1.

Introduction

The rubber products industry is dominated by the rubber gloves industry; up to 70% of all rubber exports are gloves. The other rubber products include rubber threads, hoses, engine mountings, dock fenders, and seismic bearings. With the exception of seismic bearings, all other products are deemed low tech and barriers to entry are relatively low. Malaysia is currently the number 1 exporter of disposable gloves in the world, supplying close to 60% of world consumption. The gloves sector generated export revenues of RM8.9 billion in 2010, with total rubber product exports of RM12.9 billion. This is a resource based industry, and perhaps the only truly Malaysia World Number One we can make claim to. To stay ahead of the competition, which comes mainly from Indonesia, Thailand, China, India, and lately, Vietnam, Malaysia will have to increase her innovations. We lack some of the natural advantages enjoyed by the competition, namely, availability of labour and latex supply; Malaysia imports 90% of all latex used in gloves production from her neighbours. We need to have policies that will encourage the industry to invest in R&D and we need institutional support in areas of R&D that are beyond the ability of private industry to explore. In its innovations, the industry has generated some impressive support industries such as chemical supply, engineering fabricators, printing and the like. With regard to the above, this paper will take a pragmatic look at the state of innovation in the rubber product industry of Malaysia and determine the existing shortcomings. The necessary changes to bring about stronger growth in the industry will be examined. The aim is to make recommendations to the government on measures that will encourage innovation in the rubber product industry and consequently enhance its competitiveness in the world market.

2.

Rubber Product Industry in Malaysia

There were 338 manufacturers in the rubber product industry in 2009. The industry comprises two main sectors, one of which is the latex goods sector (125 manufacturers) and the other being the dry rubber goods sector (223 manufacturers). The majority of the latex based companies are either medium or large sized companies out of which at least 4 companies have market capitalisation of between RM 1.5-2 billion. On the other hand, the dry rubber goods sector is predominantly made up of SMEs and these companies form approximately 85% of the rubber product manufacturing sector. Although smaller in number, in terms of exports the dominance of the latex sub-sector is very marked. Approximately 35% of the industry contributes 75% of the exports and this is mainly through glove exports. Exports from dry rubber products are low in comparison.
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The normal problems associated with SMEs in other sectors are also very much prevalent in the rubber product industry. The majority of the companies are family-owned and capital is limited. R&D is almost non-existent and what little that is being carried out is small scale using in-house facilities. Companies lack market intelligence and this is compounded by their lack of funds to undertake continuous market research. The technologies in the manufacturing process are low while the range and volume of products manufactured is rather limited. Malaysian rubber and rubber products are exported to more than 180 countries. Approximately 56% of the exports go to the E.U. and U.S. There is limited penetration to the rest of the world. Malaysia is currently the worlds number 1 exporter of natural rubber latex gloves, nitrile gloves, latex threads and rubber catheters. The country is also the worlds largest consumer of NR latex.

Table 1.
Export Rubber & Rubber Products Total Malaysia % Share

Malaysian exports of rubber and rubber products

2003 10.1 397.9 2.50% 2004 13.5 480.7 2.80% 2005 14.4 533.8 2.60% 2006 19.1 589 3.20% 2007 19.7 605.1 3.25% 2008 22 663.5 3.30% 2009 17.9 553.3 3.20% 2010 26.3 639.4 4.11%

Rubber Raw Rubber

12,863,288,442 13,461,421,845 26,324,710,287

Source: MRB

The export share of rubber and rubber products compared to overall Malaysian exports has been gradually increasing. In 2010, the export share stood at 4.11% as against 2.5% in 2003. This indicates the growing importance of the rubber industry as a major contributor to national revenue.

2.

Exports of Rubber Products

Table 2.

Malaysian rubber product exports by year

MALAYSIA'S EXPORT OF RUBBER PRODUCTS FOR YEAR (AMOUNT IN RM)
Rubber Products General Rubber Goods 477,213,278 471,731,595 441,530,064 529,259,417 566,223,884 625,973,309 682,401,417 713,696,347 978,326,529 841,940,092 914,214,684 Industrial Rubber Goods 153,450,638 139,481,574 149,164,774 155,049,378 277,427,193 334,217,317 368,951,723 474,432,147 420,656,395 284,732,444 396,409,764

YEAR

Footwear 313,474,053 288,195,092 303,058,632 460,238,630 860,298,246 466,189,834 568,824,531 558,656,829 573,409,178 642,757,322 653,302,282

Inner Tubes 13,570,445 15,625,368 17,293,416 15,752,189 23,097,434 26,504,614 25,269,124 27,997,502 32,889,832 40,938,578 24,458,834

