environmental analysis of top glove (v2)

8/17/2019 Environmental Analysis of Top Glove (V2)

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OVERVIEW TOP GLOVE A rubber glove manufacturer Company owns and operates 23 factories with a total of 437 production lines located in

Malaysia, Thailand, China !orld"s largest rubber glove manufacture r Aims to become a one#stop shop for gloves $%ports to more than 7&' customers in about ()& countries Able to manufacture 27 billion pieces of gloves a year Capturing about 2*+ of the world mar et share Chairman - .ounder/ Tan 0ri 1ato 0ri im !ee Chai

SWOT ANALYSIS

Strengths: argest mar et share in glove industry $stablished the Top love foundation to empower, employees based on merit, the needy

and the less fortunate• oods and service design are Top love"s gloves are protecting to lives and the price of it

is low compare to other glove brands• eographic advantage in being located close to rubber plantations and mar et share edge

ffers the full range of services• abour intensive with s illed wor force• high profitability and revenue• e%perienced business units• possesses barriers of mar et entry due to economies of scale•

high growth rate• wide e%isting distribution and sales networ s

Weakness:• 1oes not have many long#term contracts in the business• 5nvest heavily in modern machinery and need to hire more e%perienced personnel for

modern machinery in their production process• .acility layout could be more efficient• 0mall business units• .uture profitability• 6igh loan rates are possible• Competitive mar et• Ta% structure• roductivity• .uture debt rating


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Opportunities• Access to global mar ets• Target of venture capitalists• Continuous development of new products and services by own 8-1 or newly discovered

contagious diseases• lobal demand for rubber gloves have remained steady

Threat:• Competitors# 6artalega 6oldings 9hd , has good performance• Changing government regulations such as/

o minimum wage policy will increase cost of labour o raising retirement age could mean less opportunites of promotion for younger staff

leading to a more demoralised wor forceo removal of subsidies from natural gas :Ma e up )+ in the production;o restriction on foreign labour could result in manpower shortages thus interrupting

production and delivery• cash flow• increasing costs• financial capacity• technological problems• price changes• ta% changes• e%ternal business ris s• rising cost of raw materials


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VALUE C AIN ANALYSIS


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SECON*ARY ACTIVITIES

Pro$ure+ent• Currently Top love is in control as they are the mar et leader and hence the supplier>s

choice of being their top customer •

Weakness: 1elegate some authority to ma?or suppliers by practicing Ven#or !anage#In)entor, -V!I. strateg, where the suppliers will manage a portion of Top love>sinventory management to free up Top love>s resources so that they can use %o$usstrateg, to pay more attention on e%pansion and efficiency, effectiveness andcompetitiveness

u+an Resour$e !anage+ent

• Currently Top ove being the mar et leader is an employer of choice in the industry• A satisfactory training and development programme is in place to motivate the wor force

with career development plans• Weakness: 0hould hire more highly s illed - trained staff to manage a more

computerised and automated manufacturing process

/ir+ In%rastru$ture• rganisation structure is leaning towards being too centralised• Weakness: 0hould consider greater empowerment of managers by using a combination

of functional and geographical or matri% organisation structure which is pro?ect basedThis should be complemented with a performance based reward incentive scheme tomotivate wor ers and to better manage distant locations of its plants and mar eting officesacross the world

ICT:• 0ome use of 5CT in 8-1• !ea ness/ reater use of 5CT in manufacturing and communication would help better

integrate global operations and cut cost without being over dependent on cheap labour orlabour shortage issues

STRATEGIES USE* 0Y TOP GLOVE Classic organic growth strategy for e%pansion of production plants that are nearer to ma?or

mar ets 9asic 0trategies used to respond to uncertainty is a #e%en#er strateg, , usually by cutting

costs to fight based on price This has bac fired as inventory of gloves are hit hard ascompetitors are also fighting based on price


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IN*USTRY ANALYSIS TOP GLOVE 1 PORTER2S 3 /ORCES

Threat o% Ne4 Entrants -Lo4.• igh "arrier o% entr, due to economies of scale by incumbents :those already in the

industry• The barrier of entry for the rubber glove industry is considerably high though it doesn>t

re=uire high level of capital and technology• !e believe the ey hurdle for new entrants is achieving economies of scales as the glove

business is very much a volume and cost focus game• The access to the cheap labour, natural gas and the ey raw material, late% is the ey

success factor for any new entrants as these costs collectively account for appro%imately7&+ of total production costs

