KOTRA moving to Main board

Higher profile
By ERROL OH
errol@thestar.com.my
KOTRA Industries Bhd managing director Jimmy Piong has no qualms admitting that over the years, he has made his fair share of mistakes and wrong assumptions when running the Mesdaq-listed pharmaceutical manufacturer. But that also means that he and the rest of the company's management have learnt a lot in the process.

Now that Kotra is in the midst of transformation, all those lessons may prove valuable in keeping the company on course towards its goal of becoming a world-class player.
The most visible and immediate adjustment is scheduled to happen this week. After completing a six-for-five bonus issue, Malacca-based Kotra will transfer to the main board. When it was listed in October 2000, it became the third Mesdaq counter at a time when Mesdaq was a fledgling exchange that struggled to gain acceptance.

We earn market share by establishing trust via predictability, service, and innovation, says PiongAs with all graduations to the main board, the rationale is to enhance recognition and reputation among investors and business associates. At the same time, a move to the main board can be construed as sign that the company is ready to aim for bigger things. That is certainly the case with Kotra.

Says Piong: “We're going through a wholesale change – in terms of human resource, capacity, systems. The entire company infrastructure is being realigned so that we can become an international player.”

For example, in recent times, the company has recruited key executives, including those who have senior-level experience at multinational pharmaceutical companies, to beef up the talent in areas such as research and development, marketing and exports.

“We have one of the best teams (in the pharmaceutical industry) in the country. We now have the soft skills, the human skills, to do what we want to do,” says Piong.

At the top of the agenda is the plan to significantly broaden its product range and market presence so that it can grab a big slice of the generic drugs business. The idea is for Kotra to be the industry's equivalent of a supermarket, but Piong prefers the term “Harrods for pharmaceutical products”.

He adds, “I want a situation where it's enough for a doctor to deal with just Kotra. The aim is to have at least one product for every segment, to provide a one-stop centre for our customers.”
Kotra has almost 170 products registered with the National Pharmaceutical Controls Board. The over-the-counter (OTC) business has always been the mainstay of the company, but its branded generic products (which are dispensed with prescriptions) are growing in significance.
In FY02, generics accounted for 13% of Kotra's turnover. The contribution more than doubled to 28% in FY06.

Piong says this reflects the company's efforts to widen its revenue base. “The generics business is more resilient and recurrent. Also, the manufacturing of generics is more sophisticated and that helps us climb up the value chain,” he explains.

The term “generics” may suggest that consumers are not too bothered about brands when it comes to such products and that they tend to opt for the lowest-priced ones, but Piong believes that there is room for Kotra to establish an edge.

He says, “We don't believe in competing on price; our products are not the cheapest. We focus on strategic positioning. We earn market share by establishing trust via predictability, service and innovation.”

Kotra subscribes to the power of branding. It should know. After all, the Appeton name is among the company's biggest assets and is recognised outside Malaysia as well. Appeton began in 1989 as a single product, that is, a tonic to help children gain weight, but it is now an umbrella brand for Kotra's health supplements.

However, it was not at all an overnight triumph. “It took us many, many years to establish the brand. The first 10 years was a lot of trial and error. It taught us about how to be more prudent and more resistant to slip-ups,” Piong recalls.

“Advertising was a luxury back then. Most of the money went towards infrastructure and assets. The turning point was when we had sufficient funds to spend on advertising and promotions. Without brand-building, you cannot be somebody.”

Nevertheless, there is also the question of backing up the brand promise. “You can't have the branding and advertising without good products and innovation,” Piong points out, adding that emphasis on research and development is part of Kotra's game plan.

Also, he says, a sturdy and wide distribution network must be in place. He adds that Kotra has an advantage because it distributes its own products, thus giving it control and access to customer information.

Kotra also plans to penetrate overseas markets aggressively. It already has its products in 11 countries, and the next targets are Kuwait, Thailand and the Philippines. Piong says the company intends to go into 12 other countries and the introduction of the products is in various stages of submission, registration and approvals.

He adds that exporting pharmaceutical products is a complex matter because of the different regulatory frameworks and market conditions.

“It's a very tricky thing. Many people have failed when they ventured abroad. The challenge is not to bulldoze your way through. Our export business will not be driven by our representatives in the foreign countries. It will be driven by our head office,” he explains.

“You really have to get involved in market development. It takes a longer time to see results but it's worth it. We don't just export our products; we provide our marketing expertise as well.”
Another major project for Kotra is a new factory in Malacca that will be built in three phases, and will axpand Kotra's current capacity by up to 10 times. The first phase will cost about RM65mil, including for the machinery. The plant is expected to commence operations in the beginning of FY09.

Piong says it will be the most modern pharmaceutical production facility in the country. “The whole idea is to build a centre of manufacturing excellence,” he adds