Johnson and Johnson: History and Development
Introduction
Establishing the first product in 1886 under the mentorship of James Wood Johnson and his brothers, Johnson and Johnson group was brought to life in 1887. The company is currently headquartered in New Brunswick, New Jersey. Listed in the NYSE with its operations base in almost every country, Johnson group is a part of Fortune 500, a holder of 260 plus subsidiaries and a bread winner for more than 135,000 employees all over the world. The main area of operation is the Pharmaceutical sector where the company has achieved great levels of innovation and ready-to-use materials for almost every health-related cause. The company has a Credo which states the responsibility of the company towards its patients, customers, and all those who use their products and services. It also states the company’s sense of responsibility towards their workforce, local communities and the shareholders.
Johnson and Johnson offers a wide range of products together with their subsidiaries and operate in three major segments of business: consumers, which generate 17% of total revenue and 11% of total profit; pharmaceutical sector generate the highest revenue (47%) and hence the highest profits (58%); medical devices, which generate 36% of total revenue and 31% of total profit share. The consumers line of products includes the health and injury care supplements and the first aid items as in band-aids, medications like Tylenol, baby care products like J&J baby oil etc. They also have Neutrogena line of products for beauty, clean and clear segment for face wash and skin. All these are regularly used by customers and are directly sold to people throughout the world from retail outlets. Next in line is the pharmaceutical segment, which holds the large part of the company’s market. This segment focuses on the medications and treatments for diseases of various kinds like HIV/AIDS, Oncology, Neuroscience and various genetic diseases. Johnson and Johnson, by collaborating with a large number of companies (now it’s subsidiaries), have produced a large number of medications and vaccinations which are used all over the world for treatment of various illnesses and therapeutic injuries. The last segment to follow in line is the medical devices which has a wide range of instruments used in orthopaedics, surgery, diabetes and optics. Some of these products are sold via distributors and retail outlets while others are sold to hospitals and businesses. To carry out these set of business activities is not a one man show, hence, J&J acquired and purchased various other companies that operated in these sectors to widen their product, operation and customer base. Some of the big names in the list of J&J’s subsidiaries are Janssen Pharmaceutica, Neutrogena, DePuy Synthes and many more names like Acuvue, Ethicon and Lifescan etc. These subsidiaries operate with 111 manufacturing facilities, large office and inventory areas all over the world. Major proportion of these facilities lie in the home country, whereas others are spread all over in Europe, Asia, Africa and the Pacific.
Since the largest proportion of the business lie in the U.S., therefore U.S. accounted for almost 50% of the sales in the three operating segments in 2018. Next to follow were Europe, Asia-Pacific, Africa and the west respectively. As stated in the annual report of 2018, the reason for maximum sale in U.S. is due to the fact that many subsidiaries owned are based in U.S. itself and apart from a few subsidiaries, which are wholly owned by Johnson group, they rely on international trade by licensing. The company follows the principal of decentralised management which gives freedom to the local people to run according to their conditions, hence generating much more profits. Later in their development stage, Johnson also moved towards the FDI jointly with some of their subsidiaries in various parts of the world. The company generates a huge amount (approx. $22.2 billion) of cash from its operating activities everywhere. They further believe in investing and financing transactions to keep the money in circulation. They also use different financial methods like forward exchange contracts, hedging etc. in order to protect themselves from foreign currency changes because of large scale international operations and multiple currency involvements.
Challenges of Internationalisation
Since it has a very wide operation base, Johnson group faces a varied set of challenges because of different economies coming into play. One major effect is the local inflation rates. Although the company managed to tackle the unlikely high inflation in Argentina and Venezuela, but in order to do so it had to make changes in productivity levels and sales. Another major issue facing the subsidiaries in the UK and the EU is the Brexit. It has created a lot of uncertainties about the existing financial and trade relations, political and economic dilemma. Companies based in UK and EU are facing a hard time and volatilities in exchange rates and trade barriers are a serious concern for the subsidiary companies. One of the subsidiaries named DePuy Synthes, based in Leeds faces this challenge. Brexit has posed a threat to the pharmaceutical industry in UK and has led to the freezing of investments and led to the blocking of the EU-funded research collaborations. No trade is being carried out and the DePuy suffers because it will not be able to export the medical devices to the European countries as freely as they did before (Europe has the largest number of subsidiaries of Johnson after U.S.). Moreover, the manufacturing and the research costs for carrying out operations have all gone up since the referendum of Brexit in 2016. Not just DePuy, but the other subsidiaries based elsewhere in UK, showed a downfall in the sales and profits and they could just manage to contribute a meagre 3% to the overall consolidated assets of the company in 2018. Moreover, the changes in the exchange rates also affects the profits and losses and the net income of the company by millions of dollars.
