Strategic Management Analysis: PT Soho Industri Farmasi
CHAPTER 1- INTRODUCTION
Company Profile
PT SOHO Industri Farmasi, or currently known as SOHO Global Health is a consumer healthcare company in Indonesia, specializing in natural pharmaceutical products. It was first established in 1946 by Mr. Tan Tjhoen Lim as a company focusing in injectables, but later on expanding the business to sell Over-The-Counter (OTC) products in which customers can buy their products without prescription from a professional.
With over 70 years history, various business units and more than 30 brands, SOHO Global Health is widely known as a pioneer in the use of herbal products. Their famous leading brands include the immune booster Imboost, children multivitamin Curcuma Plus and Fitkom, and diarrhea medicine Diapet, all made out of medicinal herbs.
Purpose, Vision and Core Values (PVCV)
Aside from using natural herbs as their competitive advantage, their Purpose, Vision and Core Values (PVCV) helps them in becoming one of the Living Legend Companies. Their purpose to care for human lives as their priority and vision to be an innovative healthcare market leader of natural pharmaceutical products which values the community’s well-being by promoting a healthy lifestyle are supported by their four core values; Absolute Integrity, Mutual Respect, Culture for Discipline and Passion for Innovation. These core values show that they value honesty and ethics, and are dedicated to transparency. Trust and respect in diversity are also some of their key principals. Not to mention they are disciplined and have high innovative spirits to be pioneers and willing to improve continuously which drives their company to become sustainable.
Business Units and Competitive Advantages
Currently, SOHO Global Health has various business units besides selling healthcare products, including Unihealth, a Multi-Level Marketing (MLM) program of beauty products and health supplement, Soho Global Medika, a marketing and sales unit for MNCs specializing in medical technology and Alliance, a business unit for in-licensing as well as sales and marketing of those in-licensing products. On top of that, they also provide toll manufacturing assistance for companies who wishes to use their top-notch facilities and equipment.
Another business unit they have that contributes a lot on their sustainable performance is Parit Padang Global (PPG) which offers a wide distribution network nationwide for consumer healthcare products and other products related to the medical industry. The integrated distribution network which covers 95% of hospitals and pharmacies throughout Indonesia is also one of their competitive advantage as our nation is made up of thousands of islands, some of which might be difficult to access. With such a broad and extensive network, PPG assists in the logistics of SGH’s products using SAP as their integrated ERP system so that all data are updated accurately in real time. This is one of the key points on how SGH is able to integrate and streamline all their business processes with discipline, according to their core values.
Another competitive advantage that they have over their competitors is their scientific research and strong evidence to back it up, which helps them with the innovation of using herbal substance for their products and correlates with their core value of Passion for Innovation. They also partner with various institutions and organizations to improve the quality of their research to be more accurate.
Market Segments and Market Share
As SOHO Global Health has a number of business units, they have several market segments that they are targeting, depending on which business unit and which brand. For their OTC products, Curcuma Plus and Fitkom is more targeted towards children who don’t have much appetite, Imboost is targeted towards low immune adults as well as children while Diapet is targeted towards adults who suffer from diarrhea. Their most popular brand Imboost is a market leader in the body defense supplement market in Indonesia with 23.6% market share as of December 2018. Since they changed their strategy for Imboost to be an OTC product, it has become one of the fastest growing brand in Indonesia’s healthcare market in the last five years with an average of 24.5% growth each year.
On December 2019, SOHO Global Health achieved a new milestone as the Curcuma brand entered the global market which provides them opportunity to venture new market segments and expand their market share globally.
Key Operations
Their key operations include research and distribution which have been explained above, as well as sales and marketing operations. Their professional research is one of their key competitive advantages which is done in their new research facility The SOHO Center of Excellence in Herbal Research (SCEHR) specializing in Temulawak research and collaborating with partner institutions. As for their distribution and logistics system, it is supported by their other competitive advantage and business unit, Parit Padang Global (PPG) which uses PPGOS (PPG Online System) since 2019 to keep up with the digitalization era. PPGOS is a B2B e-commerce system which lets hospitals, pharmacies, and other medical businesses to place an order to PPG directly and more efficiently online.
