For many Chinese people, they could buy some foreign products since 1980’s, because many foreign companies have set up in China at that period, and huge amount of imported products were sold in Chinese market, which means the effect of the globalization can be seen in our daily necessities. In 1982, the first Johnson & Johnson operating company was opened in China, then a series of products of Johnson & Johnson entered Chinese market. Why Johnson & Johnson would like to enter other foreign market, especially in developing country like China? This report will examine whether Johnson & Johnson is an international corporation or a global corporation through two concept, corporate structure and geographical expansion. Although in previous studies, there is no sole definition of internationalization and globalization, this report will analyze Johnson & Johnson’s characteristics to support that it is a successful example of global corporations.
In today’s competitive business environment, there are a lot of multinational enterprises. Like Johnson & Johnson, it could be found in every country. However, in some studies, there is no clearly concept or explanation on whether the corporation is international or global. Many international corporations have been influenced by globalization where they would turn into global corporations. Therefore, the aim of this report is to analyse whether Johnson & Johnson is an international firm or a global firm, and discuss what global characteristics it possesses. In order to do a case study of Johnson & Johnson, its corporate structure will be described and geographical expansion will be analysed. To summaries when and how did Johnson & Johnson become a global corporation? By using a corporate geography perspective, this report will include the analysis of whether geographical expansion is a good way to enhance firm’s scale or not and if it could change international corporations into global corporations. However, globalisation might be constrained somehow. Globalisation might also bring corporations more challenges, which could be seen in long run. In the world economy, the use of globalisation might be exaggerated.
Internationalization and Globalisation
There is no unequivocal definition of what is globalization. According to David DeBry (2001, p. 42), who pointed out that ‘internationalisation is like creating a round-toed shoe that fits people with all types of feet. It is not as comfortable as a perfectly fitted shoe and doesn’t fit snugly, but can be worn by many people’. Whereas globalization refers to the trend of a more integrated and interdependent world economy. Dicken, P. (2011) mentioned that the concept of globalization became familiar gradually in the past 30 years. Globalization is the method to solve the world’s economic issues (Dicken, 2011). Globalisation might influence the form of companies, which leads to the changing from trade to Foreign Direct Investment (Dicken P. , 2003). Trade volume has increased by the progress of globalisation (Dicken P. , 2011), for example, Chinese people could barely purchase foreign products in China before 1980s until the government approved the reform of Chinese economy approaches. Whilst the volume of import and export of China reaches a really high amount.
Source from Dicken P. 2011 table 2.1
Source from Dicken P. 2011 table 2.2
Nowadays, people witness the establishment of international corporations and global corporations. The world’s largest 500 corporation are usually being classed multinational enterprises (MNEs). An example of global brands is Johnson & Johnson. However, how to identify the difference between international corporations and global corporations? First of all, being international corporations, the quantity of branches and subsidiaries are limited, it could be in only one country. But global corporations have many branches and subsidiaries among all over the world.
International corporations have some investment in at least one country, they search profitable opportunities, whereas global corporations use the world as an opportunity. For most global corporations, they need to build a global brand, a successful reputation built should link the name, products and logo to many people. For instance, people could hardly find substitute for many Johnson & Johnson products, and the majority people have heard this name.
According to Giorgio et al. (2002), there are two reasons to why a company should change from international to global company. On the one hand, a company could open its market worldwide. On the other hand, the company could lower its cost.
Dicken (2003) demonstrated that a global corporation would be ‘a firm that has the power to coordinate and control operations in a large number of counties (even if it does not own them), but whose geographically dispersed operations are functionally integrated, and not merely a diverse portfolio of activities.’
The background of Johnson & Johnson
The concept of corporate structure is ‘the arrangements whereby the firm motivates, coordinates, appraises, and rewards the inputs and resources that belong to its coalition’ (Caves, 1980:66). Many successful corporations would establish famous branded products and develop different type of products (Caves, 1980). A firm’s corporate structure is depended on many issues. For example, when one company start up for only 5 years, its corporate structure would be less complex than company which founded 50 years ago.
In Johnson & Johnson, their board of directors is ‘a group of people who meet a set of General Criteria for membership and are elected to the Board by our shareholders each year. We currently have 14 Board members, 12 of whom are “independent” under the rules of the New York Stock Exchange.’ (Johnson & Johnson, 2012). Many large corporations tend to have the same corporate structures. It includes about five departments, which are Marketing, Finance, Accounting, Human Resource and IT. Usually corporate structure are four types as following (Dicken P. , 2011):
(Source from Dicken P. 2011 Figure 5.8)
It can be seen that global corporates’ structure is more complex than international corporates’ structure. For Johnson & Johnson, the executive committee is the main management team, which is responsible for the operations. The corporate governance is formed by accounting controls, independent auditor, audit committee of their board of directors and business results.
This figure shows the board of directors of Johnson & Johnson. (Johnson & Johnson, 2012)
3.1 A strategy of Johnson & Johnson
The reason why Johnson & Johnson achieves such great success is that it has strict operating mode. (Johnson & Johnson, 2012)
1. Market penetration
Johnson & Johnson has improved the share of market by increasing the quality of products, meanwhile, offering discount is an appropriate way to influence consumers’ habits and purchasing.
2. Market development
It developed new markets to provide the same products for consumers who have the same requires in different countries.
3. Product development
It developed new products to old consumers, which would expand popularity.
It provide new products to new markets.
This step is to retain its stable relationship with consumers.
