Free Economics Essays - Global Local Business
Global Local Business
Research objectives and motivations
With the development of the global economy, globalization has become the main subject in the world and an effective way to improve local economy. Moreover, the globalization has had a profound impact on every facet of the business world. Companies in every nation can now reach customers around the world and cut operation costs through global scales of production and distribution. Meanwhile, international markets undergo constant change, intense competition, and heightened customer expectation, which makes it increasingly difficult for a company to gain and maintain its competitive edge. Managers must therefore take on a broader range of responsibilities.
Thus, the aim of this report is to reveal the factors affecting the competitive advantages for MNEs through a company analysis of Johnson &Johnson in the global arena. Johnson &Johnson is the leading manufacturer in USA's pharmaceuticals and health care industry and is famous for its success in cross border operations. Through the analyzing the Johnson &Johnson's global success' secrets could benefit other MNEs to explore their own competitive advantages in the international marketplace.
The project will begin with a literature review including Porter's Diamond, Bartlett & Ghoshal's Transnational Management and Hofstede's National Cultural Dimensions. The following will apply the theory into the analysis of the company. It comprises two sections. The first section will reveal the national business environment of Johnson & Johnson in the USA. Then asset the competitive challenge, corporate challenge, organizational challenge and cultural challenges Johnson &Johnson faced. Finally the limitation and the recommendation of the analysis will be presented.
Johnson & Johnson is a global American pharmaceutical, medical devices and consumer packaged goods manufacturer founded in 1886. Its common stock is listed among the Fortune 500. Johnson &Johnson is known for its corporate reputation, consistently ranking at the top of Harris Interactive National Corporate Reputation Survey (Harris Interactive press, 2005) and was the first corporation awarded the Benjamin Franklin Award for Public Diplomacy by the US State Department for its funding of international education programs. (2008).
The corporation's headquarters is located in New Brunswick, New Jersey, United States. Its consumer division is located in Skillman, New Jersey. The corporation includes some 250 subsidiary companies with operations in over 57 countries. Its products are sold in over 175 countries (jnj.com).
Johnson &Johnson's brands include numerous household names of medications and first aids supplies. Among its well-known products are the Band-Aid Brand line of bandages, Tylenol medications, Johnson's baby products, Neutrogena skin and beauty products, Clean & Clear facial wash and Acuvue contract lenses. (Johnson & Johnson.com)
As it is shown, Johnson & Johnson is a typical American company. The culture in USA tend to be decentralized, individualistic.(Hofstede,2000) Under this kind of national environment, the company's management and organization tend to meet International characters. Therefore, Johnson &Johnson is likely to be an International Strategy.
2. Literature Review
2.1 Porter's Diamond
The scholars attempt to explain the reasons which determine the success of a company's competitive advantages. Many of the ideas are been discussed by them. (Sledge, 2005) however, only Porter developed a systematic model to elaborate the national competiveness with a particular industry. (Sledge, 2005) Michael Porter (1990) introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitive than others are, in his book (1990) this model of determining factors of national advantage has become known as Porters Diamond.
It suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale. This home base provides basic factors, which support or hinder organizations from building advantages in global competition. Porter distinguishes four determinants:
2.1.1 Factor Conditions Factor
Conditions refer to the nation's position in factors of production to compete in a given industry (Porter, 1998). These factors can be grouped into human resources，material resources, knowledge resources, capital resources. These national factors often provide initial advantages, which are subsequently built upon. Each country has its own particular set of factor conditions; hence, in each country will develop those industries for which the particular set of factor conditions is optimal.
Porter (1999) points out that these factors are not necessarily nature-made or inherited. They may develop and change. Political initiatives, technological progress or socio-cultural changes, for instance, may shape national factor conditions.
2.1.2 Demand Condition Demand Condition means the description of the state of home demand for products and services produced in a country. (Porter, 1998)
Home demand conditions enable to influence the shaping of particular factor conditions. They have impact on the pace and direction of innovation and product development. (Porter, 1990)
According to Porter (1998), home demand is determined by three major characteristics: their mixture, their scope and growth rate, and the mechanisms that transmit domestic preferences to foreign markets. Porter states that a country can achieve national advantages in an industry or market segment, if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors. Normally, home markets have a much higher influence on an organization's ability to recognize customers' needs than foreign markets do.
2.1.3 Related and Supporting Industry
It is defined as the existence or non-existence of internationally competitive supplying industries and supporting industries. (Porter, 1998)
Porter asserted (1990) that one internationally successful industry may lead to advantages in other related or supporting industries. Competitive supplying industries will reinforce innovation and internationalization in industries at later stages in the value system. Besides suppliers, related industries are of importance. These are industries that can use and coordinate particular activities in the value chain together, or that are concerned with complementary products a typical example is the shoe and leather industry in Italy. Italy is not only successful with shoes and leather, but with related products and services such as leather working machinery, design.
2.1.4 Firm Strategy, Structure, and Rivalry
This factor indicated that the conditions in a country that determine how companies are established are organized and are managed, and that determine the characteristics of domestic competition. (Porter, 1998)
Here, cultural aspects play an important role. In different nations, factors like management structures, working morale, or interactions between companies are shaped differently.
This will provide advantages and disadvantages for particular industries.
Typical corporate objectives in relation to patterns of commitment among workforce are of special importance. They are heavily influenced by structures of ownership and control. Family-business based industries that are dominated by owner-managers will behave differently than publicly quoted companies.
Porter argues that domestic rivalry and the search for competitive advantage within a nation can help provide organizations with bases for achieving such advantage on a more global scale. (Porter, 1998)
2.1.5 Chance and Government Porters Diamond
Has been used in various ways. Organizations may use the model to identify the extent to which they can build on home based advantages to create competitive advantage in relation to others on a global front. On national level, governments can consider the policies that they should allow to establish national advantages, which enable industries in their country to develop a strong competitive position globally. According to Porter (1998), governments can foster such advantages by ensuring high expectations of product performance, safety or environmental standards, or encouraging vertical co-operation between suppliers and buyers on a domestic. (Porter, 1990)
Although the position of the Porter Diamond cannot be replaced, the model still leads to a fierce discussion among academics and practitioners on the nation's competitive advantage (Grant and Grey, 1991).