In 2018 SGH focuses on digital transformation as part of their values to improve innovation, focusing in the sales and marketing area with digital marketing by launching iMAP (Intelligent Mobile Automation Platform) for ordering automation, and to track sales easier. As for marketing, they have done a marketing campaign on Imboost during the global pandemic of corona virus with the motto “Waspada Virus Corona: Tingkatkan Daya Tahan Tubuh” to promote the consumption of Imboost to improve body defense and build a strong immune system during this pandemic. in 2019, they also launch a new type of Imboost targeted towards millennials who need to stay energized and productive during work by creating a hype on social media with the hashtag #GenerasiPantangMenyerah. These are the examples of how SGH implements digital transformation on their sales and marketing operations.
Financial Performance
SOHO Global Health’s financial performance has been overseeing a sustainable growth since 2017 of 40% to 50% annually. In 2019, the company’s net sales rose to 10% with more than Rp 5 trillion net sales and 42.5% growth in EBITDA. The consumer healthcare business unit itself has an increase of 14% growth on the same year with Imboost growing at 27%.
CHAPTER 2 – ANALYSIS & DISCUSSION
The Five Forces Competition Model
- Rivalry among competing firms
One of SOHO Global Health’s main competitor is Kalbe Group, another top pharmaceutical company in Indonesia, specializing in generic drugs and nutritional products, including snacks, while SGH is more focused on herbal OTC drugs, multivitamins and immunomodulator drugs. Even though they specialize in different areas in the business, they are still top companies in the industry, also both selling medical devices.
Both are also competing in other areas of the business process such as distribution and logistics, where SGH has PPG for distribution of their products, Kalbe delegates these tasks through their subsidiary, PT Enseval Putra Megatrading. They also has a new Regional Distribution Center in Cikarang with Automated Guided Vehicle for more efficient logistics. Kalbe’s distribution is on par as it also covers the entire 33 provinces of Indonesia.
Kalbe’s research and development department is also very advanced, although they focus more on the development of generic products instead of herbal like SGH. Throughout 2019, Kalbe has been developing 23 new product units and using Micro Near Infrared Technology for their product Promag Kalbe.
As for the sales and marketing department, Kalbe’s generic drugs net sales gains Rp 5 trillion in 2019, similar as SGH’s company net sales for the year, which shows that Kalbe’s net sales as a whole is more than SGH’s as the generic drugs net sales contributes 22.8% of the total net sales of Kalbe. For marketing, Kalbe uses digital marketing automation according to customer profile and has electronic mobile order system like SGH’s Parit Padang Global Online System (PPGOS) for customer to order online. They also provide home delivery service, collaborating with OVO and Gopay for payment.
So, in terms of the use of up-to-date technology, Kalbe seems to be using more advanced technology, which is their competitive advantage over SGH, even so SGH has their own unique competitive advantage by using medicinal herbs for their products which is
- Bargaining Power of Suppliers
The raw material suppliers in the pharmaceutical industry has low bargaining power as the raw materials used to manufacture drugs and medicine are usually common chemicals or common herbs. The manufacturers such as SOHO Global Health and Kalbe are the ones who research and develop these raw materials into drugs, vitamins, medicines, etc. to be sold in the market and unique to each company. The raw materials themselves are pretty common and can be bought from any supplier, take for example temulawak, which is often used by SGH in their products as they have many medicinal properties, is a common herb which can be bought through any supplier in Indonesia, so it is easy and less costly for companies to switch from one supplier to another, which shows that the suppliers have low bargaining power.
Of course, not all pharmaceutical raw materials are common, there are rarer and more unique materials for selected diseases’ cure, and in such cases, the supplier of these materials have higher bargaining power, but it is a rare case. Most raw materials of the industry are quite common, leading to low bargaining power of the suppliers.
