Section A: Introduction

Abbott Laboratories is an American global company. It specializes in production on

pharmaceuticals and health care products. For instance, Surbex Natopheron ALA Plus which acts
as antioxidant for diabetes is produced by this particular company. Abbott Laboratories has
approximately 90,000 employees. This well-known company operates over 130 countries
worldwide. The company headquarters are in Abbott Park, North Chicago, Illinois. In 1888, a
Chicago Physician, Wallace Calvin Abbott has founded this company. Abbott Laboratories has
been contribute to this society especially in health care field for about 125 years.
Abbott Laboratories has a few competitors. One of the competitors is Pharmasset Inc..
Pharmasset Inc. is a pharmaceutical company based in Princeton, New Jersey in the United
States. The firm's stock return in the first three fiscal quarters (nine months) of 2011 was 278
percent. Among analysts, 17 rated the company's stock as "strong buy" or "buy," while two rated
it a "hold." Pharmasset was the best performer in this period among all major U.S. exchanges
among stocks trading for at least $1.50 on January 1, 2011. The other competitor is Rowell
Laboratories Inc.. It is a pharmaceutical manufacturing company which was founded in 1929,
was located in Baudette, Minnesota, and later included facilities in Marietta, Georgia and
Orlando, Florida. In 2008, the company was incorporated again in Florida. This time it
manufactures and sells The Nature Care brand skincare products.
Abbott Laboratories is a strong market in pharmaceutical products. A
lot of consumers prefer to buy its products rather than other companies
products. This is due to the effectiveness of Abbott Laboratories products.
Their products are highly recognized by world. The safety of consuming its
products

also

make

the

company

hardly

be

defeated

by

other

pharmaceutical company.
One of the business and technology trends of this company is
tightening FDA regulation. In the beginning of 2009, the FDA implemented a
series of reforms that include stricter monitoring of drug adverse events,
more funding for the agency, stronger ability to force product recalls, more
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scientific expertise within the agency, more transparency. While the

tightened regulations and increased transparency will eventually improve the
overall quality of pharmaceutical products, companies will have to adjust to
the stricter standards and stronger enforcement. In addition, Abbott
Laboratories will have a strong pipeline. It diverse its businesses. If Abbott can
successfully maintain a diverse business spread beyond pharmaceuticals in
nutritional and medical devices as well, it can insulate itself from the
decrease in profit caused by patent expirations. Abbott's nutritionals division
generates an important portion of its revenue, but that still might not be
enough to offset a heavy loss of pharmaceutical revenue due to expired
patents and generic competitors. The performance of Abbott's Xience V
drug-eluting stent will be important for boosting profits in Abbott's medical
division.

Section B: Applications
Sun Tzus Philosophy #1: Strategic Attack (Chapter 3)
In this chapter of Sun Tzus Art of War, Sun Tzu explains about the principle of strategic attack.
He mentioned about the four stages of strategic attacks. Firstly it is to win by strategizing;
secondly it is to disrupt the strategic alliances of your enemy. If the plan failed, then we go after
the enemy directly. Lastly, if all the stages above doesnt going as expected, then only we choose
for the only option left, which is to go all-out assault against walled cities.
Sun Tzu said: If general, when waging war, capturing a whole nation intact is a better strategy;
to shatter and ruin it is a weaker option.
Sun Tzu mentioned that to fight a hundred battles and to win a hundred victories is not a
reflection of the most supreme strategy. The cost and damages of war are to be taken into
consider. Other than that, to redevelop a ruined nation is even costlier than we can imagine. So
Sun Tzu taught about the three principles that are vital for a great general. First is to conquer the
enemy without having to fight through skilful strategizing. Next is to capture the cities without
having to assault them through overwhelming them with far superior forces and forcing them to
surrender. Thirdly is to conquer states without taking a long time. In business application, a
company needs to consider diplomatic approach by making their opponents into allies. Abbott
Laboratories clearly has used this principle in their business. Abbott Laboratories and
Millennium Pharmaceuticals have announced that they have formed a unique and comprehensive
strategic alliance covering joint discovery, development and commercialization of a wide range
of both drugs and molecular diagnostics for the treatment and management of obesity and
diabetes. Through their partnership, they also utilize the genomic and molecular discoveries of
the joint research program for the development of diagnostic and pharmacogenomic products for
metabolic disease. Besides, both companies have also agreed a non-exclusive limited technology
exchange and the co-development of additional technology tools.

