Thriving on IP Protection




The Splash logo and company founders,
Dr. Rosalinda Ang-Hortaleza & Dr. Rolando
Hortaleza (WIPO Publication WIPO-ASEAN/IP/
BKK/06/DRAFT)

Background

After graduating medical school in 1985, newlyweds Dr. Rolando Hortaleza and Dr. Rosalinda Ang-Hortaleza saw a lot of potential in a special cuticle remover formula that their cousin had invented. Not content to let the opportunity pass them by, they decided to pool together the 12,000 Philippine Pesos (₱) they received as wedding presents to use as start-up capital for a small cosmetic repacking business called RBH Cosmetics. They purchased the cuticle formula from their cousin for ₱5,000 and spent the rest on necessary inventory and packaging materials. With the help of a newly hired assistant, the fledgling company packaged and distributed the special cuticle remover, ordinary acetone and cold wave lotion to local beauty parlors.

Complemented by the couple’s strong entrepreneurial spirit, demand for their products grew, and by 1987 they had already made their first ₱1 million. Their small business eventually became Splash Corporation (Splash), which is now a multi-billion peso conglomerate of companies that develops, manufactures, bottles, packs and markets cosmetic, beauty, personal care and pharmaceutical products for domestic and international markets. In 1996 Splash enjoyed revenues of over ₱1 billion and it became one of the top 300 corporations in the Philippines in 1998. In 2007 it was listed on the Philippines Stock Exchange. This has firmly established Splash as one of the most formidable and successful companies in the Philippine personal care industry.

Research and Development

From the beginning, research and development (R&D) has been integral to Splash’s success. Splash’s founders believe that product innovation does not have to consist of radical breakthroughs that require substantial time and money investments, but can be pioneering products or incremental product refinements that consumers value. This philosophy proved successful when Splash’s first major R&D breakthrough came in 1987, when it developed the innovative method of selling hairspray in amber bottles which consumers could then transfer into cheap reusable plastic squeeze-spray containers. Eliminating the need for expensive imported aerosol cans, Splash could sell the same hairspray at a fraction of the cost of their multinational competitors. This simple innovation brought in a tenfold increase in revenue which Splash put to good use on its next R&D project.


Splash Corporation Headquarters
(WIPO Publication WIPO-ASEAN/IP/BKK/06/DRAFT)

Inspired by the outcome of this first innovation, Splash launched another pioneering product in 1988—the Philippines’ first fruit-based facial cleanser. The new astringent (a chemical compound that protects skin) formula was a mild but effective facial cleanser with a moisturizing and natural healing effect because it was based on natural ingredients. This new product was marketed in avocado and cucumber variants under the Extract® brand name. Splash quickly began making waves with this innovation, and in 1989 sales reached ₱40 million and Splash became the second largest company in this industry in the Philippines, knocking on the door of long-established multinational corporations.

These two early successes solidified the importance of R&D to Splash, and it began setting aside funds specifically for R&D of new products. Its next success came quickly, when in 1991 it developed an exfoliant (a chemical that removes dead cells from the skin’s surface) that is effective in lightening skin, preventing skin ageing, controlling pimples and smoothing skin by hiding scars left by pimples. Marketed as Extradem®, it was a success and changed the Philippine facial care market, which at that time was considered to be in decline. Another successful product developed was Skin White®, which is now the leading skin whitener in the Philippines.

In 1997, Splash established the Splash Research Institute (SRI); a modern R&D facility devoted to finding new sources of value to satisfy the rapidly growing needs of its customers. State-of-the-art facilities, cutting-edge technology and a research staff of over twenty chemists, pharmacists and engineers work in interdependent departments to design and develop innovative products and packaging systems. SRI maintains a two year rolling pipeline of new products and ensures that all products made available are developed according to internationally accepted scientific and technical standards. Included in SRI is a creative team that combines beauty and function in each product’s package design. SRI also backs up its innovations through rigid clinical tests to guarantee superior efficacy, safety and stability. R&D has been the motor for Splash’s growth, and it has kept Splash at the forefront of the personal and health care industries.