- Threat of Substitute Products
The threats of substitute products in the pharmaceutical industry depends on the individual medicine/drug and which disease it cures. For common diseases such as diarrhea, the threat for substitute of Diapet by SOHO Global Health is high. There are many medicines with similar substances to cure diarrhea in Indonesia such as New Diatab, etc. For SGH’s top product Imboost, there are also many other substitutes of Immunomodulator products such as Blackmores, Redoxon, etc. Even so, since Imboost is the market lead, the threat of substitute products is not as high as Diapet as a lot of customers will choose Imboost over other brands.
- Threat of New Entrants
The threat of new entrants is pretty low in the pharmaceutical industry as it is difficult to get a license to manufacture and produce medicines, drugs, vitamins, etc., at least not as easy as manufacturing and selling food and beverages as well as fashion items. So, there are fewer ‘players’ in the pharmaceutical industry compared to those other industries. Even so, when a new ‘player’ enters the market with a new innovation, they can be a big threat to other companies, even if they just entered the market, as inventions of new drugs and medicines which are more effective towards certain diseases are very important, yet difficult to achieve, which is why there is low threat of new entrants to the market.
- Bargaining Power of Buyers
In the pharmaceutical industry, the customers have low bargaining power, as the seller of drugs and medicines, whether it is hospital or pharmacy is not authorized to gain a lot of profit from the sales of their products ethically. There are also expensive drugs and medicines too, of course, but that is because the medicine might be more potent than other brands’ products, or maybe because the ingredients of the medicine is rare, which makes it expensive. Even so, the seller is not allowed to increase the price of medicines and drugs if the demand is high, the price still stays the same, which is why buyers have low bargaining power.
The Resource-Based Model
- Resources
The most important tangible resources that SOHO Global Health has are the herbal and natural resources that they obtain and develop to medicines and supplements, as SGH is famous for their herbal products. On the other hand, their most important intangible resource is their research and innovation skills. Both of these tangible and intangible resources are the keys to their competitive advantage over their competitors. As they are known as pioneers of herbal-based products in the industry, it is their identity and value to keep making new innovations on the use of natural medicinal herbs for their products and it is their strength that they have over their competitors, which accounts for their sustainability.
- Capability
The capabilities that SOHO Global Health has over its competitors is discovering new natural resources and researching their potential benefit, then fabricating them into products which performs well for the market. For example, the company has found that temulawak is very useful to increase children’s appetite. They do thorough research before producing Curcuma Plus, a multivitamin using temulawak for children with low appetite, which is popular in the market.
- Competitive Advantage
SGH has 2 main competitive advantage over its competitors, research and distribution. As explained above, their research is very innovative, which is also shown by the use of natural ingredient echinacea flower as an ingredient of their famous immunomodulator, Imboost, which takes over the market. On top of that, they have a vast distribution network with Parit Padang Global (PPG) which covers 95% of all hospitals and pharmacy in Indonesia. These two reasons are how SGH is able to be unique and different from its competitors, including Kalbe Group, although their distribution network seem to be on par with each other.
- An Attractive Industry
In the healthcare industry, SGH focuses more on multivitamins and products that prevent customers from illness, such as Curcuma Plus to increase children’s appetite and improve health, and Imboost in the body defense market to improve sutomers’ immune. Even so, they also focus their research on natural products that not only prevents illness, but also cure them. They have several business units which focuses on different areas, but the most attractive one that they have a large presence on is the body defense market as Imboost is the market leader.
- Strategy Formulation and Implementation
According to their 2018 annual report, SOHO Global Health’s objective is to focus on improving profitability, return on investment and growth which can be achieved through two main strategies; sustainable growth and professionalism. They believe the importance of sustainable value creation is due to operating efficiency and long term growth.
Sustainability strategy includes using strong balance sheet, encouraging cost optimization across the organization, improving their toll manufacturing business unit as main profit driver, grow healthcare products through innovation and communication with customer, expand their Parit Padang Global distribution area coverage, boost cash cycle speed, drive product development and innovation, and many more.