Over the last decade a major change has been experienced by researchers in the spending and purchasing patterns of the customers regarding health care products. They have become more knowledgeable and decisive about the health-related causes and have reduced the consultations and prolonged medical procedures, which is the result of rising prices of the health care. To top this scenario, issues like trade wars and already mentioned Brexit, have led to a further dilemma for the companies who are now facing a global economic downturn. Not just this, when a company decides to move to a global market, the cultural values and legal rights do come into play as well. Many of the Johnson’s subsidiaries have been charged against flaws with their drug applications and recently, Johnson group’s worldwide selling product, the Johnson Baby Oil has been under a law suit for containing cancerous elements. In case of such events, the business gets hit very hard on a global stage and international trade becomes a challenge in some countries because of the cultural and ethical values of the customers and their decreasing interest in company’s products.
Ownership, Location and Internalisation (OLI) Framework
J&J started in late 1800s when Robert Wood Johnson got inspired by Joseph Lister’s findings and decided to join forces with his brothers to produce dressings. He saw an opportunity available in the open market and thrived upon it by joining his brothers. This was when Johnson and Johnson came into existence in 1887 in New Brunswick, New Jersey and launched their first product, a medicinal plaster mixed with adhesives. Later on, they began producing these on a large scale, and shipping began all throughout the United States. By the end of 1990s, they were also successful in producing sterilized adhesive bandages. James wood Johnson took over the chairman role after R.W. Johnson passed away in 1910 and this was a quick turn of events for the company. In the following years, James and Roberts’s son, began international touring to look for expansion options worldwide to increase their business. Hence, in 1916, J&J finally overtook Chicopee Manufacturing Corporation and their first affiliate was established in Canada in 1919. They also managed to gain confidence of the people worldwide and established Johnson and Johnson Ltd. in UK. By now, the product range of the company had also diversified and by 1927, they had begun manufacturing band-aids, baby creams and lotions and sanitary napkins as well. Fred Kilmer, father of Joyce Kilmer (a well-known poet), began writing various articles for company’s publications. The customers, other pharma companies as well as the hospitals became aware and were encouraged to use their products.
From this point, there was no turning back. The company kept on expanding its product as well as customer base and in this process began purchasing and acquiring different small to medium sized enterprises in the international trade market on a large scale. In this process, they started with the acquisition of McNeil Laboratories, Inc., producer of pain reliever called Tylenol. They also purchased a Swiss pharma firm in the same year named Cilag-Chemie, and two years later, caught the big fish named Janssen Pharmaceutica, largest producer of Haldol (an antipsychotic medicine). This story continued since then, and they kept on acquiring and purchasing some big names as Acuvue. They also went into a joint venture with Merck Consumer Pharmaceuticals Co. in 1989. Later on, they also acquired Neutrogena, DePuy Inc. etc. BY this time, the company had already spread its roots in almost all parts of the world and had become a well-established big name in the three sectors it operates. To date their international expansion has become so vast they are earning more profits from businesses overseas than at home. They also faced allegations in their journey up the ladder and many of their products including Tylenol and other drugs were sued because of allegations that they contained poisonous substances. But they always came out shining and the company went on progressing and making billions year over year. Their current revenue stands at $76 billion dollars.
Accounting to this huge success of the firm is their typical leadership style. They have a set code of conduct for employees so that everyone follows the described moral practices. The company follows a decentralised management system which allows the people in various subsidiaries all over the world to exercise control at will and discretion. The idea of either licensing agreements or joint ventures with most of their subsidiaries goes well with this management system. This helps the company to maximise profits with less input potential, because they have the advantage of local employees in the management who understand the deep-rooted culture and values of a particular region.
Johnson and Johnson Value Chain
Michael Porter, a Harvard graduate, introduced the value chain analysis system to assess and analyse a company’s performance on the basis of the activities they carry out. This has become a major part in the assessment of businesses since then and almost all companies realise their operations using this model. A properly used and implemented value chain model can lead to a higher productivity for the firm, hence it requires a streamlined focus. It involves activities starting from bringing in the raw material to finally getting the final product and further marketing and sales.
Primary Activities
Inbound Logistics
The most important part of the inbound process is maintaining a strong relationship with your supplier, and the company’s logistics team works hard on the procurement and input of raw materials. Their supply does not exactly come in bulk, rather, they use various transportation methods depending upon the amount of freight material to be delivered at a particular centre. This saves up the extra inventory cost and results in less transportation costs. These input materials are then distributed internally using various channels to different departments for carrying out the operations part.
Operations
This part of the value chain includes the production and servicing operations. At Johnson and Johnson, the operations carried out are manufacturing, processing in laboratories, testing etc. These operations have to be closely monitored in order to achieve higher productivity and efficiency. Also, they carry out some parts of the operations process in their partner organisations where they can easily and accurately run clinical tests and get better results for the research and analysis with the support of universities. They claim to deliver high end products to their customers as they deal with the most sensitive segment of the market.
