Top Glove's Lim chases global rubber dominance
CK TAN, Nikkei staff writer
KUALA LUMPUR -- Lim Wee Chai is a man in hurry. As founder and executive chairman of Top Glove, the world's largest latex glove maker, he is "hungry" for acquisitions and fresh capacity to stay ahead.
"We are not afraid of business or hard work -- we are afraid of no business and no work," Lim, 58, told the Nikkei Asian Review. He was speaking after the successful listing of Top Glove shares on the Singapore Exchange Securities on June 28.
The Singapore debut, Top Glove's second listing after Kuala Lumpur, does not involve any new share issuances. Instead, it is being used as a platform to raise the company's profile with a fresh pool of foreign investors, and to tap regional liquidity more effectively.
"We view the listing as an opportunity to upgrade our quality, image and branding in the global arena," Lim said.
Lim and related parties have made available 12.8 million of their shares, or about 1% of the company's issued shares, worth S$20 million on the open market for the next 12 months. Top Glove shares traded 0.9% higher to finish at 1.635 Singapore dollars ($1.22) on the first day.
Singapore was chosen for the float because of its proximity to Malaysia and the trading link between the two bourses that facilitates prompt clearances and settlements. Market analysts are "positive" because of the exposure to a wider investor base.
"We think that the company is also indirectly trying to create liquidity access for its foreign investors that manage larger funds in Singapore and allowing flexibility for these investors to trade either in Singapore [or] Malaysia," Malaysian Industrial Development Finance (MIDF) Research said in a note recently.
Lim controls nearly 30% of Top Glove, while foreign shareholders have less than 30%.
MIDF Research said the Singapore listing broadens the company's "M&A horizon", and raises creditability among international investors.
Lim, an ethnic Chinese former air-conditioning salesman, and his wife Tong Siew Bee started Top Glove in a single factory with three production lines in 1991. They believe having their own business is key to success, and spotted high returns in rubber products, with margins as high as 40%. The company has morphed into a gigantic glove manufacturer, snapping up six glove companies along the way, and now churns out 44.6 billion pieces annually that meet about a quarter of global demand. The company has 27 factories spread through Malaysia, Thailand, and China.
Malaysia's successful rubber industry is a legacy of British colonial times. Systematic rubber planting was introduced in the late 19th century, and Malaysia remained the world's dominant producer until the late 1980s when the focus shifted to palm oil. Malaysia was also promoting itself then as a manufacturing hub, offering incentives to manufacture value-added products.
Mainly disposable gloves made from natural rubber, or latex, were widely used in developed countries but not much in Malaysia. By naming the company Top Glove, Lim projected a neutral international identity to market high quality gloves worldwide from the outset. Lim opted to enter the U.S. first, where advanced quality standards are set by the health care, nutrition, and semiconductor industries.
With his wife, who worked long in banking industry, providing financial oversight, Lim established his first overseas sales office in California three years after founding the company. He used to travel around with maps in one hand knocking on the doors of prospective customers.
"Our name is Top Glove but back then we were being called Bottom Glove," said Lim Cheong Guan, a company director (who is not related), looking back at the tough early days. Lim's tenacity paid off. The company's largest single customer today is from the U.S. and North America accounts for 29% of sales. Europe is larger with 34%, and the company sells in 195 countries.
The secret of Top Glove's success? "High quality products at low cost with good service," said Lim, who has a master of business administration from Sul Ross State University in Texas in the U.S. and a degree in physics from the University of Malaya.
Asia-Pacific buys 17% of the company's output at present, but Lim believes there remains "good potential" as populations both grow and age. To expand regionally, Lim wants to promote the market clout and brand power he has developed in the U.S. China and India are promising, as are Japan and South Korea among the more advanced economies.
Top Glove natural rubber gloves account for 58% of total sales, and synthetic the remainder. Both have a wide range of uses in health care, laboratories, manufacturing, and households.
Nitrile gloves command a premium, and increasingly are preferred in developed countries. A particular reason for nitrile's popularity is its allergy-free attribute. A recent U.S. Food and Drug Administration proposal to ban latex gloves will only boost demand further.
Top Glove is banking on this shift, and has boosted nitrile production by four times in the past five years. "Give us another four years, and we should be the world's largest nitrile glove producer," said Lim. To achieve this, he will have to overtake Hartalega Holdings, which dominates the market segment at present.
Hartalega is also Malaysian, and has been increasing production capacity as well. In 2013, it announced an investment of about 2 billion ringgit ($515 million) over eight years to more than triple capacity from 13.5 billion pieces annually to 42 billion.
World demand for rubber gloves is growing at an average 8% annually, according to the Malaysian Rubber Glove Manufacturers Association (MARGMA). Malaysia supplies about 62% of the market, and the domestic industry is dominated by four big players. This is a far cry from the early 1990s when the emerging industry sprouted some 250 companies. It has been a commercial war of attrition with Top Glove as one of the big winners.
Top Glove expects to break its earnings record for the current fiscal year ending in August. Net profit has grown 67% to 295.4 million ringgit year on year in the first nine months, exceeding last year's 12-month figure. The fall in raw material prices and stronger U.S. dollar, the company's main trading currency, have pushed up earnings.
MARGMA expects the annual market to grow to 400 billion pieces over the next decade. Competition is intensifying. Although they trail in terms of volume and quality, Thailand and China are also making gloves and working hard to catch up.
Top Glove aims to lift its global market share of 25% to 30% by 2020 using a first-mover advantage strategy with organic growth and acquisitions. Lim is thinking out of the box to grow beyond gloves. He is also in talks to buy a "rubber-related" company by December, and has not discounted the possibility of diversifying into the condom business, which shares similar raw materials and manufacturing processes. Lim is still assessing the potential.
With a market capitalization of about 6 billion ringgit, and drawing its profits mainly form outside Malaysia, Top Glove has emerged as one of a handful of local companies that succeeds without much significant state involvement. By making the world market his company's platform for growth, Lim represents a new breed of entrepreneur quite distinct from the likes of YTL Corp's Francis Yeoh or Ananda Krishnan of Maxis in the era of Prime Minister Mahathir Mohamad.
A hands on leader who knows the difficulty of maintaining the top position amid intense competition, Lim once said he looked to the Japanese and Koreans as models to learn in his manufacturing business."We are looking for areas to improve everyday," he said.
Lim shows no sign of slowing. He compares business to the Olympics where only the fittest win. As such, he places great importance on health, and regularly plays golf and badminton.
"Work is my hobby, exercise is a duty because health is wealth." Lim also practices yoga and Top Glove employs five nutritionists to advise its 10,000 workforce on healthy eating and keeping their weight in check.
Lim had no doubt rubber gloves will be more widely used in future. "Not many people wore gloves 30 years ago. What will happen in 30 years?" he asks. "When you meet people, maybe everybody will be wearing a glove."
NQN Staff writer Yui Nakamura in Singapore contributed to this article.