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Cultural Implications On The Pharmaceutical Organizations In India Commerce Essay

The countries that cover South Asia are: Afghanistan, Pakistan, India, Maldives, Sri Lanka, Nepal, Bangladesh, and Bhutan. South Asia is one of the most populous in the world it has a population of some 1.4 billion [1] ; consequently, South Asia has the half of the world´s poverty. The region has presence of often conflicts between the region's two nuclear-armed states, Pakistan and India, causing political instability.

The Most distinguished achievements of the region are in the fields of education; industry; health care; information technology. Those based on research and development; international trade and business enterprises and outsourcing of human resources; and pharmaceutical industry.

The code areas of difficulty that remain are high levels of corruption, disagreements on political boundaries, and inequitable distribution of wealth.

In South Asia Hinduism and Islam and in some of its countries Buddhism is the dominant religions. Other Indian religions and Christianity are practiced by significant number of people.

INDIA

MAIN FEATURES

Since 1991 India has transformed it into one of the fastest growing economies; however, it still suffers from poverty, illiteracy, disease, and malnutrition. India has a population of over 1 billion of people. It is the largest democracy in the world [2] .

Indian people have a variety of religions, but the most popular are: Hinduism, Buddhism, Jainism and Sikhism.

It is a very pluralistic, multilingual, and multiethnic society. About 80% of the population is Hindu, and 14% is Muslim. Other significant religions include Christians, Sikhs, and Buddhists.

India has been growing really fast for the last nineteen years; India’s current economic growth is approximately 7% annually. India has become in one of the most attractive emerging markets for outsourcing in products and services from other countries.

Indian economy is closely joined to western economies; this can be seen from the recent acquisitions and a variety of franchises by some of the major Indian companies which have had a growing influence on international business. As an advantage is the friendly relationship between the government and the overseas companies that improve the political stability and contribute to the continued economic growth at a high level. One of the elements that make India be attractive doing business with other countries is that a large population can speak English and the labor force is really cheap.

GROWTH OF PHARMACEUTICAL INDUSTRY

India today is considered to be global powerhouse of generic drugs for many reasons:

India has achieved a great progress in science and technology. The Indian Pharmaceutical Industry today is considered highly progressive industry with extensive capabilities in the field of drug manufacture and technology.

It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple pills and drug prescription to innovative medicines requiring complex steps to manufacture, adding that medicines for almost all type of diseases are manufactured in India.

SOME RISKS THAT AFFECT THE INDUSTRY

THE INDIAN PATENT LAW

The Indian Patent law (1970) gave Indian companies the opportunity to engineer molecules that were under patent (without payment of royalty) and to sell them at 8-15% of the price of the patented drug. According to pharmaceutical industry statistics, nearly 70 percent of production is by the top 100 firms and about a third of that is exports, which are rising 25 percent a year.

The lack of protection for product patents in pharmaceuticals had a significant impact on the Indian pharmaceutical industry and resulted in the development of considerable know-how of drugs.

As a result, the Indian pharmaceutical industry grew rapidly by developing cheaper or economical versions of a number of patented drugs and supplying these cheaper versions to Indian market and eventually moved aggressively into the international market with generic drugs once the international patents expire. Thus, India has had an exciting generic industry since 1970 when through the law it was adjusted in order to get patent protection for pharmaceutical products. It took several years for Indian pharmaceutical companies to make their mark in global pharmaceutical field and being recognized as producer of quality medicines at affordable prices.

THE IMPACT OF ORGANIZATIONAL CULTURE ON PRODUCTIVITY AND QUALITY IN PHARMACEUTICAL ORGANISATIONS IN INDIA

These organizations are focused on employ knowledge workers. Knowledge of the people or even workers is really important for the pharmaceutical sector because, depending on their job the companies grow. About 50 per cent of the revenue of firms in the pharmaceutical sector in India is spent on remuneration and benefits to employees, in order to give them some incentives improving their efficiency. In this knowledge context, organizational culture plays a critical position in enhancing productivity by fostering innovation and creativity.

