Malaysia’s Rubber Glove Industry: The Good, The Bad And The Ugly – Analysis
By ISEAS - Yusof Ishak Institute
By Francis E. Hutchinson and Pritish Bhattacharya*
The ongoing COVID-19 pandemic and resultant Movement Control Order (MCO) have dealt a severe blow to Malaysia’s economy. While the country’s Finance Ministry previously predicted that the national GDP would shrink by about 4.5 per cent in 2020, new data reveal that the actual contraction was much sharper, at 5.8 per cent.
Likewise, according to forecasts made by analysts at Bank Negara Malaysia last year, the country could expect rapid recovery rates of up to 8 per cent in 2021. But the perpetually extending restrictions have also darkened the outlook. Indeed, the latest estimate by the World Bank is that the Malaysian economy will grow by at most 6.7 per cent this year.
The economic gloom that has wrapped the country – and the world – since last year, however, has been partially brightened by the dazzling performance of Malaysia’s rubber glove sector. Although the country is the world’s leading producer of rubber gloves, frantic demand for personal protective equipment has turbo-charged the sector’s growth rate.
In 2019, the Malaysian Rubber Glove Manufacturers Association (MARGMA) predicted that the global demand for rubber gloves would rise at a modest rate of 12 per cent, reaching a total of 300 billion pieces by the end of 2020. But as the virus outbreak metastasised from one country to another, these estimates were quickly revised. According to the latest figures, the demand leapt to about 360 billion pieces last year, pushing the annual growth rate to close to 20 per cent. Of the total output, Malaysia supplied about two-thirds, or 240 billion gloves. The estimated worldwide demand for this year stands at a massive 420 billion.
According to Persistence Market Research, this upsurge in demand has resulted in a tenfold increase in the average selling price of nitrile gloves – the most sought-after variant of disposable medical gloves. Before the pandemic broke out, consumers had to shell out around $3 for a pack of 100 nitrile gloves; the price has now risen to as high as $32.
The rubber glove sector’s stellar performance has generated much interest in Malaysia and elsewhere. On one hand, a bevy of new producers has entered the industry from sectors as varied as real estate, palm oil, and IT. On the other, heightened scrutiny has shed light on a range of less savoury practices. In particular, a number of industry majors have attracted attention over allegedly violating workers’ rights and pursuing profits at their expense – even in a time of plenty.
While valid, there are several structural features that contribute to this. Some relate to the rubber glove sector itself, and others are linked to the wider policy environment in which it operates. These issues draw attention to the need for firm owners and policy-makers in Malaysia, as well as consumers and governments in client countries, to look at the sector and at production practices more holistically.
As was the case last year, demand for medical gloves is expected to grow at unprecedented rates this year. MARGMA’s projections for 2021 indicate a growth rate of 15-20 per cent, with global demand set to hit 420 billion glove pieces by year-end, thanks to the still climbing number of community-spread cases and discovery of new, more infectious strains of the virus. The trend is not expected to change even as more countries ramp up their vaccination programmes. In fact, large-scale vaccine deployment will drive the demand further because examination gloves are needed to inject vaccines.
Beyond sunny prospects, the sector has several other key advantages. It capitalises on a commodity that Malaysia produces abundantly – rubber. The availability of the main raw material, along with considerable investments over time in improving production processes, has allowed the country to assert an unassailable lead in the sector. This, in turn, has given rise to a large eco-system of established players and supplier firms that collectively allow the sector to perform more efficiently.
However, there is stiff competition from other glove producing countries, particularly China and Thailand – the world’s largest natural rubber producer. But MARGMA expects Malaysia to retain its principal position on account of the country’s export-oriented manufacturing landscape, aided by good infrastructure, a favourable business environment, and business-friendly policies. Plus, in both the competing countries, combined labour and energy costs are considerably higher than in Malaysia.
Furthermore, the rubber glove sector has enjoyed consistent support from the government. Seen as a key pillar of the economy, the rubber sector, including the glove industry, is one of Malaysia’s 12 National Key Economic Areas (NKEAs). This priority status entails a range of government support and incentives. For example, to promote upstream activities, the government offers the rubber sector subsidised gas prices – a particularly helpful form of aid, given that gas cost accounts for 10-15 per cent of glove production expenditure.
