8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW infobusiness 27 seD 2013 The Board of Directors Karex Berhad 10th Floor, Menara Hap Seng
NO.1 & 3 Jalan P. Ramlee 50250 Kuala Lumpur Dear Sirs / Madams, EXECUTIVE SUMMARY OF THE INDEPENDENT MARKET RESEARCH REPORT (“EXECUTIVE SUMMARY”) FOR KAREX BERHAD (“KAREX” OR THE “COMPANY”) This Executive Summary has been prepared for· inclusion in the Prospectus pursuant to the listing of Karex on the Main Market of Bursa Malaysia Securities Berhad. This research is undertaken with the purpose of providing a strategic and competitive analysis of the global condom industry. The research methodology includes both primary research, involving in-depth interviews with pertinent companies, as well as secondary research such as reviewing press articles, periodicals, government literatures, in-house databases, Internet research and online databases. The report contains information supplied by and analysis based on public and private sources. To the extent such sources have been cited herein, we hereby confirm that we are allowed to reference such sources. Although we believe that the sources of such information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information, we have not verified the data for accuracy or completeness, and make no representation with respect to information from any source external to us. Infobusiness Research & Consulting Sdn Bhd (“Infobusiness Research”) has prepared this Executive Summary in an independent and objective manner and has taken all reasonable consideration and care to ensure the accuracy and completeness of the Executive Summary. In addition, Infobusiness Research acknowledges that if there are significant changes affecting the contents of the Executive Summary after the issue of the Prospectus and before the issue of securities, then Infobusiness Research has an on-going obligation to either cause the Executive Summary to be updated for the changes and, where applicable, cause the Company to issue a Supplementary Prospectus, or withdraw our consent to the inclusion of the Executive Summary in the Prospectus. The Executive Summary is highlighted in the following sections. for and on behalf of INFr~ESSRESEARCH & CONSULTING SON BHO
Mark Lee Director
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EXECUTIVE SUMMARY This executive summary has been prepared to provide an overview of the global condom industry in which Karex operates in. INTRODUCTION TO CONDOMS A condom, also known as a prophylactic, is a thin sheath used as a barrier against unwanted pregnancies, STI and HIV. A condom is the single most efficient, available technology in the world to reduce the sexual transmission of STI and HIV, as well as offers dual protection for prevention of unintended pregnancy. As a contraceptive, the health benefits of condoms are substantial. Contraceptives prevent unintended pregnancies, reduce the number of abortions and lower the incidence of death and disability relating to pregnancy and childbirth complications. The long-term benefits range from better child health to greater family savings and stronger national economies. A condom is both a rubber product and a medical device, and this is further explained below. The rubber products industry in Malaysia utilises processes that convert natural rubber (and synthetic rubber) into finished products for intermediate and final consumption. It can be categorised into latex products, industrial rubber products, general rubber products and tyres and tyre-related products. Condoms are classified under the latex products category, as illustrated in the figure below. Figure 1: Segmentation of Rubber Products Industry in Malaysia General rUbber products Source: Infobusiness Research
Condoms are also classified as medical devices by the Ministry of Health in Malaysia. By definition, a medical device is an instrument, appliance, implant, machine, material, calibrator, apparatus, in vitro reagent, or other similar or related article which is used to cope with human diseases, care for human injuries, meet human anatomical needs, maintain human physiological functions, support or sustain human life, control human conception, disinfect medical devices and examine specimens taken from human bodies. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 91 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
Figure 2: Segmentation of Medical Devices Industry Medical Devices Industry
In vitro diagnostic
Source: Infobusiness Research Broadly, the medical devices industry can be further segmented into the following categories: • Assistance and compensation medical devices such as mobility aids and prosthetic devices;
• Diagnostic and monitoring medical devices such as vital signs monitoring devices and medical imaging devices;
• In vitro diagnostic medical devices such as erythrocyte sedimentation rate analysers and haematology analysers;
• Surgical and treatment medical devices such as catheters, scalpel and dialysis equipment; and
• Other medical devices such as transfusion, injection and collection equipment, first aid and wound care equipment, as well as condoms.
As condoms are classified as medical devices, they are subject to numerous government regulations and international standards which are further described below. 1.2 GOVERNMENT REGULATIONS Condoms are classified as medical devices and as such, are highly regulated by various regulatory authorities around the world. These agencies are empowered to issue licenses for medical devices in a particular country or region. In addition, some carry out or commission factory audits and product testing. They generally have the power to refuse to license manufacturers, to recall products and to close factories in the event of continued non-compliance with their regulations. As most countries have their own regulatory procedures, it is crucial for the national regulatory authorities to work closely with condom importers and inform them of the procurement procedures and testing protocols that will be used to verify the quality of the condoms before they are shipped to the country. The importers also need to be aware of and comply with any specific local laws and regulations. The national regulatory authority may order and commiSSion confirmatory testing and in-market compliance testing of the product by a third party laboratory in order to ensure that the quality of the condoms in a particular shipment has not deteriorate during handling, shipping and storage. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 92
8. INDUSTRY OVERVIEW (Cant’d) infobusiness
Below is a brief discussion of regulatory procedures for the condom industry in selected countries, including Malaysia. ~ FDA 510(k) pre-market clearance in the United Sates (“US”): Prior to marketing a condom in the US, a condom manufacturer must submit documentation to the Food and Drug Administration (“FDA”) and obtain a pre-market clearance (510(k». The documentation has to demonstrate that the product is equivalent to one that is already on the market. A 510(k) pre-market clearance indicates that the manufacturer has submitted acceptable safety data on the product and complies with FDA’s requirements for the manufacture and distribution of the product. Factory audits are conducted periodically to monitor compliance. Conformite Europeenne (UCE”) marking in the European Union (UEU”): Condoms intended for sale or distribution within the EU must carry the CE mark, which verifies that the product meets the essential requirements of medical device directive 93/42/EEC and 2007/47/EC. Compliance with EN ISO 4074 (European designation for the standard) can be taken as evidence of compliance with the essential requirements of the medical device directive. Manufacturing facilities are required to be certified to International Organization for Standardization (“ISO”) 13485. Under the medical device directive 93/42/EEC which covers EU countries, all medical devices are classified in ascending order of risk, into four (4) categories below: • Class I: generally regarded as low risk ego stethoscopes;
• Class lIa: generally regarded as low-medium risk ego hearing aids;
• Class lib: generally regarded as medium-high risk ego condoms; and
• Class /II: generally regarded as high risk ego prosthetic heart valves.