• !e believe the bigger players generally have advantage in securing cheap labour andnatural gas access, as well as better procurement price for late% due to bul purchase,

ma ing the barrier of entry high for the new entrants• .urthermore, strong entrepreneurship of Malaysian glove players led to innovation in

increasing production efficiency over time This is in no small part also contributed bystrong supports from the local 0M$ engineering firms The local engineering firms> effortson improving the production line design, the speed of production, products =uality, andstability have created a strong competitive edge for the Malaysian glove producers overthe foreign competitors, especially those competitors from the ma?or rubber#producingcountries such as Thailand and 5ndonesia which share the same or even better advantageon cheap labour and raw material access

In#ustr, Ri)a&r, - igh.

• ver the years, industry competition has intensified especially among the localmanufacturers who add new capacity aggressively to achieve better economies of scales

• The industry competition is e%pected to persist if not worsen over the ne%t 2#3 years as wee%pect threats arising not only from local players with larger capacity, but also from theneighbouring countries such as Thailand and 5ndonesia who have abundant domestic late%supply as well as relatively cheaper labour supply

• Malaysian glove ma ers are e%pected to e%perience escalation in competitive pressureonce they start losing their cheaper fuel cost advantage when etronas as>s li=uefiednatural gas : @ ; regasification plant commences operation by 0ept 2'(2

• As the new natural gas supply is imported at international mar et price, supply price toglove ma ers are li ely to be raised as well !e understand international mar et price fornatural gas is currently 2'#3'+ higher than the subsidised price

• The local players who have strong in#house research and development :8-1; capabilitiesare li ely to face moderate competition as compared to peers 0trong 8-1 would ensurethe company to stay ahead of its competitors in developing new or improved glove

products, and better production flow which can improve its production efficiency, therebylowering cost Among the local players, we believe ossan and 6artalega are currentlyleading its peers in terms of 8-1 capabilities


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0argaining Po4er o% 0u,ers - igh.• Ma?ority of the glove manufacturers in the industry are predominantly original e=uipment

manufacturers : $M; who mainly sell their products to multinational healthcarecorporates :M@Cs; such as Ansell, imberly Clar , Cardinal 6ealth, Medline andMicrofle%

• All these international brands have been gaining strong foothold in the global healthcaremar et and ma ing the $M players very difficult to build their own brands, especially inthe established western countries

• The high reliance on the M@Cs directly increases the buyers> bargaining power, especiallyduring period when capacity surplus is rising as the brand owners can easily switch theirorders from manufacturer to manufacturer and from country to country

• Therefore, we e%pect the buyers> bargaining power to remain high, if not higher as more

and more capacity comes on stream over the ne%t 2#3 years• ne thing that is positive for the sector is the e%istence of cost pass through mechanismwhich could help to protect the glove manufacturers> bargaining power when late% costsincrease

• @evertheless, if any of the medium siBe glove ma ers emerged with higher capacity,consistent product =uality and timely delivery schedule, the M@C buyers can still easilyswitch their orders from one manufacturer to another

0argaining Po4er o% Supp&iers - igh.• The ey supply dependencies for the rubber glove industry are natural rubber :@8; and

synthetic rubber :08; 9oth of these raw materials are mainly consumed by theautomotive industry, particularly for the production of tyre, which consumes more than*'+ of the global late% supply

• @8 plantation is very much a labour#intensive industry with smallholders supplying morethan )'+ of the industry volume

• Asia is the main natural rubber producing region, with the top three producing countries,Thailand, 5ndonesia and Malaysia accounting for more than *&+ of the global supply

• China is the largest @8 consuming country with 33 )+ mar et share, followed by 5ndia,0A and Dapan which have ) )+, ) 4+ and * E+ mar et share in 2'('

• Malaysian rubber glove ma ers generally secured about )'+ of their @8 re=uirementslocally and importing the balance from neighbouring countries

• ate% suppliers have high "argaining po4er no4 but more @8 suppliers are e%pected inthe near future This is simply because the governments of the rubber producing countrieshave been very supportive to the rubber planters in recent years by subsidising late% priceswhen it drops to certain floor level due to cyclical wea demand

