Merck targets Asean plants to cut costs

Merck targets Asean plants to cut costs

Pharmaceutical giant seeks AEC benefits

Merck KGaA, a leading German chemical and pharmaceutical company, is looking at setting up production plants in Asean including Thailand to cut costs and cash in on opportunities from the Asean Economic Community (AEC).

Panya Kitcharoenkankul, managing director of Merck Ltd, attends the launch of Seven Seas Gummy for children

The company is making an assessment of the Asean market before deciding where to open factories.

"We expect to be chosen. Thailand has high potential to have a plant for some medicines that don't need high production technology. The plant would serve the local market and perhaps nearby countries," said Panya Kitcharoenkankul, managing director of Merck Ltd, the company's Thai unit.

Setting up a plant would reduce production costs for Merck due to lower wages. The implementation of the AEC by the end of 2015 will create a lot of opportunities and demand for chemical and pharmaceutical products. With lower production costs, Merck's competitiveness would surge.

Merck has a pharmaceutical plant in Indonesia as part of a requirement by the country's government. In Thailand, Merck has hired a factory to produce its liquid vitamin for several years and the product has similar quality to that produced in Germany.

Mr Panya said sales of Merck Thailand are expected to grow 4-5% this year from 2 billion baht last year. Revenue is similar for chemical and pharmaceutical products.

Normally, Merck's chemical business grows along with a country's economic expansion. But the Thai economy is slowing down, with a growth projection by the National Economic and Social Development Board of 1.5-2.5% this year due to the impact of political conflicts.

"This year, new factory investments and expansions are lower due to the economic slowdown. But the pharmaceutical business is doing better because the government has increased the payments of medical bills for civil servants, so public hospitals will buy more medicine," Mr Panya said.

Merck hopes its chemical business will be better next year as investors become more confident about the economic outlook.

Mr Panya said Merck will focus on extending its pharmaceutical product reach to more Thai people. Its consumer health products such as vitamins will be key products to drive sales as Thais become more concerned about their health.

Products include vitamins, generic drugs, drugs to be prescribed by specialist doctors for cancer and diabetes, and drugs for reproduction. Vitamins account for only 10% of sales.

Poomkiet Chotichaicharin, general manager for consumer health, said Merck introduced chewable vitamins for children under the Seven Seas brand, hoping to have a 20% market share worth 400 million baht by year-end.

"Chewable vitamins for kids will grow 25% this year, while liquid vitamins are expected to decline 2-3% and vitamin pills will have flat growth," he said.

After a 30-year presence in Thailand, the Seven Seas brand is strong among Thai consumers. Parents are keen to give their children more nutrition.

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