Latex Goods 4,480,766,855 4,272,160,998 4,361,152,459 4,841,178,229 5,832,241,552 6,207,021,245 7,121,496,160 7,744,417,533 8,404,078,604 8,338,219,334 10,327,975,685

Tyres 243,578,446 249,713,624 261,447,240 310,507,522 458,024,329 501,778,731 586,513,909 950,620,740 829,270,362 438,524,861 546,927,193

Total 5,682,053,715 5,436,908,251 5,533,646,585 6,311,985,365 8,017,312,638 8,161,685,050 9,353,456,864 10,469,821,098 11,238,630,900 10,587,112,631 12,863,288,442

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

As reflected in the table above, Malaysia's export of rubber products has witnessed phenomenal growth. Exports which stood at RM 5.7 billion in 2000 rose to RM 12.9 billion in 2009. This represented a percentage change of 126%. The 2010 export figure is the highest ever attained by the industry.

Table 3.

Exports by product sector (2010)

2010 Product Sector Amount ( RM) Footwear General Rubber Goods Industrial Rubber Goods Inner Tubes 653,302,282 914,214,684 396,409,764 24,458,834 % 5.08 7.11 3.08 0.19 80.29 4.25 100

Latex Goods 10,327,975,685 Tyres Total 546,927,193 12,863,288,442

Exports from latex goods amounted to RM 10.3 billion or 80.3% of total exports in 2010. General rubber goods was second in terms of importance, followed by footwear contributing 7.1% and 5.1% of exports respectively (Table 3). Next in importance were industrial rubber goods taking up 3.1% of total exports.

Table 4.

Leading export destinations

MALAYSIA'S EXPORT OF RUBBER PRODUCTS FOR YEAR 2010 (AMOUNT IN RM) NO 1 2 3 4 5 6 7 8 9 10 COUNTRY UNITED STATES OF AMERICA GERMANY, FEDERAL REPUBLIC OF JAPAN BRAZIL UNITED KINGDOM CHINA, PEOPLES REPUBLIC OF SINGAPORE, REPUBLIC OF ITALY AUSTRALIA BELGIUM Others Total: VALUE (RM) 3,584,669,531 859,024,569 718,354,647 572,203,935 553,080,391 524,116,201 431,563,195 373,947,138 367,701,529 296,977,521 4,581,649,785 12,863,288,442 % SHARE 27.87 6.68 5.58 4.45 4.3 4.07 3.35 2.91 2.86 2.31 36 100

The USA is by far the single most important market for Malaysia, taking up almost 28% of Malaysia's exports in 2010. The other major markets are Germany, Japan, Brazil and the UK.

Table 5.

Leading export items (2010)

Leading Export Items
NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 PRODUCT CLASSIFICATION Gloves Latex Thread Footwear New Pneumatic Tyres Tubes, Pipes And Hoses Condoms Other Articles Of Unhardened V ulcanised Rubber Plates, sheets and strip of non-cellular rubber Catheters Sports Goods Item Plates, sheets and strip of cellular rubber Foam Products Seals And Gaskets Articles Of Apparel And Clothing Accessories Rubber Band Floor Coverings And Mats Other Hygienic And Pharmaceutical Rubber Articles Conveyor Belts Or Belting Fenders Insulated Wire, Cable And Other Electric Conductors Inner Tubes Transmission Belts Or Belting Part And Accesories of Automotive Swimming Caps Erasers Teats And Soothers Rubberised Textile Fabric Other Tyres Retreaded Tyres Used Pneumatic Tyres Finger Stalls Solid Tyres Products And Articles Of Hard Rubber Hot Water Bottles Rail Pad Structural Bearings Rubber Rollers Adhesive Tapes Parts And Accesories Of Rotochutes And Parachutes Total: VALUE (RM) % SHARE 8,915,485,566 69.31 800,637,003 6.22 653,302,282 5.08 513,440,841 3.99 314,018,544 2.44 282,758,032 2.2 231,191,896 1.8 229,551,211 1.78 140,034,041 1.09 106,867,265 0.83 80,696,073 0.63 80,620,488 0.63 70,662,139 0.55 60,524,080 0.47 44,215,620 0.34 41,498,841 0.32 36,260,390 0.28 35,078,369 0.27 31,291,911 0.24 25,834,613 0.2 24,458,834 0.19 21,478,238 0.17 20,078,821 0.16 14,233,544 0.11 12,738,780 0.1 12,360,207 0.1 11,000,463 0.09 10,626,574 0.08 9,348,481 0.07 9,065,950 0.07 4,820,641 0.04 4,445,347 0.03 4,228,279 0.03 3,267,816 0.03 2,770,755 0.02 2,135,197 0.02 2,111,308 0.02 139,135 0 10,867 0 12,863,288,442 100

