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Saturday March 27, 2010

Cosway’s global ambition

cecilia_kok@thestar.com.my

THE Berjaya group’s Cosway Corp Ltd is on track to realise its global ambition by establishing presence in two of the world’s largest economies – the United States and Japan – in the next few months as well as Europe later this year.

Already a major player in Asia Pacific, Cosway will begin operations in the US and Japan by end-May and August respectively. Its venture into Europe will kick off in Britain in the fourth quarter of the year and subsequently in Germany early next year.

Founder and CEO Al Chuah is confident that Cosway’s entry into major developed economies will catapult the multi-level marketing company into the global top three over the next one to two years. At present, it is among the 20 largest direct-selling companies in the world.

To facilitate its aggressive overseas expansion, Chuah says the company has allocated RM47mil as capital expenditure (capex) for its financial year ending April 30, 2010 (FY10).

It will increase capex to between RM70mil and RM100mil in FY11. Chuah says the capex will be financed by internally generated funds.

From left: Steve Spaulding, Al Chuah, Stephanie Davis and Sean Macdonald sharing a light moment at Cosway’s headquarters in Kuala Lumpur.

High growth

Setting up presence in China is the next breakthrough that Cosway is eyeing.

“We are still in the registration process and we expect to get the licence to operate in China by the second half of next year,” says Chuah. Although Cosway does not have physical stores in China yet, it has already built a brand presence in the world’s most populous country – thanks to the Internet.

Consumers in mainland China have been buying Cosway products through eCosway – its global online shopping portal – with their orders being fulfilled by the Hong Kong operations.

Cosway is somewhat considered a latecomer in the Chinese market, compared with other international direct-selling companies such as Amway.

But Chuah believes Cosway will catch up and gain a large share of the China market once it obtains a licence to operate there.

“Our unique business model, which is very hard for our competitors or potential competitors to replicate, is the formula that will help us succeed,” explains Chuah, who founded Cosway in 1979.

Cosway Corp Bhd was listed in the Malaysian stock exchange after Chuah sold the company to the Berjaya group in the mid-1990s.

However, Cosway Corp was taken private in 2007 as the management felt that the stock was not accorded a fair valuation although the business was growing fast.

The market value was around RM400mil prior to the delisting. This compares with Cosway’s current market value of more than RM1bil as a listed company in Hong Kong. Cosway was floated on the Hong Kong Stock Exchange last November via a reverse takeover of Berjaya Holdings (HK) Ltd.

Cosway’s turnover recorded a compounded annual growth rate (CAGR) of 27% from RM382.22mil in FY06 to RM773.94mil in FY09. Its net profit, on the other hand, recorded a CAGR of 45% from RM19.79mil in FY06 to RM60.72mil in FY09.

For the six months ended Oct 31, 2009, Cosway posted a turnover of RM493.3mil and a net profit of RM53.53mil. Currently, about half of Cosway’s turnover comes from its Malaysian operations. Overseas contribution is expected to grow significantly as the company makes inroads into major economies.

“The success or failure of multi-level marketing is tied to the success of the products. So, the lifecycle of the products will implicate the lifecycle of the company,” Chuah says.

That explains why Cosway keeps coming up with new products every other month. For FY09, Cosway had in its stable around 1,750 consumer products – ranging from household, skincare and cosmetics categories, to health supplements, food, apparel and lingerie – compared with around 1,150 in FY04.

“The wide range of products in our stable reduces our risk of over-dependence on any one product, and this is one of the key strengths that differentiates us from our competitors, most of which are highly dependent on just several key products to grow,” explains Chuah.

Besides the wide range of products, he says Cosway’s success is also due to its pricing strategy. “The basic principle is to ensure all our products are priced competitively,” he says, adding that this is possible thanks to cost savings resulting from its economies of scale.

Cosway’s products are sourced mainly from established manufacturers within the region. This OEM (original equipment manufacturer) sourcing strategy, according to Chuah, has enabled Cosway to take advantage of external resources and expertise for product research and development (R&D).

In that sense, it’s a win-win solution: Cosway can save on R&D investment and focus its resources on expanding market share, while for the manufacturers, “it’s like striking gold” as Chuah puts it. “Winning a contract to be a Cosway product supplier will secure them a stable flow of income,” he says.

Although Cosway prices its products comparatively lower in the market, the company is still able to maintain a healthy margin. Gross profit margin, for instance, has consistently stayed around 40% over the last five years.

“It is important to have a low-price strategy because we are not merely competing against other multi-level marketing companies, but we are also positioning ourselves to compete against all the hypermarkets, discount stores and pharmacies in town,” Chuah says, adding that Cosway has managed to raise the stakes of the game with aggressive sales promotion throughout the year.

Sending catalogues for promotional products bi-monthly to its members is Cosway’s direct marketing strategy. In addition, the group’s redemption and reward programme has been effective in helping the company retain customers and generate increased repeat sales.

Expanding base

Cosway currently has a global member base of more than 650,000 people. The group claims that the base is growing rapidly with its active recruitment drive to build a diverse and expansive marketing force.

Another key to its success is its extensive distribution and retail network that provides consumers with convenient access to its products in all countries that it operates.

In Malaysia, for instance, Cosway’s outlets are now commonly found not only in residential and housing areas but also in hypermarkets, shopping malls and other commercial areas.

This new business model of moving away from the traditional direct-selling concept, with stockists acting as the distributor chain, to a “free-store” concept was introduced in 2008.

Chuah says the concept has been a key contributor to Cosway’s total turnover as it has enabled the company to broaden its sales coverage. In addition, the concept has also enabled the group to manage its costs better. For instance, the group pays a commission of 10% to traditional stockists compared with 5% for store operators.

In total, Cosway currently has more than 1,500 stores, with about half of them based in Malaysia, and the remainder in other major cities such as Australia, Brunei, Hong Kong, Taiwan, South Korea, Indonesia, Singapore and Thailand. It plans to increase the number of stores to around 2,500 by end-2011.

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