Some critics indicated that Porter's framework is based on 100 industry case studies which only apply to developed countries. Hence, the diamond tends to be further proved while applying into the developing countries. (Harrington, 1995) moreover, in a global business environment, since raw materials are largely sourced globally which weaken the importance of the internationally competitive suppliers within a nation.
In addition, Ruman and Verbeke (1993) concluded two limitations in Porter Diamond. Firstly, the reason why national level is the best geographical indicator for an industry's environment seems to be obscure. Other geographic levels may be also significant for particular determinants of international success. Also, it is too difficult to operatonalize due to the lack of a homogenous analysis tools to determine the importance and precise influence of each determinant on the industries' competitive position.
Furthermore, Porter's research only focused on the successful industries. He did not check whether the frames work also exist in industries that fail. (Reich, 1990)
Despite of these criticisms, the significantly usage for examining competitive environment of an industry cannot be ignored.
2.2 Barlett and Ghoshal's transnational typology
Most of the literature in international management either explicitly or implicitly assumes the existence of different types of MNEs. Terms such as Polycentric, Geocentric, Ethnocentric, International, Global, and Transnational often are used to denote different types of MNEs. Several of these typologies have become standard textbook matter and are widely taught in courses on international business and management.
This typology would make it easier to compare and integrate different studies in the field and may go some way to remedy the "lack of conceptual integration and empirical corroboration" in the field of international business and management (Macharzina and Engelhard, 1991, p.24).
Up until now, however, very few studies in the international management literature have tried to derive and test comprehensive typologies of MNEs. Bartlett and Ghoshal (1989) probably provided the most extensive typology of MNEs. Bartlett and Ghoshal's work -- in particular their idea of the Transnational Company -- has been extremely influential.
2.2.1 Competitive Challenge
Facing the competitive challenges in global rivalry, a number of different perspectives and prescriptions emerged. Whether MNEs have the sustainable competitive advantages determines the success or not in their world wide businesses. However, different researchers prefer to adopt various strategies to develop advantages.
Levitt (1983) believed that the product standardization is the successful strategy. According to him, the firms should produce the standard products and sell them in the same way throughout the world. In contrast, Porter, Hout and Rudden(1982) suggested that effective global strategy required economies of scale through global volume.
For instance, taking preemptive positions through quick and large investments and managing interdependently to achieve synergies across different activities. In addition, Hamel and Prahalad (1985) strongly contradicted that of Levitt. They recommended a broad product portfolio instead of a single standardized product. This kind of portfolio includes many product varieties to share the investments in technologies and distribution channels.
Besides, Competitive advantage are achieved through the organization provide their customers with what they want, or need, better or more effectively than competitors; and in ways which their competitors find difficult to imitate. Product differentiation and product cost were two most important competencies to achieve a sustainable competitive advantage identified by Michael Porter (1980). He has described a category scheme consisting of three general types of strategies that are commonly used by businesses - cost leadership, differentiation and focus. Cost leadership strategy emphasizes efficiency, and differentiation involves creating a product that is perceived as unique, while in the focus strategy the firm concentrates on a select few target markets.
However, in Barttlett et al' typology, it suggested that the companies need to develop three layers of competitive advantages: global-scale efficiency, multinational flexibility and worldwide learning to achieve sustainable competitive advantages. Efficiency can be seen as the ratio of the value of the value of a firm's output to the value of its input. Flexibility refers to the ability of a company to manage the risks and exploit the opportunities that arise from the volatility of the global environment (Bartlett et al., 2008, p200). Worldwide learning means a firm possesses the ability to learn from its international exposure and opportunities, and applies that learning on a global basis.
In order to develop each of these capabilities, the MNEs can utilize three very different tools and approaches including national differences, scale economies and scope economies. Each tool tends to manage in different goals and means.
Table 2.1; Worldwide Advantage: Goals and Means
There are four strategies which can be used to exploit advantage through different goals-means combinations (Bartlett et al., 2008)
Multinational strategy focused on national differences to achieve most of its strategic purposes. This approach tends to operate on the revenue basis through differentiating their products and services in response to national differences in customer preferences, industry characteristics and government regulations. Under this strategy, the subsidiaries enable to carry put a wide range of activities from development and production to sales and services. Although this autonomy provides flexible and benefits, they inevitably suffered problems of inefficiencies.
International strategy focused on adopting innovations on a worldwide basis. Although this strategy builds considerable strengths out of their ability to create and leverage innovations, many still suffered from deficiencies of both efficiency and flexibility.
Global strategy is usually adopted by the companies to achieve best cost and quality positions for their products. This has been the classic approach of many Japanese companies. However, such approach may weaken flexibility and worldwide learning. Moreover, the concentration of activities to achieve scale economies may bring high sourcing risks to the companies,
Having discussed above, the three strategies have a more sophisticated and differentiated configuration of assets and capabilities. Bartlette et al (2008) indicated that the best strategy should synthesize all the merits of these traditional approaches, the differences orientation and configuration of assets and capabilities among the four types of companies can be seen in the table 2.2.
Table 2.2 Strategic Orientations and Configuration of Assets and Capabilities in Multinational, International, Global, and Transnational Companies (source: Bartlett et al (2008), p.206
2.2.2 Organizational Challenge
Organizational structure has significant influences on management process of MNEs which attract many scholars to design a suitable formal structure under various conditions (Bartlett et al., 003) Bartlett& Ghoshel (2003) associate the appropriate organization structures to the typology of strategies of MNEs multinational international, global, and transnational strategies.