Gloves was the most important export item with exports amounting to RM 8.9 billion or 69.3% of total exports. This was followed by latex thread (RM 800.6 million or 6.2%) and footwear (RM 653.3 million or 5.1%). Other major export items include tyres, tubes, condoms and catheters. It is to be noted that the exports of the latex sector, i.e. gloves, latex thread, condoms and catheters are amongst the top ten export items and together, total RM 10.1 billion of exports or 78.8% .

3.

Import of Rubber Products

Imports which stood at RM 1.2 billion in 2000 rose to RM 3.4 billion in 2010, i.e. a growth of 183% (Table 8). The 2010 figure is the highest recorded over the period.

Table 6.

Malaysian rubber product imports by year

MALAYSIA'S IMPORT OF RUBBER PRODUCTS FOR YEAR (AMOUNT IN RM)

Rubber Products General Rubber Goods 441,768,969 416,726,485 441,804,559 416,623,216 530,066,016 566,162,596 619,074,756 561,876,704 686,213,657 646,688,105 788,083,481 Industrial Rubber Goods 254,171,304 198,058,318 243,908,491 240,412,648 379,536,969 414,846,951 446,117,435 402,416,190 423,925,331 504,800,577 567,471,310

YEAR

Footwear 162,291,510 170,205,158 208,289,605 304,495,888 546,293,366 245,581,433 317,557,682 359,889,939 406,890,299 451,494,397 542,558,545

Inner Tubes 9,266,371 7,527,628 5,451,502 6,916,049 8,674,240 11,461,745 22,008,807 31,054,363 31,640,430 36,615,337 42,799,546

Latex Goods 139,344,342 133,566,623 159,854,267 217,097,966 269,307,373 341,818,318 365,319,654 380,177,376 356,579,689 321,266,137 416,376,563

Tyres 189,333,882 165,413,137 245,465,283 296,216,078 439,325,578 505,484,366 624,345,876 770,477,575 915,562,207 853,372,787 1,064,917,351

Total 1,196,176,378 1,091,497,349 1,304,773,707 1,481,761,845 2,173,203,542 2,085,355,409 2,394,424,210 2,505,892,147 2,820,811,613 2,814,237,340 3,422,206,796

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The most important import were tyres at RM 1 billion in 2010. This was followed by general rubber goods with imports of RM 788 Million, industrial rubber goods (RM 568 million) and Footwear (RM 543 million).

4.