Organizational culture might create an environment that would stimulate creativity and motivation, thus leading to higher productivity and quality. Organizational climate like concern for employee welfare lead to satisfaction, and higher levels of satisfaction result in increased productivity.

FOUR VALUE SYSTEM TYPES:

Entrepreneurial value system,

Performance pressured value system,

Integrated value system and temperate value system - and

Related them to productivity in terms of role the behaviors (service productivity).

"CULTURE OF PRODUCTIVITY"

It is the main goal for Indian companies in the pharmaceutical industry which is characterized by: Legibility (clarity), coherence (integration of the elements of work) and open-minded (adaptability to change).

CONDITIONS THAT WOULD MAXIMIZE GROUP PRODUCTIVITY

These include familiarity between group members, setting stretch goals, communication between team members, and following performance-based incentive system.

The "socio-emotional" condition has influences in the organizational environment for the individuals that may increase or decrease productivity.

ORGANIZATIONAL CULTURE FOR TOTAL QUALITY MANAGEMENT (TQM)

TQM is a standard set of procedures that requires a homogeneous culture with an emphasis on flexibility and people orientation, for example, standardization and flexibility at the same time.

TQM practices are focused on customer satisfaction, continuous improvement, management commitment to quality and benchmarking that are highly correlated with people-oriented and outward-oriented aspects of culture.

THE PHARMACEUTICAL ORGANIZATIONS ARE MAINLY FOCUSED ON:

- High performance work orientation

- Integrity or core values

- Customer focus

- Concern for employees and trust

- mission (vision, strategic direction and emphasis on goals and objectives);

- Knowledge sharing or organizational learning

- Agreement (on issues on the basis of mutual give and take)

The Impact of culture and human resource management in Cross-Border Mergers and Acquisitions

With the rise of Indian firms like Tata, Ranbaxy, Infosys, Asian Paints, etc. many experts are willing to wager that Indian companies have some key fundamental strengths that will help them to dominate not only just their domestic markets but also parts of the global market, as well. Part of it stems from the fact that in the industrialised world, India itself is no longer seen as a laggard. Having survived domestic competition, Indian companies are now learning to be globalised.

The key challenge for Managers of Indian Companies is to prevent getting locked in the lower decks of international business, by finding new ways to move up in the value curves in their businesses. In International markets, an Indian product or an Indian company, despite being capable of providing quality and value comparable to that of their Western Competitors, continues to be associated with the expectations of low cost, low price and low margins. Indian companies in fields as diverse as pharmaceuticals, textiles, software services and engineering are unable to raise their margins because of these expectations. As a result, they are unable to invest in resources and competencies that are necessary to protect and enhance their competitiveness. Any business consists of a hierarchy of product-market segments, each of which generates profits roughly in proportion to the technical and/or marketing complexity of the segment. Early stage MNCs, particularly those from developing countries, often enter the global market place by competing in the lower margin segments – even when their internal capabilities exceed the demands of that segment.

Over the last two decades mergers and acquisitions (M&As) have become an increasingly popular strategic choice for numerous organizations, perhaps because organizational leaders believe that M&As have the unique potential to help rejuvenate companies and to contribute to business restoration. In order to compete in the international arena the organizations find the need to follow the approach that M&As provide rapid growth, flexibility and efficiency (Multinational Business Review 2009). But we have to take into consideration that most of the M&As fail, according to St. Louis University paper on the case of indian pharmaceutical firms depending on the industry about 50 to 80 percent of the M&As fail. In 2006 there was a Summit in China with regard to the M&A and they stated that the failure of these mergers and acquisitions is because they fail in the process of reaching their principal objectives and the second reason is because of the adjustment measures after the first year are difficult to achieve. Anyway, the top managers of such projects find still acttractive the mergers and acquisitions, and they try to achieve and added value so the involved companies can succesfully achieve what they wanted at the beginning of negotiations.

