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Discuss how globalisation is an opportunity for Morphene.
Dealing with Globalisation
With the Cup of Coffee in his hand and fear in his eyes Mr Choksy was listening to the budget speech of Mr Manmohan Singh, the Finance Minister of the then Congress Government. He was afraid that will happen in this Globalized and Liberalized economy. He has only heard of cutthroat competition in USA and Europe and has never witnessed the same. He was worried about the future of his company.
Mr Mohan Choksy is a son of Gujarati Trader. In 1976, after finishing his Graduation in Pharmaceuticals he decided to establish a pharmaceutical company. His father lent him money and land.
That was the era of License and Permit. The Mantra of successful business is to acquire a permit and license. Patent law was very liberal in India. Companies do not get the patent for the product rather they get the patent for the process. Thus, same drug can be manufactured and marketed by many companies if they just change their manufacturing process. Internationally, Pharmaceutical industry is research-intensive industry but in India, it was a Marketing intensive industry as company can manufacture any drug of their choice by altering the process. In off- patent drugs even that is not required.
Because of License and Permit, there is always a scarcity of drugs. Economy is closed and thus, there is no fear from MNCs.
Thus, environment is very conducive for pharmaceutical industry. The critical success factors are product knowledge, Money, Marketing and above all, political contacts and Mr Mohan Choksy has inherited all of the above except one which he has acquired.
Mr Mohan Choksy launched the firm in 1978 named “Morphene” in Vadodara. After studying the market, Mr Mohan launched few general Antibiotics, Pain Killers, and drugs for seasonal diseases like Paracetamol, etc. He also launched a full range of products for Respiratory disease as he found it a more lucrative market.
Mr Mohan Choksy appointed a very aggressive National Sales Manager Mr Mohit Dalal. Mr Mohit started his career as a Medical Representative (MR) in a Rival firm and within a span of 10 years, he became GM sales. He knows all the tits and bits of the pharmaceutical sales. He knew very well how to allure doctors and find a place in the “Prescription”. By 1985, Morphene acquired 15% share in Respiratory Diseases and have a more than 10% share in all the drugs it was selling.
By 1985, competition became very stiff. New companies emerged. Because of process patent, any new company could launch any drug. Mr Mohan Choksy thought of investing in fundamental research but it was very expensive and because of Process Patent. Mr Mohan couldn’t get the Patent so he dropped the idea. In 1987, he was going to France with his wife on a holiday. In the flight he met Mr Becker who was a CEO of MNC pharma company named “Novamin”. In a discussion Mr Becker told him that his company is in search of Pharmaceutical manufacturer who can manufacture the off patent drugs for Novamin at low cost. Mr Becker told him that in Europe they had limited manufacturing capacity and they wanted to use it only for patented drug. He further told that in Europe, the production cost is high and in off patent drug, the margins are very low so they are looking for low manufacturing base. Mr Mohan saw an opportunity in it. After returning from holiday, Mr Mohan contacted Mr Beceker. Mr Mohan increased the capacity of his plant. He started producing on economies of scale as now he was selling the same molecule under a brand in India and as a molecule to Novamin. By 1989, Morphene was exporting almost 25% of its production. Everything was going very smoothly but in 1991, the economy was liberalized. Being a signatory of GATT, soon India needed to follow the International Patent norms under which the Product is patented and there was no scope for reverse engineering.
Mr Mohan has to prepare his company for the future. He thought of two strategies:
1. To make the company attractive and sell it to some MNCs which are supposed to come in near future and may be interested in some strong local player to have a strong foothold in the country.
2. To invest in R&D and compete with MNCs.
Mr Mohan was not comfortable with the first option and for him second option was not feasible for his small company with a turnover of Rs. 120 crore.
He lived in this dilemma for the next three years and followed the same business model and by 1994, his turnover reached 160 crore. By 1994, things were changing very fast. His company being a Zero Debt company had enough cash reserves (20 crore) and being a Zero Debt Company and a good profitability ratio (15%), banks were ready to provide liberal loans.
Mr Mohit Dalal, the Marketing Manager of the company looks after the Domestic and International Marketing of the Firm. In 1992, Mr Mohan had sent Mr Dalal to Kellogs to attend the one year Executive Management Programme. After coming from Kellog, Mr Dalal was continuously trying to foray into the international market.
In April 1995, Mr Mohit Dalal gave a ring to Mr Mohan from USA. He congratulated Mr Mohan and said that it was time for celebration as there were two good news for Morphene, one is that it had fetched an order of supplying a bulk drug to a MNC worth Rs. 100 crore per annum for coming five years. That will not only double the turnover of the company but will also open the avenues for new orders. Mr Dalal further said that WTO agreement will be applicable from 1995 and by 2000, new Patent Law will be applicable in India.
Mr Mohan was very happy with the order but couldn’t understand what is good about the new Patent Law, in fact he was worried for the same for last five years. Mr Mohan congratulated Mr Mohit and asked him to return to India.
As Mr Dalal returned, Mr Mohan asked to meet him. Mr Mohan Choksy shared his doubt with Mr Mohit Dalal. Mr Mohit Dalal said that world is Globalizing and “it is not only we but more than 150 nations have signed the WTO Agreement. If our market is open for foreign companies, then foreign market is also open for us”. He further added that “Globalisation is an opportunity for Morphene and not a threat”. Mr Mohan Choksy was listening to Mr Dalal and asked with a silver line in his eyes that how it is an opportunity. Mr Dalal described that “instead of becoming competitor to MNCs we will become complimentary to MNCs”. In the scenario, he said:
1. “MNCs are coming to India and they require manufacturing base and the state of the art manufacturing capacity, we can supply bulk drugs to them.
2. We are already supplying to USA and if those companies come to India, they will come to them naturally.
3. If we collaborate with these MNCs, they will also transfer new technology, manufacturing processes and international practices to get the product of their desired quality. This will help us in getting more export orders.
4. In the present scenario, it will be easy for us to get international client for bulk drug supplies as other economies have to also liberalise their import procedures.
5. Each year, more than 1000 new drugs get off patent. We will not supply these drugs to international market rather we will also launch them under our brand. Our competitive advantage will be the cost structure as we will be operating on the economies of scale because of our bulk drug supplies.
6. Our biggest advantage is our Marketing. MNCs may have an advantage on the patented drugs but they cannot compete with us in our land on the off patented drugs. They can’t give the margins which we can give to retailers, they can’t even think of incentives which we can provide to the doctors. They cannot penetrate in the rural areas. Their sales cost is very high”.
He further added that “we have just received an order of Rs. 100 crore per annum. In the current scenario, we may get many such orders. We have to restructure the organisation for the new environment and we have to design our plant to the international scales and Quality standards”. With optimism in his eye, Mr Mohan gave a ring to his GM Production and GM Finance to work out on the cost structure and financing of restructuring.
Source: Business Environment, Dr Vivek Mittal, Excel Books
