Successes and failures of Japanese cross border M&A (2 – Daiichi Sankyo and Ranbaxy)
In September 2013 the US Federal Drug Agency issued an import alert, prohibiting further manufacture of FDA regulated drugs at one of Ranbaxy Laboratories’ Indian factories, causing shockwaves at Daiichi Sankyo, who had bought 64% of Ranbaxy in 2008. This was the second time an alert had been issued in the past 5 years.
Nikkei Business, in their series on Japanese cross border M&As, draws parallels with the NSG/Pilkington case blogged previously saying that the same mistakes had been made by the Japanese acquiring company, in failing to do enough analysis beforehand.
Daiichi Sankyo thought it had fixed the quality problems which were exposed by the FDA in 2009, by firing the Ranbaxy former owner and CEO and sending a director from Japan as well as a quality control officer from the US subsidiary.
Daiichi Sankyo has not disclosed to the Nikkei the cause of the quality problems – apparently this is not even shared widely within the company. The Nikkei supposes that Daiichi Sankyo lacked understanding of Ranbaxy’s organisational structure and corporate culture. A supplier to Ranbaxy explains that “Indian companies do not work in a team the way Japanese companies do. There is a lack of solidarity, and a lack of trust between the boss and subordinates. There is just the hierarchical link between directors and employees. Orders from above are obeyed unquestioningly, and even if juniors sense there are problems, they do not say anything.”
Another comments “Employees in Indian companies are different from Japanese companies in that if they are asked for data and documentation from the authorities, they do not put the information together very thoroughly. There is also not the atmosphere where issues can be openly disclosed.”
If this is the case, it is therefore difficult to understand what is going on from the outside, and the word of the people on the ground cannot be 100% relied on, notes the Nikkei. What is needed for successful M&A is a strengthening of governance – management must be given the structures to understand exactly what is going on on the shopfloor.
As the Nikkei concludes, another failing of Japanese cross border M&As often lies in not being able to appoint a trusted person who also has the necessary local and industry expertise. The Indian executive, Atul Sobti, whom Daiichi Sankyo appointed in 2009 to replace the CEO/owner had previously been an executive at Japanese car companies, only lasted a year. In my experience, it is often the case that Japanese companies rate familiarity with Japanese corporate cultures over industry expertise when hiring local senior management. However Daiichi Sankyo seem to have changed their mind on this, as the successor to Sobti, Arun Sawnhey, is a pharmaceutical industry veteran.
One reason Japanese companies often give for not interfering too heavily in the newly acquired subsidiary is that they are anxious to retain the existing senior management, recognising that they do not have executives in the Japan headquarters they can despatch who have sufficient local and global industry experience and expertise. At the same time, judging by both the Ranbaxy and Pilkington cases, the local executives complain of a lack of access, support and influence in relation to the Japan HQ to carry out their jobs, and leave, or conversely, are quickly got rid of when problems arise or financial targets are not met.
A better balance has to be found between implementing the necessary changes to governance and strengthening oversight, whilst also ensuring that the senior local executives are given the support and integrated into the network back in Japan HQ to allow them to perform their roles effectively. Japanese executives are too ready to keep non-Japanese executives at arm’s length, so that if there are any problems, Japanese executive hands are clean.
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