Abbott Alkaloidal Company - Term Paper Example

?Company Profile Dr. Wallace C. Abbott created Abbott Alkaloidal Company by incorporating the business in Illinois in the year 1900. Abbot today is aglobal health care company devoted to discovering new medicines, new technologies, and new ways of finding health (Abbott, 2011). The company produces six categories of products: pharmaceuticals, nutritional products, vision technologies, animal health, medical & surgical devices, and diagnostic instruments & tests. The firm distributes its products in over 130 countries worldwide. The common stock of the company is traded in the New York Stock Exchange (NYSE) under the symbol ABT. The closing price of ABT stock on September 3, 2011 was $51.04 (Yahoo, 2011). Abbott has a staff composed of over 90,000 employees worldwide. In 2010 the company generated $35.2 billion in sales. The company operates over 100 facilities globally. The corporate headquarters of the company are located in Chicago, Illinois and the CEO of the company is Miles D. White. SWOT Analysis A strength Abbott has is its tremendous variety of healthcare products. The company has a managerial staff that is fully committed to the R&D process. In 2010 firm invested $3.7 billion in research and development. The financials of the company are solid. The firm generated 2010 net income of $4.6 billion. The net margin of Abbott in 2010 was 13%. The firm’s profitability performance is quite impressive considering that in 2010 most companies in the industry loss money and as a result the industry average net margin was-23.9% (Dun & Bradstreet, 2011). Abbott has paid a growing dividend for 39 consecutive years. A weakness Abbott has is that it faces lots of competition in the pharmaceutical sector. Another inherent weakness of the company is that pharmaceutical companies have to spend over $800 million to develop a new drug (Healthcare-economist, 2010). A third weakness Abbott faces is strict regulatory environment which includes compliance with FDA rules and protocols. A threat Abbott faces is the production of counterfeit drugs. Counterfeiting is a multi-billion industry that targets the pharmaceutical, software, and apparel industries among others. A second threat the company faces is the launch of new drugs that are more effective and cheaper than their products. A third major threat Abbott faces is not being able to recruit sufficient scientists with the specialized skills needed due to a shortage of available talent in technical professions. Another threat that Abbott must be aware of is the possibility of lawsuits by customers who claim one or more of their products are defective. These customers could claim that instead of helping the products hurt the health of the customers. There are opportunities that Abbott can exploit to achieve greater growth. The company currently does not have a market presence in 35% of the countries of the world. A goal for the company should be to achieve penetration in 100% of the world’s nations. The firm has other opportunities that can be achieved through innovation such as becoming the first company to find a vaccine for the AIDS/HIV virus. A cure for cancer is another breakthrough project that could generate the company billions of dollars in revenues. Strategic Objectives A strategic objective of the company is to use a diversified product offering to differentiate Abbott from the competition and to achieve superior operating performance. The strategic objectives of the firm were achieved in 2010 through growth of existing product lines, new product launches, geographic expansion and acquisitions (Annual Report: Abbott, 2010). Plans to Meet Objectives For the firm to meet its strategic objectives the executive management team has to implement various tactics and strategic options that will allow the firm to continue its path towards greater success. The firm can achieve better international growth by aggressively expanding its business in emerging economies outside the United States. China represents a market that must be target more aggressively by the company. There are 1.3 billion potential customers in China. The economy of China has been growing at a very high rate of approximately 8.5% annual GPD growth for the last 30 years (Chinaability, 2009). India should be another target market since they have the second largest population of earth with approximately 1.2 billion citizens. Abbott is already the top pharmaceutical company in India. Further penetration to achieve a higher market share is a desirable outcome because each percentage point increase translates in millions of dollars in sales as a consequence of the large size of the marketplace. Due to the outstanding financial results in 2010 the firm should invest 25% of its net income to diversify the holdings of the company through acquisitions in non-related industries. This will help the company reduce its overall market risk. Risks & Contingency Plans Abbott must develop contingency plans in order to improve its risk management function. An imminent threat for Abbott as a producer of many drug products is lawsuits. A way to be better prepared for the risk of a lawsuit is by identifying a good legal firm that specializes in corporate law. The firm should be paid a retainer of $1 million. If any lawsuits occur the law firm would immediately defend the company. A second contingency plan is to prepare an investment fund with the purpose of using the portfolio as collateral to pay off any litigants in case the law firm decides is better to settle or in case the firm loses the lawsuit. The portfolio should be worth $500 million. Recommendation Abbott had a very strong year in 2010. The firm has implemented a sound product diversification strategy within the healthcare industry. The strategy has helped the company achieve profitability in an industry that is currently facing tough times. The company should take advantage of its good fortune and it must invest a portion of its current assets into other business segments outside the healthcare industries. The company believes in using acquisition to achieve growth. I recommend that the company invest in three companies outside its industry. The acquisition of the firms can be done using hostile takeovers in order to accelerate the process. Along with diversification outside the industry the firm should continue to invest a lot of money on research and development initiatives. References Abbott.com (2011). About Abbott. Retrieved September 4, 2011 from http://www.abbott.com/global/url/content/en_US/10:10/general_content/General_Content_00004.htm Annual Report: Abbott (2010). Retrieved September 4, 2011 from http://media.corporate-ir.net/media_files/irol/94/94004/Proxy_Page/AR_2010.pdf Chinaability.com (2009). GDP Growth in China 1952-2009. Retrieved September 4, 2011 from http://www.chinability.com/GDP.htm Dun & Bradstreet (2011). Key Business Ratios: Pharmaceutical Prep. Retrieved September 4, 2011 from Dun & Bradstreet database. Healthcare-economist.com (2010). Cost of drug development: $1 billion. Retrieved September 4, 2011 from http://healthcare-economist.com/2010/02/16/cost-of-drug-development-1-billion/ Yahoo.com (2011). Abbott Laboratories (ABT). Retrieved September 4, 2011 from http://finance.yahoo.com/q?s=ABT&ql=1 Read More