This report was carried out in order to show the scenario planning of Johnson and Johnson .The report provides information about the history of the company, countries of operations and the sectors of operations .The company sales have seen significant growth in recent years and US have the highest percentage of sales of about 44% .The report also draws attention to the PESTEL framework of the pharmaceutical industry showing how Political ,Economical, Social ,Technological, Environmental ,and Legal factors affects companies operating in this industry .Johnson and Johnson have contributed to the environment and also helps in improving living in the society through providing of valuable drugs to cure several diseases and having good cooperate social responsibility. The SWOT Analysis of Johnson and Johnson shows that the company is one of the top players in the industry and has a lot of potential for further growth due to financial strength and experiences.
The company sales has increased worldwide allowing for its expansion in more countries and they carry out further research and development on new products. Johnson and Johnson research and development is helping to identify new opportunities which in turns help in complimenting company strength .Several ranges of opportunities are available for the company and the breakthrough in technology and innovations has allowed for new products and services to be available for consumers. Further investigations shows the Porter five forces where threat of new entrant for the pharmaceutical industry is low and posses low threat to Johnson and Johnson as the company is already established and have a good number of customers around the world .The bargaining powers of buyers and suppliers , rivalry among competitors and threats of substitute are also discussed . The company is recognized as the 6th largest in the world for consumer health and the world largest providers of diverse medical diagnostic devices, It is recommended that Johnson and Johnson reach out to more people around the world and focus on the rural areas to be able to help solve more deadly diseases in the world hence improving their cooperate social responsibilities.
Table of Contents
Johnson and Johnson founded in 1886 is a United States multinational company which specializes in medical devices and diagnostics, Pharmaceuticals and consumer products. The companies headquartered in New Brunswick, New Jersey have around 250 subsidiaries companies and operations in over 59 countries.
Johnson and Johnson balance their short time and long time goals in their strategic planning by focusing on the important sector and fundamentals of the pharmaceutical business. They invest heavily in research and development and unveils new business opportunities .The company also focus on environment ,employees wellbeing and safety precautions to ensure they conduct business in an ethical manner. The company is included in the Fortune 500 companies and they help in improving quality of life in the world by researching on health care products which will help cure several dangerous diseases in the world. Their researchers are also committed with working with mothers to ensure they provide product that best meet the healthcare needs of mothers. The report include information about the history of Johnson and Johnson ,the PESTEL analysis of the pharmaceutical sector ,the SWOT analysis of the Johnson and Johnson and the Porter five forces which affects the level of competition in the pharmaceutical industry . A conclusion and recommendation was also provided in the report.
2.0 Background of Johnson and Johnson
The history of Johnson and Johnson dates back to 1886 which was founded by three brothers on the idea of using sterile suture alongside bandages to treat wounds. Since its inception it has grown to be one the most comprehensive manufacturer of health care products and also a well-established provider for the pharmaceutical market. The company is headquartered in New Brunswick, New Jersey with around 250 subsidiaries companies and operations in over 59 countries and over 120,000 employees, the company products are sold in over 165 countries. Barron magazine in 2008 ranked Johnson and Johnson the world most respected company and in 2011 they recorded worldwide sales of $65 billion. (Johnson & Johnson 2012) Johnson and Johnson business are in three segments which are Pharmaceuticals, Medical devices and Diagnostics, and Consumer products. The current chairman of the company is Alex Gorsky he took over from William Weldon in 2012.
Pharmaceutical segment produces several medicines which helps cure most of the world most dangerous and widespread diseases products under this category include anti-infective, dermatology, neurology , pain management anti-psychotic and several other products ,the products are usually distributed directly to retailers ,and hospitals and health care professionals for prescription to patients. Johnson and Johnson is committed to help people have healthier lives and live longer by contributing to research of deadly diseases and finding possible cure for them ,Johnson and Johnson invested about $5.1 billion in 2011 for pharmaceutical research and development of new medicines. In 2013 the pharmaceutical segment contributed about 39% to the company annual revenue. The company consumer health segment include products like baby care ,skin care, oral care women health care ,wound care as well as wellness and nutritional products . The products are readily available across several distributors stores, pharmacy and retails outlet. In 2013 the consumer health segment contributed 21% to the company total revenue.
