Successfully Strategizing for the
Changing Global Business Environment
Johnson & Johnson is the world's largest healthcare company. Founded in the United States in 1886, the company has been profitable for 75 straight years and currently operates 250 subsidiary companies in 57 countries. Its products fall into three segments: pharmaceuticals, with 39% of total sales; medical devices and diagnostics, with 36%; and consumer products, with 25%. Additionally, the company employs 119,200 people worldwide and sells its products in 175 countries. A truly global corporation, Johnson & Johnson has securely positioned itself to overcome the challenges its ever-changing business environment poses, as well as take advantage of the opportunities presented.
With a focus primarily on Johnson & Johnson’s pharmaceutical segment, this paper seeks to explore the complex multinational environment within which the company operates as well as the opportunities and threats that the environment poses. Next, the paper will analyze Johnson & Johnson's current positioning, describing its value-chain and competitive positioning. The paper will close by evaluating how Johnson & Johnson both can seize these opportunities to realize the goals of the company.
II. Analyzing the Environment
In industries as competitive as pharmaceutical, medical devices and consumer goods, analyzing the environment is vital for being able to make sound strategic decisions. Since Johnson & Johnson strives to anticipate the external factors that affect its international business environment, as well as adapt to those changes, it is important that it understands the environment in which it is operating. The two sets of external forces that face the company are competitive and contextual.
A. Competitive Environments – Five Forces Model
Michael Porter’s five forces model provides a way of analyzing Johnson & Johnson’s competitive environment. Due to a lack of available information about the bargaining power of suppliers as it applies to Johnson & Johnson, this paper will address the four other forces: the threat of new entrants, the threat of substitutes, the bargaining power of customers, and the rivalry among industry competitors.
1. The Threat of New Entrants – High Barriers to Entry
The threat of new entrants is not of particular concern to Johnson & Johnson. Barriers to entry, especially in the industries of pharmaceuticals and medical devices, are extremely high if not unsurpassable. The world’s top pharmaceutical companies have extensive manufacturing capabilities, distribution systems, and economies of scale that have been built up over decades and would be virtually impossible for a new entrant to replicate. These top firms also have patents that protect their current products, as well as established research pipelines that ensure the continual development of new products. Also, they have strong brand names and large marketing budgets with which to defend them. Finally, the exceptionally high capital requirements for founding a pharmaceutical company and the sharp retaliation that new entrants could expect from the established competitors render the threat of new entrants very low. The medical device industry has similarly high barriers to entry. While entering the consumer goods market is easier, relatively, the vast number of competitors makes this industry very competitive, thus a strong brand name is vital for standing out. As the world’s most respected company according to Barron Magazine, new entrants to the consumer goods market do not pose a threat to Johnson & Johnson.
2. The Threat of Substitutes – The Rise of Generics
The threat of substitutes is much more problematic than that of new entrants, especially in the pharmaceutical segment. The Food and Drug...