Surgical BusinessLatex allergies aside, Malaysian glove industry battles politics, economics

by Curt Werner

Every day, millions of American healthcare workers pull on pairs of latex medical gloves, inexpensive but important items worn by workers from neurosurgeons to housekeepers. A staggering 28 billion disposable medical gloves are used in the U.S. every year. Few of those people, however, are likely aware of the origin of their gloves and the products’ links to a region of the world that is near the epicenter of political and military unrest.

A large percentage of medical gloves used in this country are manufactured in countries such as Malaysia and Indonesia. And though those two nations have for decades been ruled largely by stable governments that are primarily friendly to the West, millions of Muslims live in the two self-professed fundamentalist nations, not all of them happy with the U.S. With a population of about 23 million, about 60 percent of them Muslims, Malaysia is much smaller than its nearby neighbor, Indonesia, a nation that with about 224 million people has the largest Muslim population of any country on the globe. But despite its relatively quiet position, as a word of warning, Indonesia is considered to be one of Southeast Asia’s weakest links in the war on terror and the U.S. has already called it a safe haven for terrorists.

As this story is being prepared in early October, war with Iraq has not become a certainty, though the fever is building. But clearly, the post-9/11 world has altered many alliances and disturbed others, and put a focus on certain nations that before the World Trade Center attacks were extremely content to stay in the background while relishing lucrative trade relations with the U.S.

In particular, the U.S. companies and industries that rely on trade with several of the world’s Muslim nations are now looking a bit more anxiously at their supply chains. No one from any glove-maker has stepped forward to address the possibility, no less concede, that war in Iraq or even the ongoing conflict in the Middle East could precipitate a backlash that might threaten supplies. But the potential appears closer now to reality than it has been in more than a decade. 

Although Malaysia turns up nowhere near the Axis of Evil list, the Bush administration has pressed ahead with its get-tough policy on terrorism, and Malaysia is not immune from taking flak. On Oct. 1, for example, at Malaysia Bio 2002, a biotechnology conference held in the capitol city of Kuala Lumpur, Malaysian Prime Minister Mahathir Mohamad chided the aggressive U.S. stance on terrorism and felt obliged to declare, “I am not a thief, I am not a terrorist,” a statement that points up budding problems between the West and Muslim nations, including those in Southeast Asia. Mohamad, who has led the country for the past 21 years, was reacting to U.S. moves that targeted Muslims under new immigration rules aimed at nabbing would-be terrorists. Ironically, earlier this year, Mohamad was thanked by the White House for his help in the U.S.-led war on terror. Now, tensions appear to have increased, placing new pressures on the country’s export industry. Significant portions of those exports include medical gloves sold in the U.S.

No glove shortage in sight, for now

While no one has said that trade has been damaged as yet, fast-changing politics could hurt the industry, raising the specter of glove shortages, or at least higher prices for U.S. hospitals. A number of large U.S.-based companies with familiar names depend on Malaysian rubber for their glove manufacturing, which appears to be the reason few were willing to be interviewed on the subject of a possible interruption in sales, however unlikely that appears for now. Contingency plans regarding security and interruptions in raw material flow have been drawn up as multinational companies seek to protect their investments. But while politics in Malaysia have taken a somewhat edgier turn this year, jittery American companies who do business there are not the only or the biggest problem for Malaysian politicians and businessmen. The hard times for Malaysian rubber aren’t all due to politics, and the crown the country once proudly wore as unquestioned leader in medical gloves may soon be lost to less expensive rivals.

Malaysia has been steadily losing its rubber business to neighboring countries such as Thailand and China, as well as to Indonesia, places where labor is cheap and plentiful and the rubber trees are rated nearly as good as the Malaysian crop. In some cases, rubber is tapped in Malaysia and then sent to China for glove production to take advantage of cheap Chinese labor. Some Malaysian factories have been retooled from rubber manufacturing to palm oil, and rubber trees are not being replanted, mostly because the higher labor costs and efforts to improve the quality of gloves has edged prices higher and slowed purchases coming from an ultracompetitive U.S. market. One observer who has spent time in the region blamed part of the problem on a medical supply industry that has been slow to adapt to modern ways. “The medical community is an insulated community,” says the industry veteran, who asked not to be mentioned by name. “There’s not much cross-pollination between it and other industries, so what happens is that people convince themselves that the [glove-making] process can’t be done anywhere else, which has made the medical community late to the party in China. Now, they’ll bypass Malaysia in the process. It’s easy to do business in Malaysia, but its labor costs are high.”

