Corporate Level Strategy PT.

Kalbe Farma, Tbk

CORPORATE LEVEL STRATEGY PT. KALBE FARMA, TBK

Lim Sanny
Universitas Bina Nusantara, Jakarta
Jln. KH. Syahdan 9 Kemanggisan Palmerah, Jakarta 11480
[email protected]
Abstract
A corporate level strategy is expected to help the firm earn above average returns
by creating value. Some suggest that few corporate level strategies actually create
value. The financial crisis, which blossomed from the United States into a global
economic crisis, was a novel challenge faced by Kalbe in 2010. A combination of
declining consumer purchasing power against escalating prices of raw materials,
packaging, distribution costs (as the result of high oil prices), chemical
substances and other commodities, and exacerbated by the depreciation of the
Indonesian Rupiah from October 2010 all this ultimately resulting in a
compression in Kalbes gross margin, from 50.7% in 2009 to 48.3% in 2010. To
address such a challenge, Kalbe responded by implementing measures to renew
its strategies to promote efficiency as one of core emphases. This is to be
implemented by streamlining the management of the supply chain and controlling
operational expenses, boosting employee productivity and upgrading the
composition of products sold. Kalbe will also continuously prioritize product
innovation, in its quest to accelerate growth.
Keywords : Corporate Level Strategy, Strategy

structure right is an important precondition

for a successful corporate strategy.
Established in 1966, PT Kalbe
Farma Tbk has come a long way from its
humble beginnings as a garage-operated
pharmaceutical business in North Jakarta.
Throughout its more than forty year
history, the Company has expanded by
strategic acquisitions of pharmaceutical
companies, building a leading brand positioning and reaching out to international
markets to transform itself into an integrated consumer health and nutrition enterprise with unrivalled innovation, marketing, branding, distribution, financial
strength, R&D and production expertise
thus furthering its mission of improving
health for a better life. Vision To be dominant in the healthcare business in Indonesia
and be a part of the global market with
strong brands, enabled by excellent

Introduction
Business strategy deals with the
ways in which a single-business firm or an
individual business unit of a larger firm
competes within a particular industry or
market. Corporate strategy deals with the
ways in which a corporation manages a set
of businesses together (Grant, 1995). In
companies with intermediate parenting
levels, such as divisions, the grouping of
businesses into divisions is also important.
Lack of clarity on the added value role of
different levels, groups and individuals within the parent leads to redundant cost,
confusion, and reductions in net value
creation. Where the parenting tasks are
shared between different individuals, their
respective responsibilities also need to be
clearly defined and complementary. Getting the unit definitions and corporate
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Corporate Level Strategy PT. Kalbe Farma, Tbk

management, science and technology. Mission To Improve Health for a Better Life.
Values : Giving the Best to Customer, Striving for Excellence, Strong Team Work,
Innovation, Agility, Integrity. Motto : The
Scientific Pursuit of Health for a Better
Life.
The Kalbe Group has a broad and
strong portfolio of brands in prescription
pharmaceuticals, OTC pharmaceuticals,
energy drinks and nutritional products,
complemented with a robust packaging
and distribution arm covering over one
million outlets. The Company has

succeeded in promoting its brands as

undisputed market leaders not only in
Indonesia but also in international markets,
establishing such household names as
Promag, Mixagrip, Woods, Komix,
Prenagen and Extra Joss across all health
care and pharmaceutical segments. Also,
fostering and expanding alliances with
international partners has accelerated
Kalbes advances in international markets
and sophisticated R&D ventures, as well as
facilitating the latest pharmaceutical and
healthcare developments, including stem
cell and cancer research.

1966
1977

The Company was founded under the name PT Kalbe Farma

PT Dankos Laboratories was acquired

1981

The distribution businesses were transferred to PT. Enseval in line with government
regulations
PT. Bintang Toedjoe and PT. Hexpharm Jaya were acquired
PT. Igar Jaya and PT Dankos Laboratories Conducted their Initial Public Offering
PT. Kalbe Farma went public, and carried out an Initial Public Offering (IPO)
PT. Sanghiang Perkasa was acquired, and the nutritionals businesses consolidated
within this subsidiary company
Entry into the energy drink business with the launch of extra joss
PT. Enseval Putera Megatrading went public and carried out an Initial Public Offering
(IPO)
An initial 50% share ownership in PT Helios Arnotts Indonesia, which operates in the
food business, was sold.
The remaining 50% share ownership was sold to PT Helios Arnotts
The glass packaging company was sold to Schott Glasswerke Beteiligungs GmbH
The Woods brand was acquired
An 80% share ownership of PT Saka Farma was acquired
Consolidation of the Kalbe Group carried out
Regional coverage expanded
Global brand and infrastructure created
Business focus increased through business mergers and acquisitions
Innovative medicinal development increased
Global networks and partnerships created
Launch of new corporate logo as part of transformation process
Products enter every ASEAN country (except Laos)
Opening of the Stem Cell and Cancer Institute
End-to-End supply chain management improvements implemented
Information technology systems integrated