State of Innovation in the Rubber Product Industry

Latex Gloves Industry The biggest factor contributing to the success of the glove industry in Malaysia has been the ability of the entrepreneurs to innovate. In this, they have been strongly supported by local SME engineering firms. The contribution of these engineering firms cannot be underestimated. They have effectively contributed to production line design, improvement on speed of production, quality, and stability of the production. In the late 1980s, glove manufacturers made use of glove production lines that were mainly imported from Taiwan. Soon after, local engineering companies started building Made in Malaysia lines. Glove manufacturers working with engineering companies improved the lines in several stages and today, the country has become the leading supplier of dipping line technology to other countries from Thailand to as far away as Mexico. An example to illustrate how innovation has contributed to the industry is well reflected in the sharp increase in the speed of the production lines. See below: 1988: Imported lines from Taiwan produce about 3,000 gloves/hour 1992: Malaysian Built Lines produce 6,000 gloves/hour 1997: Malaysian Built Lines produce 12,000 gloves/hour 2002: Major Innovation using double formers resulting in production of 20,000 gloves/hour 2007: Further improvement resulting in 30,000 gloves/hour 2010: Improved this to 36,000 gloves/hour There have also been efforts in the dry rubber goods sector to innovate and to bring about greater efficiency. Malaysian entrepreneurs have proven to be very innovative in the production processes as well as in developing engineering hardware. A number of the bigger firms amongst the dry rubber product manufacturers have undertaken this. Quite a number of innovations have been introduced and one that stands out is in the area of layering. Previously, to produce blocks of rubber (intended for example to manufacture dock fenders and other products), the traditional approach was to undertake manual layering. To improve efficiency, one local company now uses injection molding under very high pressure to create a homogeneous block of rubber. Apart from the time saved, the new process also limits if not eliminates delaminating which was often a problem using the traditional manual method. What the local company has developed is unique and no other manufacturers have been able to replicate this method. Japanese companies that have seen this invention have been quite amazed.
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The company which developed this method has adequate resources and is willing to channel funds to R&D. Unfortunately, this is not true for the majority of firms in the dry rubber goods sector who, while having creative abilities, lack sufficient funds for R&D. Almost all innovations to the production process, R&D and marketing were industry driven with limited assistance from government institutions. It must be recognized, however, that the initial push to produce gloves came from RRIM, which provided technical assistance, and MITI, which provided the initial encouragement by obtaining subsidies for electricity etc. After about 3 years, this was withdrawn. The natural gas subsidy came into effect only after the 1997 economic crisis when resource-based Malaysian export industries such as rubber and furniture, etc., were identified as deserving government support. After the initial technical assistance given to the industry, RRIM or other research institutes such as SIRIM have not been able to provide further assistance. In general, the industry is disappointed with RRIM in that it has not been able to lead the industry in innovations, R&D to improve processes, material developments, or anything that is commercially viable. On the contrary, the industry seems to be ahead of the research institutes. It must be realized that industry is unable to undertake R&D in certain areas without assistance from public institutes such as RRIM or the Universities. An example of this is in the design of more efficient ovens. Industry has improved existing oven designs with better heat insulation and the like, but these are very minor improvements. It would be tremendous advantage if a completely new and revolutionary oven or a revolution curing process is developed. Patented and licensed for use by Malaysian glove manufacturers, it would be a boost to the industry in Malaysia, keeping it two steps ahead of other competing countries. The Koreans have tried to introduce Far Infra-Heating Technology in ovens. Although this was a failure, it was certainly a step in the right direction. Had it been successful, it would have improved efficiency by a huge margin. It would have resulted in smaller lines using smaller space and materials, saved cost in energy consumption, improved production speeds, and provided a huge advantage to any manufacturer using this technology. This sort of R&D is beyond the present capabilities of the industry. It is in areas such as this that the industry looks to the Government for leadership. The relevant institutions should spearhead R&D efforts in new areas that would bring about benefits to the industry. One suggestion would be in the area of Microwave technology for ovens.

5.

Challenges to Innovation

A small number of companies continue to innovate and seek further improvements on the quality of their products in order to enhance market access. However, the majority do not invest sufficiently in innovation. The outcome of R&D is never certain and the rewards may not necessarily be commensurate to the investments made. This partially explains the reluctance of companies to plough capital into R&D. Companies would need to change. The industry must realize that R&D efforts, which could be initially unrewarding, will in the long-run yield tangible results. Rubber companies that have introduced innovation are also concerned about protection of their intellectual property. Companies are of the view that the regulations must be effective and there ought to be sufficient enforcement to see that there is no patent infringement. Another concern often voiced by the industry is that decisions of the industrial courts tend to favour the worker. What is needed is a review of existing laws and a review of the working attitude of officers in the Labour Dept. More often than not, officers would advise employers to settle the matter even in instances where it is blatantly unfair to the employers. While it is recognized that workers should be given basic rights, industry cannot be held ransom to unjustified demands.

6.

What government incentives are in place to encourage innovation and R&D efforts?

There are a wide range of incentives currently provided by the Government to boost R&D efforts. A number of government agencies such as the Ministry of Science, Technology, and Innovation (MOSTI), MIDA, and MATRADE have put in place a variety of initiatives towards enhancing R&D efforts. MOSTI has the TechnoFund which provides funding for pre-commercialization activities and IP acquisition. Companies can collaborate with Government research institutes and institutes of higher learning. MIDA under the Promotion of Investments Act 1986 defines research and development (R&D) as any systematic or intensive study carried out in the field of science or technology with the objective of using the results of the study for the production or improvement of materials, devices, products, produce, or processes. Incentives are mainly in the form of Pioneer status and Investment Tax Allowance. In this regard, incentives are provided for companies to undertake in-house R&D and those engaging in the commercialization of public sector R&D.

10

The IRB provides Double Deduction for R&D. Incentives for researchers to commercialize research findings and Double Deduction for the promotion of Malaysian brand names. MATRADE provides the brand promotion grant. This grant is divided into a 100% reimbursement grant for the development and promotion of a brand subject to a maximum grant of RM 1 million for SMEs. Non-SMEs are eligible for 50% reimbursement of the grant subject to a maximum grant of RM 2 million.

