2. Why does the company spend such a large portion of its turnover on research? In 1856, a pharmaceutical chemist named Thomas James Smith opened a shop in Hull, UK. Forty years later, his nephew Horatio Nelson Smith became his business partner, and the firm of Smith and Nephew was created. Horatio was interested in developing dressings for wounds, and the business moved towards the manufacture of bandages and other dressings.

Massive expansion during the First World War (to meet the needs of wounded soldiers) took the company from 50 employees to 1,200 in only 4 years. In 1928, the company began development of Elastoplast, the adhesive bandage designed to compete with Johnson & Johnson’s recently introduced Band-Aid bandage. Band-Aid and Elastoplast were, at the time, revolutionary products: Band-Aid, introduced in 1920, only sold $3,000 worth in its first year and was hand-made until 1924. Elastoplast was originally a cloth bandage with an antiseptic pad and adhesive edges:

it was not until 1966 that the company introduced the Airstrip variant, which was a ventilated plastic adhesive strip with an antiseptic pad.

Smith and Nephew expanded by acquisition during the 1970s and 1980s, in the process of which the company acquired subsidiaries which produced medical equipment such as orthopaedic implants and continuous passive motion machines, which keep patients’ joints moving after surgery in order to avoid stiffness. Smith and Nephew were thus beginning to move away from their concentration on wound management and heading into general areas of patient recovery.