Outbound Logistics
Delivering your end product to the customer is the most critical and valuable part of the chain. These activities have to be carried out in time, keeping the costs involved in mind and avoiding the impact on quality as much as possible. At Johnson and Johnson, good care is taken of the products and their customers. They made a remarkable development in 2006 by setting up a 33 million Euro distribution centre in Europe. This has made the worldwide distribution process a lot easier as there is a whole team of employees who are receiving all the finished products from the manufacturing centres and delivering it to their subsidiaries or the customers in all the three segments in Europe and other parts of the world where it operates. This development led to a major transformation in the investments and returns and made the overall value chain process a lot easier for the company.
Marketing and sales
Johnson and Johnson have earned their name and fame through their well-known marketing channels. It makes use of the promotions by carrying out events, sponsorships and also advertisements that inspire people towards a healthy living. They also touch the ethical and emotional part by taking into account the nature of their products. Featuring of babies in the advertisement in order to show case their products has brought laurels to the company. Customers love such themes of advertisements and by creating an emotional connect they have earned a lot of respect and loyalty from the customers. They carry out the sales process by directly selling their products through retail outlets, distributors and medical stores. Hence, they use an integrated marketing and sales strategy to reach swiftly to the customers making it easier for the customers to get to their hands on the products.
Secondary Activities
Firm Infrastructure
Johnson and Johnson are a globally renowned firm and hence, has a well-maintained state of the art infrastructure to carry out its activities. Its subsidiaries are present in almost 60 countries which helps it maintain its global presence around the globe. It is headquartered in New Jersey with the state of art facilities and it collaborates with its partners/subsidiaries to carry out its activities at these locations.
Human Resource Management
It is the most important part of the company’s management system. HR team has an important role of bringing in the employees who are dedicated to working in such an environment and committed to work for the good of others as it operates in one of the most sensitive sectors of the market. HR team has to keep the employees motivated through rewards etc and provide them sufficient training to make them a skilled workforce wherever they operate.
Technology
In this rapidly growing era of technology Johnson and Johnsons has not lagged behind. Be it their creative and animated ads or be it the research, analysis or testing, they have made use of technology to the fullest. They have also made use of the online selling platforms to reach to the customers in wider segments and much more quickly enabling direct b2c interaction.
Procurement
Procurement as such, is an essential part of the any company’s process because the dependence of high-quality products is on the quality of raw materials coming in. With the kind of products Johnson and Johnsons deal with, it is very important to keep a check on the raw material, machineries, equipments and finished goods.
In the overall assessment of the value chain of the company, it can be said that due to its linkages with multiple value chain channels, it must keep an eye on the primary and secondary activities closely to keep the customers satisfied and attached with fine finished products. Moreover, it can also analyse its cost optimisation strategies and product differentiation to gain more hold of the market.
Recommendations
Johnson and Johnsons has undoubtedly ruled over the pharma sector for a long time now. All the discussions stated above and the way they manage such a huge empire and carry out their supply chain activities are well enough evident to prove their competence. But life never follows a smooth path all through. Same is the case with this company. They have been facing lawsuits from competitors and critics for its activities and some of its products. Moreover, the way international trade is being affected these days is also a matter of concern for the higher management. Although they have a decentralised management system, but a slight movement towards a combined supply chain process can be helpful for the company. In other words, if the central management takes partial charge over the international subsidiaries, in terms of operational activities and the way things are being carried out, anyway allowing the local employee force to manage its market and public relations can help vile away many troubles in terms of legal proceedings. Moving further, to tackle the issues such as Brexit and trade wars, cost cutting to challenge the competitors can be one of the ways out. Moreover, they can also access currently untouched markets by expanding further to the regions where the effect of Brexit and trade war is not much. They can join hands with local firms or in order to protect their patent rights can enter into a joint venture with their partner or competitor firms which will help them dwell further and reduce the amount of risk they currently face. Most of the UK and European firms should look forward to market differentiation strategy and give themselves a high hand in these tough times to survive in these regions. Whenever a company decides to move to an international market, one of the major challenges it faces is the cultural barriers. In the case of Johnson and Johnsons, they have excelled the art of adapting to the cultural differences through their emotional and attractive advertising campaigns and getting directly to the heart of the customer segment. Moreover, in such cases, product differentiation also plays a key role and the company is already prone to that.
Hence, it can be said that instead of directly acquiring a company, merger can also be a way out of the currently dangling international fiscal scenarios for the company. Its state-of-the-art facilities and high-end technological excellence can be put to better use to make firm grounds in the new markets and this can help them avert risks to a great extent.
