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Johnson and Johnson Domestic Operations

By MikeDawg1 Nov 11, 2013 1538 Words
Johnson & Johnson: Domestic Operations
An important part of the success of a company comes from their ability to forecast what changes they will need to make in the future. To be able to make these forecasts they will need to keep track certain indicators of where the U.S. and global economy is heading at any particular time. Trade Deficit

This indicator lets the company know at all times how much is being exported versus how much is being imported. The trade deficit will likely increase even though our exports have been having a slow increase due to the weak dollar. Emerging nations are requesting U.S. good but that may slow a bit when the dollar rebounds slightly as expected. On the down side our import growth is just as robust but more normal this year than last. Last year the deficit grew also from the 20% jump as the economy was recovering from 2009 (Kiplinger Publications, 2011). What is important to Johnson & Johnson about the trade deficit is it gives them an indicator on how much we are importing which would include pharmaceuticals. This would let them know in what direction they will be looking at in reference to pricing and demand. The more foreign based pharmaceuticals are sold in the U.S. the less of a demand they will have for domestic pharmaceuticals. With this indicator they can construct marketing plans that will increase their demand and lessen their foreign competitors’ sale base in the U.S. Interest Rates

Interest rates are an important indicator because it will allow the company to see what banks are being charged for the money they get from the Feds and this will directly relate to how much the banks will charge. Since the Fed are not overly concerned that the low rates will lead to quick shift from recession to inflation this gives Johnson & Johnson a little room to strategize and make some long term production plans. In the first quarter of this year energy prices declined which is more important to Johnson & Johnson than the fact that food prices increased because lower energy cost means they can produce more at a slightly lower cost which directly translates into money saved (Kiplinger Publications, 2011). Also they will want to watch for the difference in the short term interest rate and the long term rate. The reason for this is the smaller the difference between the two rates is an indicator of restrictive money policies and could mean a decline in the GDP, which could signal a decline in sales for Johnson & Johnson (McConnell, 2009). Unemployment

This indicator can help them forecast how they will compensate for a possible down shift in the GDP. First time unemployment claims can indicate that the labor force will not be up to full production and the GDP could possible decline (McConnell, 2009). What is important for Johnson & Johnson to do is to map out a plan for boosting sales during this downward turn. This can be done by suing this time to have discounts and reduced prices with multiple orders. The one area Johnson & Johnson will want to focus on is the difference in how many skilled workers are unemployed versus unskilled labor. The reason is the availability of the work force to buy their products. If unskilled labor is greatly outnumbering skilled labor in unemployment, then the company knows where to target their marketing. This greatly enhances their chance at a successful marketing campaign. Stock Prices

Stock prices will give a company warning of future declines in sales and profits. A strong stock price maintains consumer wealth and can lead to increased sales. Weak stocks make a company less attractive to investors whose investments fund much of the research for new or improved products. For Johnson & Johnson this means a chance for them to plan and keep the aggregate demand moving to the right without them having to increase prices to compensate for sagging sales (McConnell, 2009). This gives Johnson & Johnson an opportunity to price their stock within the reach of a scarcely investing American public. With the stock prices attractive they can work on making purchasing those stock an ideal thing to do. This is not an easy trick since the majority of Americans have no stake in the stock market (Leeb, 2011). Vendor Performance

This indicator can show how demand affects the deliverance process. For Johnson & Johnson they can determine that the majority of their deliveries are making it to the vendors on time as an indicator that the demand has fallen off even slightly. How this is done is by measuring how the manufacturing of their good is able to keep up with the demand without having to make adjustments for increases. This same trend is followed by all manufacturing companies and can indicate a reduction in aggregate demand and decline in GDP (McConnell, 2009). Inflation

This indicator gives all companies including Johnson & Johnson a clear idea of where the economy is going and with that a clear idea on what prices are doing in the market. Steadily there is a slow rise in the inflation index but with unemployment still at high level it doesn’t sound the alarm that inflation is taking over. What this means is that Johnson & Johnson can plan to keep prices near the levels they currently are if they want to still compete (Kiplinger Publications, 2011). Johnson & Johnson will want to pay particular attention the moderate rise in inflation because more money will be in the economy and sales will go up, allowing them to pay better salaries while moderately adjusting their prices (CMSForex, 2011). With the ever increasing fear of any rise in the inflation index meaning inflation will spiral out of control, Johnson & Johnson has to look at their diversity as a means to counter these fears. Even though the fear is not practical given the high unemployment rate, low labor cost, and an overall stagnant economic environment (Roche, 2011), this fear can cause the consumer not to spend. Johnson & Johnson continued research in new products will help over come this fear of suddenly rising inflation and set the consumer at ease finding products they need more than worrying about holding on to every penny due to inflation. Developing a Strategy

One of the greatest weapons Johnson & Johnson has in its invesntory is a history of seeing all of this before. For them it is not a recreating of the wheel but making the wheel better. They realize that recessions and inflation happen, so their key to success will be their ability to survive in any economic condition. 1.Focus research and development on low cost items that fill a need for the consumer. Market these items so that the consumer wants the item not just need them. 2.Initiate a marketing campaign that allows the consumer to feel that they are part of the process with the company, “we are in this together”. Make the public more aware of how their products save lives every day and that their dedication is to continue to do so regardless of whatever economic condition exist at the moment. Doing this will create a deeper brand loyalty. 3.Bring some of the manufacturing back to the States. When consumers know that the company is willing to invest in them by creating jobs, they will in turn stand by the company 4.Regulate prices to stay within the consumers spending reach. To increase profits, opt instead to create more products, more choices. Provide a discount on established products that can weather a price reduction. These four initial steps in their strategy will start the momentum needed by any company to be successful in an economy that swings from recession to inflation. In fact if this strategy would be implemented by the major domestic companies it will go far in stabilizing our economy. Inflationary growth at a moderate pace is easier to watch and maintain than drastic swings in monetary policies that affect our aggregate supply and aggregate demand by having them shift too much to the left or right causing recession or inflation. Johnson & Johnson can forecast some of these swings by monitoring the economic indicators above. This will allow them to know when to increase budgets for research and development, when to increase marketing, and when to lower or raise prices. The stronger Johnson & Johnson make their domestic presence, the greater chance they have when they use these techniques in the international market. A strong domestic profile will increase profits for them and allow them to do so in the years to come. The strong push for new technology and improved current products allows them to move around the obstacles of a shifting economy.

References

CMSForex. (2011). 6.4 Inflation Indicators. Retrieved July 4, 2011, from CMSForex: http://www.cmsfx.com/en/forex-education/online-forex-course/chapter-2-fundamental-factors/fundamental-analysis/inflation-indicators/

Kiplinger Publications. (2011, June 30). Kiplinger Economic Outlook. Retrieved July 4, 2011, from Kiplinger web site: http://www.kiplinger.com/businessresource/economic_outlook/

Leeb, S. (2011, June 14). Are Stock Prices Still a Leading Indicator? Retrieved July 4, 2011, from Seeking Alpha: Read, Decide, Invest: http://seekingalpha.com/article/274720-are-stock-prices-still-a-leading-indicator

McConnell, C. R. (2009). Economics: Principles, Problems, and Policies 18th Ed. New York: McGraw-Hill Irwin.

Roche, C. (2011, June 16). Inflation is Always and Everywhere a Lagging Indicator. Retrieved July 4, 2011, from Pragmatic Capitalism: http://pragcap.com/inflation-is-always-and-everywhere-a-lagging-indicator

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