Bartlett& Ghoshal (2003) demonstrate the importance of company's administrative heritage which also broadly fit with European, American and Japanese type of multinational firms. Refer to figure 1; decentralized structure tends to delegate more operating independences and strategic freedom to their overseas subsidiaries. However, it might be difficult to optimize the utilization of resources as a whole.
Concerning of the coordinated federation, management is willing to delegate responsibility, but retaining overall control through some of centralized departments, on the other hand, centralized hub is the prevalent to most of Japanese MNEs in expanding international business, the most decision making and control are kept headquarter under communication- intensive and people- dependent management system (Bartlett et al., 2008).
It seems that there is no ideal organizational structure to fit MNEs since different organizational structures are featured of various capabilities. Under fast changing environment, the strategic challenge drives the MNEs to enhance the organizational capabilities so as to optimize global efficiency, national responsiveness and world wide learning. (Bartlett et al., 2008)
2.2.3 Collaborate Challenge
Facing the increasingly complex global environment, many firms that they have not adequate resources and capabilities to develop and sustain the worldwide competitive advantages, thus they many need to collaborate with their suppliers, competitors, and a variety of other parties (Bartlett et al., 2008). The most visible manifestation of the growing importance of collaborative strategies lay in the phenomenon described as strategic alliances, which are the cooperative relationships between MNEs with their competitors ((Bartlett et al., 2008)) Bartlett et al.(2008,p.560) stated that strategic alliances had become central components of most MNEs strategies.
Bartlett et al. (2008) also indentified the risks and costs of collaboration, it is possible that the collaborative alliances provide opportunities for one or both partners to develop a competitive advantage over the other, and there is the risk that collaborating with a competitor might be a precursor to a take over by one of the final ((Bartlett et al., 2008)) thus, successful collaborative ventures require companies to gain the ability to manage the relationship between partners.
Bartlett et al. (2008) pointed out three greatest challenges regarding to this capabilities: managing the boundary, managing knowledge flows, and providing strategic directions. However, hamel et al. (1989) showed a set of principles, adhere to which companies benefit most from competitive collaborations, the principles are: collaboration is competition in a different form: harmony is not the most important measure of success; cooperation has limits; learning from partners is paramount.
2.2.4 Management Challenge
Under turbulent business environment, managers must equip with competent capabilities to implement coordinated action on a worldwide basis. Bartlett & Ghoshal (2003) examined the new roles among three groups of managers which are global business managers, worldwide function managers, and geographic territory managers.
The global business managers are responsible for assess the strategic position and capability in a given business, design the asset and resources configuration as well as coordinate cross-border transfer policies and mechanisms (Bartlett et al., 2003) world wide functional managers are the specialists for primary activities such as R&D and marketing as well as the supporting functions like information technology and finance departments(Bartlett et al., 2003) the roles of geographic managers are as bicultural interpreters, the chief advocate and defenders of national needs and frontline implementers of the company's strategy.(Bartlett et al., 2003) consequently, the top level corporate management would face the most extreme management challenges while a firm is evolved toward transnational organization, its responsibilities are integrated of the roles of previous three types of managers in the operation multinational and multinational perspectives((Bartlett et al., 2008))_
2.2.5 Learning Challenge
It is necessary to create learning environment for efficient knowledge sharing between headquarters and subsidiaries ( Michailova & Nielson,2006) most importantly, MNEs have to develop the capability to create, leverage and apply knowledge worldwide which are challenging tasks to most of firms (Bartlett et al., 2008). Bartlett et al.(2003) defines learning challenge into three innovation model which are centre for global ,local for local and transnational innovation process. In fact, there is no absolutely right innovation process to MNEs since each firm has its own administrative heritage (Bartlett et al., 2008)
Centre for global innovation model is a common in many Japanese companies, its characteristic of centralized resources and dependence of new product development on parent company. However, the greatest risk of the model is market incentives and management conflict between headquarter and subsidiaries. (Bartlett et al., 2008) on contrast, ;local to local model can has highly local responsiveness, however, the current learning challenge to management is to develop and diffuse knowledge in a way of supporting effective worldwide innovation and learning (Bartlett et al., 2008)
The transnational approach offers many advantages to MNEs, but it still has some limitation. Their research, however, was based on case studies in only nine MNEs, combined empirical data with prescriptive elements, and did not discuss the characteristics of the various types of MNEs in a systematic way. According to Hedlund and Ridderstrale (1997) empirical grounding of Bartlett and Ghoshal's study and studies. Moreover, Daniels et al (2007) stated that the transnational strategy was difficult to build, may cause serious challenges. Also, Hill (1994) argued that the costs of coordination and control are extremely high; therefore, the benefits associated with transnational strategies could be given up if there was no way of reducing the high costs.
Nevertheless, the transnational strategy is still considered as valuable for MNEs. (Daniels et al, 2007)
2.3 Hofstede's Cultural dimensions
As for culture, most researchers have reached consensus on the following characteristics: shared, transgenerational and patterned (Hodgetts and Luthans, 2006). First of all, culture is the collective programming of the mind (Hofstede, 1997, P127), it is widely shared by a group. Another point is that culture is transferred from previous generations, and develops in particular conditions, in other words, it is cumulative and has profound effects on the members' value and behavior. Finally, culture is described as pattered; each part of it is integrated. In addition, institutions and national culture may interact with a firm's strategy in a co-evolutionary way (Lewin and Kim, 2004).
Consequently, there might be systematic differences between different cultures and institutions due to these characteristics. National culture and institutions affect and reflects the values and attitudes of the members of a society. Hofstede identified five cultural dimensions to explain the cultural divergences, which are collectively presented in Table 1 combining with others' research (Griffin and Pustay, 2002, P104). His theory offers a framework to explore how and to what extent strategies are influenced by home country culture is.