“Many authors argue that incompatible cultures, loss of key talent, poor communication, and reduced involvement of employees during the M&A process are the primary reasons for their failure of M&As” (Multinational Business Review 2009). This appreciation made us think the way that top managers deal with the direct employees and the people indirectly involved in the M&A might turn into an issue that in some cases if the managers do it right it could take the M&A to be succesful but in other cases it could take it to failure.

Through the years schoolar papaers and expertises had made an appreciation about the succesful of M&As that suggests that HR should be an important element from the beginning until the closing of the deal (Financial Services, 2002). In the case of the Indian Pharmaceutical companies HR takes a relevant place in the success of cross-border M&As.

We would like to share two major cases examined by the Multinational Business Review about acquisitions made in Europe by Indian pharmaceutical multinational corporations. The following appreciations are made by the authors of the paper made by Multinational Business Review in Summer 2009 and our point of view is just to support and explain them.

Ganga's Acquisition of C -Pharma

Characteristics of the Participants: Ganga Pharmaceuticals is an Indian MNC engaged in the manufacturing of pharmaceuticals and related R&D. The company has a separate hospital division and has one of the biggest biotechnology parks in India. Ganga has acquired companies in the USA, Ireland, France, and the UK and employs a total of around 7000 employees worldwide. The company has invested significant amounts in R&D, resulting in several breakthrough biotechnology products, over 250 patent applications, and a pipeline of promising new molecules. It has acquired five companies in Europe, including C-Pharma, which was acquired in 2003 for around 11 million pounds (Multinational Business Review, 2004).

Type of Acquisition: Ganga has a mix of the three types of M&A, namely geographic roll-up, product or market extension, and as a substitute to R&D. Ganga adopts the strategy of acquiring C -Pharma, a loss making unit, to achieve economies of scale by manufacturing bulk drugs in India and drugs requiring extensive R&D and high technology in the UK plant. It thus benefits from both cheap labour and better technology. Ganga not only wanted to increase its product lines by adding C-Pharma's manufactured drugs under the Ganga brand, but also wanted to expand its markets in the UK as well as in Africa and the Middle East. C-Pharma has 225 UK marketing authorizations and 258 foreign market authorizations, which could make it extremely easy for Ganga to enter these markets. The three main problems identified by Ganga in C-Pharma, which are the reasons why C-Pharma was put up for sale, are its extremely high costs, its failure to keep up with competitors, and its ineffective management team.

Archetype of Acquisition:

As they said it before they wanted to expand its market in the UK and the best way was by acquiring an UK pharmaceutical company and changing its culture and old managerial performance. The target was to “create value by combaning the needs of the customer with uncompromising drive for excellence.” And they found in HR the correct tool to achieve it. Ganga created a HR team that would be part of the acquision process since the biginning they had it clear in terms of the objectives and strategies they wanted to implement adopting the “ethnocentric approach.” This was reflected in the integration stage through the new HR policies and practices framed for C-Pharma, which were similar to that of the parent company (Multinational Business Review, 2009).

HRM functions: The HR team found that Cpharma had unproductive labor and high production costos, they needed to reduce manufacturing costs by introducing a framework for recruitment, selection, and training purposes, which it would focus only in skills and capabilities.

Expatriates: The HR team replaced numerous leadership positions at C-Pharma by recruiting expatriates from Ganga India. In the ethnocentric approach, the cultural values and business practices of the home country are predominant. Headquarters develops a managing and staffing approach and consistently applies it throughout the world. Companies following the ethnocentric approach assume the home country approach is best and that employees from other parts of the world can and should follow it. Managers from headquarters develop practices and hold key positions in the subsidiaries to ensure consistency (Sonja Treven, 2001). The human resource team decided to follow one its objective of changing the culture and values of the employees at C-pharma, which was a difficult task. They wanted to focus on on productivity, quality, cost, and speed.