7. Policies, Institutional Support, R&D Direction, and Assistance that will encourage companies to pursue innovation with vigour The rubber product industry has displayed remarkable performance over the years. The industry has become a major contributor to the national economy. A wide range of products are being manufactured and exported. The nation is the number one exporter of both latex and nitrile gloves. Hence, the foundation for further growth is well in place. The industry is in dire need of innovation that will boost stronger growth and propel the industry to the next level. This becomes imperative especially in the wake of strong competition from the lower-cost countries like Thailand, Indonesia, India, Vietnam and Myanmar. Innovation ought to bring about an improvement to the quality of the product manufactured in the country. The production process could be improved while the labour cost can be substantially reduced. The current dependence on imported labour can also be addressed. Innovation could also further extend the product range besides creating new markets for both traditional products and the new products. With regard to the aforesaid, a number of issues will be discussed below. These are matters that have a direct bearing on the future of the rubber product industry in Malaysia. Arising from the discussions, a number of recommendations will be made.

a. Growth in imports Malaysia has witnessed a very strong growth in imports in recent years and the trend appears to be continuing. Perhaps it makes sense for the country to import goods in which the country is no longer cost-competitive. This may include products under the category of Footwear and Inner Tubes. Close scrutiny of the current range of imports would indicate tremendous potential for import substitution. Discussion with a number of rubber product manufacturers reveal their confidence in being able to actually manufacture in Malaysia a good range of dry rubber products currently being imported. Instead of importing such rubber products, domestic users should look to Malaysian manufacturers as a supply source.
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Almost all manufacturers in the Dry Rubber Products sector are small players with only a few exceptions. Most of these companies are technologically competent as they are owned by individuals from the industry or who have had research experience with RRIM previously. The problem is not whether they are innovative but rather, whether they are given the opportunity to be innovative. There is nothing to innovate if there is no business. Government agencies have to shoulder the major part of the blame. In 2010, Malaysia imported RM 1.36 billion Industrial and General Rubber Goods. Local manufacturers, if given the opportunity can produce 90% of these imported products. RM 1 billion worth of the imported products is not too optimistic a figure to be substituted by Malaysian companies. This alone would be a tremendous boost to the industry. There is a government policy to buy Made in Malaysia first, but this does not translate into any tangible effort by the relevant agencies in implementation. Of equal importance, if not more so, is the fact that if Malaysia does not support her own industry, especially in government-linked projects, the industry is unable to obtain the credibility it desperately needs to secure business overseas. Local manufacturers may have all the certifications and meet all the quality standards/specifications, but having no testimony from their home country automatically results in their credibility being questioned. These products are simple products easily made to international quality standards such as Dock Fenders, Railway Stoppers, Conveyor Belts, Hoses, etc. This has been highlighted in numerous meetings with different Ministries and their relevant agencies but the situation remains unchanged. It is not without justification that the industry feels the government agencies do not care or are simply taking the easy way out. If we are to reach the next level to be a high value-added industry this has to change immediately. So certain deliberate policies are demanded. Even policies such as Buy Malaysia First, though not in line with international trade rules may be considered and implemented discreetly. It is not in the form of subsidies or grants that assistance is needed but in imposing a Buy Malaysia First policy seriously. What is required is a delivery system within the control of government agencies to support the industry so that it can grow to a certain size. Taiwan, Japan, and Korea have intentionally fostered the growth of the industry. In time, the industry was strong enough to embark on greater R&D. This has translated into new and better products. It would be difficult to find a Japanese company operating in Malaysia using any equipment that is not Japanese be it testing equipment, computers, cars, or even printers. The industry has always been able to source the funds it needs if there are profits to be made, so grants or subsidies are not of major importance. Often enough, the role of consultants becomes critical in major tenders. Local companies would obviously lose out if the specifications are couched in such a way that they are skewed to imports. On the contrary, specifications should favour local companies, and the job should be given to local companies if there is assurance of quality from local suppliers and the prices kept
12

competitive. Manufacturers of dock fenders, for example, have all the technical expertise and capacity to manufacture dock fenders at a competitive cost. Yet, their performance in the domestic market is lacklustre. Products that has high value-added, such as hoses used in the Oil & Gas industry, are something that Malaysian companies cannot break into without government assistance of some kind. One of the barriers to entry is the long and expensive certification process, and most companies do not have the funds to do this when they have no business in the first place. This is the typical chicken and egg situation. Policies must be enacted to assist in the certification/testing process to provide Malaysian manufacturers with the opportunity to make their first foray into the business. Otherwise, it would be remain in the hands of established suppliers in developed countries who had a head start, for example, France. Well over 90% of rubber product manufacturers are Chinese-owned companies. Discussions with the companies also reveal a perception, rightly or wrongly, that they do not get greater support from the Government because of this very factor. Perhaps something needs to be done to remove this perception. Should the dry rubber sector become successful in the domestic market, moving on to capture the overseas market will not pose much of a problem. Demand for dry rubber products will lead to enhanced capacity calling for additional investments and naturally creating more employment opportunities in the country. A strong and vibrant dry rubber goods sector would mean a greater balance in the structure of the rubber product industry which is currently so much tilted towards the latex goods sector. The dry rubber goods sector can become a major contributor to the industry and this in itself represents a major innovation. Naturally, the contribution of the rubber product industry will become increasingly significant.

