Based on 2013 figures, Johnson & Johnson reported having the seventh-largest pharmaceutical business worldwide, the No. 6 biotech business, the largest medical devices and diagnostics business, and the sixth-biggest healthcare consumer business. J&J's impressive business results during 2013 were paced by a stellar performance in the company's pharmaceutical segment; the strength of key brands in the U.S. over-the-counter medicines business; and continued progress in integrating Synthes Inc. into its Medical Devices and Diagnostics business. The company additionally advanced its longer-term growth drivers of bringing innovative solutions to the worldwide health-care market. Pharmaceuticals represented 39 percent of J&J's overall 2013 sales on a strong operational growth of 12 percent versus 2012. Medical Devices and Diagnostics accounted for 40 percent of the company's sales with operational growth of 6.1 percent. The Consumer segment produced the other 21 percent, increasing 2.8 percent on an operational basis year-over-year. During the past five years, J&J has consistently invested roughly 11 percent of sales to support its R&D efforts. That investment equated to more than 58 billion enterprise-wide in 2013. The R&D program continues to deliver results, as about 25 percent of the company's 2013 sales stemmed from products launched in just the past five years. J&J shareholders during 2013 were rewarded with a total return of almost 35 percent, which outpaced nearly every major index the company benchmarks itself against. J&J has generated 30 consecutive years of adjusted earnings increases and is one of only six companies in the S&P 100 to have produced 51 consecutive years of dividend increases. The company has had numerous recalls in their consumer healthcare division recently, which rocked the organization's once sound image, and diminished its profits. The product recalls have been a result of poor-quality management and errors in the manufacturing process. To counter this issue, J&J uses a vertical integration strategy to gain more control over the manufacturing of its products, advanced technology, and more trusted industry experience. If J&J has greater control over their value chain, then greater stability and higher quality goods will be sent to retailers. According to management, J&J is truly a worldwide company with a global mindset, backed by 275-plus operating companies in 60 countries. As of early 2014, 55 percent of the company's business was generated outside the United States, and 22 percent of sales stemmed from fast-growing emerging markets such as Brazil, Russia, India and China. Questions: 1. Explain Johnson & Johnson's level and type of diversification. Justify your answer. 2. Explain the concept of internal capital market allocation and outline two ways in which Johnson & Johnson is using this to achieve financial economies. 3. Discuss Johnson and Johnson's motive to vertically integrate within its business sectors and state the benefits of doing so