Making another Splash

As part of the group’s 20th anniversary celebration, Splash Holdings, Inc. is trying something new. It has set up Splash Pharmaceuticals Corp., which will initially compete in the P5-billion herbal medicine market with flavored virgin coconut oil.

"Our strategy is to differentiate our product from the rest of the market. Since our surveys show that many people are turned off by the nauseating taste of VCO, we have come up with an innovation, flavored VCOs," said chairman and chief executive officer Rolando Hortaleza.

Capitalized at P200 million, Splash Pharmaceuticals is expected to generate sales of between P400 million and P600 million this year.

"We are targeting a 40% market share in the short-term. Because of our sister company, Splash Research Institute, we have the capability to launch new products every two months compared to multinational companies, which take at least a year of planning and approvals from their head offices to introduce new products," said Hortaleza.

The company is currently documenting and substantiating the beneficial effects of VCO preparatory to entering the $80-billion global market for herbal medicines before the 2007 initial public offering of Splash Corp.

Last year, Splash Corp. accounted for P3.8 billion of the group’s P5.6- billion revenues. This year, it is targeting sales of P4.2 billion.

Marketing

Splash Corp. started out in 1985 with P12,000 in capital and a cuticle removing formula. It made its first million from the sale of acetone and hair spray and its first billion from the Extraderm-branded skin care line.

"In the beginning, we did niche marketing. Then, we realized that if we wanted to grow, we had to go to the market. We beefed our marketing to enable us to grow market share. At the same time, we chose to meet competitors head on in terms of product innovations," said Hortaleza.

Splash currently ranks number one in the skin care segment and number six in personal care. From 1991-1996, it grew by a compounded rate of 60%, dropping to a compounded 20% to 25% growth since 1997.

This year, the company has embarked on a computerization program that will link it to its distributors, with the end-view of monitoring the movement of products and of reacting more quickly to the changing demands of its consumers.

Foreign Sales

"For us to sustain our growth, we need to sell more products abroad. We are close to saturating the local market," said Hortaleza.

Foreign sales currently account for 10% of total revenues. Based on the company’s internal targets, foreign sales is expected to go up to 30% within the next three years, driven in part by new products, particularly herbal medicines, and in part by an aggressive marketing program.

Foreign sales is handled by Splash International, Inc.

"Two years ago, we lost P82 million from our Indonesian operation because we failed to read the dynamics of the country. We replicated our Philippine set-up, using small entrepreneurs as distributors. That didn’t work out ," said Hortaleza. "In the Philippines, I make it a point to regularly hang out with our distributors and to talk about the company’s vision/mission. I wasn’t able to do that in Indonesia, in part because of the language problem and in part because I didn’t have the time to shuttle to and from Manila and Jakarta."

Today, the company has 40 direct employees in Indonesia, Vietnam, and Malaysia. It also has a network of 23 territory distributors, many of which were provided bridge capital and assistance in professionalizing management. In Indonesia, a subsidiary, Splash Indonesia, is a co-partner of distributors, all of which are big in their own right.

Labor

Production is 100% based in the Philippines. Labor cost account for 5% of revenues, the result of mechanization and outsourcing of non-core services.

"Our point of reference is our corporate belief in the capability of the Filipino. While there is the temptation to transfer production to another country, we have never done it and we don’t intend to. Labor cost is part of the production equation but so is productivity. We have only 300 employees, all of whom are highly productive and creative. We don’t declare redundancies; instead, an employee undergoes process orientation," said Hortaleza.

More important, all company employees clearly understand the company’s objective of progressive profitability.

"High wages is an enabler but not an end. Our employees work for a higher cause. They believe, as the company does, that we can uplift the Philippines and that we can compete in the global market. Our employees are self-motivated to enhance value creation," said Hortaleza.