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Opportunity Of Top Glove Entering Indonesia Marketing Essay

3022 words (12 pages) Essay in Marketing

5/12/16 Marketing Reference this

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1.0 Introduction

Top Glove was established in 1991 as a small factory with three production lines, but it has since grown exponentially to become the largest rubber glove manufacturer in the world (Top Glove, 2013). It was listed on Bursa Saham Kuala Lumpur on 27th march, 2001 and promoted to Main Market of KLSE in 16th may 2002. The company have shareholder funds worth RM1.28b with annual turnover of RM2.31 billion at financial year ended on 31st August 2012. The company’s current headquarters is located in Malaysia at Jalan Meru Klang, Selangor. The company currently have sales office in China, Thailand, USA, and Germany.

In order to capture more global market share, the company has taken a rapid expansion of its capacity. The company’s manufacturing facilities which are located at Malaysia, Thailand, and China grew to 24 from only 5 when it was listed in BSKL on 2001. Top Glove Corporation Berhad wholly-owned the subsidiary of Top Glove in Thailand and China. The company represents 26 percent of the market share worldwide (Tan Sri Dato Sri Lim, 2008). Currently, the company exports to its 1,800 customers in more than 185 countries around the world (Top Glove, 2013). The company’s products are exported and available in most countries in North America, Latin America, Europe, Middle East and Asia region (Tan Sri Dato Sri Lim, 2011).

The vision of Top Glove is ‘to strive to be the world’s leading manufacturer with excellent quality glove products that enrich and protect human lives’ while the mission statements is ‘to be world class glove manufacturer providing top quality product with excellent services through continuous improvement and innovation’. The company offers 13 types of rubber gloves to the public such as latex examination gloves, nitrile examination gloves, vinyl examination gloves, surgical glove, clean disposable gloves, general purpose glove and others. Top glove have the capabilities to produce total production capabilities of 40.3 billion pair of glove annually. This because the company has 24 factories and 462 manufacturing line that can produce vast amount of glove.

Indonesia is a tropical country located near Top Glove home country, Malaysia. Tropical weather in Indonesia allows for fertile growth of rubber trees that are used in production of latex. One of the agricultural industries in Indonesia is rubber industry (CIA, 2012). The large and fertile soil is one of the geographic advantages of the country from Top Glove’s view. It enables large supplies of latex to facilitate the production of gloves to processing and manufacturing plants of Top Glove. Indonesia is a country that posses one of the lowest labour cost in the world. Indonesia currently has 248.6 million residents which is the 4th most populated country in the world (CIA, 2012). Cheap labour cost coupled with large supply of raw material makes it a suitable location for Top Glove to expand into. This factor will save the cost of production thus enable the company to sell their product at cheaper price, so that they can compete better in global market.

Indonesia also experienced active reform in business regulation in recent years and is among the top 50 economies improving the most and the top 5 within the East Asia and Pacific Region (The World Bank and International Corporation, 2012). 14% of its GDP is consists of agricultural sector (CIA, 2012). The inflation rate also improved from 5.4% in 2011 to 4.5% in 2012 (CIA, 2012). According to Dean (2001), doing business and investment in most parts of Indonesia is relatively safe and profitable. Thus, the stable economic and political environmental encouraged Top Glove to expands to the country.

2.0 Analysis

There are several reasons that attract Top Gloves Corporation to explore into Indonesia market. However, entering a foreign may not only brings gains but also shortcomings. Hence by analyzing the respective country, we able to understand is it significant for Top Gloves Corporation to invest or to enter Indonesia market.

According to Managing Director of Top Gloves Corporation KM Lee, he stated that the rise in healthcare standards tied with the increase in the global population had increases the demand of medical gloves (Top Gloves, 2013). Meanwhile, Chairman Tan Sri Lim Wee Chai indicated that the rise in the labor cost with the introduction of the minimum wage policy had forces the group to increase its glove prices by 3-5 per cent, depending on the type of product. With the rise on demand of medical gloves, thus, Top Gloves Corporation tends to expand their production line (Top Gloves, 2013). Besides, the increase of labor cost due to minimum cost forcing the corporation to look after a lower-cost country, as the labor cost will be lower. From the literature findings, John Tanner (1996) found that Indonesia is low cost skilled labor that benefits to Top Gloves Corporation. Furthermore, Indonesia is a country that rich with natural resources that match the Top Gloves’ nature of business that is the rubber (“Doing Business,” 2012). Thus, expanding a plant into Indonesia market may lead the corporation to gain more profit, as the production line can be more effective and efficient.

Apart from that, Indonesia was a main attraction for Top Gloves Corporation because the country of Indonesia able to offer a lower production cost as the labor cost resources is lower in price. According to Sari Shaviriyani (2006), a statistic shows that Indonesia’s population is the world fourth largest. The workforces over the country are huge and young enable the labor cost to be lower as the workforce supply is higher than the demand forcing the wages to be lower down. More to the point, the workforces are young and energetic allowing Top Gloves production line to produce more effectively.

