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 Kalbe’s 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

Introduction structure right is an important precondition

Business strategy deals with the for a successful corporate strategy.
ways in which a single-business firm or an Established in 1966, PT Kalbe
individual business unit of a larger firm Farma Tbk has come a long way from its
competes within a particular industry or humble beginnings as a garage-operated
market. Corporate strategy deals with the pharmaceutical business in North Jakarta.
ways in which a corporation manages a set Throughout its more than forty year
of businesses together (Grant, 1995). In history, the Company has expanded by
companies with intermediate parenting strategic acquisitions of pharmaceutical
levels, such as divisions, the grouping of companies, building a leading brand posi-
businesses into divisions is also important. tioning and reaching out to international
Lack of clarity on the added value role of markets to transform itself into an inte-
different levels, groups and individuals wi- grated consumer health and nutrition enter-
thin the parent leads to redundant cost, prise with unrivalled innovation, marke-
confusion, and reductions in net value ting, branding, distribution, financial
creation. Where the parenting tasks are strength, R&D and production expertise –
shared between different individuals, their thus furthering its mission of improving
respective responsibilities also need to be health for a better life. Vision To be domi-
clearly defined and complementary. Get- nant in the healthcare business in Indonesia
ting the unit definitions and corporate and be a part of the global market with
strong brands, enabled by excellent
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 Corporate Level Strategy PT. Kalbe Farma, Tbk

management, science and technology. Mis- succeeded in promoting its brands as

sion To Improve Health for a Better Life. undisputed market leaders – not only in
Values : Giving the Best to Customer, Stri- Indonesia but also in international markets,
ving for Excellence, Strong Team Work, establishing such household names as
Innovation, Agility, Integrity. Motto : The Promag, Mixagrip, Woods, Komix,
Scientific Pursuit of Health for a Better Prenagen and Extra Joss across all health
Life. care and pharmaceutical segments. Also,
The Kalbe Group has a broad and fostering and expanding alliances with
strong portfolio of brands in prescription international partners has accelerated
pharmaceuticals, OTC pharmaceuticals, Kalbe’s advances in international markets
energy drinks and nutritional products, and sophisticated R&D ventures, as well as
complemented with a robust packaging facilitating the latest pharmaceutical and
and distribution arm covering over one healthcare developments, including stem
million outlets. The Company has cell and cancer research.

1966 The Company was founded under the name PT Kalbe Farma
1977 PT Dankos Laboratories was acquired

1981 The distribution businesses were transferred to PT. Enseval in line with government
regulations
1985 PT. Bintang Toedjoe and PT. Hexpharm Jaya were acquired
1989 PT. Igar Jaya and PT Dankos Laboratories Conducted their Initial Public Offering
1991 PT. Kalbe Farma went public, and carried out an Initial Public Offering (IPO)
1993 PT. Sanghiang Perkasa was acquired, and the nutritionals businesses consolidated
within this subsidiary company
1994 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)
1995 An initial 50% share ownership in PT Helios Arnott’s Indonesia, which operates in the
food business, was sold.
1997 The remaining 50% share ownership was sold to PT Helios Arnott’s
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
2005 Consolidation of the Kalbe Group carried out
2006 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
2007 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

Source : Yearly Report PT. Kalbe Farma, 2009

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 Corporate Level Strategy PT. Kalbe Farma, Tbk

A corporate level strategy specifies business within its portfolio. After com-
actions a firm takes to gain a competitive pleting the transaction, the management of
advantage by selection and managing a the acquired firm reports to the mana-
group of different businesses competing in gement of the acquiring firm. (David,
different product market(Ireland, 2011). A 2005)
corporate level strategy is expected to help Firms realize Merger and Acquisi-
the firm earn above average returns by tion also at the aim to increase competiti-
creating value. Some suggest that few cor- veness, market power, speed to market,
porate level strategies actually create and to block the moves of a competitor.
value. Evidence suggest that a corporate Through mergers, firms maximize their
level strategy’s value is ultimately deter- ability to offer attractive products or servi-
mined by the degree to which the business ces, increase efficiency, reduce costs and
in the portfolio are worth under the mana- share the risks in activities that are beyond
gement of the company than they would be the capabilities of a single organization. In
under any other ownership. The effective an international context, firms use acquisi-
corporate level strategy creates, across all tions as a means of entry into foreign mar-
of a firms’s businesses, aggregate returns kets or a means of obtaining a competitive
that exceed what those returns would be advantage (Shan & Hamilton, 1991).
without the strategy and contributes to the
firm’s strategic competitiveness and its Discussion
ability to earn above average returns. Kalbe maintained its lead in the
Achieving greater market power is health products business with a market
a primary reason for acquisition. Market share of 13% for prescription pharma-
power exist when a firm is able to sell its ceuticals, a 15% market share of OTCs and
goods or services above competitive levels 38% of the energy drink market. In addi-
or when the costs of its primary or support tion to its broad market share, the business
activities are lower than those of its divisions achieved a balanced contribution
competitors. Market power usually is de- in terms of sales. The Prescription Pharma-
rived from the size of the firm and its re- ceuticals Division, the Consumer Health
sources and capabilities to compete in the Division, Nutritionals Division and Distri-
marketplace. It also affected by the firm’s bution and Packaging Division have con-
share of the market. Therefore, most tributed between 21% to 27% of sales.
acquisitions that are designed to achieve This provides a solid foundation, parti-
greater market power entail buying a cularly in facing a currently unfavorable
competitor, supplier, a distributor, or a bu- economic condition, as well as looking
siness in a highly related industry to allow forward to subsequent years.
the exercise of a core competence and to In 2009, several of Kalbe’s pro-
gain competitive advantage in the ducts, such as Cerebrofort, Cerebrovit,
acquiring firm’s primary market. (Ireland, Promag, Mixagrip, Prenagen and Milna,
2011) have been selected as winners for the
A merger is a strategy through Indonesia Best Brand Award. This award
which two firms agree to integrate their acknowledged them as the consumers’
operations on a relatively coequal basis. choice of trusted brands in Indonesia, and
An acquisition is a strategy through which is based on the results of survey by an in-
one firm buys a controlling, or 100 per- dependent survey organization and a pro-
cent, interest in another firm with the intent minent marketing publication. Kalbe’s
of making the acquired firm a subsidiary commitment to produce innovative
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 Corporate Level Strategy PT. Kalbe Farma, Tbk