1985
1989
1991
1993
1994

1995
1997

2005
2006

2007

Source : Yearly Report PT. Kalbe Farma, 2009

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Corporate Level Strategy PT. Kalbe Farma, Tbk

A corporate level strategy specifies

actions a firm takes to gain a competitive
advantage by selection and managing a
group of different businesses competing in
different product market(Ireland, 2011). A
corporate level strategy is expected to help
the firm earn above average returns by
creating value. Some suggest that few corporate level strategies actually create
value. Evidence suggest that a corporate
level strategys value is ultimately determined by the degree to which the business
in the portfolio are worth under the management of the company than they would be
under any other ownership. The effective
corporate level strategy creates, across all
of a firmss businesses, aggregate returns
that exceed what those returns would be
without the strategy and contributes to the
firms strategic competitiveness and its
ability to earn above average returns.
Achieving greater market power is
a primary reason for acquisition. Market
power exist when a firm is able to sell its
goods or services above competitive levels
or when the costs of its primary or support
activities are lower than those of its
competitors. Market power usually is derived from the size of the firm and its resources and capabilities to compete in the
marketplace. It also affected by the firms
share of the market. Therefore, most
acquisitions that are designed to achieve
greater market power entail buying a
competitor, supplier, a distributor, or a business in a highly related industry to allow
the exercise of a core competence and to
gain competitive advantage in the
acquiring firms primary market. (Ireland,
2011)
A merger is a strategy through
which two firms agree to integrate their
operations on a relatively coequal basis.
An acquisition is a strategy through which
one firm buys a controlling, or 100 percent, interest in another firm with the intent
of making the acquired firm a subsidiary
Forum Ilmiah Volume 9 Nomer 2, Mei 2012

business within its portfolio. After completing the transaction, the management of
the acquired firm reports to the management of the acquiring firm. (David,
2005)
Firms realize Merger and Acquisition also at the aim to increase competitiveness, market power, speed to market,
and to block the moves of a competitor.
Through mergers, firms maximize their
ability to offer attractive products or services, increase efficiency, reduce costs and
share the risks in activities that are beyond
the capabilities of a single organization. In
an international context, firms use acquisitions as a means of entry into foreign markets or a means of obtaining a competitive
advantage (Shan & Hamilton, 1991).

Discussion
Kalbe maintained its lead in the
health products business with a market
share of 13% for prescription pharmaceuticals, a 15% market share of OTCs and
38% of the energy drink market. In addition to its broad market share, the business
divisions achieved a balanced contribution
in terms of sales. The Prescription Pharmaceuticals Division, the Consumer Health
Division, Nutritionals Division and Distribution and Packaging Division have contributed between 21% to 27% of sales.
This provides a solid foundation, particularly in facing a currently unfavorable
economic condition, as well as looking
forward to subsequent years.
In 2009, several of Kalbes products, such as Cerebrofort, Cerebrovit,
Promag, Mixagrip, Prenagen and Milna,
have been selected as winners for the
Indonesia Best Brand Award. This award
acknowledged them as the consumers
choice of trusted brands in Indonesia, and
is based on the results of survey by an independent survey organization and a prominent marketing publication. Kalbes
commitment to produce innovative
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Corporate Level Strategy PT. Kalbe Farma, Tbk

products is evidenced through its dedication to the field of research and development. One of Kalbes several significant
accomplishments in 2008 is the commercialization of Thera CIM in two countries:
Indonesia and the Philippines. This product
resulted from research undertaken by
Innogene Kalbiotech Pte. Ltd., a subsidiary
of Kalbe, under collaborative efforts with
other international biotechnology corporations. The license for commercialization of
Thera CIM in Indonesia and the
Philippines is the seed of Kalbes transformation into a world class healthcare enterprise.
Kalbe also launched several new
products in each of its divisions, with the
objective of deriving another trusted and
reliable Kalbe product in the future. In
addition, the Stem Celland Cancer Institute
(SCI), established in 2007, is equipped
with a research laboratory with facilities
and Standard Operating Procedures consistent with the Good Laboratory Practice
(GLP) internationally recognized standards. SCI has also made a breakthrough
development in finding treatment for burn
injuries and chronic injuries, using umbilical cord blood. Such expansion in
Kalbes business portfolio is expected to
support the growth potential of the Company in coming years.
Innovation is also reflected in the
working process improvements carried out
by Kalbe. Various Business Process Improvement programs continue to be
developed and carried out to increase
productivity, efficiency and effectiveness
of operations. Various international best
practices, such as Continuous Improvement, 5R and Lean Manufacturing have
been applied on an ongoing basis. Kalbe is
confident that innovation will help it
maintain a reputation as a company with
up-to-date knowledge and advanced technology. Commitment to improvements in
operational performance at Kalbe is shown
Forum Ilmiah Volume 9 Nomer 2, Mei 2012