Likewise, the Rubber Industry Smallholders Development Authority (RISDA) invests heavily in the sector’s greenfield planting and replanting programmes. When it comes to the midstream segment, initiatives taken by the Malaysia Rubber Board (MRB) to foster sustainable public-private R&D cooperation have led to continuous technological upgrading in the form of improved dipping lines and robust quality management systems. And, to stimulate downstream activities, Malaysia has eliminated import duties on all forms of natural rubber –raw as well as processed.
The massive hikes in sales volumes, combined with jumps in selling prices, low material costs, availability of cheap labour, better production efficiency, and state support, have resulted in an exponential growth in earnings of the country’s dominant glove manufacturers.In fact, the net worth of each of the founders of Malaysia’s Big Four glove companies – Top Glove Corp Bhd, Hartalega Holdings Bhd, Kossan Rubber Industries Bhd, and Supermax Corp Bhd – has now crossed the highly coveted billion-dollar threshold.
Beyond the industry’s largest players enjoying skyrocketing share prices, embarking on a production expansion spree, and enjoying their increased profits, smaller players in the sector have also chosen to ramp up manufacturing capabilities. So striking are the profit margins that even firms in sectors as disconnected as real estate and IT have decided to venture into glove production.
According to MARGMA’s estimates, Malaysia’s rubber glove industry employed around 71,800 individuals in 2019. Citizens accounted for 39 per cent of the workforce (28,000) and foreign migrants formed the remaining 61 per cent (43,800). Given the increased global demand, glove makers are now facing serious manpower shortages. The industry urgently needs to grow its workforce by around 32 per cent, or 25,000 workers. But swift hiring has been challenging in light of the government’s freeze on recruiting overseas workers. To mitigate the situation, firms are expanding automation and proactively hiring Malaysians, despite higher wages. This is a welcome source of demand for labour, given that the national unemployment level escalated from 3.4 per cent in 2019 to 4.2 per cent in March 2020.
The supernormal profits enjoyed by the glove manufacturers almost immediately drew the Malaysian government’s attention, with a number of elected officials demanding that a one-off “windfall tax” be imposed on the biggest companies. The most vocal proponents of the move argued that such a tax, in addition to the existing corporate tax (which had already jumped 400 per cent to RM2.4 billion in 2020), was justified because the firms had a moral and legal responsibility to “return” money to the public by paying this tax to the government.
MARGMA promptly decried the proposal. The windfall tax would not only deter the glove companies’ expansion plans to meet the growing demand, but also limit the reinvestment of profits into operations to finance diversification and automation initiatives. This could easily risk Malaysia losing its dominant position to other countries that are already scaling up production. It can also be argued that, if an additional tax is levied on an industry during times of extraordinary prosperity, the government must also be ready to rescue its major players when adversity strikes.
After weighing both sides of the argument, the government halted its plan to impose the new tax. The rationale offered to the press was that introducing a profit levy would be perceived negatively not only by investors but also by civil society groups. Additionally, in Malaysia, a bonus profit tax has never been imposed on finished goods – on account of the difficulty in determining a uniform market price threshold, especially for products such as rubber gloves, which have different types, standards, specifications, and grades according to the respective countries marketed. Consequently, when the 2021 Budget was tabled, glove makers were spared the additional tax. Instead, it was decided that the Big Four companies would jointly donate RM400 million to the state to help bear some of the costs of vaccines and medical equipment.
While the debate on the sector’s adequate contribution to the country at large appeared fairly balanced, what was undeniably negative was the controversy surrounding its chief players, particularly Top Glove. This firm single-handedly accounts for a quarter of the world’s glove output and has benefited immeasurably from the current high levels of demand.
Top Glove was one of the early winners of the health crisis. Thanks to the unparalleled growth in glove sales, the company broke multiple profit records. In its latest financial quarter (ending on 30 November 2020), the firm recorded its highest net profit of RM2.38 billion. On a year-on-year basis, its net profit has risen 20 times from a year ago. Even before the pandemic, Top Glove had been on an expansionary trajectory for over two years, growing its capacity from 60.5 billion glove pieces in August 2018 to 70.1 billion pieces in November 2019. Riding on the recent success, the glove maker now plans to increase annual capacity by 30 per cent by the end of 2021 to 91.4 billion pieces.
