Sunday, July 26, 2015

Story of Kossan Rubber Industry in Malaysia

By Neerja Jetley (Forbes Magazine Asia)

Back in the 1950s and 1960s it wasn’t often that someone would find his way off the tiny island of Pulau Ketam and go on to make a name for himself on the Malaysian mainland, but Lim Kuang Sia did. He grew up as one of 11 brothers and sisters and remembers the stench of rotten fish perpetually hanging over the island. Every morning at the crack of dawn a horde of men would go out to sea and bring home the catch. When he finished primary school at age 13, he, too, was called upon to follow the family tradition. “There was no escaping,” he says. “My father did it and so did my grandfather. They had never stepped out of the village.” For Lim, however, the boats going the other way, to Port Klang on the mainland, looked more promising. “I wanted to explore and discover the world.”

Today Lim is one of the richest people in the country. His fortune totals more than a half-billion dollars, 34th highest in our annual count and up by $80 million in a year. His company, Kossan Rubber Industries, started making parts for boats in 1979 and then found the perfect fit with rubber gloves. Kossan is one of Malaysia’s Big Four manufacturers that dominate the world market for gloves; its products are sold in 160 countries. This year analysts expect net profits to jump by nearly 30%, to $55 million, on a 21% rise in revenue, to $483 million. Its market capitalization is now close to $1 billion; he owns more than half the shares.

Compared with its three rivals, Kossan doesn’t have the biggest capacity. Top Glove claims that distinction; it can churn out 42 billion gloves a year. And Kossan is not the largest in synthetic gloves; bragging rights there belong to Hartalega Holdings . In branded gloves Supermax rules with 69% of its products sold under its own brand names. Yet analysts agree that Kossan is set to emerge as the leader among the glovemakers, thanks to a business model that isn’t dependent on a small group of products or customers; its strength is in the technical aspects of making gloves and other rubber products, and in the smart way it manages risks. Indeed, its stock has far outpaced the others in the past two years, rising 219% while shares of the next biggest gainer, Hartalega, were up 67% (see table, p. 64).

Malaysian glovemaking is a fiercely competitive world. Corporate brochures sometimes have the feel of tout sheets, and hyperbole is common as companies try to stand out. Lim, 62, became a success without the swagger or bombast. “I am hardwired to be an engineer,” he says. “All I know is to roll up my sleeves, apply my technical skills and make things work better.”

It took three years for Lim to escape from Pulau Ketam, or “Crab Island,” before he found his way to high school in Kuala Lumpur. “At school I discovered my head for science and a love for learning that went beyond course work,” he says. “I was a self-starter, a voracious reader, bound by a sense of duty to excel in school. Sometimes a life of hardship fuels fire in the belly that those with excess can never know.”

That took him to Singapore’s Nanyang Technological University, where he immersed himself in polymers, resins and solvents as a chemistry major. “It fascinated me why certain chemicals are so volatile and others are [not], and how they can be combined to solve problems,” he says. A diploma in chemical engineering from the University of London followed and then a master’s from Imperial College London. That was enough college: “I wanted to solve real problems.”

So he returned to Malaysia in 1977 to be the research-and-development chemist at a small company making engineering blueprint paper. And he married his high school sweetheart, Chow Cheng Moey, also a chemical engineer.

In 1979 opportunity knocked. A friend was looking to make the rubber bearings used in boat propellers. Malaysia was a country of boats, yet nobody was making such a part; they were imported from Singapore. One look at the sample and Lim knew he could make it cheaper and better. As a fisherman he had used it in his own boat. As a chemist he could devise his own rubber formulation. As an engineer he could craft a superior product. In less than a month a prototype sat on his table, alongside a letter of resignation. Lim went on to make rubber rollers for the printing, steel-rolling, textile and other industries.

In the 1980s the AIDS epidemic hit, leading to a spike in the use of disposable latex gloves in health care. Malaysia had a natural advantage–it was the world’s biggest rubber producer–and Lim figured this was the perfect time to start producing gloves. He went to Taiwan, an Asian pioneer in the industry, for a firsthand study of the mechanics of glovemaking. He returned with equipment in hand and orders in pocket. In 1988 he shipped his first batch of gloves, 10 million to California.

But it was a false start. Small latex-glove factories were sprouting up everywhere. From 1987 to 1990 the Malaysian government issued 300 permits for glove factories. Demand slackened, however, and by 1991 only 30 plants survived. Kossan shut its glove division, moving workers back to making its high-precision rubber products for industrial use.

Then Lim took a second look. Demand was still robust, and disposable gloves were an irreversible trend in medical examinations, dentistry and operating rooms. He regrouped and returned to glovemaking: “1989 was a great learning experience. It taught me to keep an ear to the ground, diversify risk and prepare for tomorrow.”

As the use of rubber gloves increased, some patients and health care workers began having allergic reactions, creating another crisis. Once again Lim’s technical skills came in handy. He donned his chemist hat and came up with hypoallergenic latex gloves. He moved on to patent a new generation of synthetic gloves that are free of chemicals that cause allergies. “Lim’s biggest strength is that he is both a chemist and an engineer,” says QL Resources managing director Chia Song Kun, who has known him for more than 30 years (and ranks 29th on the list). “He is a master of the tools in his trade, and that sets him apart from his peers and makes him the industry leader.”

Kossan has been adding capacity and now can make 22 billion gloves a year; in three years that will be 32 billion. Visitors to the newest of its 15 factories can watch a conveyor system carrying thousands of glove molds through ovens, liquid tanks and cleaning brushes to yield 45,000 gloves an hour.

“Kossan is likely to be the least impacted by the inflow of new capacity because it has the most balanced rubber-glove product mix, with 55% [synthetic] and 45% in natural rubber,” says analyst Eing Kar Mei in a CIMB report. In comparison, Top Glove devotes 80% of its capacity to rubber gloves and Hartalega 90% to synthetic gloves, making them more vulnerable to higher raw material prices, demand shifts and competition.

To avoid the risk of depending on a small number of buyers, Kossan sells to some 300 distributors, and none account for more than 5% of sales. And while Lim’s rivals are overwhelmingly focused on the health care sector, Kossan not only makes other rubber products but also is increasingly supplying gloves for food, household and safety applications. In 2012 it acquired 51% of Cleanera HK for $3 million, giving it access to the company’s manufacturing plants in Dongguan, China, to make gloves, masks and wipes for the electronic and electrical industries.

The worldwide glove market will continue to boom, says Allied Market Research, driven by increasing health care spending, hygiene awareness, aging populations and new health threats. And the Asia-Pacific region will grow the fastest, propelled by trends such as medical tourism, wider insurance coverage and better distribution networks. But Lim is cautious, as always. “I have seen too many big businesses fail. One day they are on top, and the next day they get buried, only because they did not anticipate risk. I may be the glove king today. Tomorrow somebody will surpass me. That is the law of nature and the way of the world.”

* It was a great article written and made me understand Kossan Rubber Industry company is more than just a rubber gloves producing company. A boss with a diverse knowledge in boats, chemical, risk management, hybrid business model, etc..