Business

Saturday May 30, 2009

Volume is the name of the game


WITH a share of about 60% of the global rubber gloves market, the world is their oyster for Malaysia’s rubber gloves manufacturers.

Despite their dominant position worldwide, local glove makers still have to contend with a competitive landscape especially in the domestic front and a consolidating industry.

A worker doing a final check list to ensure that the gloves meet the customer's requirements prior to packing.

Nevertheless, Top Glove Corp Bhd executive director Lim Cheong Guan expects the bigger, stronger and more efficient players to survive in an industry where volume is the name of the game.

“The number of glove makers have dwindled to about 40 now from more than 200 in the 1990s and we forsee that the industry will continue to consolidate.

“Consolidation will benefit the bigger players as they have the advantage to absorb any impact be it positive or negative,” he says.

Kossan Rubber Industries Bhd group corporate affairs senior manager Edward Yip concurs.

“Due to stringent requirements and strict adherence to various rules and regulations, many manufacturers, especially those without a reasonable size and capability in making good gloves find it difficult to compete.

“There are practically no new entrants to the market as it is not easy to start a green field project given the huge capital expenditure involved as well as technology, economies of scale and good management capability required,” he says.

He opines that the glove industry will come to a stage when there are only a few players with a good size and product range. “Big companies will become bigger and small companies that find it hard to compete due to a lack of economies of scale, will eventually move towards self-consolidation,” he says.

Supermax Corp Bhd executive chairman and group managing director Datuk Stanley Thai sees stiff price competition especially in the powder free latex gloves segment.

He points out that competition is even more intense for synthetic nitrile powder free examination gloves as local glove manufacturers not only have to compete among themselves but also manufacturers in China as nitrile gloves which are made in China enjoy export rebates of between 7% to 8%.

OSK Research analyst Jason Yap says one of the ways rubber glove makers can distinguish themselves is by manufacturing higher value added gloves. For example, Kossan recently introduced a new nitrile glove called CheMax, which provides the comfort and fit that match those of natural rubber gloves.

The new product provides a 1% to 2% higher gross margin compared with conventional nitrile gloves.

However, Yap points out that most of the bigger glove players have their own product, market and customer segments to grow their business.

For example, Hartalega Bhd emphasises on the US market which accounts for some 75% of sales, Kossan (US - 50% and Europe - 25%), Top Glove (Europe - 33%, North America - 28% and Latin America - 14%) and Supermax (North America - 43%, Europe - 27% and South America -15%).

“Their business strategies and focus are also different. Supermax is strong in the own brand manufacturing (OBM) market while the rest are mostly focused on the original equipment manufacturing (OEM) market,” Yap says.

Hartalega focuses on nitrile gloves, Kossan is moving towards nitrile gloves (with a 40% product mix comprising nitrile gloves this year versus 25% in 2008) while Top Glove concentrates on natural powder and powder free gloves.

Kossan’s strategy for long-term success is to treat buyers as its partners and grow the business together, Yip says.

“It has been our business philosophy all this while and it has proven to work well and fit like a glove. Management is very serious when it comes to product quality, professional dealings and transparency.

“In addition, buyers know well who to source different products from. This is chiefly due to the companies’ track record and reputation built over the years,” he adds.

Top Glove, the world’s biggest glove maker with a 22% share of the global gloves market as at May, believes that cost efficiency and quality products as well as a strong sales and marketing team will help it to maintain its top position.

According to Lim, Top Glove’s business model is based on the 80/20 formula, where 80 represents the percentage of gloves produced for OEM and 20% represents OBM.

“Our focus is on the type of gloves which has higher worldwide demand such as powdered and powder-free gloves, where we can produce at a lower cost due to economies of scale,” he says.

Lim also foresees that the potential growth in demand for gloves will come from developing countries which will start off with basic gloves.

Despite capturing 22% of the world market, Top Glove has set an internal target of 30% of the world market share by December 2012.

Thai says Supermax’s main focus this year is to optimise operational efficiency and productivity management of its eight wholly owned manufacturing plants while enhancing sales and margins via manufacturing and distribution.

“For the past four years, we have increased market share in the hospital and medical market via OEM and also consistently increased our market share in other market segments via OBM.

“The OBM model has clearly set Supermax apart from other manufacturers, who are primarily focused on the OEM market,” he says, adding that Supermax has developed in-house brands such as Supermax, Aurelia and Maxter.

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