African ventures
Ardhian Novianto | May 09, 2011

It’s been 15 years since PT Kalbe Farma first started scoping business opportunities in Africa. The pharmaceutical company opened its first plant in Nigeria in 2005 and is slowly working its way through the continent. It was 1990 when the first Nigerian traders walked into Kalbe Farma’s Jakarta office carrying bags full of US dollars.

The cash was to pay for Kalbe Farma medicines for export to Nigeria. The pharmaceutical company was wary of Africa at the time and was only willing to sell its products for cash in advance. On top of security reasons, Nigeria applied foreign exchange reserves at the time and didn’t have an open banking system. Things have changed since then and these days Kalbe Farma transfers direct to Nigeria, says Vidjongtius, the company’s director.

The decision to do business in Africa was instinctual rather than strategic. Market data on the sale of over-the-counter drugs (OTC), he says, was virtually non-existent at the time, but after two years of steady sales Kalbe Farma decided to penetrate the African market further. Kalbe Farma’s products in Indonesia such as Procold and Mixagrip are now well-known in Nigeria. The $13 million acquisition of the Woods brand in 1997 was part of this move as the brand had a well-established market in South Africa and Zimbabwe. Since then, Kalbe Farma has moved into Zambia, Mozambique and Ghana.

Reinforcing its presence in the region, the company decided to invest capital in Nigeria. In 2005, Kalbe Farma built a paracetamol factory in a joint venture with a local partner in Lagos. Generally, the Indonesian pharmaceutical company prefers to export from its factories at home rather than build new factories in foreign countries since its existing factories run efficiently and experts are hard to come by in Africa, says Vidjongtius.

A government regulation stating that all drugs containing paracetemol sold in Nigeria must be produced in Nigeria, however, made the new factory an imperative. Since then, Kalbe Farma has focused on developing a market for its ethical products. In contrast to OTC products, marketing prescription medicines involves continuous meetings with hospital management and medical professionals. “Prescription products are more work. We can’t just advertise as we do with OTC products,” he says.

In addition to its pharmaceutical products, Kalbe Farma last year introduced Extrajoss lemon and pineapple energy drinks to the Nigerian market. The company, admits its director, is still tweaking the product for a different market. “We are still in the exploratory phase. We need about three years to see whether it will be accepted by the market or not,” he adds.

Mandiri Sekuritas analyst Made Suwardhini notes that Kalbe Farma’s exports to Africa are merely a blip on the radar and the company’s management has not focused seriously on its export market. “Kalbe Farma just takes the opportunities that exist. It doesn’t actually create new ones. If new markets exist, why not work harder?” The value of Kalbe Farma’s exports to Africa currently makes up only 5% of the company’s total sales.

Market leader

While it’s African excursion may not be world-shattering, with 14% of market share at home, Kalbe Farma is ahead of multinational companies as the Indonesian market leader.  The company’s market capitalization, valued at Rp30 trillion, is also the largest in Southeast Asia in its sector. The dominance of multinational pharmaceutical companies varies from country to country within the region, but in general the market is very fragmented.

In Indonesia, as in the Philippines, there are around 200 pharmaceutical companies, 30 of which are multinationals. Consequently, competition is tight. In South Africa, multinational companies dominate, while in Thailand both multinationals and local companies have strong market positions. In Nigeria, there are several multinational and local companies, but competition is low as there are only a few players.  

Mandiri analyst Suwardhini estimates that Kalbe Farma’s revenue will grow by 14-15% this year, higher than last year’s rate of 12%. The introduction of Extrajoss in Nigeria and positive economic trends formed the basis of the estimate, she said. “I think it is still possible for Kalbe Farma to raise its sales again. I am also optimistic about Indonesia’s economic growth. It will improve living standards and will spur higher consumption of pharmaceutical products,” she explains. 

Recognizing the popularity of herbal products, Kalbe Farma offers products such as Procold Promuno and Entrostop that include herbal ingredients. Other new products include Fatigon Hydro, an isotonic drink made from pure coconut water. To produce Fatigon Hydro, Kalbe Farma has collaborated with PT Kara Santan Pertama. 

“Actually, we just utilize the waste from Kara Santan Pertama’s coconut milk production. They just use the coconut meat and waste the coconut water. So we collaborated to make use of the coconut waste,” explains Vidjongtius. GA  

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