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Environmental Analysis of Top Glove V2
Environmental Analysis of Top Glove V2
SWOT ANALYSIS
Strengths:
Largest market share in glove industry
Established the Top Glove foundation to empower, employees based on merit, the needy
and the less fortunate
Goods and service design are Top Glove's gloves are protecting to lives and the price of it
is low compare to other glove brands.
Geographic advantage in being located close to rubber plantations and market share edge
Offers the full range of services
Labour intensive with skilled workforce
high profitability and revenue
experienced business units
possesses barriers of market entry due to economies of scale
high growth rate
wide existing distribution and sales networks
Weakness:
Does not have many long-term contracts in the business
Invest heavily in modern machinery and need to hire more experienced personnel for
modern machinery in their production process
Facility layout could be more efficient
Small business units
Future profitability
High loan rates are possible
Competitive market
Tax structure
Productivity
Future debt rating
Opportunities
Access to global markets
Target of venture capitalists
Continuous development of new products and services by own R&D or newly discovered
contagious diseases.
Global demand for rubber gloves have remained steady
Threat:
Competitors- Hartalega Holdings Bhd., 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 workforce
o removal of subsidies from natural gas (Make up 8% 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
tax changes
external business risks
rising cost of raw materials
VALUE CHAIN ANALYSIS
Value is added both to the manufacturer (Top Glove) through the following:
PRIMARY ACTIVITIES
Inbound Logistics
Bargaining Power of Suppliers favours Top Glove as the customer as they are the market
leader and thus order in bulk and as such possesses economies of scale.
Top glove is assured of quality raw materials as they are the customer of choice from the
suppliers’ perspective.
Many of the production plants are either near source of raw materials or near their target
markets or are in regions with low labour costs. This in turn adds value by lowering
production costs and such savings are passed to customers in the form of very competitive
prices.
Weakness: Should consider backward integration strategy to ensure quality products and
just-in-time management to minimise any disruption to the production process.
Manufacturing
Although the majority of the workforce is low skilled but highly and easily trained as the
nature of the business is semi-automated.
The manufacturing process is based on a cost-leadership strategy.
Weakness: Should consider investing more in computerisation, ICT & automation to
better integrate and manage global operations and to avoid being overdependent on cheap
low skilled (albeit highly trained) workers.
Outbound Logistics
Well established target market customers
Well established distribution network
Weakness: Should consider forward integration to increase quality of on-time delivery
Firm Infrastructure
Organisation structure is leaning towards being too centralised.
Weakness: Should consider greater empowerment of managers by using a combination
of functional and geographical or matrix organisation structure which is project based.
This should be complemented with a performance based reward incentive scheme to
motivate workers and to better manage distant locations of its plants and marketing offices
across the world.
ICT:
Some use of ICT in R&D
Weakness: Greater use of ICT in manufacturing and communication would help better
integrate global operations and cut cost without being over dependent on cheap labour or
labour shortage issues.
Industry Outlook
• Rubber glove industry earnings are determined by the supply and demand factor, volatility
in latex prices as well as the fluctuation of the Ringgit against the US dollar. We foresee a
13-26% earnings rebound in 2012 due the low base effect in 2011, rather than a sharp
earnings recovery as we foresee the global capacity surplus would continue to cap the
rubber glove makers’ profitability although headwinds such as high latex costs and strong
Ringgit have eased since 4Q11. Based on our estimates, the global glove industry
utilisation rate would drop to 74% in 2012 and 2013 from the 81%, 80% and 75%
achieved in 2009, 2010 and 2011 respectively.
• The strong capacity expansion over the past 2 years has not been without reason. We
believe that glove makers are just ensuring their “prepareness” in the face of the next
disease outbreak and learning from their past experience where demand could not be
satisfied. Besides, many of the rubber glove makers expand capacity as they upgrade their
existing production line with faster and inter-switchable line to cater the demand for both
nitrile glove and NR glove based on the prevailing market condition. The aggressive
capacity expansion has exerted further pressure in an already competitive industry and
increase the bargaining power of buyers.
• Furthermore, we believe the industry’s profitability in 2009 and 2010 were exceptional
due to the outbreak of global pandemic disease, H1N1 flu, which can be spread from
human to human. This has created exceptionally high demand for gloves during those
years. We opine that the rubber glove makers’ profitability should be based on absolute
profit per glove instead of the profit margin as the industry is practising cost-pass-through
mechanism with 1-1 ½ month time lag. In other words, the rubber glove makers should
always achieve lower profit margin when average selling price (ASP) increases due to
higher latex cost, while enjoy higher profit margin when ASP drops due to lower latex
cost. Hence, it is a bit misleading to justify the industry cycle based on the profit margin,
in our view.
RECOMMENDATIONS
Differentiation Strategy:
o Brand Building Strategy: Continue in brand building strategy by using
differentiation strategy to produce more creative gloves for outdoor activities.
o Awareness campaign to educate customers with the idea of wearing gloves for work to
protects us from the illness or other uses of rubber gloves around the home and in
businesses.
o Diversification Strategy: Top Glove needs to put a lot of effort on R&D to help
diversify into other industries to mitigate risks of any downturn in the global rubber
glove industry perhaps by moving into plastic products industry.
o Quality Strategy: Maintain high quality product of gloves by investing more in
modern machinery, IT and skilled manpower to run it to increase computerisation,
robotics & automation to sustain high quality and to avoid being over dependent on
cheap low skilled labour
Stakeholder Strategy:
o Maintain good relationships with Malaysian government and local governments where
top Glove has its presence.
o Cooperate with Rubber Research Institute of Malaysia (RRI) and Lembaga Getah
Malaysia (LGM)