b. The OEM Market With very few exceptions, all Malaysian glove manufacturers are OEM suppliers and do not own any sizable brand of their own. Even with their own brands, all are heavily reliant on the OEM market for business. This means that brand owners can move their orders from manufacturer to manufacturer and from country to country. Should Thailand, Indonesia, China improve on their technology and match Malaysian producers in quality, Malaysia may lose out when competing against them because of lower costs. So far, this has not happened because Malaysian manufacturers seem to be a few steps ahead in innovation on technology, process, and markets. To ensure Malaysia remains as the leading supplier of gloves, it is imperative that significant efforts are made to develop Malaysian brands. This will take a combined effort from both private as well as government resources. Policy must be formulated to assist in this direction.

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So far, only MREPC has initiated some action to assist in this development. It has started to research markets and provide the industry with market information on the various countries deemed a good start point to develop Malaysian brands. This is insufficient to spur this development, and other fiscal policies must be implemented to encourage this.

c. Grants for R&D Despite the availability of a variety of grants, the uptake within the rubber product industry has not been satisfactory. This could be due to the following reasons:

i.

Often enough, information regarding the incentives does not reach the actual decision-makers of companies. Company representatives who attend seminars about incentives are several layers removed from the top and information may not be conveyed above. While this does not reflect well on the companies, the Government may want to reach out to the bosses themselves. It will be good if direct contact is established with the decision-makers and the necessary information disseminated to them. It is likely that this sort of approach will yield better results. In this respect, perhaps the various trade associations can play a major role in assisting. In order for the associations to be effective, they will need to be manned by professional staff. A well-run association means the right sort of information will be regularly sourced and promptly disseminated to the industry. However, most associations are not financially strong and hence unable to employ professionals. Grants to assist the associations would go a long way to rectify this situation. Companies have also commented of the voluminous amount of paperwork and red tape involved in the application process. There is a perception that the R&D findings of companies that utilise such grants are not well-protected, especially when the findings are to be given or shared with Government departments. Companies fear that their work could be commercially exploited by others. Successful companies generally do not have the culture of making use of grants. Such companies would not hesitate to raise the funds on their own if the R&D would bring about substantial benefits.

ii. iii.

iv.

Despite all these factors, there should be a concerted effort to encourage companies to utilise Government grants. As discussed earlier, there is a wide range of such grants, many of which, if utilised, could greatly benefit the companies.
14

The industry feels that grants are useful for start-up companies, and the Government should continue to support such companies. However, there is also a large pool of companies which are technically sound and effectively managed. These companies also require assistance. There is a need to assist such companies, especially in making funds readily available. If statistics show that grants have not been effective in producing the desired results, then it might be better to scrap it. In its place a system of rewards can be given to companies that have been effective in their R & D efforts. Benchmarks can be established to enable this to be done. Red tape should be eliminated. Agencies should get to know the rubber product manufacturers and the industry. It would also help if individuals with commercial exposure be included in the evaluation process of these grants.

d. Labour and R&D The industry, especially the glove industry, clamours for foreign labour but also realizes that this goes against the Governments declared intention to reduce dependence on foreign labour. While there is a higher labour requirement by companies, it must be remembered that the capacity of the companies have grown tremendously over the last 10 years. Some companies have grown 10 fold in 5 10 years! Some R & D has been done to reduce manual labour such as automatic stripping of gloves from the lines. At present, R&D amongst the majority of companies is carried out on an ad hoc basis, while a few companies have taken concerted steps to make R&D an integral part of the companys activities. Most companies do not sufficiently emphasise this important area. Companies should formalise R&D as an integral component of the companys operating system. To this end, it is recommended that a certain percentage of profits should be set aside purely for R&D. In other words, a formalised budget must be allocated for R&D which could vary between 0.51.5% of profits, depending on the particular company. This will enable the company to easily establish a proper R&D department manned by high-calibre professionals. Consequently, R&D work will no longer be undertaken on an ad-hoc basis. The staff will be forced to undertake R&D directed towards bringing gain to the company. As an example, R & D into auto packing of gloves if successful would result in estimated savings of 20% of workers in a factory. To illustrate this, a company with 4,000 workers implies that 800 workers (20% savings in labour) could be dispensed with. This in turn translates into savings of +RM0.8 million per month (RM9.6 million a year) and 800 less potential social problems. Labour requirements are lowered and the company becomes more productive. Apart from original R&D work, companies can also adapt R&D work carried out by other industries and introduce it to the rubber product sector. This can easily be done by simply
15

