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Top Glove chases growth through innovation

Top Glove Executive Chairman Lim Wee Chai

The world's largest natural rubber glove maker will step up its innovation to better cope with rising competition.

Lim Wee Chai, founder and executive chairman of Malaysia's Top Glove, made the comment in an interview with the Nikkei Asian Review on the sidelines of the forum. To maintain its leading position, the company needs to achieve "breakthroughs" in product quality, pricing and cost.

The rubber glove industry is highly competitive, and profit margins are thin. These tiny margins compel players to increase capacity to improve cost efficiency.

Since its founding in 1991, Top Glove has built a new plant every year on average. It operates 23 factories in Malaysia, four in Thailand and one in China. Annual output is set to grow by 26% to 58.8 billion gloves by May 2018.

But the group's closest rival, Hartalega Holdings, has been matching its expansion. The global leader in synthetic rubber gloves, Hartalega has embarked on a 2.26 billion ringgit ($527 million) investment push aimed at boosting capacity by 28.5 billion gloves to a total of 42 billion by 2021.

"We are increasing the number of our researchers from 100 to 200 next year," said Lim. The current number is already relatively big for a Malaysian company with an annual revenue of 2.88 billion ringgit. So is the number of patents held by Top Glove, which files about 10 patent applications a year. He said he aims to double that figure, too.

The group, whose products are used everywhere from homes to hospitals, is boosting production of premium nitrile gloves, a synthetic alternative to natural rubber gloves. Hoping to lift sales, the company recently began offering nitrile gloves that come available in dual colors, are accelerator-free and have an enhanced grip. "The market is very demanding," explained Lim, who said customers -- over 60% of which are in the U.S. and Europe in terms of sales -- are constantly asking for lower prices.

One way the company is trying to meet such demand is by expanding its manufacturing facility in southern Thailand, adding 1.4 billion gloves on top of the current capacity of 4 billion produced there by the end of November.

Lim called Thailand a good place to do business, citing how his company gets eight years tax free there and that glove exports from the country receive preferential treatment from the U.S. Another benefit to being there, he said, was fewer labor issues compared with Malaysia.

There have been concerns that the aggressive expansions by industry players will create a price-clobbering supply glut. But global demand for rubber gloves, which has been growing by an average of 6-8% a year for the past few years, is expected to stay on track in 2016, rising to about 190 billion pieces, according to the Malaysian Rubber Glove Manufacturers' Association.

STILL GETTING BIGGER Top Glove, which is listed in both Malaysia and Singapore, aims to churn out about 10% more gloves for the fiscal year ending August. At that rate, said Lim, the company will be able to match the compound annual sales growth rate of 25% it has achieved for the past 15 years.

"The market is growing at about 8%, but the base is very big," he said. "Our [growth] rate of about 10-12% is with a smaller base," said Lim.

UOB Kay Hian Research's October report states that price competition in the industry has "softened lately" and might signal the easing of a glut.

Top Glove, which exports to 200 countries, is expanding its product range in emerging markets such as Argentina, Brazil, Columbia, Saudi Arabia, Egypt, China and India. Lim said growth in these markets will overtake that in the U.S. and Europe as incomes there rise.

As for the threat by U.S. President-elect Donald Trump to shoot down the Trans-Pacific Partnership free trade pact, Lim said he is not worried, even though the U.S. accounts for about 30% of Top Glove's sales.

"[Trump] alone cannot make such a big decision," said Lim.

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