Professionalism strategy include assemble a team with high performance culture, improve information system and implementing their Purpose, Vision and Core Values (PVCV) across the organization.
SGH’s strategy to improve their research and innovation of creating products with natural resources is by making a new research facility, the SOHO Center of Excellence in Herbal Research (SCEHR), focusing on temulawak research. Their outstanding research is what made them pioneers of using natural products in the pharmaceutical industry and has since then partnered with many educational organizations such as UGM and ITB, research institutions and government institutions such as BPOM and BPPT to further improve their research. They even have a sister company SOHO Flordis International (SFI) Research, located in Sydney, Australia which granted them the opportunity to develop local medicinal herbs to be exported worldwide.
- Superior Returns
As a result of the advanced research towards herbal materials, Imboost gains the tile of market leader in the body defense market while Curcuma Plus has started to enter the global market. Not to mention this year, SGH’s net sales rose 10% to more than Rp 10 trillion. Also,S they have been given the Innovative Industrial Research and Development Insitution Award by the Ministry of Research, Technology and Higher Education for two consecutive years.
SOHO Global Health uses The Resource-Based Model instead of the I/O Model because the important aspect of the company is their internal environment and resources, whether tangible or intangible to create value in the form of new innovations of pharmaceutical products, while the I/O Model focuses more on the external environment.
Internal Analysis
- Resources
There are two crucial resources for SOHO Global Health which helps them gain an upper hand over their rivals. The tangible resource is the natural resources that they use as a base for their products such as temulawak and echinacea flower, while their competitors use more chemical substances for their pharmaceutical products, as they are known as pioneers of developing herbal products.
Their intangible resources include their brilliant research, supported by strong clinical evidence which enables them to make new innovations of herbal products and develop them. On top of that, their extensive distribution system is also a very crucial resource which allows them to distribute their products to even some of the most isolated pharmacies and hospitals in Indonesia.
- Capabilities
The capabilities that SOHO Global Health has over its rivals is finding new benefits of certain natural resources and turning them into products which performs well for the market. For instance, they found that echinacea flower is beneficial to boost immunity and body defense, so they use this flower as a base ingredient for their top product Imboost and is successful in penetrating the body defense market and become market leader.
- Core Capabilities
SOHO Global Health’s resources and capabilities fit almost all the four criterias of sustainable advantages; valueable, rare, costly to imitate and nonsubstitutetable. The natural resources that SGH discovered, such as temulawak is quite common, yet still valuable and need to be preserved, meanwhile echinacea flower can only be found in eastern and central North America, in dry prairies and open woods, so it is quite rare. Meanwhile, their expertise in research and development, as well as discoveries of new innovations are unique to them and difficult to imitate as it is their signature value.
As for nonsubstitutable, SGH has competitors in different markets, for example Diapet’s competitor is New Diatab, which means that customers can substitute their product with another brand, but of course SGH’s products has their own specialties, which is the use of herbal products, so if customers substitute their products with another brand, those brands might use chemical instead of herbal resources.
- Competitive Advantage
SGH’s main competitive advantage over its competitors is its resources, whether tangible or intangible. As explained in The Resource-Based Model, the value that they have over their competitors are the natural resources that they use in their products, as well as their research with strong evidence to back it up.
Five Business Level Strategy
- Cost Leadership
Cost leadership is a business strategy that reduces manufacturing costs as low as possible so that they can sell their product in a lower price than competitors. This can be done by improving efficiency. Usually firms using this strategy not only have low cost and prices, but also a broad market. This strategy might need costs cut down in every department in the business and requires to produce goods in bulk to cut costs and maximize efficiency.
- Focused Cost Leadership
This strategy is similar as cost leadership strategy, but focusing on niche market instead of a broad market. Maximizing efficiency to minimize cost and offer lower prices to customers.