In addition, Indonesia’s government does encourage more foreign investment by establishing certain departments and supportive bodies in order to speed up the investment licensing procedures (Sari Shaviriyani, 2006). Besides, some incentives are also provided to foreign investors, including tax incentives that enable Top Gloves Corporation to increase their company’s profit by paying fewer taxes (Sari Shaviriyani, 2006). However, this was theoretically to benefit the public interest, as the increase in competition in these “open” sectors will force the companies to operate efficiently and cut prices to win market share (Sari Shaviriyani, 2006). In that sense, it will creates a win-win solution for the country itself and the foreign company as the economy of Indonesia able to boom and the citizen of Indonesia able to enjoy the goods at lower prices meanwhile the operation can be carry on at a lower price.

However, every pro comes with a con as Indonesia offers a lot of gains to attract foreign company to invest into Indonesia but there is still a bit of shortcoming (Sari Shaviriyani, 2006). Top Gloves Corporation had to suffer high initial investment, as the country of Indonesia had no technological deepening of manufacturing sector production and exports creating a mess for Top Gloves Corporation to take initiative to invest. Furthermore, home country of Indonesia drives to pick-up all the skills and technique from Top Gloves Corporation that makes them a future threat. Additionally, lack of highly educated people can also be a shortcoming of Top Gloves Corporation as the company focuses more on hiring highly educated people. This reason is because the operation of the machine maybe too technical and may need a knowledgeable people to ensure everything operates in effective and efficient way.

Lastly, ecology can be also another shortcoming for the Top Gloves as the climate of Indonesia changes rapidly that may affect the fertile of the plantation causing a shortage in the resources. Some of the global climate changes that might affect the plantation of Indonesia such as rising sea levels, rising air temperatures, changes in rainfall period, and extreme climate change. Similarly, the influence of a combination of raising temperature in regions, changes in the level of precipitation and the intensity of drought/flood (Sari Shaviriyani, 2006). Although, climate changes may sound serious but open burning on the forest as the tradition of Indonesia in order to maintain the plantation to be fertile would be more devastating as it will bring down the goodwill of Top Gloves Corporation (Dyna Rochmyaningsih, 2012).

3.0 Recommendation

The current strategies used by Top Glove are exporting and wholly owned subsidiary. Top Gloves had done successfully with both of the strategy, however, they are continuing in seeking the new way to expand to more and more country. We recommended Top gloves to expand into worldwide, which is acquisition strategy. One of the successful companies who using acquisition strategy is Showa Co. who acquired all of Tillotson’s Best Glove operations and subsidiaries, which are helping to create a global leader position in the glove manufacturing (Showa Glove, 2009).

Acquisition of the company in the same industry will improve the company strength in production, reaching customer, and even the operation through synergy strategy such as the expertise and machinery (Showa Glove, 2009). The advantages of acquisition brings to the Top Gloves is reduced the cost. Top Gloves are able to generate the raw material needed to process the gloves like palm kernel shell and latex from Indonesia Besides, the labour cost in Indonesia is much cheaper compared with Malaysians’ labour cost. We suggest that Top Gloves should maintain their current expansion strategy which is exporting and building the manufacture in foreign country, at the same time, adopt the acquisition to take over the related company in foreign markets. Once it is confirmed that the market possesses a huge potential for gloves market, Top Gloves may set up a manufacture plant in Indonesia and implement backward integration by taking over the related company such as supplier for palm kernel shell firms.

Top Glove should be aware of the policy changes. Policy changes exist due to unstable condition in term of political pressure, economic trend, social unrest and restriction of the ownership of nondomestic company (Wild, J. J., Wild, K. L., & Han, J. C. Y., 2010). According to Boediono (2005), to achieve long term business profit in a dynamic changing country like Indonesia, it is important to maintain awareness between economies and political issues. A strong professional team must be developed to maintain high policy effectiveness. Hence, to managing threats of policy changes, Top Glove can gather more foreign information in Indonesia through recruit foreign proficient consultant who understands the foreign culture well.

Hiring local managerial talent is the best ways in foreseen and helps in explore business opportunity, it may facilitating the procedures in getting approval and application of local operation and result in attracting more local people join to the new established company. Besides, government will make change on economic policy and legal rules in order to forcing the business to update the way they do the business (“External Environment Theory,” 2013). Thus, Top Glove must managing political-risk services and issues carefully which is incurring news publication, employment issues, banks association and social media network. The company can rely on lobbying to help in administration of political matter and business operation, associate with public and bringing positive impact to social. Buy this way, Top Glove can reduce the risk in global business extension and minimize the possibility of legal fault.

