The firm plans to produce 6b condoms by 2018 and a key element to achieving that is automation in its manufacturing plants
By RAHIMI YUNUS & NG MIN SHEN / Pic By AFIF ABD HALIM
A nasi lemak-flavoured condom? It might sound outrageous, but for Karex Bhd CEO Goh Miah Kiat, it is all about innovation.
The head of the company that produces over five billion contraceptive products annually has never been shy to push the envelope — even for the somewhat taboo subject of condoms.
“Karex is where it is today because of innovation. When nobody wanted to do the glow in the dark condoms, we did it. We came up with the first gold-coloured, silver-coloured and whatever you can think of, we did it,” he said.
Next month, the nasi lemak panas condom will hit the shelves. News of the condom with a faint of coconut taste has gone viral worldwide.
Some may describe durian-flavoured and nasi lemak panas condoms as nothing short of a marketing gimmick.
But Goh — who is fondly known as MK — said the company has produced hyper thin, extra large studs to the durian-flavoured condoms.
Bringing extra pleasure to men using the birth-control method has taken the company down many routes.
The condom maker now produces bespoke, “perfect fit” condoms with variations of 10 lengths, nine widths and 60 sizes. To make sure one fits, customers only need to download an online ruler called “FitKit”, measure and enter their size to the website to get the size code.
Market demands are forcing global manufacturers to innovate and make contraception products more alluring.
According to Global Industry Analysts Inc, the global condom market is expected to reach 48.5 billion units valued at US$8 billion (RM33.76 billion) by 2020.
The rising population, prevention of unwanted pregnancy and sexually transmitted disease, preference for condoms over a contraceptive pill, and innovations are driving demands.
An innovation like FitKit provides the attraction for the over 3.75 billion males on the planet.
Goh said there is more than meets the eye than just turning a rubber into a small longish balloon.
He said the engineering, research and design, prototyping and machining are parts of the production complexity.
Karex builds its own machines in order to have the flexibility advantages in production, he said.
“It is not like we design and we send to someone to make it for us. We actually weld and build our own machines in-house. It is important because it gives us the ability to change what we want to produce (condoms),” he said.
The 39-year-old Goh is not sitting down, and knows the huge challenge that Karex still faces from global manufacturers.
Presently, Karex produces about five billion condoms annually from its four factories — three in Malaysia and one in Hat Yai, Thailand.
The company plans to produce six billion condoms by next year and one key element to achieving that is automation in its manufacturing plants.
Tested and Certified Hole-Free
Although the raw material is the same, the requirements are not quite similar to producing gloves.
Goh said glove manufacturers do not need to test all their products.
Instead, they do sampling to check for pinholes. If the glove passes the test, it can be used for medical purposes. Otherwise, it goes for general usage.
“For condoms, I can’t say that there are some holes on this one and the other is perfect, because there is only one usage for it.
“And you cannot say since the US is paying more, then I give them a better quality while for Africa, I give them all the rejects,” he said.
So, each single condom must be tested and certified hole-free.
Complexity of the production process goes even further. Male contraception products are categorised as a medical device. Any changes to the manufacturing process need to be validated.
He said that is why Karex is taking a longer time to embark on automation.
Nevertheless, the company now has a five-year plan for automation, especially in the testing process. Other parts of the production processes are already automated.
Condom testing involves the manual mounting of each condom to aluminium mandrels. The condoms will be brushed with 2,000 volts of electricity for pinholes. If electricity is passed through, it means there are holes on the condom, making the product useless.
“If I produce four billion condoms, I have to do this condom mounting job four billion times. That requires thousands of workers just to do that.
“Is it easy to automate? Not easy. The thing about condom is it is so soft,
thin and not like bottles or anything that you can throw in a machine and it will segregate itself,” he said.
Advanced engineering is required to automate this critical task. The company’s in-house research and development (R&D) is already working on integrating and automating the electronic testing and foiling functions into one machine.
“We believe in the next five years, we can cut down our labour by 50% and save the cost of goods by 10%,” he said.
Karex currently employs over 2,000 workers. The possible savings from automating the testing process is already substantial. It will enable the company to reduce the reliance on manual tasks and foreign labour.
“The Thailand factory is 100% locals. For Malaysia, it is roughly equally split and the total group’s automation is targeted to be 80% in the next five years,” he said.
Karex is already allocating RM30 million annually for its capital expenditure (capex). The money will largely be spent on improving automation and core competencies.
Becoming a Global Condom Brand
Goh said his aim is to ultimately become a global brand, and not just to produce for brands like Durex.
Karex has three market segments comprising original equipment manufacturers (OEMs) or commercial, tender (supplied mainly to governments and non-governmental organisations) and own-brand manufacturing (OBM).
As at end-June 2016, the OEM segment contributed 54% to the group’s revenue, followed by tenders at 38% and OBM at 8%.
“I would like to balance up the three segments equally. Tender still continues to be an important part of the business and meddling with the own-brand segment does improve the overall business.”
He said its OBM business registered a 15% revenue last quarter. This was a fivefold increment since the company explored the segment four years ago from 3%.
The OEM segment is registering sound growth as governments’ policies changes are favourable for more commercialisation of condoms across the world, especially in Asia.
The firm is banking on its distribution strength, apart from branding to deliver billions of condoms.
Karex has also been active in the acquisitions market. The company has made five acquisitions — US-based Line One Laboratories Inc and the UK’s Pasante Healthcare Ltd, among others, for US$8 million and £6 million (RM33.66 million) respectively.
These companies were bought not only for the condom brands, but for their distribution advantages as well. For instance, Pasante has a strong presence in retail and tender via its distribution system in every National Health Service (NHS) in the UK.
“Distribution is very important. You need to knock on their store and have a relationship with any particular NHS clinics to buy products from them,” he said.
For Line One, Karex acquired intellectual properties including the trademarks, patents and Food and Drug Administration approvals to market and distribute condoms under the established brands of Trustex, Kameleon and Fantasy in the US.
Rising Cost of Rubber
Rising rubber prices continue to be the main concern for Karex.
“We don’t want it to be high because of cost impacts. But we also do not want it to be too low.
“If it is too low, there won’t be anybody who wants to tap rubber and eventually if that happens, raw material sources would decline,” he said.
Apart from natural rubber, Karex has not ruled out the possibility of using synthetic material for its condoms.
“Two biggest issues with condoms — breakage and slippage. Synthetic material such as nitrile is not as stretchable as natural rubber,” he said, adding that the company’s R&D is looking into the feasibility of using synthetic materials to make condoms.
While condoms remain as the company’s main revenue generator, Karex is expanding into other medical products such as lubrication gels, probe covers and catheters.
Karex is transforming from a condom-centric business into a broader sector called “sexual wellness”.
Such dynamic directional change is far from the company’s humble beginnings.
Started in 1988 as a family business, Goh said the initial company was known as “Banrub”. However, the name did not bode well.
“Banrub…Banrub…sounds like bankrupt. So, we changed the name to Karex and it just so happened that karet means getah (rubber) in Indonesian,” he said.
Karex was listed on Bursa Malaysia in 2013, just months after Goh was promoted to CEO from the sales and marketing head position.
The father of four girls is already preparing Karex to become a sexual wellness company. But the EY Entrepreneur of the Year 2016 Malaysia winner is very optimistic about the future.
“Life is very stressful. People talk about mental health issues, but we rarely talk about sexual wellness. I guess my solution is simple. If I make you happy down there, sure you will be happy up there as well.”
And such nasi lemak-flavoured condom is only the start.