Table 2.3: summary of Hofstede's Culture Dimensions
Individualism vs. Collectivism
Masculinity vs. Femininity
Long-term orientation vs. short-term orientation
2.3.1 Hofested's Cultural dimensions
Individualism means the tendency of people to look after themselves and their family only, (Hofstede, 1984, P462), the culture rooted in individualism tends to be self-oriented. Consequently, people from the individualistic culture will emphasize personal achievement, preferring independent endeavour to collective effort. In the United States which ranked as the most individualistic in Hofstede's (1984) sample, education system focus on nurturing the individual by praising individual accomplishments and working to raise a person's self-esteem. Thus people weigh individual benefits over the welfare of a group; their first interest is the promotion of their own success and uniqueness (Hodgetts and Lutans, 2006).
Given the tight connection with consumer attitudes and behaviors, individualism is an important driving factor beneath advertising strategies. Generally speaking, advertising appeals in individualistic nations that emphasizes personal benefits are common and popular (Han and Shavitt, 1994)
Another dimension worth noting is masculinity, which can be described as the dominant value in a masculine society are achievement and success (Hoggetts and Luthans, 2006, P103). The masculinity/femininity dimension discriminates between cultures particularly with respect to value related to winning, success and status, which are much used in advertising appeals. Therefore it is an important dimension interrelated with advertising activities. Masculine cultures are more task oriented, in particular, the combination of individualism and masculinity leads to stronger desire to win and be dominant.
Power distance reflects attitudes towards authority and power differences. In the United States, equality is strongly emphasized (Hodgetts and Luthans, 2006). For instance, in most cases, it is common for an American to call their seniors' first name; subordinates are encouraged to express their disagreement to their superiors.
Power distance is the extent to which less powerful member of institutions and organizations accept that power is distributed unequally (Bond et al., 1984, p. 419). People in larger-power-distance countries appear to blindly obey the orders of their supervisors. Hofstede (1991) points out those lower-level employees in those countries tend to follow orders as a matter of procedure. Employees even acknowledge their bosses' authority simply by respecting individual's formal position in the hierarchy. Indeed, they hardly bypass the chain of command. By contrast, in countries where people display small power distance, supervisor and subordinates are prone to regard one another as equal in power. It results in more freedom and cooperation (Deresky, 2002).
Uncertainty avoidance appears to have an impact on management style to some extent. Hofstede (1980, p.75) defines uncertainty avoidance as the extent to which people feel threatened by ambiguous situations, thus create beliefs and institutions to avoid these. He further analyzes those countries with strong uncertainty avoidance. Individuals in those countries tend to have a high need for security and a strong belief in experts. On the other hand, cultures with weak uncertainty avoidance have people who are more willing to accept risks
Although Hofstede's study is regarded as the first cross-cultural study to be conducted based on a large international sample and to adopt relatively advanced, meanwhile, research designs and statistical analysis tools (Taras and Steel, 2006). There still faced a lot of criticisms.
One major concern is regard to the sample. Korman(1985) stated that the data collected from employees of a single organization(IBM) shows the limitations. They believed that the IBM is not a proper choice for cross-cultural comparison research. (Taras and Steelm2006)
Another main concern is refer to the Hofstede;s old data to present conditions. His research has conducted between 1967 and 1973, which is about forty years ago. Taras and Steels (2006) doubted that whether the indices calculate several decades ago are still able to describing national cultures accurately at present.
However, Hofstede's cultural dimensions still provide a useful framework to assess a nation's cultural characteristics.
3. Company Analysis
3.1 The national diamond relevant to company industry
3.1.1 Factor Conditions
The improvement of education in the USA provides efficient human resources for the pharmaceutical industry. Generally, the workforce can be classified into knowledge workers and other stable employees. Knowledge workers are the core workers in the company. Stable employees are made up by the legal (both stable and temporary, casual) and illegal (informal, casual) workforce. In the USA, there are about 11.5 million immigrants, and many of them are from Mexican.
The tremendous contribution immigrants make on a daily basis to America society and economy (Mintel, 2006). Moreover, the employment stability is extremely low in the USA and failing. Despite short job tenure in the USA is become a trend, the USA is famous for its High Performance Work Practices that are relevant only for long tenure and stable employees. However, HPWPs are not typical of most American HRM.
HPWPs are feasible in knowledge-intensive sector, and hire flexible, high-committed workforce to make possible lean production. Besides, HPWPs have spread rapidly through the core workforces of American firm (Osterman, 2001). Basically, HPWPs are appropriate to work that cannot be measured. In recruitment, firms are trying to find the best suit employees for jobs, and they use training and performance related pay to recruit new employees.
Casualisation is high in the USA and is growing, together with private agencies for temporary workers looking for contingent work, for instance, jobs that exist only so long as the demand for the resulting product exist. Workers with less than one year's time represents 25% of the total in the USA, and 55.9% of Americans have jobs that they do not expect to last (Osterman, 2001). Casual workers offer unparalleled two-way flexibility of workforce and involve no labor union power. Casual workers usually operate in regulatory voids, with few non-wage benefits, such as redundancy compensation, or safety regulations. Thus, casual workers are cheap. But there are no separate studies on the productivity of casual workers.
Despite the general human resources practices are helpful for operators to gain competitive advantages, the capital resources are easy to allocate in the US's capital market. The USA Stock Exchange is the world's most important international equity exchange and a leading provider of services that facilitate the raising of capital and the trading of shares. (Harrington, 2005) the good capital market in the USA enables to make the pharmaceutical industry advantages in raising funds.