Culture: Interestingly, because neither the expatriates from Ganga nor the employees at C-pharma were given any kind of cross-cultural training at the pre-combination and integregation stages there was serious cultural clashes. One of the problemas was that Ganga team wanted to implement an scheme that was unkown for the C-pharma employees and they refused to acceo it. On the other hand Ganga wanted to be competitive by enforcing the workforce with extra working hours. Noting that India’s National Culture is rather on high on power distance and is masculine and collectivistic. In comparison, the UK is low on power distance and is highly individualistic. They were different in this dimensions which made the work difficult not only by Indian expatriates and C-pharma employees at the integration stage.

Communication: During the interview made by Multinational Business Review, the new Indian CEO at Ganga (UK) noteed that after their acquisition, there was an outbreak of the "merger syndrome" amongst the C-Pharma employees. He attributed this to the downsizing of C-Pharma by 300 employees and the sudden changes brought about in the top management ranks, as well as the implementation of the performance management policy without sufficient communication and employee participation. This led to unrest in C-Pharma, resulting in a loss of trust and confidence among the employees who started quitting the company. The reason of this failure could be attributed to the lack of communication and that the C-pharma employees were not prepare for the changes.

However, The Multinational Business Review apointed that after the acquisition the new CEO took it upon himself to help change the employee mindset at C-Pharma by acting as a change leader and building strong"personal contact" with employees by involving them in his decision making. As the HR President at Ganga noted:"Post-acquisition, the HR team was extremely active in tackling the resistance to change from the employees and the cultural discomfort they were experiencing. Finally, HR undertook cross-cultural training and training on setting clear-cut goals and objectives after the performance appraisal. However, given that these efforts came late in the acquisition process, it took almost a year of intense HR efforts before the company felt that the acquisition would succeed." Indeed, the executives interviewed specifically noted that C-Pharma employees now feel proud of the fact that they are part of the Ganga family.

Role of HR: When one is to look at the acquisition process taken by HR over CPharma, it is easy to see that interventions should have began much earlier. This sort of cases show how important it is to work on cultural due-diligenicies and of chosing the proper comunication levers in order to generate succsesful changes. The thought of the top executives of the company was that two major lessons were learnd; " first executing redundancies at an appropriate time interval and not immediately postacquisition, and second to involve and communicate with employees at each and every stage in order to avoid resistance to change from the employees". The role of the expatriates was critial in order to obtain the successful result of the Ganga´s plan that pretended to fully merge C-Pharma.

This is the second case analized by some of the authors of Multinational Business Review in 2009.

Jamuna's Acquisition of B-Pharma

Characteristics of the Participants: Jamuna is another leading Indian MNC in the Pharmaceutical industry, employing over 8500 people worldwide including a sales force of over 2000. The company has wholly-owned subsidiaries in the US, UK, Russia, Germany, and Brazil, as well as joint ventures in China, South Africa, and Australia, with representative offices in sixteen other countries. The various businesses of the company include APIs, branded formulations, generics, biologies, specialty products, and NCEs. Jamuna is the largest pharmaceutical company in India by revenue and has been ranked as one of the best employers in several surveys. Jamuna acquired the fourth-largest German generic drug maker B-Pharma for Euro 480 million in 2006.

Type of M&A: The approach on this acquisition was product and market extension. What Jamuna wanted is to be able to enter the european makets. By reaching those markets Jamuna would increase their product line and the supply of the high demand. The senior management at B-Pharma was unable to tackle the mounting problems, leading to an absence of effective leadership and control.

Archetype of M&A: During the interviews made by the Multinational Business Review with the senior executives, it was revealed that Jamuna adopted the "Re-strategy" archetype of acquisition by deciding to merge the best practices from both the parent company as well as the one being acquired. The HR team did not disturb the existing policies and practices of B-Pharma and only focused on integrating the culture of the two companies. The "geo-centric" approach to HR was adopted by mixing the best of both the companies to achieve a synergistic effect (Multinational Business Review, 2001).

