t$e assets of t$e companies, synergies in generics an# innoator #rugs, optimiing resources, synergies in
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Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
loss of t$e main #irectors from anbay, lo' cre#ibility, legaliation problems from anbay in ma=or mar)ets, financial problems for Daiic$i San)yo, t$e fact t$at >0% of t$e patents Daiic$i San)yo 'oul# epire in 20?2, an# #ifficulties in cultural integration. 1$e opportunities t$at 'oul# t$e ac+uisition proi#e# 'ere t$e pro#uction of ne' generic #rugs in big scale, intro#ucing in ne' potential mar)ets (globaliation!, re#uction re+uirements for approal generic #rugs by t$e goernments an# possibility to increase sales in emerging countries 'it$ t$e $ybri# mo#el. 4astly, t$e t$reats arose '$ere competitors starte# to $ae t$e same mo#el (generics@innoators #rugs!, t$e epiration an# re#uction of #rugs patents terms, re#uction of epenses in #rugs by countries an# #ifficulties for approal for t$e #rug commercialiation by t$e #ifferent Sanitary gencies (ppen#i ?!. "n a##ition to a S/1 analysis, a critical loo) into t$e $istories of t$e t'o organiations 'ill also proi#e insig$t into '$at may $ae cause# #isparity bet'een t$e t'o organiations. Daiic$i San)yo 'as forme# by a merger in 2005 bet'een Daiic$i $armaceuticals an# San)yo Ao 4t#, bot$ establis$e# :apanese firms, eac$ 'it$ more t$an ?00 years $istory. &ecause eac$ company $as t$eir o'n $istory of more t$an ?00 years respectiely, t$ey must $ae establis$e# #ifferent cultures from eac$ ot$er in many 'ays. anbay 'as set up in ?B6? as an "n#ia-base# #istributer of itamins an# anti-tuberculosis #rugs for a :apanese #rug manufacture. &$ai Co$an Sing$ too) oer anbay in ?BB6 an# $is son arin#er Sing$ =oine# $im in t$e late ?B60s. &y early ?BB0s, anbay 'as "n#ia*s largest generic me#icine company 'it$ annual sales of about 8S200 million an# #istribution net'or) spanning more t$an 50 countries. 9ports contribute# >0 percent of its total annual sales. anbay 'as ran)e# among t$e 1op ?0 generic companies in t$e 'orl# an# 'as t$e only "n#ian company in t$e 1op ?00 $armaceutical companies across t$e globe (/''.asiacase.com, p.;!. s mentione# aboe, Daiic$i San)yo 'as
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Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
a merge# company 'it$ t'o #ifferent company cultures an# alues, an# t$is merge# company merge# 'it$ anot$er #ifferent firm t$at 'as een in a #ifferent fiel#. 1$erefore, t$ere must $ae been confusion after a merge. lso, at anbay, t$e ac+uisition 'as follo'e# +uic)ly by seeral lea#ers$ip c$anges. A$airmanEA9 Calin#er Sing$, t$e gran#son of anbay*s foun#er, resigne# in Cay 200BF tul Sobti '$o too) oer as A9, resigne# t$e follo'ing year citing #ifferences 'it$ t$e :apanese company on t$e running of anbay. 1$en in early 20??, anbay*s resi#ent an# A$ief inancial fficer, mes$ Set$i also left t$e company (/''.asiacase.com, p.;!. /it$ t$e fact t$at many c$anges of lea#ers$ip occurre# after t$e merge, 'e can speculate t$at t$ere 'as t$e cross-cultural c$allenges of integrating t$e t'o businesses. "t 'as state# by tul Sobti t$at t$e reason for $is leaing 'as #ue to t$e #ifference of company future course 'it$ Daiic$i San)yo. Daiic$i San)yo*s primary focus 'as to enter t$e global generic #rug mar)et '$ile at t$e same time intro#uce innoatie #rugs to "n#ian mar)et. anbay, on t$e ot$er $an#, $a# imme#iate priority to resole t$e issue t$at 'ere surroun#ing t$eir #rug ban by 8nite# States oo# an# Drug #ministration an# " issue. anbay an# Daiic$i San)yo 'ere facing #ifferent company orientations at t$e early stages of t$eir ac+uisition. "t seeme# t$at bot$ Daiic$i San)yo an# anbay #i# not bring t$e issue of t$eir company orientation to t$e table '$en t$ey first merge#. Hofste#e #emonstrate# t$at t$ere are #ifferent cultural #imensions t$at impact t$e organiational be$aior of t$e company (Hofste#e, Geert, 200?!. ne of t$e cultural #imensions t$at best eplains t$e aboe situation is 4ong-term ersus S$ort-term rientation* (Dean &., Ccarlin aul D., S'eeney, 20?;, p.>7!. lso, Hofste#e spo)e about uncertainty aoi#ance as a cultural #imension t$at affects t$e 'ays organiations be$ae (Hop)ins, &ryan, 200B, p. >0!. 1$e turnoer in anbay A-leel may
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Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
possibly be eplaine# by uncertainty aoi#ance.