- Differentiation
Differentiation is a business level strategy where the firm has unique products or attribute which is different from competitors and not easy to imitate. This product or attribute becomes its competitive advantage against competitors. This strategy is targeted for a broad market. The advantages of this strategy is that customers are more loyal to the brand as it is different from competitors, it has its own uniqueness and when the product is in high demand, the firm can charge higher price to get more profit although customers might turn to other brands if the price is too high.
- Focused Differentiation
This strategy is similar as differentiation strategy but is targeted for a niche market instead of a broad market.
- Integrated Cost Leadership/Differentiation
This business level strategy combines both low cost and differentiation strategy. Firms using this strategy don’t offer prices as low as those using cost leadership strategy and might not be as unique as those using differentiation strategy, but right in the middle, and offers a bit of both strategies. It is difficult to achieve as being low cost and unique are very contrast and opposites.
SOHO Global Health uses the Differentiation strategy as their uniqueness is using mostly herbal ingredients as they are known as pioneers in the use of natural ingredients for their products. This is their differentiation which gains them the upper hand from their customers. Their business level strategy is not Focused Differentiation because their market is not niche. On the other hand they have a broad target market, with different business units and brands targeting different markets. For example, Fitkom is targeted for children with low appetite and Imboost is targeted for adults who are having low immune. Meanwhile their toll marketing service is targeted towards pharmaceutical businesses and SOHO Global Medika’s target market are MNCs who need help in penetrating the local market and providing sales and marketing also.
Type of Diversification
- Low level of diversification
means that the firm only has a single business or two where one of them dominates by generating 70-95% of the firm’s revenue. This shows that most or all their income comes from that single business.
SGH doesn’t have low level of diversification because they have many business units and brands and no dominant brands/business units generating more than 70% of the firm’s revenue.
- Moderate to High levels of diversification
is when less than 70% of the firm’s revenue comes from one single dominant business, meaning that the firm has a few businesses that are all quite active and generate values and revenue to the firm, instead of only one dominating. There are 2 types of this level of diversification, either the businesses have common link, sharing all their resources, tangible or intangible (related constraint) or only sharing limited links (related link).
SOHO Global Health’s level of diversification is moderate to high as they have several brands such as Imboost, Curcuma Plus, Diapet, Fitkom, Curcuma Group, Curvit and Asthin with Imboost as their dominant business, leading number 1 in the vitamins market. While other brands such as Diapet is in the medicine market, so the brands are spread out between several markets. Even so, the revenues that Imboost generates is less than 70% of the total of the company’s revenue as the seven brands mentioned above generates IDR 30 Billion annual sales each, so the revenue between the brands are well spread out.
Besides a lot of brands, SGH also has several other business units which generate additional revenue such as the toll manufacturing service that they offer towards companies who wishes to use their facilities to manufacture products related to the pharmaceutical industry. Other business units include SOHO Global Medika which provides sales and marketing services and help MNCs in the pharmaceutical industry enter the national market. This shows that SGH has a lot of diversity in their business.
Even so, this fact itself is not enough to prove that Soho Global Health has moderate to high levels of diversification. The reason why I conclude that they are in this category is because Soho Global Health keeps improving their operating efficiency across their business links, mainly in research and logistics, with SOHO Center of Excellence in Herbal Research (SCEHR) as their primary joint research center and Parit Padang Global (PPG) as their distribution system across Indonesia.
They are also focusing to save costs in non-consumer facing departments, such as the integration of HR and Legal department, and IT and Finance. Their research center SCEHR and distribution system PPG become their core competencies which they share across businesses, this shows that they are related constraint in the moderate to high levels of diversification.
- Very high levels of diversification
is when less than 70% of revenue comes from the dominant business, and all the businesses don’t have any common links.
As explained above, SGH has several business units and brands with diversification, but there are common links between the brands, which are their distribution system PPG, their research in the research center SCEHR and also other business areas, such as HR and IT.
Value Creating Diversification
- Related Constraint Diversification
This is a corporate level strategy of value creating diversification where business units or brands share operational activities but do not transfer the core competencies of each units between businesses.