While the Medical devices segment produces varieties of innovative products which are primarily used by health care professionals in several fields which include diagnostics ,vision care ,surgery ,diabetes treatment ,sports medicine and other products . The products are distributed to wholesalers, retailers, pharmacy, and hospitals. In 2013 the Medical devices and Diagnostics contributed 40% to the company total revenue. Johnson and Johnson sales have seen significant increase in recent years with sales of 29.5 billion in 2010 and 31 billion to international market making total sales of 61 billion. In 2011 sales of 28 billion to United States and 36 billion to international market making a total of 65 billion for the year and sales of 29, billion to US in 2012 and 37 billion to international market making total sales of 67 billion in 2012. This shows Johnson and Johnson products are doing well both in the United States and in the international market.
Figure 2.0 Johnson and Johnson sales by Geographical Region
Adapted from http://www.slideshare.net/mortress/johnson-johnson-27883863 on May 2 ,2014.
The figure above represent the percentage of sales by the geographical area with US having the highest percentage of sales and Asia -Pacific and Africa 25 % ,Europe 20 % and Western hemisphere 11 %. Johnson and Johnson was ranked in Newsweek Green Rankings as the third in United States among large companies that ensure environmental friendly operations. Examples include reduction in water use and wastage also increase in company transparency. They are member of national Green power partnership and a report published on the company website shows how the company intends to reduce waste usage and disposal also introducing several new sustainable products which are eco friendly in year 2015. 3.0 PESTEL Framework of Pharmaceutical Industry
PESTEL analysis is a comprehensive useful and structured tool which help significantly in analyzing the Political, Economic, Social ,Technological, Environmental and legal external factor affecting an industry. It is very useful to identify external factors which is likely to impact future strategies (Barry, 2010) . it also effective for business planning ,marketing and product development by helping to understand market growth, business potential and directions of business operations. The pharmaceutical industry has a number of challenges this challenges can be clearly identified using the PESTEL analysis hence allowing for proper strategies to be undertaken.
3.1 Political Factors
The Pharmaceutical industry has seen several increases in political attention of recent years. This is due to the role health care plays and its economic importance. Political interest affects the overall health care sector making the pharmaceutical companies to lobby with government in many of their activities .The challenges of the companies to provide affordable medicines and right to make profits comes along side economic hardships. Pharmaceutical companies must be able to respond actively to shift in government policies and should adhere to trends of ethics, compliance and accountability in order to be successful in the market (Bennett, 1998). Health has become expensive and several debates on health care like the US Medicare debate and UK National Health Service debate are aimed to ensure health care are affordable and not financial burden. The regulations of pharmaceutical companies around the world has become more stringent increasing the cost of doing business in the industry, Johnson and Johnson operates worldwide and they must keep updated of the political situation which may affect their operation of in all country they have operations.
3.2 Economic Factors
The pharmaceutical industries has seen a lot of mergers and acquisition of recent years the acquisitions has helped in providing availability of new products and comprehensive database of pharmaceutical products. Most of the companies are funded through cash flow and banks loans and some through the sales of shares and securities .Even with the global economic crises the money spent on health care still continue to increase. Pharmaceutical companies operating internationally should be aware of the currency problem they may face for example when the Ireland switched to euro it cause a lot of difficulties such as accounting and it takes a lot of time for it to be convenient . The pharmaceutical industries should be able to predict the economic challenges they are likely to face and ensure they use all opportunity for growth when they have it.
3.3 Social Factors
Most Companies around the world integrate both social and environmental factors in their business operations and also in dealing with their stake holders which is a concept of cooperate social responsibilities.
Pharmaceutical companies have contributed a lot to the health care system and have produce a lot of products which help in curing dangerous and harmful disease. Pfizer produces liptor which helps significantly in controlling cholesterol and is usually prescribed for diabetes. The industry should be able to scan the problem of obesity among children and be able to control through providing sufficient health care to fight it .The industry must be able to swiftly respond to changes in the environment and should adhere to ethical and corporate philanthropy so that the society can benefit from their operations.