Condoms are classified as Class lib devices. This is based on the potential risk to the user. ~ State Food and Drug Administration of China: All imported medical devices, including condoms, must obtain a registration certificate from the State Food and Drug Administration of China, which has a comprehensive system for medical device registration and inspection, including product testing and factory audits, before being sold in China. In addition, the General Administration of Quality Supervision, Inspection and Quarantine, a state organisation, is tasked with overseeing inspection, quarantine and establishing the technical standards of goods for both imports and exports. ~ Thai FDA: Condoms are classified under Licensed Medical Devices (Class 1), which is the most stringent controlled class under the Medical Device Control Division of the Thai FDA. Class 1 medical devices require a licence authorisation from the Thai FDA to be eligible for importing and marketing purposes in the country. The products must also comply with the. standards of the Thai Industrial Standards Institute (based on the ISO standards). ~ Medical Device Act 2012 in Malaysia: The Medical Device Act 2012 was gazetted on 9 February 2012 and came into force on 30 June 2013. All manufacturers, importers, distributors and authorised representatives of medical devices, including condoms, are required to register their devices with the Medical Device Authority under the Ministry of Health, Malaysia. Medical devices will be sold under strict conditions so as not to jeopardise people’s health. Medical devices will be categorised into four (4) groups, namely low risk, medium risk, high medium risk and high risk. Condoms fall under the category of medium risk. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 93 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
In addition, the following environmental quality regulations are applicable to companies involved in condom manufacturing in Malaysia: • ENVIRONMENTAL QUALITY (CLEAN AIR) REGULATIONS 1978 The manufacturing of condoms is potentially highly polluting due to the use of some hazardous chemicals in the process. Latex concentrate is usually treated by ammonia solution so as to prolong its lifespan. The ammonia solution causes a strong odour, particularly near the centrifugation area of the factory. This may have adverse effects on workers’ health, especially the respiratory system.
The Environmental Quality (Clean Air) Regulations 1978 require companies to adopt “a best practicable means” policy in regard to manufacturing processes, operation methods, raw material selection, pollutant removal facilities, among others, in order to render harmless a wide variety or irritating air pollutants. The requirements apply to approximately 40 substances, including ammonia.
• ENVIRONMENTAL QUALITY (INDUSTRIAL EFFLUENT) REGULATIONS 2009 Under the Environmental Quality (Industrial Effluent) Regulations 2009, any industrial effluent produced by industrial premises will have to be treated by an industrial effluent treatment system. The owner or occupier of the premise shall operate and maintain the industrial effluent treatment system in accordance with sound engineering practice for the treatment of industrial effluent.
Condom manufacturers consume large volumes of water, use chemicals and produced enormous amounts of wastes and effluent. The discharge of untreated rubber effluent to waterways may cause serious and prolong consequences, and result in water pollution that affects human health. With the global trend towards sustainable development, condom manufacturers need to focus on cleaner manufacturing technology, waste minimisation, resource recovery and water recycling. A combination of physical, biological and chemical methods is widely used in the treatment of wastewater from rubber processing factories. Under the physical method, the condom factories usually install a rubber trap pond to separate rubber particles prior to discharging it into another wastewater system for a more thorough treatment. The biological method, which is the next stage in wastewater treatment, involves aerobic and / or anaerobic treatment. Subsequently, under the chemical method, coagulants and flocculants are formulated to assist in the solid / liquid separation of suspended particles in solution. Conditioning a solution to promote the removal of suspended particles requires coagUlation and/or flocculation. Coagulants neutralise the repulsive electrical charges surrounding particles, allowing them to “stick together” creating clumps. Flocculants facilitate the agglomeration or aggregation of the coagulated particles to form larger floccules and thereby hasten gravitational settling. • ENVIRONMENTAL QUALITY (SCHEDULED WASTES) REGULATIONS 2005 Sludge refers to any deposits of particulate matter settled from any liqUid. At present, all sludge generated from the industrial wastewater treatment system is classified as scheduled wastes in Malaysia. Scheduled wastes generated from the manufacturing of condoms fall under Environmental Quality (Scheduled Wastes) Regulations 2005. The sludge has to be disposed of at the central treatment facilities of Kualiti Alam Sdn Bhd. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 94 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
1.3 INTERNATIONAL STANDARDS Standards are developed and published by national and international standards bodies to establish the minimum safety, performance and quality requirements for a wide range of products, including medical devices such as condoms. Standards may either be generic or product-specific. Various types of organisations and bodies participate in the development of these standards, including manufacturers, national regulatory authorities, researchers, consumer groups, international agencies and testing laboratories. In many cases, compliance has been made mandatory. In addition to specifying safety, performance and quality requirements, standards also specify test methods that can be used to verify that the products comply with these requirements. The principal international standards authority is the ISO, the worldwide federation of national standards bodies. The ISO has created a quality management scheme specifically for medical device manufacturing and this is described in ISO 13485. The ISO 13485 standard is based on the ISO 9001 :2008 process model approach and it is a quality management standard specifically developed for the manufacture of medical devices such as condoms. This standard prescribes the documentation, procedures and structures to be followed in all types of establishments to facilitate the manufacturing of medical devices of a consistent standard. It is intended for organisations that design, develop, produce, install or service medical devices, with the primary objective of harmonising medical device regulatory requirements, the[ebyJeducing conflicting and different demands on manufacturers. Meanwhile, the more specialised ISO 4074, which is an internationally agreed set of standards for condoms, emphasises on product safety, performance and test methods to verify compliance for male latex condoms, as well as the minimum standard requirements. This standard specifies the essential performance requirements that latex condoms are expected to meet and the test methods that are used to assess compliance with these requirements. It is based on extensive research and an ongoing consultation process involving experts from around the world with representations from condom manufacturers, testing bodies, standards institutes, procurement agencies and consumer associations. Pursuant to ISO 4074, the limits for the maximum percentage of defective condoms are specified in terms of acceptable quality limit (“AQL”). The tests required under ISO 4074 include air inflation test, shelf life studies, water leak test, packaging integrity test and dimensional test. Since the publication of ISO 4074, manufacturers have been required to complete both accelerated and real-time studies to determine the shelf-lives of their condoms. In addition, there is also the World Health Organization / United Nations Population Fund (“WHO / UNFPA”) Specification. It is a model that buyers can use to tell potential suppliers their exact requirement. This includes some “performance requirements” which reiterate the ISO standard requirements, some general requirements and some design requirements. It is intended for use by institutional buyers. For condoms to be effective and safe, they must be manufactured to the highest international standards and quality assurance procedures. