Cover Story: The right stuff

This article first appeared in Enterprise, The Edge Malaysia Weekly, on July 9, 2018 - July 15, 2018.
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Smart Glove Holdings Sdn Bhd is taking gloves to the next level. Executive chairman Foo Khon Pu had looked at the simple product and figured out how to make it better. Then, he did it again.

His mind is always reaching for the next thing. He went from making the gloves thinner, stronger and more comfortable to thinking about how to enable them to repair the skin of those who wear them.

Foo was the first to come up with nitrile gloves in Malaysia. He was also the first to come up with a way to reduce pinholes in these gloves so they would pass the US Food and Drug Administration (FDA) inspections without any problems.

Then, the company showed that it could take on the nitrile patent holders and come up with a winning strategy to defeat a lawsuit, which would have cost Malaysian glove manufacturers billions of ringgit.

Foo cannot afford to stand still. His company is a small fish in a big pond and when its products prove successful, its competitors tend to move in and cannibalise its markets quickly. Familiar with the “jump on the bandwagon” mentality of most Malaysian businesses, he needs to always stay 10 steps ahead so that by the time they catch up, he is off to the next thing.

Foo is actually a chemist by training. He graduated from University of Malaya in the late 1980s and his first job was in ceramics, particularly tableware and sanitaryware. He did this for nine months before getting an offer from a glove factory, Sri Johani. “And that is why I am in the glove industry today,” he laughs.

Foo started as a chemist before working his way up to factory manager. “At the time, there were not many glove manufacturers and the technology for making gloves was really old,” he says.

Like a sponge, he absorbed the A to Z of glove making, an industry that was about to take off in a big way. “After that, I was invited to set up a glove factory by two of the top four company owners in the industry. Three of us had actually worked together in a small glove factory. I was in charge of the factory, one of them was in charge of finance and the other was in charge of marketing,” says Foo.

The three of them had worked together for almost two years when his previous boss from Sri Johani got in touch with him and asked him to come back. “My old boss gave me a challenge. He said if I turned around his company, I would have a free stake in it,” says Foo.

“I was only 28 or 29 at the time and the factory was in a bad shape. Its main challenge was quality. The gloves had a very high rejection rate. I went in and instituted some controls to make the manufacturing process smoother.”

Long story short, he managed to turn the company around and was given a 30% stake in it — no small reward from a company that was once one of the top three glove makers in Malaysia.

At the time, the company had two factories. Foo convinced his bosses to give him the majority stake and a free hand to run one of them. He formed Smart Glove Corp and his approach from the beginning was to stay ahead of the curve. He put a lot of emphasis on research and development and way back in 1992, before anyone else, he was already looking at using nitrile as a material to manufacture gloves.

In 1995, after extensive research, he was confident enough to start manufacturing nitrile gloves. At the time, nitrile was not widely used in the disposable glove and medical industry, but more prominently in the tyre and other industries.

Foo had to fly to Japan to convince the Japanese synthetic material manufacturer to sell it to him for this purpose. “The Japanese are very conservative. At the first meeting, they were unconvinced, but they gave me a little bit of the material to try,” he says.

Why were the Japanese reluctant to sell the material to him? “To make the material for me, they would need to make a modification on the reactor and spend some money just to make it for me. What if they sold it to me and it did not work? That was why, in that first meeting, I only managed to convince them to give me a little bit — only one container — of the material,” says Foo.

The material was duly shipped to Malaysia. The company converted it into disposable gloves and then shipped them out. “It sold immediately. In fact, we did not even have enough to meet the demand,” says Foo.

“So, the next month, I flew to Japan and talked to them again. It was tough, but they agreed to double the volume. So, the following month, we received two containers, which worked out to 40 tonnes.”

Again, the company converted the material into gloves and shipped them out. And again, it sold out almost immediately. So, Foo made his way back to Japan to convince the material manufacturer to up his quota, which he did — from 40 to 80 tonnes, then to 200, 400, 600, 800, 1,000 and 1,200 tonnes. “They supported us very well and without them, I do not know what the nitrile market would be like today,” he says.

Today, the nitrile market for disposable gloves is about 1.3 million tonnes per year. Along the way, there has been a tremendous amount of development in the manufacturing process. “When we started, the nitrile glove was thick, smelly and uncomfortable. It was a new material and only the US was willing to try it out,” says Foo.

However, to be sold in the US, the gloves had to pass the FDA tests. “That was a very real fear. Whenever we shipped a container, we couldn’t sleep because the FDA would be watching, sampling our products. If there had been any failures, we would have had a real problem,” he says.