3.4 Technological Factors
The increase in technological research has seen many development in the pharmaceutical industries this force the top players in the industry to adopt this innovation and invest spending on research and development to encourage innovation in the sector. Modern technology have changed the way most pharmaceutical companies operate and they have to keep updated to the change in technology in order to provide the best solutions to customer problem .The advance in technology has created several new business and service which include social media health care ,customized treatments and other services
3.5 Environmental Factors
Stake holders of pharmaceutical industries are now becoming more aware of the need for the companies to be proactive in environmental agenda .The business operation should be linked one way or the other to issues concerning environment. There are several opportunities in ensuring companies incorporate environmental issues into their cooperate social responsibilities hence allowing for development of new product which are eco friendly and cater for the need of the environment. Elder generation consumes more drugs than the young ones which is a cause of concern and most companies put more emphasis for drugs research on elderly patients above 65 years. (Johnson and Johnson, 2008) The society deserve to have access to good health care services and the industry should play a vital role in ensuring research for drugs that are eco friendly and best meet customer demands.
3. 6 Legal Factors
Companies operating in the pharmaceutical industries have a lot restriction and must ensure they comply with the regulatory and legislative standards. The breakthrough in internet is also changing the legislative boundaries as more people demand for rights of better and affordable healthcare .In many developing countries the social environment and political factors influences the decisions pharmaceutical companies make in providing health care and drugs .Several regulatory bodies check for food and drugs in the market and (F.D.A) food and drug administration conducts product testing labeling and other related operation in verifying drugs and food. They charge some fees in submission and review of application .Also the Irish medicine board has power over Trinity Biotech in regulating the market of introducing new products into America. (Trinity Biotech, 2008) The legal changes in a county can affect the industry positively or negatively, it is the duty of companies operating in this industry to keep up to date with legal changes as they occur in the country.
4.0 SWOT Analysis.
Johnson and Johnson has built a strong brand image since its inception in1886 and have helped significantly in solving several health problems by providing drugs that solve illness and diseases. The company offers a range of diversified products which cut across baby cares surgical products, pharmaceutical products, internet publishing women sanitary and several more and have built a wide range of customer loyalty. The companies have significant sales and sufficient marketing strategies allowing it to be one of the top players in the world in provision of health care products. Johnson and Johnson have about 29,950 internet domains and conduct business globally allowing for global sales of their product and hence differentiating them from competitors.
The company supports environmental awareness and work on several programs such as introduction of Health future 2015 which is aimed at allowing the society to be more health cautious. Johnson and Johnson has operations in more than sixty(60) countries and have about 275 subsidiaries companies hence allowing for a comprehensive economies of scale and strong customer database.
Johnson and Johnson faces several pressures globally to reduces prices of products and preserves expirations of copyrights .The company spend a lot of time ,money and resources on research and sourcing for information. Diversification is also a weakness for Johnson and Johnson as they spend more money trying to grow other sector of their business which they could invest more resources on the highly profitable sector. Competitors such as Pfizer and Abbott laboratories are becoming more specialized than Johnson & Johnson concentrating more on pharmaceutical product and having a big market share in the sector. A subsidiary of Johnson and Johnson recalled 43 over the counter children medicines which include Benadryl, Tylenol because it was revealed by US that some of the products do not meet the specifications. Johnson & Johnson also recalled Auricular surface replacement in 2010 due to failed prostheses rate increase.
Johnson and Johnson can grow significantly since it’s an established brand in the market by concentrating on more ranges of product for economy class and improving presence in rural communities which will help see company growth also it has a lot of opportunities to improve on the market share by focusing on technological innovations and product development . Acquisition of customer health unit of Pfizer is also a major boost for Johnson and Johnson which will help develop the pharmaceutical sector also acquisition of other related pharmaceutical companies will make Johnson and Johnson strengthen its capacity and be able to cover more countries around the globe. (MoneyNews.com) Johnson and Johnson research is improving and they made a breakthrough research in cancer therapy. Zytiga has captured about 30% prostate cancer market in the United States and saw a sales growth of 70% globally as a result of strong share and market growth.
Strong competition from pricing pressure and global currency fluctuation is a threat to Johnson and Johnson, despite having a strong portfolio of medical devices and diagnostics it is facing a serious pricing pressure for instance the segment growth is only about 0.5% .Other forms of threats to Johnson and Johnson is the brand image weakness due to the recalls of drug by Johnson and Johnson from the market. The currency risk of doing global business has a negative impact and intentional pharmaceutical sales reduced by 2% due to the movements in currency. Competition risks is a serious problem for Johnson and Johnson and they face risk of losing patent for their best selling drugs in few years to come for instance their drug Remicade which generated about 6.2 billion in revenues for the company in 2012 will lose its Europe patent in 2015. This may cause their pharmaceutical sales to
reduce due to several competitions from other lower priced drugs companies.