Sun Tzus Philosophy #4: Forces (Chapter 5)

This chapter basically outlines the effectiveness of military forces, direct and indirect forces
along with momentum and timing. The effectiveness of military forces refers to the organization
of a group/army/company.
Sun Tzu said: In battle, there are only two methods of attack (direct and indirect), yet these
combinations give rise to an endless series of maneuvers.
It is vital to plan, think, act, behave and strategize beyond the box. Though there are only two
main forces involved here, by combining and putting them together may lead to different
outcomes.
Sun Tzu said: When the ferocious strike of eagle break the body of its prey, it is because of the
exact moment and timing of its engagement
Next, momentum and timing is the ability to make a good decision and exploit space at
the right moment. Companies can make better judgments that lead to strategy decisions by
having a better understanding of the environment, nature of competition, characteristics of target
audience and the strengths and weaknesses of company and competitors.
This is relatable to our mentioned company. Abbott Laboratories have been researching
pharmaceuticals as its main focus in business over the past century. However, in recent years,
they have directed their focus onto the diversified and wide medical product sector. It all started
when big pharmaceutical companies were faced with an extremely murky landscape going
forward. The high cost for the research and development of new drugs had lead to an increase in
government regulation projected to shorten patent protection periods. As a result, this has made it
difficult for pharmaceutical companies to produce high enough revenues to cover their costs of
production. Hence, Abbott has shifted their focus towards other parts of their business that soon
started another product line for the company.

This incident shows how Abbott uses a downfall period as an opportunity to explore a
related yet new field. It was a new idea that allowed them to maneuver their business towards a
direction with more opportunities at the right moment.
Sun Tzus Philosophy #2: Weaknesses and Strengths (Chapter 6)
In this chapter of Sun Tzus Art of War, Sun Tzu explains about examination the fluidity of
competitive environment and the important of potential mechanism of change.
Sun Tzu said: When I win a victory, I do not repeat the tactics but respond to circumstances in
limitless ways. Thus, the one who can modify his tactics according to the enemy situation shall
be victorious and may be called the divine commander.
This is one of the Sun Zhu Art of War and Business strategy implemented by Abbott
laboratories. In fact, Abbott laboratories show a lot of flexibility in the direction of their business.
For instance, in the past few years the company has been putting emphasis on nonpharmaceutical products instead of pharmaceutical products through the announcement of
separate Abbott into two separate healthcare companies. This spinoff clearly show that the
Abbott have diversified in their medical products business such as nutritional products, medical
devices, and establishing a company concentrated on research based pharmaceuticals. They are
willing to sacrifice their core business and focused on the other lines of business which they are
not expert at. Actually, the real intent of Abbott is to cash in on those businesses. This is because
the risk for branded pharmaceutical companies had been increased from time to time. Generic
competition, expiring patents and government regulation with all indirectly become the reason of
increasing the risk for the companies. Fortunately, Abbott had the foresight on diversify their
business as now is the time for them to make profit towards those products. For example glucose
monitoring devices, vessel closure devices, and so on.

Sun Tzus Philosophy #3: Movement and Deployment of Troops (Chapter 9)

In this chapter of the Art of War, Sun Tzu explains about the principles of deployment of
troops. He also explains how to move the enemy, how to stall the enemy, the different situations
in which you find yourselves as you move into new enemy territories and how to respond to
them.
Sun Tzu said: After crossing the mountains, move and stay close to the valleys.
Sun Tzu emphasises on supplies and provisions and this is where usually food and water are
abundant, close by and continuous. In real business world, we should not have only one supplier
or distributor because we are exposing ourselves to unnecessary risk. When the supplier or
distributor had met their own financial problem, we might not be able to continue our business as
well. Besides that, try to establish good relationship with suppliers and distributors. Abbott had
done well in this area. Abbott suppliers are strongly encouraged to contact Abbott Purchasing
whenever there are questions relating to the appropriateness of any activity. Also, they introduce
Abbott Supplier Guidelines for establishing and maintaining a business relationship with them.
Sun Tzu said: For a commanding view and to ensure better chances of survival, occupy high
grounds. When your enemy is approaching, you can be prepared to engage them and to
familiarize with the surrounding terrain.
In business, this means that you should have as much information about your enemy and the
market as well. With more information, you can be more detailed in your plans and be better
prepared to take on your competitors with confidence. In 2012, Abbott has become the third
largest pharmaceutical settlements in US by selling Depakote.
Sun Tzu also mentioned about the loyalty, discipline and trust. With greater loyalty and
higher standards of discipline, it will result a stronger combat force. For example, we must treat
the employees like the way you want other people to treat you if you are the employee. Abbott
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protects their workers from exposure to chemical, biological, physical hazards and physically
demanding tasks in the workplace and other company-provided facilities.