However, in November last year, news broke that several thousand employees – mostly foreign workers – at one of the company’s manufacturing complexes had tested positive for the coronavirus. Within days, multiple worker dormitories were designated as major COVID clusters and the government swiftly imposed several weeks of enhanced MCO (EMCO).
The outbreak also prompted the government to open as many as 19 investigations into six Top Glove subsidiaries. This followed simultaneous enforcement operations carried out by the Human Resources Ministry. Workers involved in the cluster were issued Home Surveillance Order (HSO) for 14 days and made to wear wristbands for surveillance and daily health check-ups. All costs for the workers’ COVID-19 screening, quarantine facilities and related food, transport and accommodation were to be borne by Top Glove. By the end of the year, more than 5,000 foreign workers at Top Glove were reported infected. Fewer but frequent cases were also reported in production facilities owned by the other three Big Four firms, suggesting that the problem was not localised to a single company.
Official investigations revealed that the primary factor behind the rapid emergence of multiple mega clusters across the glove sector were the appalling living conditions of the workers. Migrant dormitories were overcrowded, unsanitary, and poorly ventilated – and this was before the pandemic struck. The gravity of the situation is conveyed by comments made by the Director-General of the Peninsular Malaysia Labour Department (JTKSM), an agency under the Human Resources Ministry:
“The main offence was that the employers failed to apply for accommodation certification from the Labour Department under Section 24D of the Workers’ Minimum Standards of Housing and Amenities Act 1990. This had led to other offences including congested accommodations and dormitories, which were uncomfortable and poorly ventilated. In addition, the buildings used to accommodate the workers did not comply with local authorities’ by-laws. JTKSM will take the next step to refer the investigation papers already opened so that all these offences can be investigated under the Act. Each violation under the Act carries an RM50,000 fine as well as potential jail time.”
Poor housing arrangements are not the only worrisome issue facing the glove sector. Top Glove was also thrust into the global spotlight in July last year, when the US Customs and Border Protection (CBP) announced a ban on imports from two of its subsidiaries over forced labour concerns. In its 2020 List of Goods Produced by Child Labour or Forced Labour report, the US Department of Labour (USDOL) accused Top Glove of: 1) frequently subjecting workers to high recruitment fees; 2) forcing them to work overtime; 3) making them work in dangerous conditions; and 4) threatening them with penalties, withholding of wages and passports, and movement restrictions. Initially, Top Glove refuted the claims altogether, affirming zero tolerance for the violation of workers’ rights. However, unable to satisfactorily address the issues on time, the company was forced to pay RM136 million to the migrant workers as remediation for recruitment fees. Improving other aspects of employee welfare, however, was described as a “work in progress” by Top Glove’s management.
All of these issues have drawn attention to the wider policy environment, and its associated dysfunctions.
Systematic overreliance on unskilled labour. Malaysia has long relied on inexpensive foreign labour from poorer economies. According to official figures published by the Ministry of Human Resources, in 2019, around 18 per cent of Malaysia’s workforce was composed of migrant workers. However, if undocumented foreign workers are taken into account, this number can reach anywhere from 25 to 40 per cent.
The problem is further compounded by the often-neglected fact that migrant and citizen workers are not perfect substitutes, with the level of education being the main distinguishing characteristic. Between 2010 and 2019, the majority of the migrant workers who entered Malaysia’s labour market had at most a secondary education, whereas the proportion of tertiary-educated citizens in the workforce increased significantly. This explains not only the disparity in the nature of jobs taken up by most overseas workers and Malaysians, but also the difficulty faced by the rubber glove industry in filling vacant positions with locals.
Poor implementation of regulations and changing policy positions. The problems plaguing the industry are far from new. Allegations of poor working and housing conditions of glove sector employees first surfaced a couple of years ago. In 2018, two independent exposés – by the Thomson Reuters Foundation and the Guardian – revealed that migrant workers at Top Glove often worked under conditions that met several of the International Labour Organisation’s criteria for “modern slavery and forced labour”. Although the Malaysian government first responded by unreservedly backing the glove maker’s track record, it flipped its stance after Top Glove admitted breaching labour laws.
The inconsistent nature of the government’s policy stand on migrant workers in the glove sector was also seen when the USDOL allegations first came up. Although Malaysia’s Human Resources Ministry initially claimed that the import ban on Top Glove was “unfair and baseless”, it recently switched its description of the workers’ living quarters to “deplorable”, and gazetted an emergency ordinance compelling glove manufacturing companies to provide lodging with adequate living space and amenities for migrant workers to control the spread of the virus.