5.0 Porter Five Forces
In the pharmaceutical industry there are several companies with varying interest. Innovation in the industry is one of the main factors driving growth and economic success .The comprehensive positioning of a company is important as the society is well networked and consumers are continuously exposed to several new products, marketing campaigns which may confuse the consumer on which product to get or which pharmaceutical company is best to patronize. Companies in this industry should ensure their messages are direct, simple and supports customers’ needs. Attention should be focused on the customers and competitors in order to make the company attain a valuable position in the market (Jobber, 2006) A company must ensure the follow this criteria to successfully position themselves in the market this criteria include consistency, credibility ,clarity and competitiveness.
Figure 5.0 Porter Five Forces
Adapted from http://www.scribd.com/doc/63026751/PESTEL-Analysis on May 2 ,2014.
5.1 Threat of New Entrant
Threats of new competition is quite low in the pharmaceutical industry ,the high cost associated with research and development of drugs serve as barrier to allow new companies to easily join this industry. Government regulation of medicines and drug related products is also a major head ache for companies trying to enter the business. The threat of new entrant will not influence Johnson and Johnson because it has developed to be one of the biggest pharmaceutical company having operations around the world and have the finances, customer loyalty and experience to expand its market and carry out new product research. New entrant will face several problem including problem of expenses, research and development, government restriction and regulations hence letting for only few or no new entrant into the industry.
5.2 Degree of rivalry among existing firms
The competition in the pharmaceutical industry is very high and many companies tend to come out with drugs and product which are more effective than the competitors. The main competitors in this industry are in private and public sector where competition is based on the reliability of products, pricing and also customer service.
Mergers and acquisition began in the last century this are due to the threat of company patent expiration. Evidence shows that sales decrease significantly as a result of many companies producing similar product. (American Economic, 2006)
Competition among rivals is not likely to have high impact on Johnson and Johnson, although the demand of medical supplies increases but the prices still remain stable so the competition in prices is not much. Johnson and Johnson also have several sectors which the company focuses on hence creating a wide range on several opportunities and allowing them to have added advantages over other competitors.
5.3 Bargaining Power of buyers
The increase in price of drugs have made patients to lose their bargaining power and consumer have no choices but to but the drugs prescribe to them by the doctors. The buyers of pharmaceutical products are all in different places and they have no power to influences the pricing of the products. When drugs are patented companies may set prices to include high profits but as soon as the generic versions are available buyers then have more bargaining power. Most buyers tend to switch to generic products that are more affordable and provide related functions.
5.4 Bargaining power of suppliers
The bargaining power for pharmaceutical industry is low due to sales of product mostly concentrates on the top players allowing for a low bargaining power for suppliers. Johnson and Johnson use a standardized manner in choosing suppliers for different categories of their product which include the medical devices and diagnostics, Pharmaceuticals and other products. Although the suppliers have little or no power in bargaining the prices of the product, they may influence the prices for the market in a particular country.
5. 5 Threats of Substitute
The demand for substitute product in this industry is on increase the demand for generic product is high because the brand name products are expensive .The generic drugs companies have little cost associated with research and development allow them to be able to provide similar drugs at much cheaper rate. The threat of substitute for Johnson and Johnson is high due to the availability of traditional medicinal herbs and also other related generic product which claims to do the same function as most of the branded product for Johnson and Johnson. Some of the traditional medicines are even more expensive and customers tend to believe the branded product due to the fact that they may get compensated when they face any problem using the products.
6.0 Conclusion and Recommendation
Johnson and Johnson is an established company with a good research and development team The company also have enough finances to take care of daily operation and with global presence around the world they revise their vision in order to increase their products and services to customers. Their strategy also involve identifying the problem people face globally in the world and trying to provide solution to them hence helping in improving the way of life in the society.
Johnson and Johnson have built a reputable brand in the world and it is recommended they go deep down into the rural areas and poor countries to improve way of living. Provide free vaccination for children and help in providing affordable drugs to people that cannot afford mostly the under developed countries. Also it is recommended they help in making awareness of protecting the environment. They should concentrate more on the segment that provide most profit for the organization and not waste time trying to develop segment which does not bring much profit to the organization. This will allow for further research and development of the sector most especially the pharmaceutical segment of their operations.
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