3.1.2 Demand Conditions
While some medical conditions are very treatable, and even curable, for many patients, there are conditions where treatments are optimal or where there are a limited number of therapeutic options available to afford them relief. Hence, the wealth of information generated by modern medicine and the convergence of other fields underpinning science-based healthcare solutions is changing the science and medicine at an unprecedented pace, while opening a world once-unforeseen possibility. (ftc.com)
Moreover, rising income and high level of education make the customer s have more and higher requirements for products especially the skin care and body care, women health by the professional producers. On the one hand, they prefer to buy these products in the shops, on the other hand, they regard owning these kind of care as the sign of the modern life.
Additionally, marketing expanded dramatically in the 1990s, partly because of a new consumerism, the Internet made possible the direct purchase of medicines by drug consumers and of raw materials by drug producers, transforming the nature of business, in the USA, Direct-to-Consumer advertising proliferated on radio and TV because of new FDA regulations in1997 that liberalize the requirements for the presentation of risks (Mintel, 2000).
Meeting the demand of elders in the USA can provide an early indicator of how to satisfy the needs of elder people in other nations. In 2003, the United States enacted the Medicare Prescription Drug, Improvement, and Modernization Act (MMA), a program to provide prescription drug benefits to the elderly and disabled. This program is a component of Medicare and id known as Medicare PART D. this program set to begin in January 2006 will significantly alter the revenue models for pharmaceutical companies, Revenues from the program are expected to be $724 billion between 2006 and 2015. (Mintel, 2006)
3.1.3 Related and supporting industries
The internationally competitive health care industry can help pharmaceuticals to gain advantages. As it is said, the dugs researches are usually original from the health care research, in the USA, the pharmaceutical companies often look to researchers for studies from the health care companies that will make their products look favorable and also reduce the research cost to some extent. Under this situation, many pharmaceutical companies such as Johnson & Johnson develop the product line for health care as well.
The development of information technology (IT) has provided many advantages to the pharmaceutical industry (J&J.com). According to the research about 64 countries conducted by the Economist Intelligence Unit (2004), the USA is the world's leader in IT competitiveness. The high ranking is attributed to the country's skilled workers and positive legal environment protecting intellectual property. Pharmaceutical industry benefits a lot form the IT industry both in efficient management of inventory and research communication.
3.1.4 Firm Strategy, Structure and Rivalry Pharmaceutical industry in the USA exploits diverse strategies to adapt to the domestic business environment. The USA's pharmaceutical market is highly competitive, with a number of competitors most from home country. For avoid the fierce rivalry caused by using similar strategy and fight for the same market segmentation, they tend to adopt different strategies to dominated unique market niches. For example, Johnson& Johnson is famous for its baby products, facial wash and the medicines.
They use differentiation strategy to meet the company's core value put the needs and well-being of the people we serve first Pfizer intend to provide products with high quality (annual report, 2003). Merisant world wide Guidant is proposed to be an expert in medicine research and development (J&J, com). The diversity of competition strategies will help the companies to achieve competitive advantage.
Johnson and Johnson adopt decentralized structure in the management chain. The Executive Committee of Johnson & Johnson is the principal management group responsible for the operations of Johnson &Johnson. In addition, certain Executive Committee members' server as worldwide Chairmen of Group Operating Committees, which are comprised of managers who represent key operations within the group, as well as management expertise in other specialized functions.
These Committees oversee and coordinate the activities of domestic and international companies related to each of the Consumer, Pharmaceutical and Professional segments of business. Operating management of each company is headed by Chairman, President, General Manager or Managing Director who reports directly to, or through a line executive to, a Group Operating Committee. In line with this policy of centralization, each international subsidiary is with some exceptions, managed by citizens of the country where it s located. (Annual report, 2006)
Furthermore, the USA pharmaceutical industry, the actual manufacture of drugs is the last stage in a lengthy process that begins with scientific research to discover new products and to improve or modify existing ones. The R &D department in this industry occupies significant position. In order to better use of the resources including the human resources and knowledge resources, most firms devote a substantial portion of their capital budgets to applied research in this part (Davis, 2003). In other words, who can develop a safe and effective product in advance, may have the better competitive advantages.
3.2 Competitive Challenges
Johnson &Johnson has gained competitive advantages through effectively using the goal-means combinations mentioned in the Bartlett and Ghoshal's transnational theory.
Firstly, Johnson & Johnson achieved the goals of efficiency and flexibility through the tools of national differences.
The cost of labor force varies from country to country. For instance, in China, the estimated average hourly manufacturing compensation in2002 was $0.57, about 3% of that in the United States and many other developed countries of the world (Annual report, 2002). Therefore, Johnson &Johnson is able to gain the cost advantage in its operation in China.
Johnson &Johnson adopted different strategies in different countries to meet various demands. They focused on the health care other than the medicines products. They noticed that, unlike USA, most drugs in China have been dominated by some public companies. Chinese people prefer to believe in the drugs which doctor prescript rather than the advertising. However, the healthcare especially the baby products are trusted by local people since the skincare market in China may not as mature as USA (www.jnj.com).
Secondly, Johnson &Johnson can make more profits by exploiting technology, innovations management capabilities and experiences in different countries around the world.
Johnson & Johnson is considered to be the most innovative manufacture in the USA. Since the 1900s, the company has pursued steady diversification. It added consumer products in the 1920s and created a separate division for surgical products in 1941 became Ethicon. It expanded into pharmaceuticals with the purchase of McNeil Laboratories, Inc., Cilag and Janssen Pharmaceutics, and into women's sanitary products and toiletries in the 1970s and 1980s. In recent years, Johnson &Jonson has purchased Pfizer's Consumer Healthcare department. The transition from Pfizer to Johnson and Johnson was competed December 18, 2006(Annual report, 2006).
Moreover, Johnson &Johnson remains a company committed to serving unmet heath care with superior science and technology, while growing our business profitably for the long-term said Dominic Caruso, Vice President. In order to develop the new and fast products, the company established Johnson& Johnson Development Corporation (JJDC) in 1973. JJDC makes private equity investments in venture funded health care companies. It invests in new business that offer new technology platforms and products that will help accelerate Johnson& Johnson growth. The Johnson& Johnson has achieved worldwide prominence through research and development on new drugs, and spent a relatively high portion of its funds on R&D compared to other companies. Each year, pharmaceutical industry testing involves tens of thousands of news substances, yet may eventually yield fewer than 100 new prescription medicines (Mintel, 2006).