in the formation of the Supply Chain Task

Force in early 2010, assigned a mission to
revitalize the strategy of Kalbe Groups
end-to-end supply chain and align each
component within the supply chain, starting from procurement of raw materials,
production, marketing, sales and distribution and logistics. In 2008, management of
the supply chain has been carried out for
the Prescription Pharmaceuticals and OTC,
and the result is indicated through fewer
Days of Inventory, shrinking from 149
days at end-2008 to 142 days by end-2009.
The success of the implementation of the
end-to-end supply chain management has
created a basic foundation for continuous
application of the supply chain management process in other divisions within the
Kalbe Group.
Kalbes success in its initiatives
for operational cost efficiency and supply
chain management improvement is reflected in the lower ratio of operational costs
to net sales (declining by 0.8% to 33.8% in
2010) and improvement in Days of
Inventory (by 7 days). The lower Days of
Inventory and improvement in several
indicators of its working capital is also
revealed in the increase of net cash flow
from operating activities, marked at Rp
808 billion at end-2008, up from Rp 363
billion in the previous year. Kalbe
continuously focused on various efforts to
support its proven success in penetrating
international markets. To strengthen its
position in export sales, Kalbe has established branch offices in 10 countries, namely, Singapore, Philippines, Malaysia,
Vietnam, Myanmar, Cambodia, Sri Lanka,
Nigeria, South Africa and India. Up to
today, Kalbe has a number of popular
brands, such as Woods, Procold, Mixagrip
and Neuralgin, emerging as strong brands
in Malaysia, Singapore, Cambodia and
Myanmar. In fact, Extra Joss is the leading
energy drink in the market in the
Philippines. Kalbe also reformulated its
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Corporate Level Strategy PT. Kalbe Farma, Tbk

international marketing strategies to gain a

greater focus on sales per area, moving
away from sales per product. This was
supported by introducing changes in the
organizational structure and by positioning
a competent team in each area of operation. Kalbe is optimistic that it will continue to enjoy expansion in international
markets.
To attain its aspiration to become
an acknowledged international competitor,
Kalbe is committed to building operational
excellence through continuous improvement and expansion of its production
facilities. Such a commitment is also reflected in its success in obtaining a
Certificate of Manufacturing from the
Government of Singapore in early 2010,
through the Health & Sciences Authority,
for Kalbes production facilities to manufacture intravenous solutions. This certification certifies that Kalbe has applied the
current Good Manufacturing Practices for
production facilities, as prevails in
European Union nations.
Related to Kalbes strategies projecting into the future and facing the
increasing business challenges, it is necessary for the Company to implement an organizational management system
such that Kalbe will become a
World Class Company with a competitive edge. By end-2010, all business
units at Kalbe had implemented a management system as shown in the improved
planning process for formulation of longterm strategies, better known as Kalbe
Long Term Development Plan, a long-term
plan with clearly defined, specific and
measurable targets. This is to be followed
up by defining strategies into divisional
and individual action plans; further, to ensure proper implementation, Kalbe has
introduced an integrated review pattern.
In 2010, Kalbe executed a new
agreement with Aguettant, a pharmaceutical company based in France, and a
Forum Ilmiah Volume 9 Nomer 2, Mei 2012

leading player in the hospital sector. This

collaborative partnership is expected to
strengthen Kalbes standing in the parenteral nutrition segment. Kalbe also intensified efforts in developing strategic alliances with international partners, resulting in
the introduction of new products with the
potential to reinforce Kalbes position in
the market.
At the onset of 2011, Kalbe will
redouble efforts on a number of ongoing
programs. These include developing customers as part of strategic account growth in
the hospital and pharmacy segments, as
well as launching innovative products in
the oncology sector to meet consumer
demands, and other products in line with
future disease trends.
In 2008, the Prescription Pharmaceuticals Division provided 27.1% of the
Companys total revenue, equivalent to Rp
2.13 trillion, and achieved growth in sales
of 18%. The Consumer Health Division
provided 20.9% of the Companys total
revenue, equivalent to Rp 1.65 trillion, for
a decline in sales of 11.2%. The Consumer
Health Division is divided into two product
categories: Over the Counter Products
(OTCs) and Energy Drinks. With an increasing number of new players entering
the market, Extra Joss correspondingly
suffered a dilution in its market share.
Nevertheless, Extra Joss remains the undisputed leader in the energy drink market,
controlling a 38% share, based on data
provided by research powerhouse AC
Nielsen.
Kalbe has actively initiated updates and improvements, encompassing
changes in its marketing and sales team all
the way to product marketing strategy and
concept. Reorganization of its marketing
team was completed in 2010, whereas
Supply Chain Management (SCM) targeted comprehensive improvement from the
initial stage of raw material procurement
through product distribution; hence,
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product penetration could be enhanced and

