Johnson & Johnson sells its most extensive India plans as demand weakens.
The company’s manufacturing plant was built on 55.27 acres and finished in 2016 to produce consumer health products. JandJ’s land assets were valued at Rs 33.1 crore in 2020-21, according to the company’s annual report. JandJ has sold its second plant in India. In announcing the acquisition, Hetero stated that it would invest more than Rs 600 crore to upgrade the manufacturing facility and make it the company’s flagship sterile pharmaceutical and biologics manufacturing unit.
Johnson & Johnson (J&J) sold its largest manufacturing plant in India, located in Penjerla, Telangana, to Hetero on a slump sale basis. Since a while, the company has been dealing with decreased demand for its consumer products in India.
The financial and main details of the sale were not disclosed. The company’s manufacturing plant was built on 55.27 acres and finished in 2016 to produce consumer health products. The unit manufactured babycare, beauty, earbuds, electrolyte drinks, oral and skincare products. However, it has idled around Rs. 310 crore and put the plant up for sale.
JandJ’s land assets were valued at Rs 33.1 crore in 2020-21, according to the company’s annual report. JandJ has sold its second plant in India. During 2021-22, the company made a strategic management decision and sold its medical division unit in Baddi, Himachal Pradesh.
In announcing the acquisition, Hetero stated that it will invest more than Rs 600 crore to upgrade the manufacturing facility and make it the company’s flagship sterile pharmaceutical and biologics manufacturing unit.
According to the Hyderabad-based drugmaker, the investment will also create 2,000 jobs in biochemistry, pharmaceutical sciences, molecular biosciences, engineering, and ancillary services.
PwC was critical in advising Hetero on the financial aspects of the Penjerla manufacturing facility acquisition. The company did not explain why its plant was idled, but it was struggling with lower demand for its consumer health products, particularly in the babycare segment.
The company has eventually decided to phase out its best-selling talc-based baby powder globally beginning in 2023. This decision was made in response to allegations that the company contaminated asbestos, a well-known carcinogen, and that this had an impact on sales. The company discussed switching to cornstarch-based baby powder.
The Maharashtra government cancelled the manufacturing license for its Mulund plant in September, citing “public health at large.” According to reports, JandJ’s revenue fell 49% year on year to Rs 2,911 crore in 2021-22.
Analysis of Corporate Strategy by Johnson & Johnson
Strategic Decisions
Johnson & Johnson is a multinational corporation that operates in several markets related to healthcare products and services. According to the Johnson & Johnson’s (2019a) annual report for 2018, the company has 260 subsidiaries in more than 60 countries. Despite the fact that all of Johnson & Johnson’s products and services are related to healthcare, the company is relatively diverse. A company is said to be diversified if it has multiple unrelated businesses that require different management expertise, have different end customers, and produce different products or services.
The company manufactures consumer goods, medical devices, and pharmaceuticals to meet the needs of various customer segments (Johnsons & Johnson, 2019b). Furthermore, the company promotes health education through a variety of channels, including the Johnson & Johnson Institute, which opened in 2017. (Johnsons & Johnson, 2019c). Despite the fact that these businesses are in the same industry, they demonstrate Johnson & Johnson’s diversification.
Because it owns a large portion of its supply chain, the company can be described as vertically integrated. According to the analysis, Johnson & Johnson adheres to both forward and backward integration principles. It is in charge of product development, marketing, and distribution. The company also places a high priority on research and development (R&D) of new products, which is part of the supply chain. Johnson & Johnson (2019c) purchased Centocor, one of the first American biotechnology firms, in 1999 to expand its research capacity. This acquisition is an mere example of vertical expansion, which indicates the company’s vertical integration.
However, because many acquisitions and expansions were made to increase the production of the goods in the same part of the supply chain, some instances are horizontally integrated. The acquisition of Pfizer’s consumer healthcare business demonstrates horizontal integration by increasing production capacity for oral care, pain relief, and wound care products (Johnson & Johnson, 2019c). The acquisition is a sign of a horizontal integration because had companies operating in the market.
Johnson & Johnson prefers organic development combined with mergers and acquisitions (M&A) to alliances for company growth. To increase revenues in the early years of operation, the company gradually built new manufacturing capacities. At the same time, the company’s official website includes information on more than 15 acquisitions throughout its history.
The absence of information about alliances suggests that the company could not fully agree to the disadvantages associated with this type of growth. The main concern with alliances is that, in exchange for access to others’ research and knowledge, the company would have to share its profits and technology. Because the company intends to be a pioneer in medical product manufacturing and medical service provision, strategic alliances appear to be an inappropriate growth strategy. As a result, the company’s primary methods of entering international markets are acquisitions and greenfield ventures.