IP Management


Dr. Hortaleza (right) relates the IP strategy of the company to Atty. Emma Francisco, former Director General of IPOPhil (center), and Engr. Rosella Fernandez, former Asst. Director of Patents, IPOPhil (left) (WIPO Publication WIPO-ASEAN/IP/BKK/06/DRAFT)

The success of Extraderm brought Splash to the attention of its competitors, and they started copying many of Splash’s innovations. Two years after the launch of Extraderm, Splash lost its edge and position as a market leader as its competitors started making and selling the same products. When this copying was taking place, Splash had yet to secure any intellectual property rights (IPRs) for its invention or innovative exfoliant formula. There was little the company could do and its business lost momentum.

Upon realization of the importance of securing IPRs, Splash wasted no time in developing an IP strategy. Innovation and product differentiation is vital to Splash’s business strategy, and therefore so is IP protection. Splash began securing IPRs by filing patent applications and registering utility models for all of its major inventions in its domestic and international markets. The company also maintains a strong brand management strategy through registering trademarks for its brand names. Splash believes that brand names are particularly important, and that the protection of innovation and brands are inseparable. First, as long as a product does not lose importance or become obsolete, a brand can exist for a near indefinite time. Second, easily identifiable trademarks can be associated with Splash’s reputation for quality, which allows customers to quickly recognize Splash products and fosters brand loyalty.

IP protection also gives Splash some breathing room, as it can avoid destructive price wars that frequently result from copied products. As a result of the protection granted by patents, utility models and trademarks, Splash can focus on sustaining growth by using its resources for more innovative R&D, brand building and modernization, instead of spending most of its resources on fighting copiers. For Splash, IPRs are valuable assets that directly translate into economic value. They protect Splash from its competitors and enable it to earn enough revenue to fortify its position in the industry.

Utility Models, Patents, Trademarks and Industrial Designs

Splash applies for patents, utility models and trademarks domestically with the Intellectual Property Office of the Philippines (IP Philippines). The company has nearly three hundred IP Philippines registrations, which include its popular Extract, Extraderm, Skin White and Biolink® products. Splash also has made patent applications with IP Philippines for its exfoliant formula and antibacterial baby soap. In addition to the Patent Cooperation Treaty (PCT) filings for its Extraderm® product, Splash has made direct applications for patents and trademarks in over fifteen countries as a pro-active strategy to back up its globalization plans. Splash has also acquired industrial design registrations for some of its packaging designs.

Partnerships

Splash takes an aggressive approach to international expansion and is not waiting for competitors to come to it. Instead, Splash is taking the competition to them by entering the international markets of its multinational competitors. It does this through dealers and various joint ventures. In 1993, Splash first entered Asian markets such as Hong Kong, Singapore and Indonesia through an informal network of overseas Pilipino workers and dealers.

In 1998, Splash created Splash International Inc. to formally lay the groundwork for selling its products in international markets. In 2000, the company established PT Splash Indonesia as a joint venture with local investors. The success of PT Splash Indonesia led to similar joint ventures in other international markets, such as in countries in Southeast Asia and the Middle East.


A few of the many successful Splash products
 (WIPO Publication WIPO-ASEAN/IP/BKK/06/DRAFT)

Business Results

Splash has grown from a small startup with three employees into a large corporation with over 400 catering to customers all over the world. Splash was the first Filipino company to successfully compete with large multinational corporations in the Philippines cosmetics industry. For five consecutive years starting from 1991, Splash grew 60% annually, which is a direct result of its IP protected Extraderm product. By 2002, Splash was generating an annual revenue of ₱3 billion, and Euromonitor International (an industry market research organization) ranked it as number six in the top ten most successful cosmetic and toiletry companies in the world, with it being the only Filipino company on the list. In the same year, Splash’s success enabled it to open a ₱400 million state-of-the-art manufacturing complex in Canumay, Valenzuela City, to meet the company’s increased capacity requirements. In 2007, the AC Nielsen Philippine Retail Index Report showed that with two of its core products, exfoliants and skin whiteners, Splash enjoyed an 86% and 41% market share, respectively. Splash is now one of the largest cosmetic companies in the Philippines.

Global Awareness Built by IP

Splash has been able to build a brand and establish loyalty through innovation and protection of its products and brands with IPR. This combination has been instrumental to Splash’s growth, allowing it to differentiate its products, create entirely new markets, challenge established foreign competitors and expand into international markets. Fueled by continued innovation backed up by IPRs, Splash has risen to the top of its industry and created a new global awareness for Filipino products beyond handicrafts or dried mangoes.