extended. In 2009, Kalbe will be preparing
to launch a new product that emphasizes a
healthier product concept, and plans to
rejuvenate the energy drink category, finetuning to anticipate changes in the needs of
consumers. In 2010, the Nutritionals
Division provided a 24.5% contribution to
Kalbes total revenues, for a total of
approximately Rp 1.93 trillion, amounting
to a 20.5% growth in sales. Kalbes
Distribution Division, under PT Enseval
Putera Megatrading Tbk (Enseval) and PT
Tri Sapta Jaya (TSJ), commands a wide
distribution network, supported by 3
Regional Distribution Centers, 40 Enseval
branches and 20 TSJ branches; extending
throughout Indonesia, the Company counts
more than 1,000 distribution fleets and
4,500 employees.

Moreover, Kalbe has obtained ISO

9001:2000 international certification in
2010 for its Regional Distribution Centers
(located in Jakarta as well as Surabaya). In
2010, Kalbe also formed PT Renalmed
Tiara Utama to manage distribution of
medical equipment for hemodialysis clinics treating patients afflicted with kidney
failure. Total revenue from the Distribution
and Packaging Divisions has reached Rp
21.7 trillion, a figure 24.5% higher than the
Rp 1.74 trillion revenue noted in 2007.
This accounted for 27.5% of Kalbes total
revenue for 2010, from a 2009 figure of
25%. This improvement was attributed to
higher growth in revenues generated from
non-affiliated customers.tribution and
Packaging Division.

Net Sales by Business Segment (Rp billion)

2010

2009

Increase/

Change

Rp Billion

Rp Billion

(Decrease)

(%)

2,131.40

27.1

1806.3

25.8

325.1

18

Consumer Health

1648.5

20.9

1856.2

26.5

-207.7

-11.2

Nutritionals

1927.3

24.5

1600

22.8

327.3

20.5

Distribution and Packaging

2170.2

27.5

1724.4

24.9

427.8

24.5

Total Gross Profit

Source : PT. Kalbe Farma

7877.4

100

7004.9

100

872.5

12.5

Prescription Pharmaceuticals

Gross Profit by Business Segment (Rp billion)

2009

2010

Increase/

Change

Rp Billion

Rp Billion

(Decrease)

(%)

1,395.90

36.7

1194.9

33.6

201

16.8

Consumer Health

1058.8

27.8

1169

32.9

-110.2

-9.4

Nutritionals

1060.7

27.9

960.6

27.1

100.1

10.4

Prescription Pharmaceuticals

Distribution and Packaging

288.2

7.6

227.1

6.4

61.1

26.9

Total Gross Profit

Source : PT. Kalbe Farma

3803.6

100

3551.6

100

252

7.1

scope of the markets and industries in

which the firm competes as well as how
managers buy, create and sell different

Conclusion
Diversification, a primary form of
corporate level strategies, concerns the
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Corporate Level Strategy PT. Kalbe Farma, Tbk

businesses to match skills and strengths

with opportunities presented to the firm.
Succesful diversification is expected to
reduce variability in the firms profitability
as earnings are generated from different
businesses.
Because
firms
incur
development and monitoring costs when
diversifying, the ideal portfolio of
businesses balances diversifications costs
and benefits. Acquisitions are also used to
diversify firms. Based on experience and
the insights resulting from it, firms
typically find it easier to develop and
introduce new product in markets they are
currently serving. In contrast, it is difficult
for companies to develop products that
differ from their current lines for markets
in which they lack experience.

References
David, Fred, Strategic Management :
Concepts and Cases, 10th ed.
Pearson-Prentice Hall, New York,
2008.
Grant

RM, Contemporary Strategy

Analysis, 2nd edn, Basil,
Blackwell, Oxford, 1995.

Ireland, et al, The management of

Strategy: Concepts and Cases, 9th
ed. Cangage Learning, 2011
Shan, W., & Hamilton, W, Countryspecific advantage and international cooperation, Strategic
Management Journal, 12, 1991.
Yearly Report PT. Kalbe Farma, 2011.

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