- Unrelated Diversification
This is a corporate level strategy of value creating diversification where the business units of a firm do not share any common operational activities nor core competencies. So each of them has separate core competencies and separate activities.
- Related Linked Diversification
This corporate level strategy of value creating diversification is the opposite of related constraint diversification where the business units in a firm share core competencies, but do not share operational activities.
- Both Operational and Corporate Relatedness
This is a corporate level strategy of value creating diversification where the business units in a firm share both core competencies and operational activities between them.
SOHO Global Health uses Related Constraint Diversification because they share operational activities between business units and brands but they do not transfer the core competencies between businesses. For example all researches are done in their research center SCEHR for all their brands and distributed by Parit Padang Global to hospitals and pharmacies, but Imboost uses echinacea flower as ingredient (core competency) while Curcuma uses temulawak. This shows that their value creating diversification is related constraint diversification.
CHAPTER 3 – SUMMARY AND SUGGESTIONS
In summary, PT SOHO Industri Farmasi, also known as SOHO Global Health (SGH) is a pharmaceutical company which is best known to be a pioneer in the use of natural and herbal ingredients for its products. They specialize in multivitamins and immunomodulator, but also has other business units and brands specializing in medicines and medical equipments.
SGH business units include Parit Padang Global (PPG) as a wide distribution network with 95% coverage to local pharmacies and hospitals, Alliance which does in-licensing as well as sales and marketing, SOHO Global Medika which helps MNCs who want to enter Indonesia’s medical industry and last but not least, toll manufacturing, and Unihealth, a multi-level marketing business unit for medical products.
SGH’s top 7 brands include Imboost, Curcuma Plus, Diapet, Fitkom, Curcuma Group, Curvit and Asthin which generates a revenue of approximately Rp 30 Billion each annually. This shows that the revenue generated by each brand are equally spread. So even though Imboost is their most popular brand which is a market leader in the body defense market, it is not very dominant compared to other brands, which is why SGH’s value creating diversification is moderate to high. Also, they share operational activities, such as conducting research in the same facility, integrating HR and IT department, but they do not share core competencies between business units/brands, for instance Curcuma Plus’ core competency is the use of temulawak to boost children’s appetite, meanwhile Imboost core competency is the use of echinacea flower to boost immune. This shows that SGH is using Related Constraint Diversification.
SGH uses the Resource-Based Model instead of the I/O Model because their resources are one of the crucial key points to their sustainability. Their resources, both tangible and intangible include the natural resources that they discover and maximize their benefit and develop them into effective products. Their remarkable research, backed up by strong clinical evidence is one of their intangible core strength, and these are the competitive advantage that they have over their competitors and how they use differentiation business level strategy.
Their core values Absolute Integrity, Mutual Respect, Culture for Discipline and Passion for Innovation, supports their current strategy of sustainability and professionalism.
In my opinion, they should improve the use of technology as it is still lacking compared to competitors like Kalbe Group who has used Micro Near Infrared Technology in their research and collaborate with OVO and Gopay for payment in their online ordering system. Of course, Parit Padang Global also has their online ordering system PPGOS, even so in terms of technology usage they are still lacking behind their competitors, could be because they are investing more in research as their core competency. I think that they should invest a bit more in technology to support their strategy of sustainability and improve the efficiency of their overall performance.
REFERENCES
https://www.sohoglobalhealth.com/uploads/publication/file_publication/18/SGH_Annual_Report_2019.pdf
https://www.kalbe.co.id/Portals/0/pdf/annual-report/2020_AR%20KLBF%202019final02.pdf
https://sohoglobalhealth.com/en
https://infobrand.id/imboost-ajak-masyarakat-berpartisipasi-melawan-corona-secara-daring.phtml
https://mix.co.id/marcomm/news-trend/cegah-infeksi-virus-corona-soho-edukasi-imboost/
https://farmasetika.com/2019/12/13/ekspor-curcuma-perdana-ke-kamboja-pt-soho-apresiasi-bpom/