Kalbe recognizes that an adequate implementation of risk management system is crucial for the management of the various business risks that the Company faces.
Kalbe’s risk management implementation is expected to bring the following benefits:
1. To provide information to Management on risk exposures;
2. To improve the decision-making methods and processes;
3. To assess risks inherent in Kalbe’s products and business activities.
Risk Management Organization Structure
Kalbe has established a dedicated Corporate Audit and Risk Advisory Unit. The Corporate Audit and Risk Advisory (CARA) Unit is responsible for facilitating improvement efforts on the Company’s risk identification capabilities and promoting an integrated risk management development and implementation strategy. This is implemented through consultation and evaluation, ensuring that every working unit can identify its respective major risk factors and implement applicable policies to mitigate these risks.
Risk Management Framework
The Company continued to employ a “Top-Down” approach complementing the “Bottom-Up” risk management implementation approach used in the previous years. On top of facilitating each department in the Company’s units or entities to identify and understand the risks related to its business process, CARA also assisted Management in identifying strategic risks faced by the entities.
Following are major risks with considerable impact to Kalbe’s business activities:
1. Business Competition Risk
In today’s era of open markets, competition in the pharmaceutical sector and other health products will increase, considering the number of international and local producers crowding the field. Competition arises in various aspects, including access to financial resources and operational capabilities, where international competitors are leading, as well as product innovation, marketing and promotion. All players also need to address changes in market demand, limited purchasing power and readiness to face unhealthy business competition.
Management of this risk can be done among others by enhancing sensitivity to market changes and ability to adapt and seize new opportunities. Kalbe is also required to increase its ability to offer more values from its products and services as compared to those offered by competing firms.
2. Financial Risk
In the course of business, Kalbe Group also faces financial risks arising from fluctuations in foreign currency, budgets, financing, and liquidity. Since most of Kalbe’s raw materials are imported, the Company is vulnerable to fluctuations in foreign currencies. Fluctuations in foreign currencies, mainly U.S. Dollars, exert a significant impact on production costs.
Risk management is exercised partly, by setting reserves in foreign currency funds to meet import requirements, as well as by maintaining sufficient raw material and finished goods inventory while always paying close attention to domestic and global economic conditions.
3. Legal and Regulatory Risks
In carrying out its business operation, Kalbe Group faces various types of legal regulations and related regulatory changes, and agreements with third parties which bind Kalbe Group, which may raise legal risks or other legal consequences. Anticipation of regulatory change process in the health care industry and the macro economic conditions may provide opportunities for growth. Registrations of brands and products, including the acquisition of patents and other intellectual property rights, is a legal obligation that must be continuously addressed to avoid any potential claims from other parties in the future. Binding agreements with third parties may bring legal consequences, so that the ratification process and legal due diligence must be performed in order to ensure a balance between rights and obligations. In addition, export or overseas expansion initiatives need to consider any legal and regulation differences in each designated country.
Risk management is conducted, among others, by ongoing monitoring of regulatory changes to avoid anylegal action from other parties, by abiding to the prevailing rules and regulations. The Company also continues to increase the competence and readiness of its human capital as well as to enhance its legal readiness to face any potential claims from third parties.
4. Reputation Risk
Reputational risk includes consumer complaints, product recalls and also risks arising from product sabotage possibilities as well as defamation. Today, where corporate image becomes increasingly important, risks arising from reputation defamation needs to be properly addressed.
Risk management is achieved partly by maintaining and improving the quality of products, covering the Company’s overall business process, i.e. from research and development to product expiration, including maintaining vigilance against counterfeit products that have always been one major focus of Kalbe Group to increase consumer confidence. Equally important, Kalbe also strives to improve its service quality through human capital development.
5. Human Resource Risk
The Company’s business sustainability cannot be separated from the quality of its human resources. The risk of employee turnover, attrition of potential talents, as well as recruitment issues may adversely impact the ability to meet the needs for qualified people.
Risk management has been conducted through various training activities and human capital capacity building initiatives, and by providing equal opportunities to employees in professional career and competence development. Evaluation on the Company’s compensation system to ensure alignment with market development is always conducted. Kalbe also continues to develop and manage its talent pool to ensure the availability of appropriate talent, thus ensuring continued good performance.
6. Business Interruption Risk
In running its business, Kalbe should always be prepared to confront and overcome risks induced by natural disasters, which may interrupt the operation of facilities and terminate production activities; these include earthquakes, fires, floods, and so forth. The occurrence probability of this risk is likely small, but may exert significant consequences. In anticipation of that possibility, Kalbe has implemented an adequate insurance coverage on its assets, production facilities and inventory.
7. Company Information Risk
In today’s era marked with advanced technology development, where vast quantities of information can be easily obtained/accessed via the internet, ensuring the security of company data is absolutely essential. Information risk does not only related to Information Technology (hardware and software), but also addresses the safe guarding of all data held by Kalbe Group. Failures to maintain the confidentiality of such information may result in losses for the Company.
The management of this risk is accomplished by establishing and developing an Information Technology Policy, and by building an adequate Data Center that meets the highest standards as one of the mitigation measures taken to protect access to important information.
These risks will be continuously monitored and evaluated by taking into account the business dynamics and related regulations, including by mapping potentially unidentified risks.