AS companies prepare for recovery, social compliance in the way businesses treat their employees will be an important aspect in future planning.
At Karex Bhd, social compliance costs over the last year including the reimbursing of migrant workers on debts, and other upgrades to their welfare, security, accommodation and logistics, had come up to over RM2mil.
While these costs had impacted profitability, a major disruption had occurred in the supply of condoms, as foreign aid organisations and governments had cut their budgets for free condom programmes.
As such, Karex which had seen its profits dropping, had been building its own brands of condoms which would fetch higher prices, and aid in its recovery process.
“These price increases have been offset by the rising costs of social compliance, but we are confident that we can continue to gradually raise prices as other manufacturers are also struggling to operate in current times, ’’ said Karex chief executive offier M.K. Goh.
In the short term, price increases will be primarily driven by manufacturers having to operate in an environment of high social compliance, for example, in the upgrading of working conditions of migrant workers.
Additional costs are incurred from implementing more protocols due to Covid 19, and having to deal with disruptions in logistics.
In the medium term, the shift towards manufacturers selling their own brands will see higher value added products with more interesting condom varieties and packaging, commanding higher selling prices.
Even before the movement control order (MCO), Karex was operating at a utilisation rate of 70%; the operational disruptions caused by the pandemic had created some backlog in orders.
Recovery should be more evident in the financial results once it is able to pass the cost increases to customers following new price negotiations.
Meanwhile, raw material prices are expected to be stable, as commodity prices remain subdued against relatively weak global economic indicators.
In the current digital upsurge, Karex found that its online sales in Malaysia had jumped 700% since January, due to Covid 19 and the MCO period.
At its fulfilment centres in the United States, Britain, Port Klang and Bangkok, it had started supplying directly to consumers via its online stores.
Contrary to speculation, Karex is not involved in any talks to acquire Latex Partners or any other glove manufacturer.
The group’s own brand manufacturing (OBM) segment, which now adds 20% to group revenue, is targeted to eventually contribute 50%.
“During our initial public offering in 2013, I said give me five years for the OBM to hit 20%; it is close to that now.
“So it may take another five years to reach the next 20%, ’’ said Goh.
The ONE brand under the OBM segment is profitable in Malaysia; it is sold in 60 countries including Singapore, Brunei, Indonesia, Thailand, Vietnam and by year end, Dubai.
Karex is developing its OBM branding, with the setting up of creative and branding teams, its search for new markets, promotions and buying of shelf space in stores.
With its OBM, and its original equipment manufacturing (OEM) for other brands, Karex is in 130 countries globally.
In the US market, custom sizing of condoms comes in 66 sizes from Karex, instead of the conventional sizes of small, regular and large.This customised product will be launched in Europe soon, while surveys show that 92% of customers repeat their purchases of these condoms over the conventional ones.
Karex had bought over a brand for customized sizes, called Theyfit, from US inventor Frank Sadlo, whom it was supplying to under OEM.
The group is “keeping an open mind” on how it can diversify from its condom manufacturing business.
In medical devices, it is seeing an upsurge in demand for probe covers which are used to cover stethoscopes; other devices it manufactures are Foley balloon catheters used in urology, and specialised covers.
It is currently manufacturing hand sanitisers and sanitising wipes, with certain raw materials used in making personal lubricants.
Karex is intensifying research and development (R&D) as well as upgrading its automation into high technology processes, while automating the quality assurance laboratory.It has installed electronic testing robots for checking condom quality; automatic boxing of the finished products and loading in the foiling or packaging process.
The years from 2013 to 2016 were wonderful years for condom makers which expanded production, against stable raw material prices, favourable exchange rates and low oil prices.The biggest challenge came from price dumping at international tender markets.
Karex had tendered for government supplies of free condoms, at low prices but was hit by rising prices of raw materials.
“So we changed our business model to develop our own brands, and sales continue to pick up, ’’ said Goh.
As the fourth generation in his family to continue the rubber-related business, Goh wants not only to build brands, and also the overall sustainability of his group.
Since reports last year of unsatisfatory working conditions for its foreign workers, Karex had engaged ethical trade consultancy Impact to conduct a thorough investigation, following which the company undertook various social compliance initiatives.
Karex employs local workers; with a workforce of more than 3,000, it is looking into issues related to living wages, working conditions, better work spaces and ways it can attract and retain staff.
Other sustainability issues involve the shedding of biases related to gender, age, marital status and medical conditions such as HIV and AIDS.
With a vision towards become a zero waste company, it is looking into areas of wastage involved in condom making such as in destructive testing.
It is also working with universities on the recycling of scrap rubber products into consumer items such as soles of shoes, slippers, mats and rubberised roads.
Other rubber products with high technology include rubber molding and car components.
While striving to improve its brands, Goh and his team are also working on issues related to social compliance, sustainability, R&D and automation, that would make Karex a better company.
Yap Leng Kuen is the former business editor of StarBiz. The views expressed here are the writer’s own.
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