HKM. functions: The HR team at Jamuna has framed a unique performance management system that is noteworthy. In the interview with one of the M&A team members, the performance management system was described in detail. As per the description, the company practices a unique 360-degree feedback system that allows for a 'two-way' dialogue between the evaluator and the employee being assessed (such a system is often ignored in the standard 360-degree feedback appraisals). Further, in addition to the employee's immediate supervisors and colleagues in the business unit or function, the employee also has dialogues with colleagues in other functions in the same business unit. In addition, the system is geared to allow the employee to express his/her disagreement with the evaluation, and s/he is given a period of six months to correct/justify the performance level.

Expatriates: No expatriates were sent to replace B-Pharma's executives in key roles or to infuse Jamuna values. They decided to manage a different analysis in which they offered internal promotions to employees that matched with their job descriptions. This ideas were highly accepted at B-pharma. One of the member of the M&A team noted "At Jamuna, we believe in integration of thoughts and ideas from step one and not just brand recall. HR initiated a number of meetings at every stage of integration with the willingness to exchange ideas and values so as to avoid the post acquisition cultural clashes. The Germans were invited to visit the R&D centres in India and develop a know how of the practices and policies in India, We believe in complete transparency in all our policies and practices and therefore our HR team ensured that there was a perfect understanding of our values system among our employees through continuous dialoguing."

Culture: The integration process between Jamuna and B-pharma was different from the process between Ganga and C-pharma. In this case Jamuna didn’t find resitance to change this is due to the appropriate work of the HR team to make cultural integration an easy task or at least not a difficult one. After the integration stage, the HR team offered training in cross-cultural communication to C-pharma employees in order to make the process more understandable and to be able to reinforce Jamuna mission and brand. The HR team stated: "We believe in bringing about slow and steady change, over time, as we believe in winning employees' trust and commitment and getting familiarised with the organisation's internal environment. This will help us to identify the faulty areas and frame suitable policies and also help the employees to accept the change willingly."

Communication: Jamuna new that they had to get employees involved in the process and they had to comunicate every change and every step of the merger to them in order to have transparancy and a well understand of the situation. They decided that a good way to do it was by doing a serie of seminars and training sessios to reassure employees and help them accept the organization culture.

Role of HR: According to the HR head, HR gave a clear sense of direction to the whole integration process. At the pre-deal stage, HR performed the functions of evaluating the worth of human capital and identifying inefficient staff. At the integration stage, the HR team at Jamuna did not undertake any downsizing activities as it believed in stabilizing the internal environment before undertaking any restructuring activities. No changes were brought in the key HR policies and systems like the performance management systems, remuneration schemes, and pension schemes (Multinational Business Review, 2001).

The Multinational Business Review concluded that communication with employees is an importat step in order to make cultural differences not to be an obstacle and just be one point more in the process. Jamuna didn’t find much problems during the process of integrations because they communicate and involved tehir employees, instead Ganga failed to do so because of its lack of communication.

BIBLIOGRAPHIC SOURCES

The Role of HR in Cross-Border Mergers and Acquisitions: The Case of Indian Pharmaceutical Firms

Pawan S Budhwar, Arup Varma, Anastasia A Katou, Deepa Narayan. Multinational Business Review. Detroit: Summer 2009. Vol. 17, Iss. 2; pg. 89, 22 pgs

Why HR can Make or Break your M&A, by Andrew F.Giffin and Jeffrey A.Schmidt. Financial Serives.

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Paul, A.K. and Anantharaman, R.N. (2004), "Influence of HRM practices on organisational commitment: a study among software professionals in India", Human Resource Development Quarterly, Vol. 15 No. 1, pp. 77-88.

http://www.youtube.com/watch?v=emfP5NT3kqY&feature=related


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