• 6ence, @8 supply could be well controlled by suppliers who are mainly small holderswho ta e on rubber tapping ?ob on a part#time basis only, to avoid a massive supplysurplus which could dampen the commodity price


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Threat o% Su"stitutes -Lo4.• n the positive side, we believe the threat o% su"stitute pro#u$t is &o4 for the rubber

glove industry due to low rubber glove cost, ma ing no incentives for any research houseto find alternative products 6owever, among the various types of glove products, weforesee the threats of substitution on certain glove products to emerge over the long termas the industry +o)es up the )a&ue $hain

• 5n general, we classify the gloves products into four ma?or type based on the raw materialused such as late%F natural rubber glove, synthetic rubberF nitrile glove, upgrade from the low end gloves such as vinylglove and $ glove as these products, which are offer inferior protection to users, aremainly used in the emerging mar et such as China and 5ndia

In#ustr, Out&ook • 8ubber glove industry earnings are determined by the supply and demand factor, volatility

in late% prices as well as the fluctuation of the 8inggit against the 0 dollar !e foresee a(3#2*+ earnings rebound in 2'(2 due the low base effect in 2'((, rather than a sharpearnings recovery as we foresee the global capacity surplus would continue to cap therubber glove ma ers> profitability although headwinds such as high late% costs and strong8inggit have eased since 4H(( 9ased on our estimates, the global glove industryutilisation rate would drop to 74+ in 2'(2 and 2'(3 from the )(+, )'+ and 7&+achieved in 2''E, 2'(' and 2'(( respectively

• The strong capacity e%pansion over the past 2 years has not been without reason !e believe that glove ma ers are ?ust ensuring their IpreparenessJ in the face of the ne%tdisease outbrea and learning from their past e%perience where demand could not besatisfied 9esides, many of the rubber glove ma ers e%pand capacity as they upgrade theire%isting production line with faster and inter#switchable line to cater the demand for both


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nitrile glove and @8 glove based on the prevailing mar et condition The aggressivecapacity e%pansion has e%erted further pressure in an already competitive industry andincrease the bargaining power of buyers

• .urthermore, we believe the industry>s profitability in 2''E and 2'(' were e%ceptionaldue to the outbrea of global pandemic disease, 6(@( flu, which can be spread from

human to human This has created e%ceptionally high demand for gloves during thoseyears !e opine that the rubber glove ma ers> profitability should be based on absolute

profit per glove instead of the profit margin as the industry is practising cost#pass#throughmechanism with (#( K month time lag 5n other words, the rubber glove ma ers shouldalways achieve lower profit margin when average selling price :A0 ; increases due tohigher late% cost, while en?oy higher profit margin when A0 drops due to lower late%cost 6ence, it is a bit misleading to ?ustify the industry cycle based on the profit margin,in our view

RECO!!EN*ATIONS *i%%erentiation Strateg,:

o 0ran# 0uiing Strateg,: Continue in brand building strategy by usingdifferentiation strategy to produce more creative gloves for outdoor activities

o Awareness campaign to educate customers with the idea of wearing gloves for wor to protects us from the illness or other uses of rubber gloves around the home and in businesses

o *i)ersi%i$ation Strateg,: Top love needs to put a lot of effort on 8-1 to help#i)ersi%, into other industries to mitigate ris s of any downturn in the global rubberglove industry perhaps by moving into p&asti$ pro#u$ts in#ustr,

o 5ua&it, Strateg,: Maintain high =uality product of gloves by investing more inmodern machinery, 5T and s illed manpower to run it to increase computerisation,robotics - automation to sustain high =uality and to avoid being over dependent oncheap low s illed labour

Verti$a& Integration Strateg,: Consider more involvement ino "a$k4ar# integration with suppliers to be in better control of inbound logistics

=ualityo %or4ar# integration with distributors and other distribution channel members to

increase the =uality of sales and mar eting servicesAll the above could lead to better $ost6&ea#ership strategies

/inan$ia& Strateg,: Attract more shareholder and investors or venture capitalists tostabilise cash flow

Stakehoer Strateg,:o Maintain good relationships with Malaysian government and local governments where

top love has its presenceo Cooperate with 8ubber 8esearch 5nstitute of Malaysia :885; and embaga etah

Malaysia : M;

environmental analysis of top glove (v2)

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