Mod A ( Team 5
&ot$ cultures, :apanese an# "n#ian, $ae
#iffering leels of $o' t$ey #eal 'it$ future uncertainty. ccor#ing to researc$, "n#ians generally $ae a ery lo' rating in uncertainty aoi#ance. :apanese, on t$e ot$er $an#, s$o' t$e $ig$est leel of uncertainty aoi#ance. "n#ia post t$e lo'est rating in uncertainty aoi#ance. n t$e ot$er $an#, :apan is t$e $ig$est in t$is rating. "n a##ition to t$e cultural an# et$ical implications, it is important to reie' t$e efforts eac$ company ma#e to structurally #uring t$e ac+uisition. Daiic$i San)yo 'as t$e t$ir# largest "nnoator p$armaceutical (/''.asiacase.com, p.;! company in :apan an# anbay emerge# as "n#ia*s largest generic #rug manufacturing company by ?BB0, '$ic$ 'as #ue to t$e ision of A9, arin#er Sing$, '$o too) a#antage of "n#ia atent ct of ?B70 t$at en#e# t$e pro#uct patent protection in t$e country. anbay also $a# t$e a#antage of being a lo' cost manufacturer an# #ue to '$ic$ it sprea# t$e #istribution net'or) among emerging mar)ets in 50 countries 'it$ annual sales mounting to 8S200 in ?BB0s. I n t$e ot$er $an#, in :apan, #uring t$e year 2000 t$e goernment regulate# t$e gui#elines on #rug reimbursements to control t$e $ealt$ costs #ue to '$ic$ t$e profits of innoator #rug companies soar. lso, t$e goernment set a target of increasing mar)et s$are of generic #rug use to ;0% by 20?2, '$ic$ is an increase of aroun# ?% of t$e earlier target of 2007.Hence to maintain profits an# future gro't$, Daiic$i San)yo 'as loo)ing for t$e ac+uisition of generic #rug manufacturer to enter into emerging mar)ets. anbay 'as t$e best c$oice for ac+uisition for follo'ing reasonsJ 4argest generic #rug manufacturer in "n#ia operating on lo' cost basisF 9stablis$e# eport net'or) in 8S an# 9uropean mar)ets li)e "relan#s, rance an# SpainF Daiic$i San)yo entere# into t$is ac+uisition 'it$ t$e ision to become a KGlobal $arma "nnoatorL by 20?5. or anbay it 'as t$e a#antage to utilie t$e innoation of Daiic$i San)yo, free itself
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Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
from #ebt, an# entry into :apanese mar)et. 1$e #eal ma#e bot$ t$e companies ?5t$ largest $arma Aompany in t$e 'orl# (/''.asiacase.com, p.;!. I s a result of t$e ac+uisition, t$e 9S for Daiic$i San)yo 'as #ouble#, $o'eer, 'it$out increase in gross profit. lso current liabilities 'ere increase# to ?6?% compare# to Aurrent ssets t$at 'as increase# by ?5.% ('''.sli#es$are.net, sli#e 2>!. "n Sep 200, 8S D implemente# a ban on #rugs manufacture# by t'o of anbay*s plants an# also in eb 200B ino)e# " against anbay*s aonta Sa$ib acility in "n#ia. 1$is ma#e anbay*s s$are price plummet to ?E5t$ in Car 200B. Daiic$i San)yo still 'ent a$ea# 'it$ t$e ac+uisition in 3o 200 consi#ering t$e ban by 8S D as a ris) factor t$at can be resole#. Ho'eer Daiic$i also boo)e# a aluation loss of 8S;.B billion in Dec 200B ('''.'''.asiacase.com, p.?2!. 1$e ot$er causes 'ere not receiing t$e approal from S9&" to 'aie of @?% ceiling for t$is bloc) #eal ('''.sli#es$are.net, sli#e 2B!. 8p until its ac+uisition of controlling s$ares in anbay, Daiic$i San)yo focuse# solely on operating as a :apanese company. 1$e company #i# not effectiely prepare to integrate t$e t'o geograp$ic cultures an# t$erefore, its efforts to manage cultural #iersity bet'een t$e t'o companies 'as minimal. Daiic$i San)yo set up a team to spear$ea# its integration efforts, $o'eer, t$e team 'as comprise# of t'o :apanese members an# one "n#ian member. Secon#ly, t$e person selecte# as Director of Muality Aontrol 'as also a former member of Daiic$i San)yo (/''.'''.asiacase.com, p.6!. &ecause t$e countries operate# un#er t'o ery #ifferent geograp$ical cultures an# constraints, in or#er for t$e integration to be successful, Daiic$i San)yo nee#e# to ma)e more significant effort to unite t$e t'o cultures toget$er. n alternatie approac$ for Daiic$i San)yo coul# be to ensure t$e team create# to $ea# t$e integration efforts consists of t'o :apanese an# t'o "n#ians. &y comprising t$e team of an een
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Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
number of :apanese an# an een number of "n#ians, it 'oul# eliminate t$e #ominance of :apanese officials an# proi#e an aenue for bot$ cultures to e+ually participate. ##itionally, because of '$at Daiic$i San)yo 'ants to accomplis$ in t$e "n#ian mar)et, it $as to un#erstan# business from t$e perspectie of anbay personnel, people '$o $ae $an#s on eperience 'or)ing in "n#ia an# un#er t$e regulatory constraints it regularly en#ures. Daiic$i San)yo*s goal must also be to un#erstan# t$e 'or) customs of anbay. &ecause of t$e geograp$ical a#antages of patent protection an# financial capability, :apanese 'or)ers 'ere able to innoate '$ile "n#ians 'or)ers 'ere traine# to emulate. 1o manage t$e #ierse cultures, Daiic$i San)yo must continue to allo' anbay personnel to operate t$e 'ay t$ey $a# tra#itionally operate# in "n#ia. Aonsi#ering t$e aforementione# analysis, t$ere are a number of structural, cultural, an# et$nic implications of bringing Daiic$i San)yo an# anbay toget$er. more successful Hybri# mo#el 'oul# aim, not at bringing bot$ companies un#er one umbrella, but to allo' bot$ companies more liberty to continue most of its operations separately. Some of t$e c$anges of to t$e Hybri# mo#el t$at 'oul# proi#e a more successful integration areJ
"n terms of Specialiation, t$ey nee# to $ae N an# A respectiely for eac$ business to aoi# confusion from a merge an# )eep t$eir o'n tra#itional trait.