Strategic Alternatives Evaluation
In terms of the buy, ally, or DIY matrix, the company’s growth options were in line with its capabilities. The primary disadvantage of acquisitions, according to the matrix, is cultural and valuation issues. At the same time,the organic development is slow, and failures are almost certainly unsellable. Because Johnson & Johnson is a diverse multinational corporation, cultural consistency is critical to avoiding control and valuation issues.
However, when a quick entry was required, such issues were acceptable to the company in some cases. As previously stated, allying was not an option because it would be incongruent with the company culture, which aimed to be the industry pioneer.
The decision between horizontal and vertical integration strategies was based on the company’s strategic goals. For example, the acquisition of Centocor enabled the use of biotechnology in the development of new drugs, which would then be manufactured, distributed, and marketed. Despite some cultural consistency issues, the main benefit was that the company could immediately begin using new technologies, retaining industry leadership and the reputation of a pioneer in healthcare product production.
At the same time, Pfizer’s consumer healthcare business acquisition was a horizontal integration. The acquisition enabled Johnson & Johnson to generate revenue from the sale of well-known products such as LISTERINE®, BENGAY®, and NEOSPORIN®. The matter aided Johnson & Johnson in increasing its revenues in a short period of time while posing little risk. In conclusion, the company employs a well-balanced mix of horizontal and vertical integration.
The diversification of the company’s portfolio is limited due to the potential harm to the company’s image. On the one hand, as previously stated, the company is reasonably diversified in that it has several product lines that cater to the needs of various customer segments. Diversification of operations is critical because it reduces reliance on a single market while increasing sales and revenues. Diversification, on the other hand, may result in inconsistency with the company’s image and increased operational stress. As a result, because all of Johnson & Johnson’s products and services are related to healthcare, the company’s diversification is limited. To summarize, the company’s portfolio allows it to reap the benefits of diversification while mitigating the risks.
In terms of internationalization, the company’s strategy was to establish wholly-owned subsidiaries in strategic foreign markets through acquisition or greenfield ventures. Foreign locations are the most promising in terms of rapid revenue growth, as Johnson & Johnson is present in every part of the world. Despite the fact that internationalization is associated with increased uncertainty, it enabled the company to increase its revenues and access talent from all over the world.
However, due to the lower number of associated risks, the US market is given priority. Even though there is no direct evidence of Johnson and Johnson engaging in corporate political activity (CPA), it is reasonable to assume that the company does. CPA frequently supports international market expansion because it helps to modify the external environment. In short, while internationalization is the company’s top priority, it remains reliant on the US market.
Recommendations for Corporate Strategy
According to part one of this paper, the company appears to have adopted an adequate corporate strategy for growth. The horizontal and vertical integration mechanisms have proven their effectiveness over the years, and the company now sells products in almost every country on the planet. While the company’s portfolio diversification is limited, the limitations are in place to avoid uncertainties and issues with the company’s image, mission, and vision. However, there are some recommendations regarding Johnson & Johnson’s corporate strategy that the company may choose to implement in order to improve its financial performance and global influence.
Internationalization
While the company is present in over 60 countries, it should continue to expand into international markets in order to reduce reliance on the US market. China is an appealing market because the country’s economy has been booming for several years.
China is known as an emerging market, which means that increasing one’s presence in the country will result in higher returns due to rapid growth. However, given the trade war between China and the United States, as well as increased reliance on the US market, aggressive expansion into the Chinese market may result in a conflict of interest and ethical issues. If the company decides to expand its presence in China, it will need to engage in CPA in both the US and China to mitigate the associated risk.
Johnson & Johnson is advised to expand beyond China to other BRICS members, despite the fact that it already has businesses in these countries. Brazil, Russia, India, and South Africa are all emerging economies that can provide higher returns than European countries. However, rather than buying or opening subsidiaries in these countries, the company should address the high uncertainty rates associated with operations there by forming alliances with strategic partners.
For example, the Russian economy is characterized by intense government interventions, which may be associated with significant risks. At the same time, alliances are most advantageous, according to the buy, ally, or DIY matrix. In conclusion, Johnson & Johnson should expand into the BRICS through strategic partnerships.
Political Activity by Corporations
Given that the emerging economies of BRICS members are still in the early stages of experimenting with market liberalization, it is critical to employ an appropriate CPA strategy to mitigate risks. According to the resource-based perspective, Johnson & Johnson should commit significant resources, such as dedicated HR roles, special budgets for political-campaign contributions, open positions on firms’ governing boards for politically influential stakeholders, information, relational resources, and public image of firm and reputation.
It is recommended that the company implement a proactive financial strategy to ensure the external environment’s stability. The company’s financial strategy assumes that it should target political decision-makers by offering financial incentives such as contributions to political campaigns and sponsorship of government projects.