Chandler stated that a firm’s growth is always through three strategies as following (Chandler, 1962):
1. Expansion is to widen the existing line to the same kinds of consumers.
2. New markets and sources of supplies are very important factors.
3. Developing a wide range of new products for different types of consumers
As one of the largest and most comprehensive health care corporation in the world, Johnson & Johnson has experienced vital growth in recent years. Johnson & Johnson was founded by Robert Wood Johnson with two brothers in New Jersey in 1886. With the expansion and development of its business needs from the 1920 of the 20th century, Johnson & Johnson has set up a lot of branches and acquired many companies among Europe, Asia, Australia and Africa. By today Johnson & Johnson has established and acquired more than 250 branches and companies in over 57 countries, and has about 129,000 employees. Johnson & Johnson is Ranked 42nd in fortune 500 list in 2012. (Johnson & Johnson, 2012). In 1924, the first overseas operating company was set up in the United Kingdom, which indicated Johnson & Johnson has started its foreign company period. In 1944, Johnson & Johnson joined the New York Stock Exchange. (Johnson & Johnson, 2012). Revenues of J&J has increased from only $7 billion in 1987 to more than $65 billion in 2012. Profits increased at an even faster rate, from $329.5 million in 1987 to $9672 million in 2012. (FORTUNE 500, 2012)
3.2 Corporate Structure of Johnson & Johnson
For every MNE, as key driver of globalization, has its unique corporate structure on a wide variety of market, which influence the corporation’s management in marketplace. The main sector is the number and size distribution of sellers and buyers, height of barriers to enter and exit (Caves, 1980). Why Johnson & Johnson can be called a global corporation is that it has complicated structure.
It depends on the development and innovation, because Johnson & Johnson has three business divisions:
3.2.1.. Consumer products
Skin and Hair Care
Wound Care and Topicals
Oral Health Care
The consumer products chain retail outlets are widespread all over the world, these products are sold to general public and both to wholesalers and directly to individuals, while Pharmaceutical products and Medical device & Diagnostics are depend on acquisition of other companies.
3.2.2. Pharmaceutical products
Janssen R&D LLC
Janssen Pharmaceuticals Inc.
Janssen Healthcare Innovation
These products offer medicines that treat widespread diseases.
3.2.3. Medical device& Diagnostics
Advanced Sterilization Products
DePuy Synthes Companies of Johnson & Johnson
Ethicon Endo-Surgery, Inc.
Johnson & Johnson Vision Care, Inc.
Ortho-Clinical Diagnostics, Inc.
These products might be used in professional fields, such as physicians, nurses, hospitals, and diagnostic laboratories.
It has gained the competitive advantage through knowledge of recognition and integration in the world, and achieved implementation and operation. With the development of Johnson & Johnson, it has shaped a very complicated company. There are approximately more than 200 different type of products are formed in three departments. To what extent the success of Johnson & Johnson could achieve is depends on the relationship between three departments and other business departments. In the past 10 years, Johnson & Johnson has purchased more than 60 small firms.
It focus on managing the knowledge. Usually, corporation has the following ways to grow: internal expansion, exporting, licensing, franchising, mergers and acquisitions, and geographic expansion. (Bruce R. Barringer, Daniel W. Greening, 1998).
These strategies support corporations to enter new markets, as well as develop corporations’ resources through different countries or regions. Previous studies have revealed that geographic expansion is a new operation in a different area. (Hsien-Jui Chung, Chun-Chung Chen, Tsun-jui Hsieh, 2007). It might form international supply chains, which firms would purchase components, raw materials and services.
It was significant to gain growth and enhance performance when Johnson & Johnson has set up the first foreign firm in 1924. Geographic expansion would bring a lot of advantages (Farok J. Contractor, Sumit K. Kundu and Chin-Chun Hsu, 2003)
Global market often give more scope for economies of scale, which in this case study, has changed Johnson & Johnson into a global firm. As Dicken (2011) mentioned that global economy are connected with geographical and organizational structure. He (2011, p. 96) pointed out ‘closely related to the issues of geographical scale and organizational loci is the importance of territoriality in networks’.
To sum up, from what is discussed above, Johnson & Johnson is a global corporation. As a result of some literature, there would be two measurements to determine whether the corporation is globalised or not, which is from organizational and geographical scale. Firstly, Johnson & Johnson has complicated corporate structure, it has executive committee to manage and operate Johnson & Johnson. Compared with its geographical scale, Johnson & Johnson has more than 250 branches and subsidiaries all over the world. Then corporations earn profits from the globalisation economy, which is why many international company would like to expand their subsidiaries and branches to other different countries or regions.
Globalisation plays an important role, it changes the world economy. Firstly, it increases the trade from one country to another. Apart from that, globalisation makes economy prosperous because it raised foreign direct investment while there might be some limitations. When a company is already a global company, what should be their next steps or strategies? Is globalisation the destination for one company? In accordance to some literatures, globalization is ‘end of geography’ (O’BRIEN, 1992). Increasingly companies have gained more profits from globalization, in other words, the progress of globalization gets advantages for enterprises.
So far, for many people, it is hard to explain what are international corporations and global corporations, because internationalization and globalization cannot be easily distinguished, but actually there are different. Consequently, they can be differentiated by the geographic scale and corporation structure. Globalized companies often owns similar structures. It is easier to understand from some literatures. In this report, a case study of Johnson & Johnson has determined that it is a global corporation by analysing its corporate structure, different product lines and company strategies. In competitive business circumstance, globalisation is an inevitable trend, not only for companies, but for the macro-economy. Globalisation makes the whole world look like borderless, it might boost international business