Section C: SWOT Analysis

Strengths
Global presence
Abbott, being an established international pharmaceutical company, have their branches
worldwide and even acquire one of the top three Indian multinational healthcare company. The
acquisition of Solvay provides Abbott with a large and complementary portfolio of
pharmaceutical products besides expanding Abbotts presence in the market globally. Abbotts
international diagnostic sales are more than double the domestic sales.
Big warehouse
Abbott has the biggest warehouse in the pharmaceutical industry that is able to support the high
production levels without incurring any other additional inventory costs. The company is also
considering in building more warehouses in Asia so to accommodate the increasing market here
and to reduce distributional costs.
Strong record of lifecycle management
In the pharmaceutical industry, every product will have patent. Once the patent of a product
expires, the monopoly power for the product is over and the revenue will start to decrease.
Abbott is managing this lifecycle problem well and smoothly by introducing new products prior
to the expiration of the previous product.
Large market share
Abbott diversifies and produces a wide range of products in healthcare industry, ranging from
nutritional products to diagnostic product. Abbott is one of the largest nutritional company
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worldwide and also the second largest company in diagnostic industry. The huge revenue earned
in this two market had make sufficient fund to finance their research and development.

Weaknesses
Upcoming patent expirations
Abbott is overly dependent upon mature products whose patents may expire in near future. They
have to worry about the patents on their protected drugs expiring. Abbott faces no major patent
expirations till 2013, but their blockbuster drug Humira will reach its patent expiration in 2016
and if they are not able to produce another highly profitable drug before then they are likely to
see a major drop in revenue.
Narrow phase III pipeline
Abbott have relatively few(fifteen) phase III drugs in their pipeline, the final stage before
proceeding to human trials, and of those there do not seem to be many with projected explosive
launch opportunities. They also only have thirty compounds currently in human trials and few of
these compounds offer expansion into new realms of healthcare but simply offer new treatments
for existing therapeutic positions.
Excess reliance on blockbuster Humira for revenue
There is a risk as Abbotts excessive reliance on Humira, which represents 33% of
pharmaceutical segment revenues and 17% of the total revenues, to generate revenues and fuel
growth. Humira goes off-patent in 2016 and while it will not experience the rapid pace of market
share loss typical of small molecules, blockbuster biologics such as Humira is likely to attract the
large generic players to create biosimilars. This competition will slowly erode Abbotts market
share over time.
Litigation

Abbott faces a lot of litigation cases in various countries regarding its products. The estimated
litigation-related contingent losses between $75-$115 million.

Opportunities
Positiveoutlookfordiagnosticsandnutritionalproductsmarkets
Abbott have seen their diagnostics segment increase revenue and a similar story in their
nutritional products division. This increased profitability from these two sectors of their business,
coupled with rising costs, riskiness, and regulation in their pharmaceutical business might be a
motivating force behind the planned spinoff of their pharmaceutical division. There will keep
pharmaceutical division operating as a wholly owned subsidiary of Abbott Laboratories under a
different name. This offers Abbotts investors another investment vehicle to capitalize on the
companys different growth strategies. It will allow Abbott to focus on the realizing the potential
high growth and high margins of their nutritional and diagnostic product lines.
Pioneering solutions that advance health care
Abbotts dedication to women's cardiovascular health began with pioneering clinical research.
One of the obstacles in improving the standard of care for women with cardiovascular disease
has been the lack of pre-specified gender-based clinical research. Abbott Vascular is the only
cardiovascular device company sponsoring a clinical trial solely dedicated to the study of
women, which helps meet the vital need for clinical research specific to women's heart health.
Leverage product portfolio in emerging markets
There are opportunities to leverage diagnostics group to create synergy by identifying
biomarkers and patient subsets that will benefit from Abbotts pharmaceutical portfolio,
potentially expanding its market share and leading to new indications for existing drugs.
Opportunities for mergers and acquisitions
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Abbott can utilize joint license agreements with other companies in order to lower development
costs and still achieve some profit for their pharmaceutical line of business.

