KUALA LUMPUR: Unfazed by the current industry obsession with currency fluctuations, Kossan Rubber Industries Bhd is focused instead on taking the automation route. The glove maker is putting up a new plant, dubbed Ideal Quality 2 (IQ2), which is expected to commence operations in the second half of 2017 (2H17).
According to Kossan chief executive officer and group managing director Datuk Lim Kuang Sia, the group has allocated RM100 million for the IQ2 expansion project, building a highly automated plant in an area spanning 10 acres (4.05ha) in Meru, Klang.
A first of its kind for Kossan, the new automated plant will have an annual production capacity of three billion pieces of gloves upon completion in July 2017. The construction of the IQ2 plant began in May this year.
In an interview with The Edge Financial Daily, Lim said the total headcount for IQ2 will be 400 workers, including the production of surgical products and back-end tasks. Thanks to automation, the new plant will only require 1.8 workers to make one million gloves, lower than an average of three workers per million gloves presently.
The plant will be entitled to reinvestment allowances under Kossan’s wholly-owned subsidiary, Ideal Quallity Sdn Bhd.
Kossan is also repurposing its older plants to develop high-value products in smaller volumes, from which “we are seeing volume growth of more than 10% next year”, Lim said. This is despite space constraints and difficulties with machine design hampering greater automation of those plants.
Going forward, Lim highlighted labour shortage as one of the industry’s long-term challenges, emphasising the need to reduce dependence on foreign labour. He plans to do away with the bulk of foreign workers at Kossan, which currently make up over 70% of the firm’s 4,000-strong workforce.
They will be replaced by vocational school graduates, diploma holders and fresh graduates who are to be trained according to Kossan’s requirements at the glove maker’s own training centre and research and development arm, Lim said.
“[We will] design training to suit our environment,” Lim said, noting that although skilled employees are needed in the automation process, training is often mismatched against what the industry needs.
“The glove industry is different from other industries. It is rooted in Malaysia. No one [from the overseas] can help you design [your machines],” he said. Accordingly, Kossan’s machines are designed and fabricated locally. The presence of supporting industries also adds to the strength of Malaysia’s glove industry, Lim said.
“[We] cannot compete with the cheaper labour costs in Indonesia, Thailand, China and Vietnam — that is what everyone will do. That’s why we are moving into intellectual property,” he said.
Earlier in September, Kossan launched its first patented low-derma technology for synthetic gloves, which helps protect users with hypersensitive skin.
Kossan’s largest planned development to date is a RM450 million project in Bestari Jaya, which sits on 56 acres (22.66ha) of land, according to its 2015 annual report.
“The best is to have 200 acres, then we can do integration,” Lim said, adding that it would ideally be able to provide lodging for its workers as well.
The Bestari Jaya expansion project is being implemented in four phases until 2020 and will have a total annual production capacity of up to 18 billion pieces of nitrile gloves, including 4.5 billion pieces in phase 1.
In total, the IQ2 and Bestari Jaya phase 1 will provide additional capacity of 7.5 billion pieces to Kossan, to be gradually completed and contributing in the next two years.
Lim, however, was quick to dismiss concerns that glove makers may be overproducing.
“As far as gloves are concerned, it is still a good business,” Lim said. The factors he cited as important to look out for are growth in the world market, competition and Kossan’s own capability. He also added that if gloves face the threat of substitution by other products, Kossan would want to move in as an early bird.
While Kossan has been enjoying 20 years of uninterrupted profitability since listing in 1996, the group saw its net profit decline 38% year-on-year to RM34 million in the third quarter ended Sept 30, 2016, down from RM55 million a year ago.
But according to Maybank Investment Bank Research, Kossan’s earnings may improve in the fourth quarter due to the upgrading of two of its plants.
“In terms of capacity, it is expected that Kossan’s capacity could grow by 14% by end-2017 to 25 billion pieces and another 18% by end-2018 to 29.5 billion pieces,” analyst Lee Yen Ying said.
Kossan, which has an installed capacity of 22 billion pieces of gloves currently, plans to double its production capacity to 44 billion pieces by 2020. The group commands a world market share of 10%, as global consumption is estimated to reach 213 billion this year.
Notably, Kossan exports its products to more than 196 countries worldwide, with more than 80% of Kossan’s revenue derived from developed countries in Europe, as well as the US and Canada.