The Hindu Business Line : The soft touch on hard decisions

The wrinkles of worry when an acquisition takes place are usually on the face of employees in the acquired company. Are they relevant under the new dispensation? Will they retain their jobs?

Similar worries may have crossed the minds of employees in Ranbaxy too, when the promoter family in the home-grown company sold its entire stake to Japanese innovative drug-maker Daiichi Sankyo.

But after the initial shock, that indeed Ranbaxy’s ownership has now passed on to a Japanese company, came some comfort. And that relief came from the reputation that Japan has in the corporate world. The Japanese have a reputation of running a tight ship, of being long-distance runners, in it for the long haul, and of not being proponents of ‘hire and fire’ policies, say industry representatives and consultants emphatically.

“Yes, I share the same thought,” says Ranbaxy’s Chief Executive Officer and Managing Director, Malvinder Mohan Singh. The agreement is mutually beneficial and in its present form is strategically and financially in the best interest of the company, its employees and all its stakeholders, he says, adding that the “excellent amalgamation of minds” would take the company into a new orbit of growth at a much higher trajectory.

Human quotient

But, managing a merger or acquisition is always an onerous task, not just in terms of getting business strategies right, but in getting the “soft, touch and feel intangibles” right, observes PricewaterhouseCoopers’ Associate Director, Sujay Shetty. Any deal has to take with it the people, and the human factor is a high priority in integrating two different business cultures.

Ranbaxy’s Singh admits that there were mixed reactions to the deal initially, but that is only natural. “I have proactively reached out to everyone in the organisation to explain the rationale and benefits of the deal for the organisation and the employees,” he says.

Japanese companies are not generally known to rock the boat in a hurry. In the Anglo-Saxon or American business culture, stakeholders want quick results, which is why the management of an acquiring company drives its knife into different parts of the target company, he observes.

The Japanese in contrast are more patient, operating sometimes almost like a cosy club that does not ask uncomfortable questions. Their time horizons are much longer, he observes.

In Ranbaxy’s case, Singh says, “there is a commitment that the existing management would continue and I will assume the position of Chairman of the Board in addition to the role as CEO and MD. As per the normal SEBI rules, my contract is for a period of five years and will be renewed thereafter.”

‘Daiichisation’

Mergers and acquisitions could well fall apart because of the mismatch in cultures, says Shetty. In the Indian culture people work late into the day, in the European culture, they start early but could end their day early as well, and such factors need to be factored in. At the business culture level in this case, Daiichi is a research-driven culture, with a different thought and organisational processes. “It would be disastrous to take over a company and make it like you,” he says. Which is why innovative-generic drug combines like Novartis and its generics arm Sandoz operate as different entities, masters in their own space.

Ranbaxy’s Singh points out that they had various options before closing the Daiichi deal. There was an “alignment of vision,” which along with the chemistry and working relationship that developed between the two companies became part of the reason for the deal to go through, he added.

“There is a very clear understanding of how the business will be run. They are strong on the innovation side of the business and we have strengths in the generics space and we see no conflict of interest. The coming together of Ranbaxy and Daiichi Sankyo enhances the scope and scale of business in marketing, manufacturing and research areas and will result in creating a powerful pan-global presence. We will continue to manage Ranbaxy independently and together with Daiichi Sankyo we will work towards optimising growth opportunities in the global pharmaceutical landscape,” Singh explains.

The two companies operate in different geographies and their product portfolios too do not overlap with Daiichi having innovative medicines and Ranbaxy having an aggressive generic kitty. Rationalisation, if any, will be minimal say industry-watchers.

They agree that the Daiichi-Ranbaxy arrangement will broadly see the companies having their own management styles. But there will be a slow “Daiichisation” of Ranbaxy, as the outlook will reflect the overall policy of a company coming from a first world economy like Japan. So the feisty Indian generic drug-maker will be seen less, says PwC’s Shetty.

And that is already happening, observes veteran pharma-industry hand and patent expert, Dr Gopakumar Nair, pointing out to the recent out-of-court settlement that Ranbaxy had with Pfizer over the latter’s block-buster cholesterol drug, Lipitor. Ranbaxy was first off the block, about five years ago, to get a slice of the estimated $13-billion market for Lipitor, whose patent was to expire in a couple of years. And what ensued was a protracted, expensive, multi-country battle.

The two companies may have talked of settlements in the past, but the timing of the settlement, within a week after Ranbaxy had announced its Daiichi deal, indicates that the end to the battle may have been hastened, even facilitated by Daiichi, he observes.

Indo-Jap engagement

In the pharma world, Indian drug companies are still trying to crack the Japanese market, and companies such as Lupin, Zydus Cadila and Dr Reddy’s have forayed or are interested in the world’s second largest individual drug market, estimated at $60 billion, or 11 per cent of the world’s pharmaceutical market. With Japan increasingly warming up to generic drugs or medicines that are similar to the innovative medicine, coupled with the large ageing population, Daiichi’s endorsement of Ranbaxy’s products will open up a larger market for the company.

The Japanese, on their part, seek comfort in their own culture, and in that sense, there could be a bit of herd mentality when it comes to the confidence they show in coming to India. The Daiichi entry will see more Japanese companies shed their inhibitions regarding India being a market that does not respect intellectual property. At present, Eisai is the other Japanese drug company that has forayed into India.

Also, the Japanese have for sometime been grappling with the “hollowing out” phenomenon, since a lot of the manufacturing has moved out to the US or China. They have tight immigration laws and are faced with a skill shortage. But whether that could lead to more Japanese companies coming to India to source talent is not immediately clear, as they also run lean organisations that are driven by quality and not numbers, observes an industry-hand.

The deal, however, will definitely work as a brand ambassador, improving the business engagement between the two countries, with a little political support. And like the Indo-US relationship, here too the engagement is set to grow and someday there may even be an India caucus in Japan, if there is not one already, observes PwC’s Shetty.

Related Stories:
Daiichi Sankyo to buy 51% in Ranbaxy at Rs 737/share
Ranbaxy promoters’ timely exit
‘We want to be number one player in Japan’

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