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 95 8. INDUSTRY OVERVIEW (Cont’d) infobusiness 1.4 DIFFERING SEGMENTS Besides the general classification of condoms into the male and female categories, they can be further subdivided based on the raw materials they are made from. Most condoms are made from natural rubber latex. Polyurethane, polyisoprene and nitrile are different forms of synthetic rubber and condoms made from synthetic rubber are used by persons allergic to natural rubber latex. The classification is illustrated in the figure below. Figure 3: Segmentation of Condom Industry
Note: . Karex is involved in the manufacturing of male condoms made from natural rubber latex, as indicated by the dotted box. Source: Infobusiness Research
As Karex is involved in the manufacturing of male condoms, the discussion in the remaining sections is confined to this segment of the industry. [The rest of this page is intentionally left blank] Infobusiness Research &Consulting Sdn Bhd © 2013 infobusiness research 96 8. INDUSTRY OVERVIEW (Cont’d) infobusiness 1.5 OVERVIEW OF THE GLOBAL CONDOM MARKET 1.5.1 Global Sales Global sales of condoms increased from 16.2 billion pieces in 2007 to 22.8 billion pieces in 2012, yielding a compounded annual growth rate CCAGR”) of 7.1 % during the period. Figure 4: Global Sales of Condoms
Approximately 48.1 % of global sales of condoms are distributed annually to consumers through the tender market to institutional buyers such as governments, NGOs, multilateral and bilateral organisations. The condoms are provided to consumers either free or at subsidised prices. The remaining 51.9% is accounted by the commercial market, which comprises own brand manufacturers (“OBM”) and brand owners, which sell the condoms to consumers. [The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 97 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
Figure 5: The Global Condom Market Commercial market 51.9%
Source: Infobusiness Research Institutional buyers /48.1% ._—–_.__.Condom usage in any country is closely correlated to its population numbers. By inference, countries such as China, India, the US, and Brazil are heavy users of condoms. The Asia Pacific region was the largest market for condoms in terms of unit shipment, representing approximately 49.9% of global sales of condoms in 2011. Two (2) of the world’s most populous countries, China and India, are located in the Asia Pacific region. The number of condom factories in operation globally is estimated at about 110 manufacturing plants. The majority of these plants manufacture only condoms made from natural rubber latex, while some also manufacture condoms made from synthetic rubber. The majority of these plants reside in locations in close proximity to sources of raw materials, for simplified logistics and speedy delivery, and where labour costs are competitive. 1.5.2 Global Exports of Condoms in USD The global exports of condoms registered a CAGR of 7.3% between 2007 and 2011, from USD362.1 million to USD479.8 million, as shown in the table below. In terms of exports in USD to the rest of the· world, Thailand, Malaysia and China registered impressive growths during the corresponding period.
Although the Netherlands registered the highest CAGR of 59.5% in exports to the rest of the world during the period; it was relatively low in terms of value.
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8. INDUSTRY OVERVIEW (Cont’d) infobusiness Table 1: Major Global Exporters of Condoms (USD Million) Country 2007 2008 2009 2010 2011 CAGR Thailand 64.4 68.5 72.0 87.2 114.2 15.4% Malaysia 44.1 68.4 66.3 88.1 90.6 19.7% China 34.3 38.9 38.7 53.5 72.1 20.4% Germany 16.5 21.6 33.4 26.7 22.7 8.3% South Korea 14.4 18.0 17.0 15.0 17.4 4.8% United Kingdom 28.7 31.6 29.6 28.1 17.0 -12.3% Hong Kong 86 8.5 6.5 10.6 15.7 16.2% US 26.7 24.2 17.9 16.8 15.5 -12.7% Netherlands 2.1 2.5 1.2 3.4 13.6 59.5% Japan 9.7 11.7 98 11.8 13.4 8.4% subtotal 249.5 293.9 292.4 341.2 392.2 12.0% Rest of the world 112.6 124.3 109.4 121.7 87.6 -6.1% Total 362.1 418.2 401.8 462.9 479.8 7.3%
Source: Infobusmess Research In terms of USD, the top ten global exporters of condoms accounted for 81.7% of global exports in 2011. Thailand was the largest exporter of condoms in 2011, accounting for 23.8% of global exports. This was followed by Malaysia (18.9%) and China (15.0%) in the same year. However, in terms of quantity in kilograms, Malaysia was the largest exporter of condoms (please refer to section 1.5.4). Figure 6: Share of Major Global Exporters of Condoms, USD Value, 2011 (%) ThailandRest of the world Source: Infobusiness Research Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 99 8. INDUSTRY OVERVIEW (Cont’d) infobusiness 1.5.3 Top Ten Export Markets from Malaysia China was the largest export destination for condoms from Malaysia during the period between 2007 and 2011, as shown in the table below. Malaysian exports of condoms to China increased from USD4.9 million to USD12.3 million over the corresponding period, registering a CAGR of 25.9%. After China, Singapore was the second biggest export destination (a large proportion of which is reexported), followed by the US, Brazil and Iran. Table 2: Major Export Destinations of Condoms from Malaysia (USD Million) Country 2007 2008 2009 2010 2011 CAGR China 4.9 7.0 9.6 10.2 12.3 25.9% Singapore 0.4 0.7 0.7 4.7 11.9 133.5% US 2.6 5.2 3.8 5.3 4.9 17.2% Brazil 1.4 3.1 2.2 2.3 3.8 28.4% Iran 0.9 1.9 2.7 3.1 3.8 43.3% South Africa 3.0 3.2 3.6 3.8 3.6 4.7% Japan 1.4 2.9 2.3 3.6 3.5 25.7% Germany 2.1 2.2 2.6 3.5 3.2 11.1% Spain 1.3 1.4 1.3 1.3 2.6 18.9% Argentina 0.04 0.4 0.5 1.4 2.5 181.2% subtotal 18.0 28.0 29.3 39.2 52.1 30.4% Rest of the world 26.1 40.2 37.1 49.0 38.5 10.2% Total 44.1 68.2 66.4 88.2 90.6 19.7%
Source: Infobusiness Research China’s share of exports of condoms from Malaysia rose from 11.1 % to 13.6% over the corresponding period, indicating its growing importance to the Malaysian condom industry. [The rest of this page is intentionally left blank] Infobusiness Research & ConSUlting Sdn Bhd © 2013 infobusiness research 100 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
Figure 7: Export Market Share of Condoms from Malaysia, USD Value, 2011 (%)
1.5.4 Exports of Condoms from Malaysia in Kilograms In terms of export quantity in kilograms, Malaysia was the largest exporter of condoms during the years between 2009 and 2012, as shown in the table below. This was followed by Thailand and China. The key difference in ranking of export countries in terms of USD value (as per section 1.5.2) as opposed to quantity in kilograms, is principally due to the fact that the condom manufacturers in Thailand are OBM, as opposed to contract manufacturers. Condoms produced under OBM command a higher’ price in the market, as opposed to condoms produced under contract manufacturing, and this is reflected in the export figures in USD from Thailand.