Top Glove should create own brands in the long term as it does not have own brand gloves. By creating its own blend of gloves helps Top glove to build brand images and secure customer loyalty by having products that carry its own brand name. The benefit of creating a own brand name would also include create brand recognition, an existing firm that has strong brand recognition will repel the new entrants and if the brand existing product is being perceived as unique would result in competitor need to spend more cash to promote and educate its customer about their product and directly increase the cost of taking over the market thus make the market unfavorable for new entrants (CIMB, 2007).

Due to gigantic size of Top Glove Company, exponential growth and expansion could go against Top Gloves’ favor and makes it difficult to control and keep an eye on its foreign plants. Top Glove need to create a more centralized decision making environment which its foreign plants receive orders from its mother headquarters and enforce strict controls on the foreign plants to ensure illegal activities which is demonstrated by illegal labor issue once happened to top glove manufacturing plant at Klang that whooped to RM 11.4million would not happen in the future (ANIS, 2006).

Top Glove should develop more unique technology to increase barrier of entry. currently Top Glove’s latex manufacturing sector known to have a low entry barrier which is only from around 1 million to 1.5 million to open a new production line. It is considered low barrier for competitor manufacturer to enter the industry. New players only need to keep on producing to enjoy the share of wealth from the market due to economic of scale. Aggressive expansion by big players pose a serious threat to Top Glove as they need to come out with something unique in order to distinguish themselves from the competitors. For example top glove can develop proprietary product technology, technology is an intangible asset that resembles a barrier to entry, if an existing product is protected by a patent, it would not be possible for the new entrant to use the same technology to create the product without the permission from the patent owner (TomSpencer, 2010).

Top-Glove needs to protect their intellectual property right from violation in Indonesia. Of Protection of intellectual property rights (IPR), Indonesia is hindered by inadequate enforcement of the relevant rules and regulations. Problem in intellectual property rights protection raised by industry include rampant audio, software, and video disk piracies (with a piracy rate estimated at 87 percent); the high percentage of piracy will affect the revenue of Top-Glove in Indonesia’s market. So a strong professional team must be created to strengthen and find ways to protect the intellectual property in Indonesia to create a high competitiveness or more values company in the Indonesia. Top Glove Company should be vigilant and creative in building strategies to protect their products from infringement. As an example, a company might first identify the counterfeiters of its product. They then proceed to negotiate and try to develop them as legal licensees of it products.

Several general principles are important for effective management of intellectual property rights in Indonesia. First, it is important to have an overall strategy to protect your company IP. Second, company IP is protected differently in Indonesia than in the other country. Third, right must be registered and enforced in Indonesia under their local laws. Registration of patents and trademark is on a first-in-time, first-in-right-basis, so Top Glove should apply for trademark and patent protection even before selling their products or services in the Indonesia market. It is the responsibility of right’s holder to register, protect, and enforce their right. Company may wish to seek advice from local attorneys or IP consultants who are experts in Indonesia law. It is important of strengthen and protect the intellectual property before entering a new entry market. It will bring the company a lot of economic benefit for their business and prevents other parties from using and taking the benefit of the result of their creative and innovative mind without their concern (Purba, 2001 & Sommeng, 2002).

4.0 Conclusion

When we try to expand to others countries, it is important for us to analyze the country’s environment factors. The environmental factors consist of their political legal, economic competitiveness, social cultural, technology and local competitor. Then the company needs to know how much benefit they can gain from the expansion strategy that they use versus the risk that they assume in order to implement the expansion strategy to another country. By knowing this, the company will have better chance of succeeding in the new market.

Top Gloves is currently facing some problems which are the increase of labor cost, high initial investment, lack of educated people and ecology. It is estimated that glove prices will increase by 3-5 percent result of the increase in the labor cost according to the categories of the product. Initially, Top Glove also need to invest heavily when first expand the market into Indonesia. In addition, lack of skills and technique workers in Indonesia will slow down the operation in producing the product. On top of that, plantation is also another issue result of the changes of climate.

Throughout the analysis, we found out that Top Gloves using the wholly owned subsidiary and exporting as its expansion strategy. In order to compete, Top Glove needs to use exporting strategies because the local market is not big enough to support the growth of the company. Top Glove had owned large percent of the global latex market besides from few competitors in other countries. Besides that, in our assignment, we also had recommended some expansion strategies which will work out on Top Glove Company in Indonesia. These includes the expansion of their production line in rubber rich country of Indonesia.

However, there is little aspect which Top Glove had to concern when they need to enter into new market which is political aspect, the country’s economy perspective, IP protection and so on. All these aspect will directly influence the brand image of Top Glove and also ROI to the company. Foreign country expansion and exporting strategy will help the company to reduce the risk. If there is a problem in a country, the company still can survive because they have wholly owned subsidiaries in other countries. My having wholly owned subsidiaries in other countries, the company can better manage their operation and strategy implementation.

So in overall, we think that the company should enter Indonesia market. The benefit bought by the expansion outweighs the risk to the company. We predicted the company will continue to flourish under the new expansion into Indonesia. Hopefully, the expansion will pave a way for the company to be more competitive and able to maximize their shareholder’s wealth.

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