Strategy for Business
Current Business Plan
Johnson & Johnson uses a differentiation strategy in the pharmaceutical industry to meet the unique needs of its customers. In recent years, the company has strengthened its immunology leadership, expanded its oncology expertise, and entered the vaccine market (Johnson & Johnson, 2011). The differentiation is achieved through aggressive investment in internal R&D to differentiate the company’s pharmaceutical portfolio (Johnson & Johnson, 2019d).
According to Chairman and CEO Alex Gorsky, recent research has resulted in medications that address society’s most pressing unmet medical needs, resulting in meaningful outcomes and benefits for patients (Johnson & Johnson, 2019d). The company’s competitive advantage can be maintained because similar differentiation activities are rare and expensive. However, the company is still vulnerable to external threats posed by increased competition in the field of healthcare products and services.
There are several advantages to broad differentiation. First, the business strategy is associated with significant product premiums. Second, the strategy is linked to the development of brand loyalty, which implies that customers are more likely to choose Johnson and Johnson products over competitors. Finally, because the product is distinct and the company is focused on the price it can charge rather than the cost, influential buyers and suppliers are not a problem. At the same time, the strategy has some drawbacks, including the following.
First, despite the external environment, the company is compelled to make significant investments in R&D. It can be a dangerous practice during a financial crisis. Second, pharmaceutical products can be substituted with less expensive analogs, potentially reducing revenue. In other words, product uniqueness is difficult to maintain because it requires significant investments and agile competitors can quickly imitate the products.
Recommendations for Strategic Action
Due to the increased risk of long-term broad differentiation, it is recommended to develop a product line based on a broad low-cost strategy. The central feature of such a strategy is cost reduction through a limited product selection of acceptable quality. When marketing the new product line, the company should keep an eye out for ways to cut costs without sacrificing quality. Given that the company invests a significant portion of its revenue in internal R&D, developing a low-cost product line should not incur significant costs (Johnson & Johnson, 2019d).
Simultaneously, because the pharmaceutical product market requires constant innovation to maintain the differentiation strategy, older formulas are replaced with new ones. If the quality of the older pharmaceutical formulas remains adequate, the company can use them for the new product line.
The introduction of a low-cost product line in the pharmaceutical industry is also consistent with the corporate strategy recommendation for Johnson & Johnson. As stated in Part 2 of this paper, the company is advised to expand into emerging economies in order to increase revenues. However, financial disparities and social stratification can be found in BRICS countries. As a result, the emergence of low-cost pharmaceutical products can meet the needs of these countries’ economically disadvantaged populations. Addressing these people’s issues can help the company’s image and increase brand loyalty.
To increase trust in the company and reduce risks associated with internationalization, the new line can be produced in collaboration with local companies. Sharing information about older products with other companies will not harm the company as much as sharing information about newer developments. At the same time, such alliances will benefit local economies significantly.
While incorporating a low-cost strategy appears to be a viable option, Johnson & Johnson should be wary of becoming a competitor to itself. In other words, the company should ensure that its more expensive product lines are distinguishable from its newly established low-cost line. Despite the fact that it appears to be a difficult task, the company has invested in hiring leaders who can mitigate the potential drawbacks of the suggestion.
Evaluation of Business Models
Currently, Johnson & Johnson employs a multi-sided business model, which means that the company offers various products and services to various customer segments. As stated in Part 1 of this paper, the company supports limited portfolio diversification by manufacturing pharmaceuticals, medical devices, and consumer products. The company caters to two distinct customer groups: patients and healthcare providers. Care providers who use medical devices add value to pharmaceutical products for patients. The current business model is secure and advantageous to all stakeholders.
Johnson & Johnson will not need to significantly alter its business model in order to implement the proposed changes. Only three aspects of the business model canvas will be affected by the changes. First, depending on the subsidiary’s geographic location, the proposed changes will alter key partners. To ensure a secure entry into the market, the new set of partners will include allies from developing countries. Simultaneously, the section on key partners will be updated to include influential politicians in BRICS countries in light of the new CPA goals. While the changes will be significant, they will not be fundamental, and the business model will not need to be completely restructured.
Second, the proposed changes will have an impact on certain customer segments. The company will begin serving a new niche of financially disadvantaged citizens, primarily in developing countries. Even though the change will not result in an immediate increase in revenue, it will help to diversify the company’s portfolio and reduce reliance on the US market. Serving disadvantaged populations is expected to improve the company’s reputation by making it appear more socially responsible, which is critical for building positive relationships with customers and supporting the company’s CPA.
Finally, the proposed changes will have an impact on revenue streams because the price of pharmaceutical products will be segmented. Even though the new revenue stream will not significantly improve the company’s financial performance, it will be useful for other purposes. In conclusion, while the proposed changes will have an impact on the business model, they will remain multifaceted at their core.