Table 3: Export of Condoms in Kilograms Malaysia 8,873,312 11,970,185 10,925,319 12,450,643 Thailand 6,858,962 8,185,559 8,789,342 10,610,810 China 5,705,526 6,452,887 7,053,275 7,261,164
Source: Infobusiness Research Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 101 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
1.6 DEMAND AND SUPPLY 1.6.1 Demand Drivers Explosion in Global Population The consumption of condoms is closely correlated with the expanding global population, in particular women married or in a consensual union. Even if marriage is increasingly being postponed, the majority of men and women eventually marry or live in a consensual union. The latter refers to a man or a woman regularly cohabiting in a marriage-like relationship. The global population is expanding at an exponential rate. At some point around 1800, after untold millennia of human history, global population reached its first billion. The global population is now expanding by one (1) billion about every 12 years. The 20th century began with about 1.6 billion and by the end of that century, it had reached 6.1 billion. As the global population is expected to explode to reach 8.1 billion in 2025, it will increase the consumption of contraceptives such as condoms in tandem. The expansion in population is also straining food supplies, leading to hunger and famine in many parts of the world. There was an estimated 925 million undernourished people in the world in 2010. EVidently, there is a need to form more effective family planning programmes to prevent the situation from worsening, particularly in countries with a high proportion of youths in the sexually-active range. Rising Incidences of STI Approximately one (1) million cases of STI occur daily worldwide. In the US alone, more than 19 million STI occur annually, with almost half of those transmitted occurring among young persons aged between 14 years old and 24 years old. One (1) in every four (4) women between 14 years old and 19 years old is infected with at least one (1) STI in the US. Further exacerbating the danger, some STI exist without symptoms. More than 30 types of bacteria, viruses and parasites can be transmitted from person to person as a result of sexual activities, both heterosexual and homosexual, due to fluid exchanges. The most common types are as follows: • Chlamydia;
• Genital herpes;
• Genital warts;
• Hepatitis B;
• Pubic lice;
• Trichomoniasis; and
• Yeast infections.
Condoms assist to prevent the transmission of STI by reducing the likelihood of exposure through genital contact or fluid secretions, to the partner. When used consistently and correctly, they are highly effective in reducing STI. They can physically block the fluids, preventing the spread of disease. Condoms made from natural rubber latex do not have pores that can allow micro-organisms to pass through. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 102 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
High Number of Infections of HIV Approximately 30 years after AIDS was first reported, HIV continues to spread. There are principal differences between these two (2) terms, although they are related terms used in medical science: • HIV is a virus and is the cause of AIDS. Without treatment, the HIV infection is allowed to progress and eventually, it will develop into AIDS in the vast majority of cases.
• AIDS is a medical condition caused by an infection with HIV, which alters the immune system, making people much more vulnerable to infections and diseases. This susceptibility worsens as the disease progresses.
Globally, more than 30 million people have died from AIDS. Existing prevention efforts, although improving, are often insufficiently comprehensive or inadequately tailored to local epidemics. This requires stronger country surveillance systems, especially among specific population subgroups at higher risk of HIV infections, development of new prevention approaches and improved tools to strengthen national responses. Besides injecting drug users, HIV is also spread through heterosexual and homosexual activities. In particular, HIV prevalence rates have been consistently higher among homosexuals as compared to the general population. Left unchecked, AIDS has the potential to wipe out a significant portion of humanity as it is one of the most devastating diseases in history. Married women are also at risk for HIV in countries where transmission occurs primarily through heterosexual activities and cultural norms condone male promiscuity and lor patriarchal control of the couple’s sexual activities. A time bomb is created when an infected person has multiple partners. Resistance to AIDS drugs is growing in eastern and southern Africa. Tiny genetic mutations that make AIDS immune to key frontline drugs have been increasing. As bacteria becomes resistant to antibiotics, it is fear that strains of HIV will emerge that will blunt the armoury of antiretrovirals, the medication used in the treatment of infection of retroviruses such as HIV. Over a period of eight (8) years starting from 2003, the prevalence of resistant virus in untreated people soared from around 1% to 7.3% in eastern Africa, and from around 1% to 3.7% in southern Africa. As such, condoms will continue to play an important role in the prevention of transmission of HIV. The presence of untreated STI increases the risk of both acquisition and transmission of HIV by a factor of up to 10. In other words, this means that the presence of untreated STI increases the risk of both acquisition and transmission of HIV by up to 10 times. Prompt treatment for STI is thus critical to reduce the risk of HIV infection. [The rest of this page is intentionally left blank] Infobusiness Research & ConSUlting Sdn Bhd © 2013 infobusiness research 103 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
Figure 8: People living with HIV and People Newly Infected with HIV Million 40 34.0 34.035 32.9 30 25 20 15 10 5 o
2007 2008 2009 2010 2011 I!ll People living with HIV Source: Infobusiness Research AIDS continues to be a major global health priority. Although progress has been achieved in preventing an increase in HIV infections, the number of people living with HIV continues to increase, from 31.8 million in 2007 to 34 million in 2011, generating a CAGR of 1.7% during the period. An estimated 1.7 million people died of AIDS-related illness in 2011. AIDS-related illnesses remain one of the leading causes of death globally and are projected to continue as a significant global cause of premature mortality in the coming decades. During the years between 2007 and 2010, the number of HIV infections had remained fairly constant at 2.7 million infections annually .They declined to 2.5 million infections in 2011. This yields a CAGR of -1.9% between 2007 and 2011. Condoms represent the most cost effective use of resources in combating HIV in the world. The usage of condoms is a critical element in a comprehensive, effective and sustainable approach to HIV prevention. High quality condoms are effective as a barrier to contracting HIV as research has. shown that proper and consistent usage of condoms greatly reduces the risk of HIV transmission. For example, during the early years of the HIV epidemic, sex workers in Thailand were a significant source of infection in the country. A national programme to promote free, easily accessible condoms was instrumental in reversing the tide. As a result, Thailand has received international recognition for its successful interventions to reduce the transmission of HIV through sex workers and is looked upon as a role model for HIV education and awareness campaigns that include the extensive promotion and wide acceptance of condoms as a HIV prevention strategy. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 104 8. INDUSTRY OVERVIEW (Cont’d) infobusiness Family Planning The usage of condoms is a key enabler in family planning as the unprecedented explosion in population has become a cause for grave concern all over the world. Family planning saves lives as it reduces both maternal and newborn mortality rates as well as improves the health and well-being of women and their existing children. All sexually active women, from menarche to perimenopause face the risk of pregnancy. Menarche refers to the first menstrual period of a girl, which signals the body’s coming readiness for childbearing. Pregnancy may occur during perimenopause, which refers to the months or years leading up to menopause. In other words, perimenopause is the transition period leading to menopause, when the levels of hormones produced by the aging ovaries fluctuate, leading to irregular menstrual patterns. Although chances of getting pregnant during perimenopause are slim, methods of birth controls such as the usage of condoms are needed to prevent unintended pregnancies. Menopause is defined as the time when there have been no menstrual periods for 12 consecutive months and is the end of childbearing years. Family planning refers to the decision-making process by couples on the number of children that they would like to have in their lifetime and the age interval between children. Increasing number of couples are making decisions about their family size and spacing and in the process, are using family planning to help achieve their objectives. A woman’s ability to space and limit her pregnancies has a direct impact on her health and well-being as well as on the outcome of each pregnancy. Family planning is one of the leading strategies to improve family life and welfare, control unwanted population growth and assist in the development of a country. Family planning has profound health, economic and social benefits for families and communities through the following: • Protecting the health of women by reducing high risk pregnancies;
• Protecting the health of children by allowing sufficient time between pregnancies;
• Reducing abortions;
• Supporting women’s rights and opportunities for education, employment and full participation in society; and
• Protecting the environment by stabilising population growth.