products is evidenced through its dedica- in the formation of the Supply Chain Task
tion to the field of research and develop- Force in early 2010, assigned a mission to
ment. One of Kalbe’s several significant revitalize the strategy of Kalbe Group’s
accomplishments in 2008 is the commer- end-to-end supply chain and align each
cialization of Thera CIM in two countries: component within the supply chain, star-
Indonesia and the Philippines. This product ting from procurement of raw materials,
resulted from research undertaken by production, marketing, sales and distribu-
Innogene Kalbiotech Pte. Ltd., a subsidiary tion and logistics. In 2008, management of
of Kalbe, under collaborative efforts with the supply chain has been carried out for
other international biotechnology corpora- the Prescription Pharmaceuticals and OTC,
tions. The license for commercialization of and the result is indicated through fewer
Thera CIM in Indonesia and the Days of Inventory, shrinking from 149
Philippines is the seed of Kalbe’s transfor- days at end-2008 to 142 days by end-2009.
mation into a world class healthcare enter- The success of the implementation of the
prise. end-to-end supply chain management has
Kalbe also launched several new created a basic foundation for continuous
products in each of its divisions, with the application of the supply chain manage-
objective of deriving another trusted and ment process in other divisions within the
reliable Kalbe product in the future. In Kalbe Group.
addition, the Stem Celland Cancer Institute Kalbe’s success in its initiatives
(SCI), established in 2007, is equipped for operational cost efficiency and supply
with a research laboratory with facilities chain management improvement is reflec-
and Standard Operating Procedures consis- ted in the lower ratio of operational costs
tent with the Good Laboratory Practice to net sales (declining by 0.8% to 33.8% in
(GLP) – internationally recognized stan- 2010) and improvement in Days of
dards. SCI has also made a breakthrough Inventory (by 7 days). The lower Days of
development in finding treatment for burn Inventory and improvement in several
injuries and chronic injuries, using um- indicators of its working capital is also
bilical cord blood. Such expansion in revealed in the increase of net cash flow
Kalbe’s business portfolio is expected to from operating activities, marked at Rp
support the growth potential of the Com- 808 billion at end-2008, up from Rp 363
pany in coming years. billion in the previous year. Kalbe
Innovation is also reflected in the continuously focused on various efforts to
working process improvements carried out support its proven success in penetrating
by Kalbe. Various Business Process Im- international markets. To strengthen its
provement programs continue to be position in export sales, Kalbe has esta-
developed and carried out to increase blished branch offices in 10 countries, na-
productivity, efficiency and effectiveness mely, Singapore, Philippines, Malaysia,
of operations. Various international best Vietnam, Myanmar, Cambodia, Sri Lanka,
practices, such as Continuous Improve- Nigeria, South Africa and India. Up to
ment, 5R and Lean Manufacturing have today, Kalbe has a number of popular
been applied on an ongoing basis. Kalbe is brands, such as Woods’, Procold, Mixagrip
confident that innovation will help it and Neuralgin, emerging as strong brands
maintain a reputation as a company with in Malaysia, Singapore, Cambodia and
up-to-date knowledge and advanced tech- Myanmar. In fact, Extra Joss is the leading
nology. Commitment to improvements in energy drink in the market in the
operational performance at Kalbe is shown Philippines. Kalbe also reformulated its
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 Corporate Level Strategy PT. Kalbe Farma, Tbk