The FDA would send the samples to its laboratories to test them. “If you failed, according to its standards, the FDA would blacklist you and put your name on a website. Once you were blacklisted, it would check every container of yours that came in. You would have to pass inspection for 10 to 15 containers consecutively for your name to be taken off the blacklist,” says Foo.

However, if you failed one of these inspections, your name would be elevated to Level 2 of the blacklist. “Then, it would inspect even more shipments before your name can be taken off the list. That is how the FDA controls quality,” he says.

Instead of sweating through subsequent inspections, Foo and his team came up with a way to make the gloves thinner, softer, more comfortable and with fewer pinholes. “We decided to make the product in two layers to reduce the pinholes and it worked. Today, everybody is using this method,” he says proudly.

The company had successfully reduced the number of pinholes, meaning that it had reduced the defects, but the gloves were still not comfortable. “So, we invented soft nitrile in 2003. We enjoyed a lot of good business and could even fix the price in the industry,” says Foo.

“The others were not even there yet. It was still early in the game and they had not gone all the way into making nitrile gloves yet.”

The company enjoyed a few good years and others, seeing how well it was doing, hopped on the bandwagon. Then in 2007, the party stopped.

“We were served a legal letter by a US company with a patent for nitrile. The company actually issued a legal letter to all the glove manufacturers in Asia. It also issued a letter to all the glove distributors in the US,” says Foo.

“They claimed the patent on nitrile and said we could not make nitrile gloves. That patent was very broad and it was granted in the US. Most of the gloves in the market were infringing that.”

The glove manufacturers in Malaysia formed a consortium to defend themselves. They were worried because if the patent holder won, they would have to pay a huge chunk in back royalties. The US-based company had an injunction on the manufacturers, stating that if they did not pay up, they would be barred from selling their gloves in the US.

“The consortium shared the legal fees based on our stock volume. As we were shipping 50% of the nitrile gloves from Malaysia to the US at the time, we were asked to pay 50%,” says Foo.

But there was some disagreement on how to proceed. The big four glove manufacturers wielded a lot of clout and had their own ideas. Foo did not agree with their approach, so Smart Glove withdrew from the consortium to fight the suit on its own.

“There were actually four parties fighting the suit — the Malaysian glove manufacturers’ consortium, two US companies and us. The company that had undertaken the litigation was very smart. It settled with the two US companies first, leaving us and the other Malaysian glove manufacturers to fight them,” he says.

The consortium wanted to fight on the basis of non-infringement while Smart Glove wanted to invalidate the patent altogether. The latter’s approach ultimately brought home the bacon — the patent was invalidated. “So, everything was cleared in 2010,” says Foo.

This was both good and bad for the company. For one, it could move ahead again. But so could everyone else. After the patent issue was sorted out, everybody started putting up factories to manufacture nitrile gloves. “That is why we have seen massive expansions in the industry in the last eight years,” says Foo.


Getting into polychloroprene gloves

Once more, Smart Glove worked to stand out from the madding crowd. “After 2010, we spent more time on R&D. In 2013, we came up with polychloroprene gloves. We noticed that they were actually available in the market, but were very expensive. We also noticed that while the material was very comfortable, it was very weak, which meant it was not good enough for applications,” says Foo.

He realised that a lot of improvements could be made to the product. “We discussed the matter internally and decided to do something to re-engineer the material so that it was thinner, stronger, cheaper and more comfortable,” he says.

Smart Glove came up with an improved version of the material. Since 2013, it has filed patents for 12 innovations, covering up to 50 countries. “Everybody buys the same materials, but we have been putting in special formulations so that the material can be softer, stronger and thinner,” says Foo.

He says the market took to its products very quickly. “But our capacity is small. Currently, we are starting with people who are able to pay a premium for our products. But I really want to supply to hospitals, which is the biggest market. We have a problem there because hospitals cannot pay so much for the gloves.”

Smart Glove has come up with a new way to produce a premium product at a lower price. The problem is in having enough capacity. “I need to strategise to make sure that I have a factory to supply them because of the huge volume. At the moment, I don’t have that. So, I don’t need to supply to the hospitals. But if a big guy comes and talks to us about working together to do it, maybe we could think about it,” says Foo.

Right now, the company is evaluating various ways to raise capital. “We could go for an initial public offering, an investment, a joint venture or we could do it through licensing, where others license our technology,” he says.

In fact, it has started talks with a European private equity player who wants exposure to the Malaysian glove industry. “They approached us. They wanted to invest in the glove industry, so they did a survey of the industry here and picked us,” says Foo.