According to the UN, approximately 220 million women in the developing countries who do not want to get pregnant cannot get reliable access to contraception, resulting in over 75 million unintended pregnancies every year. This puts women and girls at serious risk of death or disability during pregnancy and childbirth. Estimates have indicated that, by preventing pregnancies and unsafe abortions, reliable access to quality family planning services and information can reduce maternal deaths by one third, which equates to saving the lives of between 100,000 and 175,000 women each year. In India, conservative, patriarchal attitudes and inadequate spending in public health spending meant that only about 40% of the country’s women use contraception, while 63,000 women died annually during childbirth due to a lack of reproductive-health services. Government figures indicate that around 20% of pregnancies in India are either unwanted or poorly timed. On the other hand, impressive progress has been made in family planning programmes in China. Approximately 400 million births had been prevented from being added to the world’s most populous population of approximately 1.34 billion, since the national family policy, often referred to as the “one child policy” was introduced in the late seventies to curb pressure on the environment and resources. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 105 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
Procurement of Condoms by Institutional Buyers Institutional buyers comprise the following: • Governments;
• Multilateral organisations;
• Bilateral organisations; and
Many governments around the world are beginning to purchase family planning products as a step towards ensuring contraceptives, including condoms, are available to their citizens. They are taking on increasing responsibility for funding family planning products as the demand for contraception continues to increase. As governments increasingly fund their own contraceptive supplies for public sector programmes, they are taking a more active role in procuring them. Global government procurement of condoms increased from 4.0 billion pieces in 2006 to 6.6 billion pieces in 2010, yielding a CAGR of 13.3%. Figure 9: Global Procurement of Condoms by Governments 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0
2006 2007 2008 2009 2010 _________..1——–_._—Source: Infobusiness Research Although condoms are cost-effective products, cost continues to be a barrier to their availability in many developing countries. Due to limited availability of government funding for family planning in these countries, international agencies such as multilateral organisations, bilateral organisations and NGOs are also involved in the distribution of subsidised and/or donated contraceptives, including condoms. Global unit shipment of donated condoms by multilateral organisations, bilateral organisations and NGOs increased from 2.1 billion pieces in 2006 to 2.8 billion pieces in 2010, yielding a CAGR of 7.5% during the period. Infobusiness Research & Consulting Sdn Bhd © 2013
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Figure 10: Global Unit Shipment of Donated Condoms by Multilateral Organisations, Bilateral Organisations and NGOs Million pieces 3,500 3,000 2,797 2,500 2,000 1,500 1,000 500 o 2010 ————————–_•.._._-Source: Infobusiness Research 2006 2007 2008 2009 Donors comprising UNFPA, which is a multilateral organisation, and bilateral organisations such as the United States Agency for International Development (“USAID”), have embarked on programmes to make condoms available to low income people in these countries. This is supplemented by the NGOs, which provide monetary aid and subsidised condoms at affordable prices. Besides UNFPA and USAID, other bilateral organisations and NGOs involved in condom donations, distribution of condoms at subsidised prices and monetary aid to support the procurement of condoms, are as follows: • UK Department for International Development (“DFID”);
• Federal German Ministry for Economic Cooperation and Development (“MBZ/KfW”);
• International Planned Parenthood Federation (“IPPF’);
• Marie Stopes International (“MSI”); and
• PopUlation Services International (“PSI”).
Condoms are used as a Lifestyle Product The onset of the AIDS crisis in the 1980s changed the perceptions of condoms, leading to greater social acceptance. In line with growing public health campaigns promoting the concept of safe sex, there is increased and enhanced advertising stressing upon the social acceptance of condoms. Government-subsidised HIV prevention programmes in places such as China, Thailand, South Africa, Uganda and India have also assist to distribute donated condoms free-of-charge through established government health infrastructure. The usage of condoms has become more and more acceptable, even in conservative societies. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 107 8. INDUSTRY OVERVIEW (Cont’d) infobusiness Through campaigns such as advertising and promotions, condom manufacturers in the commercial market have managed to project an image of condoms as a lifestyle product. They are able to supply a wide assortment of condoms in terms of textures, flavours, colours, shapes and sizes, so as to attract a wide spectrum of consumers in the market. Through promotions by the condom manufacturers, consumers are becoming more aware of their ability to achieve a healthy lifestyle and sexual wellness via the effective usage of condoms. In turn, this has the effect of boosting the usage and sales of condoms in the market in many countries. 1.6.2 Supply Conditions Reliance on and VUlnerability to Imports The condom industry in Malaysia relies on the imports of natural rubber latex. The natural rubber latex required by condom manufacturers in Malaysia is sourced both locally as well as imported from Thailand. Malaysia is a net importer of natural rubber latex, with imports exceeding exports by a large margin. However, as natural rubber latex is viewed as a commodity, it is easily obtained from suppliers. The import of natural rubber into Malaysia had decreased by a CAGR of 0.1 % between 2008 and 2012, from 323,070 metric tons to 322,202 metric tons. Figure 11: Import and Export of Natural Rubber Latex
Metric tons 400,000 357,311 361,804 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2008 2009 2010 [ a’!l Import :::, Export]
————_..-.Source: Infobusiness Research
Production of Natural Rubber Latex in Malaysia The production of natural rubber latex had decreased rapidly by a CAGR of 16.1 % from 153,709 metric tons in 2008 to 75,985 metric tons in Malaysian in 2012, as illustrated in the figure below. This was principally due to the conversions of rubber estate into crops such as oil palm plantations as well as property development projects. The adoption of crop diversification and the boom in manufacturing activities catalysed by the various industrial master plans since 1986 have seen the reallocation of resources away from natural rubber cultivation. The transformation of the Malaysian economy into an industrialised one, fuelled by expansion in the manufacturing and services sectors has seen the agricultural sector taken a secondary role. Infobusiness Research &Consulting Sdn Bhd © 2013
infabusiness research 108 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
Furthermore, rubber trees have a long gestation period and there is also the problem of labour shortage as it is labour-intensive and requires skilled tappers. The younger generation workers prefer to work in factories rather than plantations in rural areas. As a result of these factors, the consumption of natural rubber latex had exceeded the production of natural rubber latex by a wide margin in the country in the years between 2008 and 2012, as illustrated in the figure below.