In addition, Johnson & Johnson has developed several advertising methods in improving the band convince and influences. For example, in the 1980s, new methods of marketing for prescription drugs to consumers have become important; Direct -to -consumer media advertising was legalized in the FDA for Industry on Consumer -Direct Broadcast Advertisements (annual report, 1996). Also, the company regularly pays high profile scientists and physicians, wither directly or indirectly, to speak on topics relevant to their products. Another important way for physicians to learn about new therapies and for scientists to disseminate the results of their studies is through medical journals. The company often paid academics to become authors, placing their names at the head of scientific studies that were already planned, performed ,interpreted, and drafted by the company, this kind of promotion tend to be bring many problems such as the authors' lack of involvement (jnjpharmarnd.com)
Importantly, Johnson &Johnson establish its solid competitive advantages by the good environment record. Johnson & Johnson agreed to change their packaging of plastic bottles, due to harmful chemicals used in the manufacturing process. AmeriScan article from Washington DC, December 8th, 2004 Stated that other companies including Johnson & Johnson are using plastic bottles containing PVC to package their liquid products. PVC also mentioned as The poison plastic may eventually lead to cancer due to toxic chemicals that could harm humans.
Therefore, Johnson & Johnson arranged to switch their packaging of liquids to safe non-PVC containers. Johnson& Johnson has set several positive goals to keep their company environment friendly. Some examples are the reduction of water use, waste reduction, energy use, and transparency. The company is striving to reduce greenhouse gas by working with the Climate Northwest Initiative and the EPA National Environmental Performance Track Program. As a member of the national Green Power Partnership, Johnson& Johnson operates the largest solar power generator in Pennsylvania at its site in Spring House, PA (jnj.com).
From the above analysis, it can be seen that Johnson &Johnson gains competitive advantages through developing global efficiency, flexibility and worldwide learning capability simultaneously.
3.3 Collaborative Challenge
For the purpose of greater success, Johnson& Johnson formed a plenty of collaborative ventures both in USA and out of the USA.
Johnson &Johnson created acquisition to enter into different product segment. For example, in the 1970s and 1980s, the company expanded into pharmaceuticals with the purchase of MAneil Laboratiaties and Janssen Phatmaceutica. Recently, Johnson& Johnson has purchased Pfizer's Consumer healthcare department (J&J.com).
Through mergers, acquisitions and formation of new companies, it has become the world's largest and most broadly based health care company.
In order to enter the highly profitable Chinese market, Johnson &Johnson adopted joint ventures with a local operator to overcome difficulty. In1985, it expanded to China, it introduced a wide range of groundbreaking products with the Chinese local company ---XiAn YangSeng PLC. Then, in 1988,1992,1994,1995 respectively, it founded ShangHai Johnson& Johnson Plc. China J&J plc, J&J medical appliances China and J&J Family Health Initiative in China. (jnj.com.cn)
Besides, J&J also develop franchises which brought 35 percent of the company's total sales and alliances which built on a shared vision with well-defined and agreed upon goals and objectives (annual report, 2003).
Since the Chinese market is particular unique and complex with wide different regions and towns, the company adopted joint ventures at the beginning. However with the brand and products become familiar and convince in China, the company plan to establish investment cooperation by its self. Hence, in1998, Johnson& Johnson (China) Investment Co.Ltd is established in China. In 2008, it has successfully acquisitive Dabao Brand. Daobao is a successful brand in China market, with its unsurpassed local market knowledge and experience. (jjdevcorp.com)
By working with a local partner, J&J can learn valuable lessons about the market and it can share the knowledge and experience that already made its partner profits business. Now, it became an Official Partner of the Beijing 2008 Olympic Games and Paralympics Game (ft.com).
3.4 Organizational Challenges
Johnson& Johnson business strategy aims for leadership on its three core areas: pharmaceutical, medical devices and consumer products. Although it is a straightforward mission, J&J carries it out by using a complex structure that combines responsibility between 37product groups and 14 health care areas, known as platforms. For example, its product groups include Centocor, Nrutrogena (jnj.com).
J&J organizes by operating units. Tblea (2002) shows that world span of these operating units. Each unit has remarkable autonomy and is explicitly accountable for its individual performance. J&J tries to combine the entrepreneurial opportunities of a small company with the unique advantages of a big one. Such autonomy (decentralized) explained by Ralph, CEO from 1989 to2002. He believed that it provides people a sense of ownership and control, also the freedom to act more rapidly (Annual report, 2002).
Nevertheless, J&J operating units enjoyed more autonomy before the company encountered a series of financial setbacks in the late 1990s. Traditionally, J&J did not enter the new market with sweeping armies of home office manager's affected by headquarters based generals rather than added another small company to roster. Then , a new headquarter took over the company, who believed to be success, for example, the baby oil managers in Italy ran their own factory and got to go decide how big a bottle to put the baby oil in - even if that bottle differed from the one sold in Germany, Japan.
Still, there were some procedura limits. Headquarters negotiated financial targets with the head of the separate business units and then let them figure out the best way to meet them. Overall, J&J's executives conceded that there was often friction between owing units and headquarters, but they believed this was reasonable prices to pay entre operations (ft.com, 2002).
However, decentralized has created some costs, such as in consistent market development. For instance, J&J launched Tylenol in 1960, as an over the counter pain relieves in the United State. Although it was available to local operating units shortly thereafter, the Japanese unit did not commerce sales until 2000. In essence, decentralization enabled J&J to respond quickly to local needs but it showed diffusion of products and programs global (Business week, 1999).