international marketing strategies to gain a leading player in the hospital sector. This
greater focus on sales per area, moving collaborative partnership is expected to
away from sales per product. This was strengthen Kalbe’s standing in the paren-
supported by introducing changes in the teral nutrition segment. Kalbe also inten-
organizational structure and by positioning sified efforts in developing strategic allian-
a competent team in each area of opera- ces with international partners, resulting in
tion. Kalbe is optimistic that it will con- the introduction of new products with the
tinue to enjoy expansion in international potential to reinforce Kalbe’s position in
markets. the market.
To attain its aspiration to become At the onset of 2011, Kalbe will
an acknowledged international competitor, redouble efforts on a number of ongoing
Kalbe is committed to building operational programs. These include developing custo-
excellence through continuous improve- mers as part of strategic account growth in
ment and expansion of its production the hospital and pharmacy segments, as
facilities. Such a commitment is also re- well as launching innovative products in
flected in its success in obtaining a the oncology sector to meet consumer
Certificate of Manufacturing from the demands, and other products in line with
Government of Singapore in early 2010, future disease trends.
through the Health & Sciences Authority, In 2008, the Prescription Pharma-
for Kalbe’s production facilities to manu- ceuticals Division provided 27.1% of the
facture intravenous solutions. This certifi- Company’s total revenue, equivalent to Rp
cation certifies that Kalbe has applied the 2.13 trillion, and achieved growth in sales
current Good Manufacturing Practices for of 18%. The Consumer Health Division
production facilities, as prevails in provided 20.9% of the Company’s total
European Union nations. revenue, equivalent to Rp 1.65 trillion, for
Related to Kalbe’s strategies pro- a decline in sales of 11.2%. The Consumer
jecting into the future and facing the Health Division is divided into two product
increasing business challenges, it is neces- categories: Over the Counter Products
sary for the Company to implement an or- (OTCs) and Energy Drinks. With an in-
ganizational management system creasing number of new players entering
such that Kalbe will become a the market, Extra Joss correspondingly
“World Class Company” with a com- suffered a dilution in its market share.
petitive edge. By end-2010, all business Nevertheless, Extra Joss remains the undis-
units at Kalbe had implemented a mana- puted leader in the energy drink market,
gement system as shown in the improved controlling a 38% share, based on data
planning process for formulation of long- provided by research powerhouse AC
term strategies, better known as Kalbe Nielsen.
Long Term Development Plan, a long-term Kalbe has actively initiated upda-
plan with clearly defined, specific and tes and improvements, encompassing
measurable targets. This is to be followed changes in its marketing and sales team all
up by defining strategies into divisional the way to product marketing strategy and
and individual action plans; further, to en- concept. Reorganization of its marketing
sure proper implementation, Kalbe has team was completed in 2010, whereas
introduced an integrated review pattern. Supply Chain Management (SCM) targe-
In 2010, Kalbe executed a new ted comprehensive improvement from the
agreement with Aguettant, a pharmaceu- initial stage of raw material procurement
tical company based in France, and a through product distribution; hence,
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 Corporate Level Strategy PT. Kalbe Farma, Tbk

product penetration could be enhanced and Moreover, Kalbe has obtained ISO
extended. In 2009, Kalbe will be preparing 9001:2000 international certification in
to launch a new product that emphasizes a 2010 for its Regional Distribution Centers
healthier product concept, and plans to (located in Jakarta as well as Surabaya). In
rejuvenate the energy drink category, fine- 2010, Kalbe also formed PT Renalmed
tuning to anticipate changes in the needs of Tiara Utama to manage distribution of
consumers. In 2010, the Nutritionals medical equipment for hemodialysis cli-
Division provided a 24.5% contribution to nics treating patients afflicted with kidney
Kalbe’s total revenues, for a total of failure. Total revenue from the Distribution
approximately Rp 1.93 trillion, amounting and Packaging Divisions has reached Rp
to a 20.5% growth in sales. Kalbe’s 21.7 trillion, a figure 24.5% higher than the
Distribution Division, under PT Enseval Rp 1.74 trillion revenue noted in 2007.
Putera Megatrading Tbk (Enseval) and PT This accounted for 27.5% of Kalbe’s total
Tri Sapta Jaya (TSJ), commands a wide revenue for 2010, from a 2009 figure of
distribution network, supported by 3 25%. This improvement was attributed to
Regional Distribution Centers, 40 Enseval higher growth in revenues generated from
branches and 20 TSJ branches; extending non-affiliated customers.tribution and
throughout Indonesia, the Company counts Packaging Division.
more than 1,000 distribution fleets and
4,500 employees.
Net Sales by Business Segment (Rp billion)
2010 2009 Increase/ Change
Rp Billion % Rp Billion % (Decrease) (%)
Prescription Pharmaceuticals 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 7877.4 100 7004.9 100 872.5 12.5
Source : PT. Kalbe Farma

Gross Profit by Business Segment (Rp billion)

2009 2010 Increase/ Change
Rp Billion % Rp Billion % (Decrease) (%)
Prescription Pharmaceuticals 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
Distribution and Packaging 288.2 7.6 227.1 6.4 61.1 26.9
Total Gross Profit 3803.6 100 3551.6 100 252 7.1
Source : PT. Kalbe Farma

Conclusion scope of the markets and industries in

Diversification, a primary form of which the firm competes as well as how
corporate level strategies, concerns the managers buy, create and sell different

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 Corporate Level Strategy PT. Kalbe Farma, Tbk

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Yearly Report PT. Kalbe Farma, 2011.

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