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The Upjohn Corporation began in 1885 when its founder, W.E. Upjohn, obtained a patent for a new type of pill. In it early stages Upjohn experienced rapid growth helping it become a low cost leader and possess a differentiation advantage over its competitors. Decisions concerning profit margin led the then directors of Upjohn to focus on research and development in order to take advantage of the perceived luxury market and its higher profit margins. This has led to a large portion of the budget being diverted to the development of new products. Consequently, Upjohn business level strategy is to focus on the distribution of its products. By developing market to compliment its research and development of new drugs, Upjohn was able to find itself an advantage over some of its competitors. Along with discovering markets for its products Upjohn also began to develop the specialty chemicals it needed to produce its products. This development in Upjohn vertically integrated to company. Producing the chemical ingredients necessary for the production of its products Upjohn was able to ensure the quality of its products as well as maintaining lower costs. Within the health care industry, Upjohn aggressively sought after the doctors and pharmacists with extensive sales efforts.
This was a successful strategy that allowed Upjohn to grow throughout the 1930’s. At the core of this success was the creation of the Medical Department in 1937 to establish, maintain, and upgrade the working relationships with physicians. Also, paramount to Upjohn’s success was the high quality research department. Developing new products is essential, especially in the pharmaceuticals industry, to create profits. The sales department was continually adapting to meet the needs of the research department in order to quickly gain revenues from new products.
To compliment the business level strategy, Upjohn’s vertical integrated the production process. This action helped streamline production and cut down on production delays while ensuring high quality products. In-house production of its chemical ingredients had added benefits as well. The chemicals division was expanded to external sales and gained large profits from this extension.
Upjohn’s corporate level strategy was to become a dominant pharmaceuticals supplier in the global market. To accomplish this Upjohn began to develop and acquire interests in a wide array of fields. Upjohn began by adding subsidiaries and sales offices and built two major production facilities outside the United States, Belgium in 1963 and Puerto Rico in 1974. The first venture out of pharmaceuticals was into animal health in the 1940’s. Upjohn has added other agricultural products over the years. They acquired Asgrow Seeds in 1986 to develop new strains of crop seeds. In 1986, a joint venture was formed with Tyson Foods. Upjohn also began diversifying into nonagricultural products with the purchase of Carwin Company in 1962. Carwin as then combined with Fine Chemicals and Upjohn began producing cosmetics in 1964. The high degree of diversification complimented Upjohn’s business level strategy of delivering the greatest number of products to the greatest number of people. The company now had an enormously diversified business portfolio and an extensive sales force to promote their products. Such a degree of diversity gave Upjohn the advantage of generating revenues from several different fields. This can hedge the company against the risk of economic trends. However, the level of diversity requires enormous capital and expenses. The divisions at Upjohn never produced the revenues they expected and was hurting the firm’s bottom line. Coupled with the increasing competition, the firm could no longer afford to keep large interests in their various holdings. Consequently Upjohn began selling of several of its subsidiaries.
In order to recover lost revenues from the recent spin-offs, Upjohn began to look to foreign markets as sales potentials much more than in previous years. In order to compete with other pharmaceutical companies, Upjohn needed a way to easily enter the global market on a large scale. Another concern for Upjohn management was the recent trends in the industry of large companies merging to form pharmaceutical mega-corporations. Management feared that, because of Upjohn’s excellent research division, it would soon be the target of takeover attempts. Therefore, current CEO sought a partner that would compliment Upjohn’s strengths and make up for its weaknesses. A merger with European Pharmacia was sought to fill this need. Pharmacia has extensive distribution faculties throughout Europe that was attractive to Upjohn for promotion and distribution of its products. Pharmacia was likewise interested in Upjohn’s research and their distribution abilities in the United States. With this merger the new corporation, Pharmacia & Upjohn, will be able to compete in the global marketplace.
On the forefront of the threats facing the management of Upjohn are the bargaining power of buyers, the rivalry among established firms, and the threat of substitutes. The increasingly stringent drug policies force the buyers of Upjohn’s and other drug manufacturer products to be more selective of which products they buy. Fears of lawsuits gives physicians and pharmacists leverage when discussing prescription drug purchases and selecting recommendations. The rivalry among the current firms in the industry has become intense as the firms vie for a larger market share. This was the underlying factor behind the Pharmacia & Upjohn merger. While it will benefit both companies to have each other’s distribution resources, the merger will protect both companies from takeover attempts by larger firms. One other important threat to the profitability of Upjohn is the threat of substitutes. Recent legislation that makes it easier for generic drugs to enter the market can have disastrous effects to the bottom line. Generic drugs are cheaper and will erode the profits of the developing firm.
To meet the needs of a changing environment, Upjohn has revamped its capital structure and level of diversification. Management has sold off several of its subsidiaries in order to increase profitability and streamline it business. Global competition led to the merger with Pharmacia. The merger will allow Pharmacia to utilize Upjohn’s distribution network in the United States while allowing Upjohn to take advantage of Pharmacia’s distribution network in Europe.
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