In the late 1990s, J&J streamlined global operations by closing 36 plants and cutting 4100 jobs, it also aimed to improve the global perspective and its local decision making, specifically, it placed headquarter managers in charge of coordinating products and marketing around the worlds. Take granted, they still collect lots of input from the local managers and meet with them to trash out a unified marketing strategy. For example, they many debate whether cleanliness or beauty is the better promotion theme. Ultimately, J&J rolls out a product country manager no longer have the option to reject (Fortune, 1994).
Similarly, J&J has moved control of various activities from the operating units to headquarters , including human resources finance, science and technology and government affaires, corporate advertising，corporate communications, and quality management. Groups at headquarters now deal with many issues that are common to many or all operating units. Later, this approach lets its global perspective to develop cost -effective and consistent standards. Moreover, centralizing these functions frees operating units concentrate on issues that most affect their day-to-day business performance (Robert, 2001).
Centralization, even of nonstrategic activities, has not always been readily accepted. There have certainly been successes; for example, implementing Windows 2000 in a more centralized early than before saved J&J an estimated $80 million. Still, years after starting to integrate information technologies at J&J, headquarters still finds it hard to get all of its business units to go along with even the most benign changes in policy. Some business units, for example, have argued that they can't stop adopt some corporate technology standers or bear their share of the cost for infrastructure upgrades. (Robert, 2001)
Senior J&J management is trying to build an organizational environment in which people can openly discuss important ideas. To that end, it has developed programs that encourage its far-flung units it share their expertise with counterparts around the world. Self-directed council of research engineering and operations directors, among others- meet regularly to swap ideas. Successful employees are speedily shuffled between various operating units and affiliated, leading to eclectic career paths. Manager's benchmarks the performance of operating companies against competitors and each other. J&J also developed a process call Frameworks, one in which irritates employees through a continuing dialogue with senor management on strategic topics that cut across Company's business (Johanne et al, 2001).
No matter what structure has changed or what programs are adopted, senor management believes that standards of success: Decentralization has been, is and will be foundation. For example, J&J mangers know that although cost and innovation are important, the company's major competitive advantage lies in developing, producing, and making personal and health care products, headquarters mangers allocated resources to emphasize those products and geographic markets in which they prefer to flow more rapidly. Further, J&J allows its country-level managers to adjust to specific environmental and competitive conditions in their countries of operation (Johanne et al, 2001). At the same time, the subsidiaries share information, fixed costs from new products development, and spillover advantages, making easier for J&J to sell to international distribution.
3.4 Culture Challenge
According to Hofstede's theory (2003), American culture is characterized as high individualism (IDV), high masculinity (MAS), low uncertainty avoidance (low UAI),
To be specific, each of the cultural dimensions, though to different extents, has exerts profound influence on the decision-making of advertising strategy and activities. The following will place more emphasis on two cultural dimensions------ individualism, masculinity to analyse J&J advertising strategies how to correlate to the Hofstede's dimension. According to Jobber (2004), advertising strategy is a network, in particular, advertising appeal, advertising style or forms and the execution are prone to influence by culture, therefore this paper will focus on these aspects to analyse advertising strategy.
Given the tight connection with consumer attitudes and behaviors, individualism is an important driving factor beneath advertising strategies. Generally speaking, advertising appeals in individualistic nations that emphasizes personal benefits are common and popular (Han and Shavitt, 1994). For instance, the advertising for Baby oil, one of the leading brands of J&J, always aims to communicate the strong and clear image of self-improvement.
As a result, a series of advertisements struggle to attract consumers by not only stressing remarkable function but also indicating the aid to shape self-image with the attempt to stand out from the crowd. Peter Cooper (1997), CEO of consumer research agency CRAM International, also pointed out that it is the value connected to self-expression in advertising that most American consumers positively react to; hence J&J advertising strategies attempt to match the national value (Mooij, 2004).
Furthermore, Hofstede (1991) found a correlation between individualism and low context in cultures; individualistic cultures are generally low-context. According to Hall (1984), high-context or low-context culture will lead to different communication styles, advertising is considered as a kind of communication through mass media, thus communication styles will logically affect the advertising strategies. Firstly, in a low-context culture, speaker tends to explicitly convey the message to listener, thus direct communication style is appreciated. For example, nearly two thirds advertisements of J&J are expressed by testimonial and comparative forms, which are very direct styles. The goal is to shift consumer attitude, buying intention and brand preference through providing explicit argumentation and product merits.
Instrumental style is another part of the individualistic and low-context culture (Hodgetts and Lutans, 2006), which is goal oriented style and recognized by using more facts and data. The speaker using this style consciously constructs the message for the purpose of persuading. Americans, in particular, favor data to evaluate things, just as Hall (1984, P62) said: many Americans do not seem to be able to evaluate the performance of anything unless they can attach a number to it. A case in point is a series of Cream advertisements in ELLE (2006), stating including 75% Olay moisturizing essence, 24-hour deep nourishing......designed for oily and combination skin, effective remove oil by 95%, 7 days reveal silky skin, and measurably reduces lines and wrinkles in just 2 weeks.
In addition, individualistic cultures are universalistic; people from individualistic cultures tend to believe that there are universal value standards that should be shared by all. The US is the distinctive representation for universalism according to Trompenaars' model (Hoggetts and Luthans, 2006), in other words, they believe that ideas and practices can be applied everywhere without modification. There is no surprise, therefore, to find out that the US companies tend to be more interested in the consistent advertising strategy and campaign on the national or even global scale. J&J has been very successful with this strategy. J&J design using one consistent basic advertising form such as comparison, testimonial or drama, to create different commercials for similar products with different brand names. This is widely used for sanitary napkins, detergents or cleaning liquids (jnj.com).