High Demand. While the number of COVID-infected patients has been growing, vaccination programmes around the world are also picking up steam. Consequently, production timelines are getting more demanding, with pressure sometimes coming from unexpected quarters.
In March last year, the US Embassy in Malaysia retweeted an image with the caption “Through the production of medical gloves and other medical products, the world relies on Malaysia in the fight against COVID-19”. Coincidentally, the tweet was posted just days after the US had lifted six-month-long import sanctions on Malaysian glove maker WRP Asia Pacific Sdn Bhd. Around the same time, the EU Ambassador to Malaysia urged local glove makers to “get creative” to ensure 24/7 production to meet the region’s pressing demand for personal protective equipment.
Despite growing concerns that forced labour practices might still be rife at Malaysian glove companies, the demand for disposable gloves shows no signs of abating in other parts of the world either.
The Canadian government recently announced that it was investigating allegations of worker abuse in glove factories in Malaysia following the publication of the CBC’s Marketplace report. Demand, however, is unlikely to fall. The Canada Border Services Agency commented that it had “not applied the tariff prohibition against goods for production by forced labour. Establishing that goods have been produced by forced labour requires significant research and analysis and supporting information.”
In Australia, too, an ABC investigation found significant evidence of labour exploitation in Malaysia’s glove production facilities. A spokesperson for the Australian Border Force was reported to have said “the government is concerned by allegations of modern slavery relating to the manufacture of personal protective equipment, including rubber gloves.” But unlike the US, Australia does not require importers to prove there is no forced labour in their supply chain.
The UK government has also continued to source medical gloves from Malaysia, despite acknowledging a Home Office report that concluded “corruption is endemic in the recruitment systems of Malaysia and migrant worker source countries, and touches every part of the recruitment supply chain”.
While the demand for gloves will continue to surge, the same cannot be said about supply. MARGMA recently stated that the global shortage of rubber gloves will last beyond 2023. Glove dipping is a time-consuming process, and production facilities cannot be expanded overnight. Unforeseen challenges such as the COVID outbreak at glove manufacturing factories and shipping container shortages have further exacerbated the situation. Today, the lead time for orders is estimated to be around six to eight months, with demand from desperate governments driving up average selling prices.
Malaysia’s rubber glove sector is a source of employment, foreign exchange, and profits for the economy in a testing time. Burgeoning demand and rising prices have helped established firms grow and encouraged new entrants into the sector. Looking ahead, the sector’s expansion is assured, at least in the short run, thanks to steady demand, buoyed in part, by vaccination drives kicking in.
However, not all the new-found attention has been positive. The sector’s huge profits in an otherwise bleak environment led to calls for a windfall tax. Labour and civil society groups called for some of the profits to be shared more widely, particularly given the considerable state support the sector receives. In the end, while the sector was not taxed, the industry leaders agreed to voluntarily contribute to the vaccine rollout.
More damaging than this were revelations that labour practices by several of the sector’s leading players have been far from acceptable. While not characteristic of the rubber glove sector as a whole, scathing allegations regarding certain firms have been raised numerous times and predate the COVID-19 pandemic. A combination of international attention and the potential for higher infection rates spurred the authorities to act.
This, in turn, raises issues in Malaysia’s wider institutional context, from regulations governing the recruitment, housing and treatment of foreign workers to appropriate oversight and inspection of workplaces and accommodation facilities. Client governments are not exempt of responsibility, with calls for improvements in the sector being issued concurrently with calls for reduced production times and increased production levels. COVID-19 has shown very clearly that the separation between worker welfare and wider societal health is not clear-cut, and that they are indeed very much interlinked.
*About the authors: * Francis E. Hutchinson is Senior Fellow and Coordinator of the Malaysia Studies Programme, and Pritish Bhattacharya is Research Officer in the Regional Economic Studies Programme at the ISEAS – Yusof Ishak Institute. This is the second of two Perspectives that look at Malaysia’s rubber glove sector. The first Perspective (2020/138) highlighted the factors that contributed to the industry’s unprecedented growth in 2020.
Source: This article was published in ISEAS Perspective 2021/35, 23 March 2021.
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