FREE ESSAY ON PHARMACIA & UPJOHN CASE ANALSYS

PHARMACIA & UPJOHN CASE ANALSYS

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.