Feb 23, 2012

ASEAN - Prospect of single market buoys Merck



AEC expected to boost demand for firm's products, strengthen regional presence

Merck, the Germany-based pharmaceutical and chemical giant, sees a good opportunity to grow its business in Southeast Asia thanks to the single-market framework, which will facilitate regional trade of its products.

Aman Bhattacharjee, managing director of Merck Thailand, said the Asean Economic Community (AEC) was expected to strengthen the company's regional presence and boost demand for its products, particularly in the healthcare, automotive, renewable-energy and cosmetics industries.

"Asean could be such a big market for Merck. Medical tourism is a big opportunity for us, and Southeast Asian countries like Thailand can go well in this industry. The automotive industry is also a key driver for us, despite the disruption from Japan's tsunami devastation and the floods [in Thailand] last year.

"The cosmetics sector is also interesting. This sector changes fast, but grows quickly as well. Regarding the implementation of the AEC in 2015, duty-free trade will be another factor to help us grow in this region as expected," he said in a recent interview.

Merck operates in six Asean countries: Thailand, Vietnam, Malaysia, Indonesia, Singapore and the Philippines.

Last year, the company celebrated its 20th anniversary in Thailand, where it is involved mainly in the marketing of pharmaceutical and chemical products domestically and in Indochina.

Merck Thailand imports all the chemical products it sells locally, while it has two local contract manufacturers to produce up to 40 per cent of its pharmaceutical products. Pharmaceuticals contribute 45 per cent of the Thai unit's revenue.

In terms of regional operations, Indonesia is now the company's biggest base, with two chemical manufacturing plants.

"The sales contribution from the whole of Asean for Merck worldwide now is bigger than that from India alone. We also plan to focus more on marketing in Indochina," Bhattacharjee said.

Newly opening-up countries such as Burma will also provide good opportunities for Merck, he said, adding that the company now sent a team there on a monthly basis to observe the market.

He views the economic situation in Burma as very positive, but poor infrastructure will limit opportunities for serious investment for at least the next five years.

In Cambodia, unmet medical needs offer a great opportunity for the company's products, he said.

Merck Thailand has set a target to grow its revenue by double digits this year, also driven by the strong integration of US chemical company Millipore into the parent last year. The integration will be a springboard for Merck to expand business in this region, where Millipore has 95 per cent of its clients.

Last year, the Thai unit missed its double-digit target, after the earthquake and tsunami in Japan and severe flooding in Thailand. While the Japanese crisis disrupted supplies to Thailand, the floods caused domestic auto manufacturing to plunge, which reduced demand for Merck's pigment products.

Much of the local business growth this year will be supported by expansion in the automotive, food and tourism industries, Bhattacharjee said.

He backed the government's assistance to the auto industry after the flood disaster, including waivers on vehicle and auto-parts import duties, which it is hoped will prevent the relocation of assembly plants to other countries.

Through those measures, the government can use the Japanese platform to tell investors that they stand to win official support, he added.

In the food industry, bacteria-test kits are now popular among exporters, while demand for pharmaceutical products will rise in tandem with tourism, the executive said.

He highlighted political stability as the biggest risk for operations in Thailand, as any unfavourable event could drive away foreign tourists, with the drop-off continuing for some months each time.

A reoccurrence of last year's devastating floods is another thing that concerns him.

"The flood disaster in Thailand last year should be the worst" the country ever has to face, he said, adding that the firm's growth expectations were "based on the condition that such flooding will not recur".

The Nation



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