Saturday September 15, 2012
Top Glove eyes Asian markets for expansion
By YVONNE TAN
BUSINESS in the rubber glove industry is an evolution. Issues such as oversupply, volatile costs of production plague the glove industry ever so often.
It's easy to get worked up over the ritual-like tribulations in the industry but surprisingly, Tan Sri Lim Wee Chai, who heads the world's largest glove producer Top Glove Corp Bhd, remains unperturbed.
Don't mistake his optimism for cockiness. In fact, Lim, 54 appears to be anything but that.
The soft-spoken tycoon who built Top Glove up from scratch together with his wife Puan Sri Tong Siew Bee more than two decades ago is rational about his effervescence on the industry.
“This issue of oversupply has been there for the past 20 years, it really is nothing new,” he tells StarBizWeek in an interview at Top Glove's Factory 9 in Klang, one of its 23 manufacturing facilities spread across Malaysia, Thailand and China.
“What is important is that we have become better at controlling our costs, continue to improve our product quality and be focused on getting new businesses,” Lim says.
The game plan
Top Glove, which was founded in 1991 and got listed 10 years later, has been growing at a compounded annual growth rate of 30% over the past two decades.
Starting with a mere capital of RM180,000, Top Glove is now the world's largest glove maker with an enviable 25% share of the world's glove market.
Over the next three years, the idea is to continue to grow this market share to 30% and achieve an increase in sales and net profit by between 10% and 20% per year.
“When a company has grown to a certain size, continuous growth will be more challenging, so this is our target for now.
“Obviously, there is a plan to achieve this,” says Lim.
As the largest glove producer, Top Glove has an annual production capacity of 40 billion pieces of gloves churned out by 458 production lines.
In order to grow its world market share to 30%, it needs to have an additional annual production capacity of more than seven billion pieces of gloves, based on current annual world demand for gloves of about 154 billion pieces.
“Moving forward, we are expecting demand for gloves to continue to grow, possibly between 8% and 10% per year.
“So, together with other companies also growing their production capacities, we may actually need to produce even more than 10 billion pieces to attain our 30% target by 2015,” Lim points out.
The immediate plan is to increase production capacity by 4.8 billion pieces come August 2013.
Six new factories, each yielding about 20 new production lines, are expected to be added over the next three years.
The longer-term plan is to spend RM3bil in the next 15 years to grow production capacity and possibly buy more rubber plantation land to add on to its 30,773ha in Indonesia.
With so much capacity being added by Top Glove and its competitors, Lim dispels any fear of oversupply when the issue is brought up.
Among the six largest glove makers in the world, all are Malaysian firms and they have been ramping up their production capacities especially for nitrile gloves in recent years even as rubber gloves became expensive to produce due to the uptrend in the price of latex.
This has stoked concerns about the issue of oversupply of nitrile gloves.
“It's a normal situation, there will be oversupply, then the supply will reduce, the demand will increase...there's always a cycle, so we are not worried,” Lim says.
“To us, this is part and parcel of the glove business, what we can do is to remain efficient, improve technology, meet all of the requirements of our customers and have reasonable pricing so that we will have repeat orders,” Lim adds.
Top Glove currently has 1,000 customers globally, mostly in the United States and Europe that are engaged in a myriad of sectors including healthcare, retail and manufacturing.
The company targets one new customer per week which works out to 52 new customers every year.
To make that happen, Top Glove has 110 sales staff but plans to hire more people in tandem with growth in demand for both rubber and nitrile gloves.
The company's product mix is mostly rubber gloves which account for 80% of production. Starting out as a rubber glove maker, it is aiming to have a more balanced mix of rubber and nitrile gloves moving forward.
Its new production capacity will all be inter-changable between both glove types and production will be based on demand.
Margins-wise, Lim says both glove types are at about 8% to 10% which he says has been the case for Top Glove over the past two decades.
“If it is too high, you invite competition, if it is too low, if will be difficult to grow,” he says. He expects margins to remain in this range for the foreseeable future.
As the gap in production capacity and sales between Top glove and its largest rival Supermax Corp Bhd is 50%, Lim is quite confident that he can maintain the number one position “for as long as I am around”.
“We take care of our image and branding. Some of our customers who have not even visited us are confident to order from us.
“Thanks to our good name and good references, some even pay us in advance, before we ship off the gloves. This is our strength,” he reveals.
Asia, Lim says, is poised to take the glove industry to the next level.
As health and hygiene standards improve together with the standard of living in this part of the region, demand from heavy-populated countries like India, China and even Vietnam is poised to take off in a big way.
Currently, Asia makes up only 10% of the company's sales, hence the potential.
Figures by CIMB Research also support this optimism.
In a note, the research house points out that glove consumption in China is two gloves per person per annum compared with 50 in Europe and 96 in North America.
“Our analysis suggests that China could consume up to 50 billion to 139 billion gloves per annum which could be worth RM4.5bil to RM12.5bil in annual revenue or three to 6.3 times Top Glove's RM2bil annual revenue,” it says.
Every sector has its challenges and in the glove sector, they include currency exposure and raw material price fluctuation.
Top Glove is mitigating the risks of the high price of latex which accounts for up to 60% of its production costs by buying its own land to plant rubber trees and thereby getting its own latex supply.
In the case of currency fluctuation, it hedges its US dollar receivables using plain vanilla forwards contracts, given that 98% of its sales are in US dollars.
“I would, however, say that the biggest challenge in this sector is hiring the right people,” Lim says.
Right now, the staff strength of Top Glove is close to 11,000.
Lim says Top Glove hires about 1,000 people every year, that's about 500 per new factory. This includes about 200 fresh science graduates every year, to be employed in areas like research and development.
“When you want to expand, you need good people. All the departments have to grow together,” he says.
Lim's philosophy on hiring people is unique to say the least.
“I prefer to employ capable people who are non-smokers and have a healthy BMI or Body Mass Index.
“Healthy people translate into a more productive workforce.”
Top Glove wants to source for its own latex
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Discipline, good hygiene and a slim body can do wonders
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