Source: Infobusiness Research Supply of Packaging Materials Packaging materials such as foils and boxes comprise a large proportion of the inputs associated with condom manufacturing. As a consumer product, packaging constitutes an important element in boosting sales as eye-catching attractive colours and convenient packaging spur consumers to purchase on impulse. Packaging also assists to differentiate the products of different manufacturers in the market. It also serves as regulatory requirements on labelling such as brand name, . manufacture date, expiry date and instructions of use. In other words, packaging is part and parcel of a consumer product such as condoms as it serves to communicate the attributes of the product to consumers. Availability of Labour As condom manufacturing is relatively labour-intensive, the supply of labour is critical to the smooth operations of a condom factory. This also extends to human capital in the form of skilled labour such as technicians, rubber technologists and engineers. Insufficient labour availability may give rise to interruptions in manufacturing operations, affecting shipment schedules as well as impacting on contractual agreements on timely deliveries of condoms to customers. Due to the relatively high cost of automation in plant and machinery and therefore their cost-effectiveness, condom manufacturers still need to rely on a sufficient supply of labour for their manufacturing operations to a certain extent. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 109 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
1.7 SUBSTITUTES There are no substitutes to condoms in the prevention of STI and HIV, except for abstinence. Condoms are the single most efficient available technology in reducing STI and HIV. For consumers suffering from natural rubber latex allergy, there are alternative condoms made from polyurethane and polyisoprene. For family planning purposes, there are a number of substitutes to the male latex condoms. They vary in their degree of effectiveness in birth control and are as follows: • Female condoms;
• Intra-uterine devices;
• Oral contraceptives;
• Emergency contraceptive pills;
• Injectable contraceptives;
• Sub-dermal implants;
• Diaphragm or cervical cap; and
1.8 INDUSTRY PLAYERS AND COMPETITION 1.8.1 Condom Companies in Malaysia Karex is principally involved in the manufacturing of condoms and other rubber-based medical devices and complementary products such as probe covers, catheters and lubricating jelly for the global market. It is involved in supplying condoms to both the commercial market and institutional buyers such as governments, multilateral organisations, bilateral organisations and I\lGOs. In addition to manufacturing its own in-house brands as an OBM, its condoms are also manufactured and sold to institutional buyers such as UNFPA and USAID, and brand owners such as Ansell Ltd. and Reckitt Benckiser PLC. For the purpose of comparison, the selected closest comparable companies to Karex in Malaysia are based on locally incorporated companies that are also involved in condom manufacturing. There are eight (8) other comparable companies in Malaysia and their principal activities are shown in the table below. [The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 110 8. INDUSTRY OVERVIEW (Cont’d) infobusiness Table 4: Closest Comparable Condom Companies in Malaysia Company Principal Activities Karex. It is principally involved in the manufacturing of condoms and other rubber-based medical devices and complementary products such as probe covers, catheters and lubricatinq jelly for the qlobal market. It is principally involved in the manufacturing of condoms and finger cots. Finger cots are used in handling electronic components and food as well as other nonmedical uses. It is a subsidiary of the Beiersdorf Group, Germany. Medical-Latex (DUA) Sdn Bhd is involved in the manufacturing of condoms while the Beiersdorf Group is involved in the manufacturing of skin care products and self-adhesive systems and product solutions. It is principally involved in the manufacturing of latex dipped products such as condoms, probe covers and latex qloves. It is principally involved in the manufacturing of condoms, as well as toys. It is involved in the manufacturing of machinery which produce and test condoms, as well as the manufacturinq of condoms itself. It is a subsidiary of Sagami Rubber Industries Co. Ltd. in Japan and it is involved in the manufacturinq of condoms. It is principally involved in the manufacturing of condoms. It is a subsidiary of Takaso Resources Bhd. Takaso Rubber Products Sdn Bhd is involved in the manufacturing of rubber and baby products, as well as trading in baby apparels, infant milk and toiletries. Dongkuk Techco Rubber Industries Sdn Bhd. Medical-Latex (DUA) Sdn Bhd. Nulatex Sdn Bhd. Pleasure Latex Products Sdn Bhd. Richter Rubber Technoloqy Sdn Bhd. Sagam i Manufacturers Sdn Bhd. SSN Medical Products Sdn Bhd. Takaso Rubber Products Sdn Bhd.
Source: Infobusmess Research The manufacturing activities of the closest comparable companies in Malaysia are shown in the table below. Most of the closest comparable companies in Malaysia are involved in condom manufacturing using natural rubber latex, as well as being involved in both contract manufacturing and OBM. Table 5: Manufacturing Activities of Closest Comparable Condom Companies in Malaysia Company Natural rubber latex Polyurethane Polyisoprene Contract manufacturing OBM Karex. ;j ;j ;j Dongkuk Techco Rubber Industries Sdn Bhd. ;j ;j ;j Medical-Latex (DUA) Sdn Bhd. ;j ;j ;j I Nulatex Sdn Bhd. ;j ;j ;j Pleasure Latex Products Sdn Bhd. ;j ;j ;j Richter Rubber Technology Sdn Bhd. ;j ;j ;j Sagami Manufacturers Sdn Bhd. ;j ;j ;j SSN lVledical Products Sdn Bhd. ;j ;j ;j Takaso Rubber Products Sdn Bhd. ;j ;j
Source: Infobusmess Research Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 111 8. INDUSTRY OVERVIEW (Cont’d) infobusiness Based on the latest pUblicly available financial statements, Karex is ranked number one (1) in terms of gross profit margin, as compared to the eight (8) closest comparable companies in Malaysia. It is also ranked number one (1) in terms of profit before tax margin, as shown in the table below. Table 6: Financial Comparisons of Closest Comparable Condom Companies in Malaysia Company Financial year ended Revenue (RM Million) Gross profit (RM Million) Gross profit margin (0/’;) Profit before tax (RM Million) Profit before tax margin (0/’;) Karex1 . 30/06/13 231.39 59.92 25.9 36.14 15.6 Nulatex Sdn Bhd. 31/12/11 7.47 1.32 17.7 0.16 2.1 Takaso Rubber Products Sdn Bhd 2 31/07/12 13.19 2.26 17.1 -1.47 N. A. Sagami Manufacturers Sdn Bhd. 31/12/12 43.71 7.39 16.9 4.28 9.8 SSN Medical Products Sdn Bhd. 31/12/11 26.36 4.16 15.8 1.53 5.8 Richter Rubber Technology Sdn Bhd. 31/12/11 23.82 2.88 12.1 0.74 3.1 Medical-Latex (DUA) Sdn Bhd. 31/12/11 19.48 1.56 8.0 -2.61 N. A. Pleasure Latex Products Sdn Bhd. 31/12/11 44.95 N. A. N. A. 1.54 3.4 Dongkuk Techco Rubber Industries Sdn Bhd. 31/12/11 3.05 -0.69 N. A. -3.25 N. A.