trawling the internet for ideas. An active R&D department should also initiate contact with the Universities and collaborate in joint efforts. At present, there is very limited consultation between the industry and universities. The R&D could be directed towards areas such as the application of new machinery, which in turn could reduce labour requirements of the company.

e. Setting up a Department of Human Resources Development It has been noted that very few companies have a properly functioning HR department. Most HR departments are involved in payroll, claims, leave, and other such routine matters. Very limited resources are allocated to the HR department. A good HR department should do more than merely routine matters. For example, it should immerse itself in a total development of human resources within the company; this would include instilling a culture of loyalty and pride in the company, identifying training and skill enhancement needs and other such matters. For management staff, adequate exposure to current techniques like SCADA should become essential. A happy and well-trained workforce coupled with an informed and strong management would go a long way to ensure high productivity in the company. A more productive workforce will eventually lead to a reduction of the manpower requirements of the company. Production can be sustained, if not increased, by manpower which has been sufficiently trained and motivated towards effectively contributing to the well-being of the company.

f. Lack of Rubber Technologists Interviews with several companies reveal that there is an acute shortage of rubber technologists in the country. Job offers asking for specific qualifications in polymer science have received limited applications. There are not many around who possess the requisite qualifications. This in turn has made it difficult for companies to actively engage in in-house R&D. Companies cite this inability to get qualified professional staff as a major impediment to growth. Companies have expressed their willingness to collaborate with Universities to develop a pool of polymer scientists. The MRB/MREPC together with TARRC can initiate action on this matter and put in place a specific program. Scholarships may be considered. MREPC has now started a scholarship scheme where the graduates are expected to work in the rubber industry. A similar program could be initiated, catering specifically for undergraduate studies in rubber technology.

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g. Institutional Support The industry notes that Government institutions such the RRI and SIRIM have received large financial allocations; however, the industry generally does not feel that there is much R&D which has benefited the industry. Such institutions should orientate R&D to areas that are actually commercially viable. There has been little of this for the rubber products manufacturing sector. It is noted that the RRI is mainly engaged in upstream R&D and very limited resources are allocated to the downstream sector. RRI has been found wanting even in the area of product testing. While the laboratory equipment is adequate and of high quality, there has been undue delay in delivering test results to the companies. Companies feel the test results from Government laboratories have a certain level of credibility but because of the delay, they are forced to use private laboratories, which incur a higher cost. Since its inception, MREPC has been providing financial assistance to companies to participate in international trade exhibitions. Companies which are recipients of such assistance have of course welcomed such support. Then again, there are many in the industry who feel that this may not be the right approach to develop the industry. Using the cess collected from the industry and subsequently giving it back to them does not make sense. It is better not to have collected the cess at all. In recent years, MREPC has intensified research work, generating a good number of reports on market potential in a number of countries and regions. This has been well received by the industry, which has found the information very useful. Even if substantial funds are required to undertake more research, the industry will not object to such expenditure. Generally, it is felt that the private sector has the competence to undertake marketing without external help. What they require is for MREPC to complement the efforts of the industry by providing adequate market intelligence. This could include, for example, the barriers to trade, i.e. both the tariff and the non-tariff barriers. There should also be detailed information on the regulations that must be adhered to, the channel of distribution in the country, and the list of major importers. These are the types of information that the industry is clamouring for and which would assist them in penetrating the overseas market. MREPC could play a pivotal role in this area. As discussed earlier, the bulk of the exports from the rubber products sector goes into the developed markets, mainly the U.S and the E.U. While there is nothing wrong about this, a wider spread of exports will also serve us well. In fact, penetration and diversification into new and non-traditional markets will itself be considered as something innovative. Hence, MREPCs initiative to boost sale of gloves under Malaysian brand names to the CIS countries for example would be welcomed by the private sector. Research should be directed to such matters. Similar efforts should also be directed to assist the rubber goods sector. MREPCs initiatives in trade exhibitions and trade missions have more often favoured the established markets. Thoughts should be given to see what can be done in markets where our presence is insignificant.

