Introducing Johnson & Johnson (J&J)

11/1/2013

Apologies for the delay in the making of this blog; this is a first for me so I’m fumbling with the wheels but I’m eager and interested to know where my accumulated reflections upon my first industry experience will take me and what you think of them. I’ll be posting up the journal recounts that I have recorded relating to my experience thus far so please feel free to read and join in with comments, queries or whatever tickles your curiosity.

I thought I would start off by laying the foundation and giving a brief insight into what exactly Johnson & Johnson, more famously known for their baby products, can do and their breadth of capabilities. Products made by Johnson & Johnson are frequently perceived to be limited to those which are often seen on ads, catalogues and on the shelves of your local woollies supermarket, known as fast-moving-consumer-goods (FMCGs) but this is quite deceptive and misleading as they produce just as many medical and pharmaceutical products as consumer goods, if not more.

A sneak peak into my IT1 Pre-Placement Sponsor Organisation Analysis will give a better idea of the industry J&J is a part of:

1.      Nature of industry and its economic significance

Johnson & Johnson (J&J) is one of the world’s most comprehensive and broadly based health care companies, operating not only in the consumer health care industry but also the medical equipment and pharmaceutical industry. They provide a range of different products and essentials to hospitals, doctors, patients and the everyday consumer. Products sold to doctors and hospitals pertain to the array of procedures and methods that address the medical needs of people, thereby indirectly affecting the wellbeing of many around the world.

2.      Main participants in the industry, market concentration, products

Major competitors in the medical equipment and supplies manufacturing industry include companies like Baxter International, Boston Scientific and Medtronic. Other competitors are Pfizer, Novartis, AstraZeneca and MSD.  As demand is driven by population demographics and advances in medical knowledge and technology, profitability is dependent on the ability to produce superior goods. Large organizations like J&J are able to achieve economies of scale in manufacturing and R&D while small companies can specialize in a particular market sector.

3.   Accounting issues relevant to the industry

There are two main accounting issues relevant to this industry. As J&J is listed on the New York Stock Exchange (NYSE), all affiliates of J&J are required to report against US GAAP. However as different accounting standards have been adopted in different countries there have been many difficulties and issues arising from the reconciliation of the domestic country’s reporting requirements and US GAAP. Initiatives to address this has been to conduct certified internal audits (CIA) by the US once every three years to regulate compliance and consistency of accounting methods across the world.

A second accounting issue relates to the rebates and subsidies received from the government and the method of disclosing this information along with returns and allowances. There have been many complexities and issues with applying rebates to products as their discount varies from product to product. Returns and allowances give rise to classification issues on the BS and PL. One of the reasons for this is because if a surgeon orders medical equipment of a particular size, J&J must deliver not only the requested size but 2-3 sizes above and below that as well to guard against any miscalculations that may only be realized during surgery. The equipment that is unused is returned but the amount is unknown until received.

4.    Key challenges, issues and developments facing the industry and the accounting profession

One of the developments being encouraged at J&J is a well-balanced life style through the implementation of a decentralized management system and the honouring of a credo which atypically acknowledges that our first responsibility is to our customers and then our shareholders.

A key challenge facing the industry relates to the demographical nature of Australia. A trend of this industry is that it has been consistently growing due to the increase in the aging population across the world. There are more people getting old then there are being born and this means that the number young people who are qualified to care for the elderly are becoming increasingly scarce with continually new illnesses to combat.