Notes: N. A. = Not Applicable / Not Available 1. Includes revenue from Innolatex (ThaJ1and) Limited.
2. Takaso Rubber Products Sdn Bhd is a subsidiary of Takaso Resources Bhd Source: Infobusiness Research and management of Karex
[The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 112 8. INDUSTRY OVERVIEW (Cont’d) infobusiness 1.8.2 Public Listed Condom Companies Globally, there are a handful of public listed companies involved in condom manufacturing. They are very diversified in their operations and are involved in the manufacturing of a wide range of rubberrelated and non-rubber related products, as shown in the table bleow. The products are marketed and sold in various countries around the world. Table 7: Profile on Public Listed Condom Companies Company Reckitt Benckiser PLC. Church & DWight Co Inc. Ansell Ltd. Okamoto Industries Ltd. Fuji Latex Co. Ltd. Sagami Rubber Industries Co. Ltd. Cupid Ltd. Country of Oriqin United Kingdom us Australia Japan Japan Japan India Principal Activities It is involved in the manufacturing and marketing of household products (eg. harpic), health products (eg. strepsils) and personal care products, including condoms (eg. Durex brand). It is involved in the development, manufacturing and marketing of a broad range of household (eg. baking soda), personal care and speciality products, including condoms (eg. Trojan brand). The products are used in both consumer and industrial applications. It is involved in protection solutions. It designs, develops and manufactures a wide range of hand and arm protection solutions, clothing and condoms (eg. SKYN brand). Its operations are organised into four (4) global business units: industrial, medical, sexual wellness, and specialty markets. It is involved in the manufacturing of a wide range of products, including condoms, flexible plastic packaging, gloves, adhesive tapes, rubber bands, medical devices, heating pads, dehumidifiers, humidity absorbers, sports gear, wall coverings, automotive interiors and others. It is involved in the manufacturing and sale of condoms and probe covers, as well as industrial shock absorbers, rotary dampers and others. It is involved in the manufacturing of condoms, catheters, probe covers and plastic films, as well as various healthcare products and services. It is involved in the manufacturing of male and female condoms, as well as lubricants, latex dental dams and probe covers. FYE 31/12/12 31/12/12 30/06/12 31/03/13 31/03/13 31/03/13 31/03/13 Revenue (USn Million) 14,446.1 2,921.9 1,255.0 698.1 61.9 40.3 5.3 Revenue (RM Million) 44,753.6 9,051.9 3,887.9 2,162.7 191.8 124.9 16.4
Note: The exchange rate is 1USD = RM3.09797 Source: Infobusiness Research Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 113 8. INDUSTRY OVERVIEW (Cont’d) infobusiness All the public listed condom companies aforementioned are involved in the manufacturing of condoms made from natural rubber latex while some of them also manufacture condoms made from polyurethane and polyisoprene, as shown in the table below. Table 8: Types of Condoms Manufactured by the Public Listed Companies Company Natural rubber latex Polyurethane Polyisoprene Reckitt Benckiser PLC. ,j ,j ,j Church & Dwight Co. Inc. ,j ,j Ansell Ltd. ,j ,j Okamoto Industries, Inc. ,j ,j Fuji Latex Co. Ltd. ,j Sagami Rubber Industries Co. Ltd. ,j ,j Cupid Ltd. ,j
Source: Infobusmess Research 1.9 MARKET SHARE Karex (Malaysian operations) exported 7.6 million kilograms of condoms in 2012. As Malaysia exported around 12.5 million kilograms of condoms in 2012, Karex (Malaysian operations) accounted for an export market share of 60.8% in 2012. This makes it the largest exporter of condoms from Malaysia. Karex is the biggest condom manufacturer in the world, in terms of annual manufacturing capacity, as shown in the ensuing table. The possession of a large manufacturing capacity enables it to absorb sudden surges in demand from customers and to ramp-up its production. [The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 114 8. INDUSTRY OVERVIEW (Cont’d) infobusiness Table 9: Estimated Annual Manufacturing Capacities of Selected Condom Companies Name of Company Location Estimated Annual Manufacturing Capacity (pieces) Karex. Malaysia and Thailand 3.0 billion Thai Nippon Rubber Industry Co. Ltd. Thailand 2.0 billion TTK-L1G Ltd. India 15 billion -2.0 billion HLL Lifecare Ltd. India 1.6 billion Suretex Ltd. 1 Thailand 1.2 billion Qingdao London Durex Co. Ltd 2 China 1.0 billion Guilin Latex Factory. China 0.95 billion Unidus Corp.3 China and South Korea 0.92 billion Guangzhou Guangxiang Enterprises Group Co. Ltd. Doubleone Latex Factory. China 0.75 billion Pleasure Latex Products Sdn Bhd. Malaysia 0.70 billion SSL Manufacturing (Thailand) Ltd 2 Thailand 0.70 billion Suretex Prophylactics (India) Ltd. 1 India 040 billion Church &Dwight Co. Inc. US 0.37 billion Nulatex Sdn Bhd. Malaysia 0.36 billion JK. Ansell Ltd. 1 India 035 billion
Notes: 1. Part of Ansell Ltd.