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Over the last few years, an obvious development has been the rapid penetration of vinyl gloves in major markets. The world market for disposable vinyl examination gloves grew from 7.3 billion pairs in 2008 to about 7.8 billion pairs in 2010. From this, the U.S market alone took up 4.3 billion pairs. Obviously, this trend would impact negatively on the exports of Malaysianmade latex and nitrile gloves. There should be some concerted action to address this development. It is well known that vinyl gloves have inferior attributes compared to latex and nitrile gloves and are environmentally disastrous. It is recommended that MREPC, in collaboration with RRIM, engage in a detailed study of vinyl gloves. MREPC should then, by the most discreet of means, mount a campaign against vinyl gloves highlighting their negative features. Comments have already been made earlier about the strong growth in imports of rubber products. In this regard, the MRB, in collaboration with MREPC, should spearhead efforts to provide manufacturers, especially those manufacturing dry rubber products, opportunities in the domestic market. As mentioned earlier, the Government should play a key role in this and emulate what has been done in Taiwan, Korea and Japan. The industry itself has often raised this with various government authorities. No progress has been made and this is clearly reflected in the continued growth of imported rubber products. Key Ministries like the Ministry of Finance, Transport, Works, and the State Economic Development Corporations should be approached. A national policy on this must be introduced to make it mandatory that locally manufactured rubber products be utilised in Government projects. It is not a question of coming out with more circulars as the industry has seen enough circulars. What is required is effective enforcement of the policy which would translate into results in the domestic market. There is a general consensus in the industry that MREPC should have within its top leadership, representatives from the private sector. Either the chairman or, more appropriately, the CEO ought to come from the private sector and preferably from the rubber product industry itself. The industry feels that the policies and work approach within MREPC should not become a mirror image of a government agency. MREPC should operate as a private sector company, led by an individual with industry experience. The industry would be better served if this was so.

8. Recommendations The following specific recommendations are proposed: a. Import substitution given the high volume of imports and taking into account that local manufacturers have the ability to manufacture a high proportion of the imported products, the Government should adopt import substitution measures. This could include: Buy Malaysia First policy.

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Specifications for public sector projects should be skewed to favour local companies. Government to provide financial assistance to enable companies to acquire the relevant certification to facilitate access to the overseas market.

b. Malaysian brands adopt policies and provide financial support directed towards creating a Malaysian brand(s) for gloves. c. Grants improve information flow about grants to the companys decision makers. Grants eliminate red-tape in the application process. d. Companies should put aside 0.5%-1.5% of their profits to establish a formalized budget for R&D. Companies should be recompensed for doing this via tax or other benefits. e. Companies should set up a properly functioning Department of Human Resources Development. Policies of a reward scheme provided by the Government should be implemented to encourage this. f. Steps should be taken to increase the pool of rubber technologists in the country. g. RRI which regularly receive large financial allocations should orientate R&D to areas that are commercially viable. h. RRI should make improvements in the area of product testing. i. MREPC should intensify research work to provide comprehensive market intelligence to the private sector. j. MRB & MREPC should lend support to the efforts on import substitution. This has been attempted many times but does not seem to be effective. k. Either the Chairman or CEO of MREPC should come from the private sector and preferably from the rubber product industry.

9. Conclusion The Malaysian rubber product industry has experienced steady growth and is now an important contributor to the nations GDP. Total exports in 2010 came up to almost RM 13 billion. However, while this is a respectable figure, it counts for very little when measured against the worlds total trade in rubber products. The worlds import of rubber products in 2010 amounted to US $ 227 billion. Malaysia supplied a mere US $ 4.12 billion to the world market in that same year. Indeed, a very small value, comparatively speaking. Hence the potential to further grow and move to the next level is definitely there.
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Malaysia should not rest on its laurels if it wants to attain a higher level and become a prominent player in the world trade for rubber products. This is not impossible to achieve given our strong foundations. But certain innovations are necessary. We need not go overboard in introducing extraordinary innovations. Mere implementation of recommendations that have been made will go a long way to generate substantial growth of the rubber product industry. These are simple recommendations often discussed and highlighted in many forums. If implemented through strict enforcement, certain weaknesses currently faced by the industry will be quickly overcome. In due course, the industry will no longer be overly dependent on latex goods, particularly gloves for its source of revenue. Further, Malaysian rubber products will no longer be dependent on the developed markets as the industrys main markets. Exports will be more diversified with market penetration in a wider number of countries. The industry is ready to move forward. What is required is for the Government to provide the leadership in specific areas to effect progress.

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