To sum up, J&J advertising strategies are profoundly affected by individualism and some associated characteristics. It is reflected in the adverts that people may be motivated by values and styles consistent with their national culture. Precisely speaking, individualistic culture tends to prefer to advertising appeals on the basis of the personal choice, which gives priority to self-awareness and the benefits for individual. As for advertising styles, direct style and Instrumental style would generate positive effects.
Comparative advertising, hyperbole and persuasiveness are reflections of masculinity (Mooij, 2004). Primarily, aggressive behavior related to an explicit winning mentality is stronger in masculine cultures, therefore comparative advertising is considered normal and widely accepted. A convincing case comes from product between J&J and Pfizer in 1994 (fortune, 1996). Pfizer introduced new medicine formula detergents, under such brands names then J&J charged that lab tests demonstrated the Pfizer r formula was causing clothes to rot; at the same time, conducted a very aggressive advertising campaign.
In the US, this campaign achieved the desired results: customers were reluctant to buy this product and distributors pulled the new product from their shelves. On the contrary, the same campaign is strongly resisted by audiences when aired in Dutch and Japan. This case, on one hand, illustrates the masculine characteristic of American culture, on the other hand, the success in US implies J&J advertising strategies are fostered by American culture and match with American values. Besides, indirect comparison also frequently found, comparing the brand with the other leading brand or a conventional product.
Moreover, the configuration of individualism and masculinity explains the hyperbole of J&J advertising. Hard selling is applied to distinguish the product from competition. Some power words, such as new, the improved, a miracle, and the best are part of the US advertising style.
Due to high masculinity, Americans view communication as a process of transmitting messages for the purpose of control, so advertising is regarded as a means to persuade others, to change attitudes. This is reflected in J&J advertising strategies. Except for comparative advertising, problem-solution pattern is an easily recognized form in J&J advertising to reinforce the persuasion. This pattern is related to cause-effect thinking. It is usually demonstrated in a slice-of life format with a true-to life situation around a problem, and the product offering a solution.
The J&J advertising forms also reflects the assertiveness of its culture. It is characterized by the direct approach and competitiveness, testimonial format is popular with explicit conclusions why the consumer should buy the product. This is consistent with the individualistic characteristic. In addition, the desire to get the most of life is the typical value for masculine-individualistic cultures, reflected in many claims, such as now you can lead a fuller life in advertisements for skin care, sanitary napkins (business week, 2006).
Other cultural Dimensions:
Beside two dimensions discussed above, other cultural dimensions also play important roles on J&J advertising strategies. In fact, advertising strategies stem from the interaction of five dimensions. The relationship between cultural dimensions with J&J advertising strategy is briefly summarized in Table 3.1. First of all, uncertainty avoidance indicates attitudes to risk and uncertainty, people in the culture of low uncertainty avoidance are likely to accept risks and not worried about uncertainty.
This attribute can be illustrated by attitudes to Internet shopping, because the Internet shopping is widely considered to involve higher uncertainty than traditional shopping. It is found that on-line consumers occupy a large percentage of American population (2004). Due to high uncertainty tolerance, people are likely to try new products or brands. Therefore, J&J conforms to this cultural value and develop creative advertising appeals for different brands to meet unique demand.
Power distance reflects attitudes towards authority and power differences. In the United States, equality is strongly emphasized (Hodgetts and Luthans, 2006). For instance, in most cases, it is common for an American to call their seniors' first name; subordinates are encouraged to express their disagreement to their superiors. In the advertising execution, power distance can be shown in the way people interrelate or by the type of people shown (older vs. younger) (Mooij, 2004). An example of low power distance in J&J advertising is often the younger advises the elder, as in commercial of Downy and Gain. Furthermore, with respect to advertising strategy, short term orientation is reflected that the firm expects quick market response and rapid growth, which is also the result of capital market pressure.
It is pointed out that members of such culture configuration are relatively more inventive and innovative. In the J&J, they not only investigate consumer needs and product appeals, but also explore innovative forms to influence their target consumers. As a case in point, when radio became more popular in the 1920s and 1930s, the company sponsored a number of radio programs (mintel, 2006). As a result, these shows often became commonly known as "soap operas".
Table3.1: Summary of relationship between cultural dimensions with J&J advertising strategy.
US cultural dimension
J&J Advertising strategy
Appeals on individual benefits and self-expression;
Direct and explicit style;
Universalism, consistent strategies for similar brands;
Younger gives advice to elder
Advertising to stimulate short term sale and investment return.
Through evaluating USA's business environment for pharmaceutical industry, and four challenges faced by Johnson &Johnson, the conclusion can be drawn into several factors:
Firstly, its home country's factor conditions were favorable for Johnson Johnson's development. The high customer demand in home country encouraged J&J to innovate in their product lines and the methods of marketing. The intense domestic rivalry also drives J&J to expand into oversea markets. The well developed healthcare and IT industry in USA supported J&J to form competitive edge. Secondly, from the analysis of the four challenges of the company, it can be found that J&J adopted transnational strategy to achieve the goals of efficiency, flexibility and global learning simultaneously, which may be different form the assumption I have made in the beginning.
This kind of strategy is proved to bring man advantages in competition. Thirdly, J&J exploit joint venture, acquisition, franchise respectively to expand its business both in USA and in oversea markets. Finally, the analysis about the relationship between national culture and the company's strategy reflects the how the culture influences the formation of J&J's international strategy.
Having learned from the success of J&J, it would benefit to other MNEs on how to explore and take advantage of their own capabilities. However, as I indicated in each literature, every theory has its own limitation and disadvantages, the analysis tend to not as subject and exact as it is shown.
Nevertheless, globalization is a common phenomenon in modern business environment. To gain sustainable success, MNEs should keep culture sensitivity and identify different customer needs in different courtiers. J&J's success can be attributed to great extent to its ability in innovation and transnational strategy. J&J would achieve significant successes in the future if it continues to maintain its strengths.
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