2. Part of Reckitt Benckiser PLC
3. Unidus Corp. is a South Korean company Source: Infobusiness Research
[The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 115 8. INDUSTRY OVERVIEW (Cont’d) infobusiness 1.10 OUTLOOK AND PROSPECTS The global condom market is expected to expand at a healthy rate over the near future. Globally, the condom market is anticipated to increase from 22.8 billion pieces in 2012 to 30.4 billion pieces in 2016, registering a CAGR of 7.5%. Billion pieces CAGR of7.5%
2012 2016 Source: Infobusiness Research This is due to a combination of factors such as population growth, prevalence of use and increasing awareness. As a relatively inexpensive form of birth control as families seek to limit household size in an era of rising inflation, the market potential for condoms holds promises primarily in the developing countries. Given limited condom usage in these countries, there are ample opportunities for further growth. The other main driver of growth continues to be the prevention of STI and HIV. Besides rising health awareness as well as cheap and easy to use, UN health programmes and advertisements on sexual health are pushing up condom sales globally. The resolution adopted by the UN General Assembly on HIV and AIDS in 2011 shows the recognition by the world body on the challenges posed by the disease to the development, progress and stability of the world at large. As a result, there is a commitment by member nations of the UN to achieve universal access to HIV prevention, care, treatment and support by 2015, in the resolution. This is anticipated to further drive the demand for condoms, among others. With the expanding world population, the demand for condoms is expected to grow in tandem. The global sex ratio is approximately 1.01 males to one (1) female, with 66.0% of the males aged between 15 years old and 64 years old. China, the most populous country in the world, reported that 37.8% of its population or approximately 507.7 million are males between the ages of 15 years old and 64 years old, while India contributes 406.1 million (33.7% of its population), followed by the US at 104.2 million (33.2% of its population). Such global demographic naturally presents a huge potential market for condoms. Infobusiness Research & ConSUlting Sdn Bhd © 2013 infobusiness research 116 8. INDUSTRY OVERVIEW (Cont’d) infobusiness
With the global population projected to increase to 8.1 billion in 2025 from 7 billion in 2012, basic necessities such as food and water are under more strain than ever. As a result, the role of contraceptives such as condoms in family planning is becoming more crucial. 1.11 THE GLOBAL ECONOMY In 2012, the international economic landscape became more challenging relative to the preceding year. Global growth experienced a synchronised moderation as weakening economic conditions in several key economies affected international trade and subsequently generated adverse spillover effects on domestic activities in the emerging economies. The global growth outlook is expected to im prove in 2013. Financial and policy risks have receded compared to the situation over the recent two (2) years. Policy measures introduced in the latter half of 2012 have reduced policy uncertainties and stress in the financial markets. In the advanced economies, the pace of recovery is likely to be weak, with the differential in national growth rates reflecting the degree of economic and financial stress in the individual economies. The outlook for the emerging economies is relatively more favourable in 2013, despite their vUlnerability to external developments. For most of these economies, domestic demand remains the key driver of growth. Overall, the pace of global growth would be contingent on the strength of the revival in private sector activities in the United States (“US”), the commitment towards a credible and comprehensive set of crisis resolution policies in the euro area, and the sustainability of domestic demand in the emerging economies. The US economy is expected to register modest growth, supported by an improvement in private demand which is expected to partially offset the ongoing fiscal consolidation. Consumption activities will remain a key driver of the private sector-led growth, supported by a recovery in the housing and labour markets. Economic activities in the euro area are expected to remain weak due to structural constraints and the continued fiscal consolidation. While tensions in the financial markets have receded, fragile growth still persists particularly in the crisis-affected economies due to the ongoing fiscal austerity measures and structural adjustments. In Japan, economic growth is expected to moderate, reflecting the diminishing effects from reconstruction-related demand over the recent two (2) years, amid protracted weakness in domestic activities. The economic expansion in China is expected to remain robust, with domestic economic activities set to become stronger during the year. [The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 117 8. INDUSTRY OVERVIEW (Cont’d) infobusiness Table 10: Global Real Gross Domestic Product (“GOP”), 2009-20131
Growth (%) 2009 2010 2011 2012e 20131 World GDP -06 5.2 3.9 3.2 3.5 US -3.1 2.4 1.8 2.2 2.0 Japan -5.5 4.7 -0.6 2.0 1.2 eura area * -4.4 2.0 1.4 -0.6 -0.2 China 8.8 10.4 9.3 7.8 8.2
Notes: * =Indicates member countries of the Euro area (Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovak Republic, Slovenia, Spain) e=estimate f= forecast Source: Bank Negara Malaysia 1.12 THE MALAYSIAN ECONOMY The Malaysian economy performed better than expected in 2012, with a growth of 5.6%. The strong growth was supported by resilient domestic demand, which cushioned the negative impact of the weak external environment. Domestic demand recorded its highest rate of expansion for the decade, supported by stronger consumption and investment spending. Continued resilience in domestic demand was underpinned largely by sound macroeconomic fundamentals, the more diversified and balanced economic structure, the stronger and more developed financial system, and greater macroeconomic policy flexibility. The Malaysian economy is expected to remain on a steady growth path with an expansion of between 5% and 6% in 2013. Economic activities will be anchored by the continued resilience of domestic demand, and supported by a gradual improvement in the external sector. The services and manufacturing sectors are expected to be the key contributors to overall growth, driven by the continued resilience of domestic demand and supported by the gradual improvement in the global economic environment, which is projected to augur well for international trade activities. The services and manufacturing sectors are projected to increase at 5.5% and 4.9%, respectively. The domestic-oriented industries within the manufacturing sector, in particular, the consumer-related cluster such as food and motor vehicles, are likely to benefit from the continued growth in private consumption. The construction-related manufacturing cluster is also expected to perform well. The’ export-oriented industries such as electrical and electronics are projected to be supported by demand for products in the consumer and telecommunications segments. In the primary-related cluster, growth is anticipated to be supported by firm demand for resource-based products, such as refined petroleum products, chemicals and chemical products, and rubber products. Consumption-related activities in the services sector such as retail trade, accommodation and restaurants are anticipated to continue to be supported by private sector spending. Growth in the finance and insurance sub-sector is projected to be sustained, reflecting robust demand for financing, particularly by businesses. Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 118 8. INDUSTRY OVERVIEW (Cont’d) infobusiness Growth in the construction sector is anticipated to expand by 15.9%, driven by the civil engineering sub-sector as the momentum of construction activities in oil and gas, transportation and utilities is expected to remain strong. The agriculture sector is expected to grow by 4% in 2013, supported by higher output of crude palm oil and food commodities, especially livestock and vegetables. The mining sector is projected to increase by 5% in 2013, on higher production of natural gas, crude oil and condensates. Table 11: Annual Change in Real GDP by Sector, Z009-Z013f (Z005 prices)
Growth (‘Yo) Z009 Z010 Z011 Z01ZP Z013 GDP -1.5 7.2 5.1 5.6 5.0-6.0 Agriculture 0.1 2.4 5.9 08 4.0 Manufacturing -90 11.9 4.7 4.8 4.9 Mining -6.5 -0.4 -5.7 1.4 5.0 Construction 6.2 6.0 4.6 18.5 15.9 Services 2.9 7.2 7.0 6.4 5.5
Notes: p =preliminary f =forecast Source: Bank Negara Malaysia [The rest of this page is intentionally left blank] Infobusiness Research & Consulting Sdn Bhd © 2013 infobusiness research 119