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$\text{'}$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$\text{'}$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 $6\mathrm{.}1$ percent. The Consumer segment produced the other $21$ percent, increasing $2\mathrm{.}8$ 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