"n terms of Aentraliation, +uality an# Safety Canagement Supply A$ain Canagement are operate# as $ybri# mo#el as t$ey can re#uce logistics cost 'it$ t$is system an# bot$ nee# to follo' D. (See ppen#i 2!
"n conclusion, Daiic$i San)yo s$oul# $ae applie# proper #ue #iligence prior to t$eir ac+uisition of anbay. Daiic$i San)yo an# anbay $as 'i#e cultural #ifference t$at impacte# )age .
Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
t$e oerall success of t$e merger. "n terms of organiation structure, t$e ac+uire# company $ as to create a ne' Hybri# &usiness Co#el.
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Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
References
Geo), /ee &eng, A$ua, /ilfre# (20?2!, Cultural Challenges of Integration: Value Creation and Daiichi Sankyo’s Indian Acquisition, /''.asiacase.com
outray, 3i$ar (20?2!, Acquisition of Ranbaxy by Daiichi, /''.sli#es$are.net Strategic Direction (Nol. 22 "ssue ?! (2006!, p. 25-2
Hofste#e, Geert (2n# 9#s.! (200!, Culture’s Consequences: Co!aring Values, "eha#ior, Institutions and $rgani%ations across &ations, p. ;
Hop)ins, &ryan (200B!, Cultural Differences ' I!ro#ing (erforance: )o* Values ' "eliefs Influence $rgani%ational (erforance, p. >0
Ccarlin, Dean &., S'eeney, aul D. (20?;!, International $rgani%ational "eha#ior: +ranscending "orders ' Cultures, p. >7
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Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
INTERNAL EXTERNAL ANALYSISANALYSIS
WEAKNESS -R direc"i1es lef" com2any reducing informa"ion and synergies -3ack of 2lanning in "he hy4rid 4usiness model NEGATIVES - 'S di6cul" 7nancial si"ua"ion af"er "he ac$uisi"ion -'S 08 2a"en"s e92ire +0*+ -'i6cul"ies in "he cul"ural issues of in"egra"ion -'ecrease of "he ra"e of disco1ery ne: 2ro7"s moleculars
STRENGTH
-R sa = -@ -R -% m co hi -'
SWO
-R 3arges" %ndian generic drug com2any -R s"rong marke" in generics -R Eig e92erience in scale 2roduc"ion -R eFec"i1e "echnology in re1erse engineering for generics -R Alliances :i"h To2 )harma com2anies s"rong :orld marke" - R 3o: cos" man2o:er -R S"rong e92erience legalia"ion drugs dis"ri4u"ion in o"her coun"ries; igh ra"ing "o ge" "he a22ro1al 5/G5+. -R Marke"ing and 4usiness de1elo2ing in 4ig marke"s < =SA @uro2e Erail Ja2an e"c;? -R )re-Kno:ledge of Ja2anese marke" -D&S ,rd larges" inno1a"or drug Co; in Ja2an and 2resence in +* coun"ries; To2+0 :orld sales -D&S e92erience in merger 2rogress<4u" same coun"ry? -D&S 3arge 2o"en"ial in crea"ion of 4lock4us"er drugs -D&S Research colla4ora"ion :i"h im2or"an" la4ora"ories -Synergies com2anies 4usiness genericBinno1a"or drug marke" -Merger resul" co1ered marke"s ne: 2rescri2"ions drugs generics OTC drugs and 1accines -Crea"ion in +00H a Synergy O6ce for in"egra"ion of "he com2anies - 'i1ersi7ca"ion of "he asse"s of "he com2anies in diFeren" coun"ries
POSITIVES
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Cul"ural Challenges of %n"egra"ion& !alue Crea"ion And 'aiichi Sankyo#s %ndian Ac$uisi"ion
Mod A ( Team 5
Appendix 2
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