07 February 2017

Global Expansion Drive for Safer Sex

Karex is on a global mission to push for condom acceptance through innovation and creativity in a bid to save more lives.

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First published on 26 November 2016 on StarBiz and 28 November 2016 on The Edge Weekly

A Conversation with Goh Miah Kiat

Pursuing its brand overture with acquisitions around the globe as part of its expansion plans, Karex Chief Executive Officer Goh Miah Kiat says his journey in the business to make sex safer has just begun.

As a major player in the supply chain with billions of condoms exported to global brands in over 120 countries around the world, the company is building value for its shareholders but it also intends to bring "more excitement to people".

The story of Karex, however, wasn't always smooth sailing and goes back to the time of Goh's great grandfather who came to Malaysia from China and started a rubber trading business in Johor. Identifying an opportunity in value-added rubber, Goh's grandfather set up a processing factory and sent two of his sons to study engineering in the United Kingdom. The rubber crisis of the 1980s resulted in extreme volatility in rubber prices and made the family realise they would face less uncertainty with finished products.

The formative years beginning in 1988 would shape the condom manufacturer's identity by entrenching hard working values and perseverance during an extremely challenging climate. It was during this period that the Goh family refined its expertise in constructing and maintaining its own machines as well as improving its ability to cater its product offerings to what consumers were really demanding.

The struggle through the initial years was often characterised by catching up to the technical expertise and global reach that other condom manufacturers enjoyed at the time with some having been established since the early 1930s. Recalling the outbreak of AIDS in the 1980s, Goh says it was a game changer for a latent industry, giving the company the window of opportunity it needed to build capacity and enter different markets. "At that point of time, everyone was so scared. People were afraid of shaking hands, so governments had to intervene to educate as well as provide a means of protection for the people" Goh recalls. The AIDS crisis, he says, changed the dynamics of the industry permanently.

When governments and NGOs started to buy condoms for distribution to less developed nations, Karex was hungry for business and seized this opportunity by utilising their lean manufacturing structure to offer condoms at competitive prices. It is through this opportunity that Karex managed to strategically position itself in an industry where today almost half of the world's condoms are purchased by governments and NGOs such as the United Nations.

By the time of its IPO in 2013, Karex had already become the world's largest condom manufacturer with an annual manufacturing capacity of approximately 3 billion condoms. It has steadily expanded its capacity since then and created a platform that now spans four factories employing over 2,600 workers between Thailand and Malaysia with a market leading annual manufacturing capacity of 5 billion condoms.

Karex has also maintained a very deep-rooted culture of innovation. Whether it was authorities around the world who needed something more interesting to spur the use of condoms or customers that needed alternative products to compete against their peers, Karex was always on hand to push the boundaries of condom manufacturing.

"We have over the years offered many variations from different textures, shapes, flavours, and sizes by listening to what our customers want with the true belief that if we do, our customers would continue to return to us."

Karex's expansion plan since its IPO also hinged on developing its own brand and moving up the value chain in order to be closer to consumers. Backed by a robust cash position established through its initial public offering and private placement fund raising exercises, Karex has been on the prowl for new acquisitions to develop its distribution networks and its own brand manufacturing segment. This is where the margins are significantly higher as the company will go through less layers to reach end consumers.

In 2014, following the IPO, Karex acquired a 55% stake in Global Protection Corp. for US$6.6 million, the owner of the ONE® Condoms brand - the fourth most popular condom brand in the United States. The acquisition of ONE® Condoms brought its innovative approach of artistic, consumer-driven branding to Karex, fitting perfectly with Goh's vision of the future and giving the company a platform on which to build further brand acquisitions.

One such recent acquisition included the acquisition of Theyfit, LLC earlier this year for USD$1.3 million. Theyfit offers condoms in 95 different sizes in order to offer a better customer experience through a bespoke fit. "We have always been confident that along the way there would be great ideas like TheyFit that can fit the company in terms of vision, culture and innovation," Goh says.

Karex's latest acquisition of Pasante Healthcare Limited for GBP6.0 million was another such acquisition that promises to strengthen the company's brand portfolio and brand presence at each corner of the world. Pasante has a strong presence in the retail and tender markets in the UK and is expected to complement our other business segments through its established distribution network and experienced sales staff.

Through a steady expansion roadmap and careful implementation of these strategies, Karex recorded a turnover of RM343.6 million in its third financial year following its listing.

With its ambitious expansion plan, the Malaysian company says it depends on one particular bank for its international trade transactions. This is where HSBC offers its assistance, since dealing with a large number of clients globally is often a daunting experience. "We do a lot of global trade and are expanding our reach to more distant corners of the globe. It is a great advantage to have the support of a truly global bank such as HSBC," Karex CEO Goh says.

HSBC has helped Karex since its formative years through many facets from day to day activities such as the export of goods through to more specialised transactions such as our recent acquisitions. "We are confident that whether it be helping us to ensure logistics are run smoothly to get our product to the customers or more complicated financial transactions, the bank is there to help us," says Goh.

With the bank's global connection, the bank has helped to facilitate trade facilities, performance bonds and bank guarantees that are often required for large institutional tender bids. "The risks taken by HSBC in countries where business is not always secure have also contributed to the long term partnership between the bank and Karex," Goh says.

"Having trust and a close relationship with the bank is important," Goh says. "In many cases, we cannot be physically present in the countries where our customers are based. As such, much depends on the bank's presence in those areas as well as their willingness to provide a bond to ensure that both parties are comfortable with the risks in order to facilitate a deal."

"It is for this global presence, as well as HSBC's diverse range of tools, established reputation and wide-reaching platform that they continue to remain one of our anchor bankers."

We do a lot of global trade and are expanding our reach to more distant corners of the globe. It is a great advantage to have the support of a truly global bank such as HSBC.

Goh Miah Kiat, CEO of Karex Berhad

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