Intro to Micro Economics (01:220:102:09)
April 17, 2016
Somtochukwu Obaze
Intro to Microeconomics
Michael Elgawly
April 12, 2016
Introduction
As an individual who has always aspired to be the owner of a fortune 500 company, I found it important to look up to firms that have already done so and understand how they achieved such success. Thus, there are several firms I have made a habit of observing, however the one firm stands out on my list is Johnson & Johnson. I do not just favor this firm because of its success, but also because my admiration for it is on a personal level. The name alone brings back memories for me. I remember hearing the name spoken among my parents when I was much younger, I remember seeing the firms’ products as a child, seeing its’ products in shopping centers, in pharmacies, using it on my younger siblings, and just developing a strong familiarity with the product in many other ways. That familiarity created with customers such as myself is one of the many great strategies employed by this firm to thrive in the business world.
Johnson & Johnson was founded in 1886 by three brothers, Robert Wood Johnson, James Wood Johnson, and Edward Mead Johnson in New Brunswick, New Jersey, USA. The company started out by making products for baby care, wound care, making women’s products, maternity products, first aid manuals and several first aid products in the 19th century. It also made great contributions to society by making it a tradition to provide relief in the form of health care products and money to victims of natural disasters. In the 20th century, Johnson and Johnson began making ground breaking progress. In 1920, Earle Dickson, an employee of Johnson & Johnson invented the Brand Adhesive Bandages which went on market. They were “the first commercial dressings for small wounds that consumers could apply on themselves” (J&J HISTORY). From 1924 to 1957, Johnson and Johnson expanded its company from New Brunswick USA, to the United Kingdom (1924), Mexico (1930), South Africa (1930), Australia (1931), Argentina (1937), Brazil in (1937), and India in 1957. A few of the many notorious achievements and milestones by the company are: on September 24th, 1944, Johnson & Johnson went public with a listing on the New York Stock Exchange with an IPO price of $37.50. In 1987, “Johnson and Johnson became a founding partner in Safe Kids Worldwide, the first national and then global campaign to reduce accidental childhood injury. By 2008, the campaign helped reduce the death rate for unintentional injury in children ages 14 and under in the U.S. by 45 percent” (Johnson &Johnson History). In 1987, “the vision care of Johnson & Johnson introduces ACUVUE brand contact Lenses, the first disposable contact lenses that can be worn for up to a week, thrown away and replaced with a fresh pair” (Johnson & Johnson History). These are a few of the many achievements made by this stellar firm. Although the firm excels in the amount of revenue generated, it is not a profit first driven firm. In 1943, Robert Wood Johnson II, also known as General Johnson, son of the company founder Robert Wood Johnson wrote the company Credo. The credo stresses that the responsibility of the firm is to the “patients, consumers and customers, employees, the community, and lastly to the shareholders” (Gurowitz). The firm is to strive to maintain affordable prices, provide prompt service to customers, strive to offer equal opportunity for employees, help communities through work and support, and finally make sound business decisions to make a fair return. A strong guideline that helps keep Johnson and Johnson at the top of its industry. It has put a considerable amount of effort into differentiation, through customer service, advertising, product and price differentiation to separate itself from other firms.
Johnson and Johnson is a company in an oligopoly industry. An oligopoly is an industry with standardized or differentiated products. There is typically emphasis on advertisement, product differentiation, however no single firm has significant control over the price in the market. J&J is in Healthcare sector in the industry, sector number 35 according to the Global Industry Classification Standard (GICS). According to the GICS, J&Js industry code is 351010, for the Health Care Equipment & Supplies. Johnson & Johnson has made strives into other industries in the health sector, however it still remains heavily focused in the equipment and supply (Pharmaceutical/Medical Devices) Industry. It is among a select number of companies at the top of its industry. In 2015, 10 U.S. pharmaceutical and biotech companies were ranked according to their total earnings. “ J&J reported a total revenue of approximately 74.3 billion U.S dollars which was ranked first among U.S pharmaceutical and biotech companies. The next firm was Pfizer with a total revenue of 49.6 Billion U.S. dollars, Merck pharmaceuticals came in third with 42.2 billion dollars, Gilead Sciences next with 24.9 billion dollars, About Laboratories next with 20.2 billion dollars, Amgen next with 20.1 billion dollars, Abbvie Pharmaceutical research next with 20 billion dollars, Eli Lilly next with 19.6 billion dollars, Bristro Meyers Squibb next with 15.9 Billion dollars, and finally Actavis with 13.1 billion dollars” (Statista). However, due to the drastic difference of revenue between firms on top of the industry and firms on the bottom, and the numerable amount of firms in the health industry, the industry is an oligopoly and not as competitive as other market models. In 2015, the total revenue from the sales of pharmaceutical products was 251.73 billion dollars. The top four firms based on total revenue generated: J&J, Pfizer, Merck Pharmaceuticals, Gilead Sciences, accounted for 191 Billion of the total 251.37 billion dollars generated in revenue. A four firm concentration ratio of about 76%, and a Herfindahl index of 1989. The health industry is dominated by a select few firms, whose positions based on total revenue vary slightly from year to year. Johnson & Johnson remains among these select few firms constantly, and has furthermore constantly separated itself from these select few firms on numerous occasions. Take for example the 2008 market stock crash. During “12 solid months of economic decline in the U.S., the company’s sales rose 4.3%, and it jumped six places in the 500 ranking to No. 29. Though the 500’s profits dropped 85% during that year, J&Js profit increased 22%. That made J&J the sixth most profitable company in the Fortune 500 and the fifth most valuable” (Colvin, Shambora). An astonishing accomplishment considering the state of the economy during that year. One of the many instances in which Johnson and Johnson has demonstrated consistency and business excellence in it’s industry.