He is talking big money here. “We would need between RM500 million and RM1 billion to really make a difference,” he says.

Smart Glove needs to differentiate itself because the conventional glove industry, which is already super competitive, will only get more so in the coming years. “So, what we need is something different. Our strategy is to be niche and make use of all our patents,” says Foo.

The company has spent RM20 million on R&D so far and come up with many patent applications. “We managed to put all these inventions into an invention pool and we make use of them to develop different products. So, any product we make uses multiple patents,” says Foo.

How does that work? “From the invention pool, we develop a product that carries a lot of features. It works the same way as the iPhone X, which is a collection of different patents,” he says.

From that invention pool, it has developed skincare products. “It is more than that. We have developed a glove that can actually repair your skin as you use it. We developed a collagen glove in 2003 or 2004, so that is actually old technology. Now, we have more than that,” says Foo.

Smart Glove is not standing still when it comes to innovation. The company continues to grow and evolve with multiple research projects in the pipeline.

It is also looking to set up manufacturing plants right where its market is — the US. “President Donald Trump actually reduced the corporate tax rate to just over 20%, which is slightly lower than ours. And there is a lot of natural gas in the US, which is crucial for us. Glove consumption in the US is so huge that it accounts for 50% of the world’s consumption. So, if you can get even 10% of that, it is huge,” says Foo.

He says any factory built in the US would have to be fully automated. The gloves would be packed straightaway and immediately put into containers and trucked across the country. “We would tell customers that they wouldn’t have to keep inventory because we would deliver to them every day,” he adds.

“So, we are looking to be close to the market, make something different, make it automatic, put in quality control and just deliver every day. The factory would be very clean and the warehouse empty. Every day, we would be trucking to the East Coast, West Coast — in fact, everywhere. That would be very nice.”

Smart Glove would require RM150 million for just one factory and RM1.5 billion for 10. “In the US, you would need to add costs because of the labour. That would be an extra 30%, so it would come to RM200 million per factory. But the benefit of it would be no shipping costs from here, no inventory and we could print ‘made in the USA’ on the boxes. That means we could supply to the government,” says Foo.

The company has just returned to the black after two consecutive fires two years ago that decreased its production capacity by at least 50%. It had already been in the process of dismantling one factory to install new machines that would be able to produce its latest, most innovative products. But during the process, some of the wiring short-circuited. What made it even more complicated was that the insurance claims were tied up for 20 months.

“So our performance was not good for those two years and out of seven factories, we ended up having only three to run,” says Foo.

The company did not retrench its staff. It gritted its teeth and got through the downturn. Now, two factories are up and running while another two are under construction and should be completed by the end of this year. “Then, we will be up and running with all our new products. We have turned the corner,” says Foo.

One thing he has always been clear about is that the “smart” in the company’s name should not only refer to innovation but also be a reflection of how clean and environmentally friendly its processes and products are. “First of all, we look at our own waste. If there is a high rejection rate, we will have a lot of waste ending up in landfills,” he says.

“We also look at the waste in the chemicals we use. If this is very high, our effluents will be very dirty and we will need to treat that. In addition, if the gloves we produce are very heavy, they will add to the waste when they are disposed of.”

So, the company has worked to reduce the material used in its gloves. “A conventional glove is about 4g while our gloves are about 2.2g each. That gives us a waste reduction of 30% to 40%, which is a lot,” says Foo.

It has also come up with processes to use less chemicals, so the disposal of sludge is kept to a minimum.

Another aspect is recycling. Foo says disposable gloves can be collected and turned into something else, such as tyres, rubber shoe underlayers or carpet underlayers. But this is not being done in Malaysia at the moment.

And since the gloves are being used in hospitals, they are exposed to diseases and viruses. “Why can shirts be washed and reused, but not gloves?” asks Foo.

Smart Glove is working on it. “That is a very big project for next year. With that, I would not need a glove factory — only a laundry factory so we could rewash the gloves and send them back into the market,” he says.

Since the US is the largest market for gloves, the used gloves can be collected from the hospitals there, reprocessed and sold to other countries at a lower price. “So long as we can prove that they are actually clean, with no virus or bacteria on them,” says Foo.

In the end, whatever cannot be reused still goes back into the environment. “If you cannot recycle it, it goes into a landfill. But using our current technology, what goes into a landfill is 30% to 40% less,” he points out.

Here too, he is thinking ahead. “One of our projects is to speed up the process of biodegrading the material. We expected to complete the project and launch that by early next year,” says Foo.