Threats
Generic erosion
After a products patent is expired, generic brands competitor will flood in immediately, causing
Abbotts revenue dropped significantly. Abbott must buck up and plan their pipeline properly in
order to get a steady stream of new revenue source.
Government regulation
Since the Patient Protection and Affordable Care Act, which commonly known as Obamacare, is
introduced, profit of all pharmaceutical companies drop significantly. Besides, legislation also
attempts to shorten the patent period so as to create generic erosion so that healthcare products
can become cheaper.
Industry consolidation
Consolidation allows economies of scale to take effect, reducing production cost and increasing
revenue. Abbott has been making many acquisitions and growing steadily. But there is a threat of
being a target of acquisition itself by larger competitor companies such as Johnson & Johnson.
Competition
Rivalry among competitors in the industry is high as Johnson & Johnson, Pifzer and Novartis are
currently more profitable than Abbott. They all are fighting to launch their new products first
before the others do to get the patent right. They do not want to lose because they had been
spending a lot in the intense research and development in terms of time and money.

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Section D: Findings and Recommendations

Global expansion
According to Sun Zis philosophy in Chapter 8 which is Variations and Adapbility, a company
must be proactive. This means that Abbott Laboratories must take control and make things
happen rather than adjusting to a situation or just wait for something to happen. Abbott
Laboratories must change its current operation and adapt to a new operation through focusing on
emerging market. It is believed that Abbott will continue its global presence. In the past few
decades, emerging market consumers spending increased by 250%, leaving the growth rates of
the United States and Europe far behind. These companies have a strong growing demand for
healthcare and nutritional products which Abbott Laboratories is the best position to satiate. For
now, Abbott is the largest healthcare company in India. It is believed that the same opportunities
exist in other emerging markets and just as Abbott historically bolstered their drug pipelines
through acquisition, they can strengthen their global presence in the same way.
Biotechnology company acquisitions
According to Sun Zis philosophy of detailed assessment and planning from Chapter 1, in order
to understand and figure out a way to stand out in the dynamic and competitive environment, the
company must do a strategic analysis which focus on external environment needs. As a result of
the analysis, Abbott must do something to solve the problem of generic erosion other than
constantly releasing new products as they may not be able to do so. There is a way to avoid the
problem of generic erosion which is to produce products using technology that are hard to copy
by generic developers. Biotechnology companies had recently found remedies utilizing DNA and
genetics can effectively treat diseases too. Products produced by altering the protein structure is
hard for the generic developers to copy and so Abbott can continue to have monopoly power
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over that particular product even though the patent had expired. Instead of starting a biotech
department all over again, Abbott shall plan to just acquire a established biotech company which
already has a strong research and development department. This can effectively retain the market
share of their product even after patent expiration.

Synergies
In Sun Tzus philosophies of military maneuvers from chapter 7, he explains that it is important
to choose the right communication tools to match the circumstances at hand.In business
application, it is very vital to develop an effective internal communication. In fact, Abbott needs
to increase the communication among the various aspects of Abbotts business. After the
announcement of separating Abbott into two different healthcare companies, both of the
companies are operate on their own operations as separate entities. If the research and
development of both companies can integrate with one another then synergies that exist is
possible to unlock. For instance, one of the profitable products of Abbott which is Xience (drug
eluting stent) is developed after the integrating of pharmaceutical and medical device
department. Almost no other companies are able to compete with Xience due to the unique
nature of the stent. Therefore Abbott is able to earn the profit of this device as other company
lack of capacity and scientific knowledge in this aspect. Further integrating among the
companies of Abbott might able to develop more unique products like Xience.

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Section E: Conclusion
From this assignment, we get to understand better about the application of Sun Tzus Art of
War strategy in todays business world. We know that every company has their own weaknesses
and strengths. The company must overcome the weaknesses by keep making improvement so
that these weaknesses can become advantages that benefit the company. A company also should
keep improving its strong point in order to survive in competitive market environment. Many
companies had applied Sun Tzus art of war in operating their business, so as Abbotts.
Abbott Laboratories is an international company. It had produced a wide range of products in
healthcare industry. However, there is still have some improvement should be done by Abbott
due to the litigation cases. Besides that, some of the external environment may also affect the
company performance. So, Abbott has to find opportunities to expand their market or enhance
new product to compete with their competitors.
There are some recommendations is recommended to Abbott Laboratories to improve their
companys performance due to the problems and challenges faced by Abbott. In order to improve
the company, Abbott can strengthen their global presence, plan to acquire an established biotech
company and develop an effective internal communication.
In conclusion, Abbott Laboratories had implemented Sun Tzus Art of War strategy to make
its management more effective and efficiency. Hence, Sun Tzu Art of Wars strategy is very
useful in todays business world to success.

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