Johnson & Johnson has succeeded in several areas of business for various reasons. One big part of it’s success is the growth strategy the firm has employed. Johnson and Johnson has grown its business through new markets, new products, acquisitions, and partnerships. A few of the several new products Johnson and Johnson added to it’s inventory are improved body moisturizers, lotions, facial cleansers, eye cream, pain relief cream, xarelto, olysro, zytiga, and much more. Johnson & Johnson has also made several acquisitions in the past which has helped made it so successful. One of its outstanding acquisitions was the acquisition of McNeil Laboratories in the USA and Cilag Chemie AG, which helped give the company significant presence in the pharmaceutical industry. Recent acquisition dating back to 2001 made by J&J are Baby center (March 2, 2001), Transform Pharmaceuticals (March 10,2005), HealthMedia (April 19, 2005), Omriz Biopharmaceuticals (October 30, 2008), Acclarent (December 17, 2009), Cruceil (February 22, 2011) Calibra Medical (July 19, 2012), Aragon Pharmaceuticals (June 17, 2013), Alios Biopharma (September30, 2014) X01 (March 20, 2015), and Novira Therapeutics (November 8, 2015). Johnson and Johnson has also made partnerships with other firms to bolster it’s success. The number of firms it has partnered with is estimated at 75. The accumulation of partnerships and acquisitions has furthermore helped Johnson and Johnson’s cost cutting strategies. J&J takes advantage of it’s partnerships through outsourcing. Outsourcing is the practice in which companies reduce cost by transferring segments of work to outside suppliers rather than bearing it internally. If done properly, outsourcing helps a company develop significant advantages over it’s competitors. It is “therefore no surprise that Johnson and Johnson has has actively embraced outsourcing, making it a key component in the company’s strategy, enabling it to maintain it’s competitive edge. 100? Of Johnson and Johnson products products employ outsourcing in one way or the other. Outsourcing enables Johnson & Johnson to focus on its core competencies and maintain its cost competitiveness, and benefit from the latest advancements in technology throughout its product cycles”. (Njau). There are several other cost cutting strategies employed by J&J. In 2015, Jonson and Johnson announced that it ill be cutting about 3,000 jobs within its medical division out of the total 127, 000 workers in its work force, and cut down performance bonuses by 38%. It has also dedicated centers for its innovation and continuous advancement in 4 areas, Shanghai, California, London, and Boston. As a result of such sound cutting strategies among its other strategies, Johnson & Johnson has constantly put itself in a position to succeed not sporadically but constantly. J&J ”doesnt make a lot of noise, it doesn’t seek media attention and rarely gets major headlines. Its advertising focuses on its famous brands – Band Aids, Tylenol, Spelda, that don’t include the J&J name. The company is easy to overlook, yet in these desperate times its extraordinary performance demands closer scrutiny than ever” (Colvin, Shambora). has put considerable amount of emphasis into product differentiation, advertising, and customer service. It does not focus on outcompeting with other companies, rather it focuses on advertising it’s products only and developing some form of interaction with it’s customers. It is this interaction that in turn separates Johnson & Johnson from other companies in it’s industry.
Conclusion
Since it’s foundation in 1886, Johnson & Johnson has thrived on steady success. It has not gained much attention in it’s industry, but it has been rock solid and focused on sticking to it’s principles. J&J has displayed brilliant business strategies along with excellent relationships with customers. Partnerships, acquisitions, innovation, are areas J&J has put emphasis into. As it tries to be business savvy, it is also conscious of price. It’s innovation and partnerships have helped it keep cost for it’s products low and keep the interest of customers high. As the market and economy changes, J&J stays true to itself and its motto. As other firms fluctuate due to dependence on the economy, Johnson and Johnson continues to distinguish itself by focusing on itself, bettering its products, and as a result of this, it is on the top of it’s industry.
Works Cited
2015 Financial Time US 500 list. 2015 Ranking of the top 10 U.S biotech and pharmaceutical companies based on revenue (in billion U.S. dollars). (2015): Statista. April 16, 2016
Colvin Geoff, and Shambora Jessica. J&J: Secrets of Success. (2009) Fortune.com. April 16, 2016
Dividend Engineer. Johnson & Johnson – Dividend Fact Sheet. (2013) dividendengineering.com. April 5, 2016
Johnson & Johnson History. Johnson & Johnson.com. April 3, 2016.
Njau Barbara. Johnsonn & Johnson takes outsourcing route to business growth. (2012). Fdiintelligence.com. April 4, 2016.
Reuters. Johnson & Johnson Is Cutting 3,000 jobs. (2016). Fortune.com April 11, 2016
Rockoff Jonathan. J&J to Cut Bonus Targets for some, (2010). The Wall Street Journal. Wsj.com April 14, 2016
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