Business

Minimum wage may dent glove makers’ profits

By Ida Lim
May 04, 2012

Shares of glove companies have dipped due to market concerns that production cost would increase by 17-22 per cent with the increase in wages.Shares of glove companies have dipped due to market concerns that production cost would increase by 17-22 per cent with the increase in wages.KUALA LUMPUR, May 4 — The Malaysian rubber glove industry, which is labour-intensive and has a 63 per cent share of the global market, will be most affected by the new minimum wage policy, Singapore’s Business Times reported today.

A minimum wage policy was announced by the prime minister this week, with a floor wage of RM900 for Peninsular Malaysia and RM800 for East Malaysia.

Analysts told the Business Times that rising wages will cut profits of the rubber glove industry and may even cause small companies to consolidate.

Shares of glove companies have dipped due to market concerns that production costs would increase by 17-22 per cent with the increase in wages.

Top Glove Corporation, the main rubber glove manufacturer in Malaysia, has seen its shares drop by four per cent.

Hwang-DBS Vickers said that Top Glove’s wage costs could go up by RM39 million, or 22 per cent, possibly cutting profits by 20 per cent, according to the Business Times.

Kossan Rubber’s wage costs are also projected to climb by RM18 million, or 17 per cent, bringing down profits by around 13 per cent.

Small rubber glove producers may be forced to consolidate but this could bring about more efficient and cost-effective production.

Rising electricity bills and the decline in the supply of low-cost foreign workers will drive glove makers to proactively find new ways to remain competitive.

Hartalega Holdings is less affected because it does not rely as much on human labour and uses more machines in production.

Hwang-DBS Vickers said that the wage costs will increase by only 10 per cent, and predicts that its profit will go down by five per cent.

Small and medium industries (SMIs) had warned that 80 per cent of active businesses could fold under a blanket wage floor, cutting four million jobs from the labour market.

SMI Association of Malaysia president Teh Kee Sin had told The Malaysian Insider they would need at least three years to “train and upgrade technology” to ensure enough productivity gains to justify an additional cost of up to nine per cent due to the minimum wage rate.

Biz Updates from PR Newswire

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