“Malaysia used to be number one in rubber production, but not anymore. Last year there were 500,000 tons sold, but the year before it was 1.5 million,” says a longtime Malaysian player in the Southeast Asian rubber trade who goes simply by the name Mr. Hanson. Like others, he blames higher labor costs that have forced interests to move their money out of rubber. A case in point can be made with Safeskin Corp., a San Diego-based glove manufacturing concern acquired by medical supply giant Kimberly-Clark Corp., Roswell, GA, in late 1999. Less than a year before selling its entire operation to K-C for a whopping $900 million, Safeskin, citing a need to lower costs of labor, overhead and materials, moved its manufacturing facility to Thailand from Malaysia. Safeskin’s move did not come cheaply, however, as the company absorbed a $16 million charge related to repositioning its Southeast Asian plant. K-C declined to comment for this article, but Safeskin’s move appears to be among the first of several similar actions. Still, as many as 80 glove manufacturers are said to be operating in Malaysia today.

One of those manufacturers is Allegiance Corp., McGaw Park, IL, the medical supply power that holds significant U.S. market share in several categories. Allegiance, whose business in Malaysia dates back 14 years, continues to operate a glove-making facility in the country, but that factory produces only exam gloves, while it’s more profitable surgical glove business is based in Thailand. It is said that over the past several years, Allegiance has quietly reduced its Malaysian production as the company continually examines determining factors such as quality, pricing and demand. 

Donna Gaidamak, an Allegiance spokeswoman, says while the company “was not overly concerned” about political issues in Malaysia, it has in the interests of good business practices drawn up contingency plans for its Malaysian operation. However, she points out that such plans do not differ much from strategies the company has developed for facilities in other parts of the world. For example, when fire struck a kit-producing plant in Mexico a few years ago, Allegiance was able to quickly shift production to outside contractors to maintain the flow of supplies to hospitals while the Mexican factory was rebuilt. Gaidamak says that such plans are ready to use in Malaysia if necessary. 

Beyond labor and politics, a larger issue for Malaysian rubber producers is quality and the cost of producing the kind of quality glove products that U.S. workers demand. To address fears from U.S. healthcare workers concerned about latex allergies, worries that some claim are somewhat overblown though far from groundless, Malaysian glove producers developed a certification program that produced what they call the Standard Malaysian Glove, or SMG. These Malaysian glove products are said to be extremely low in the type of extractable proteins that are the suspected culprit in causing latex allergies.

The latex ‘health scare’

Malaysian Primary Industries Minister Datuk Seri Lim Keng Yaik said that worries over latex allergies are turning into what he called a “health scare” which threatens to widen into a “rubber phobia” against the 40,000 or so consumer and healthcare products made of natural rubber. Lim’s concern was heightened by reports that in reaction to illnesses and even deaths caused by latex protein allergies that were reported as far back as 1988, some 14 U.S. states are in various stages of considering or passing laws that would ban or restrict the use of rubber gloves, a move that would strongly favor synthetic rubber or other synthetic polymer gloves. According to recent statistics, a total of 2,300 cases of latex protein allergy have been reported to the FDA.

SMG gloves are the linchpin of the Malaysian Rubber Export Promotion Council, which is based in Kuala Lumpur and has U.S. offices in Washington, DC. About 19 Malaysian glove producers belong to the group, and estimates are that the group’s members account for half of the nation’s glove production. Leading the charge for the group is Dr. Esah Yip, U.S. director for the Council, a scientist who has written extensively on the science of natural rubber latex.

On the political side, Yip dismisses as “misconception” ominous reports of links between extremists in her country and Al Qaeda terrorists. “Malaysia is a very stable country even though we are aware of reports Al Qaeda has tried to make us a base of operations,” says Yip. She insists that terrorist groups in Malaysia have no ability to cause disruptions in glove production. “Malaysia,” she says, “is free of terrorist threats and instability and is a safe haven for foreign investments.”

According to figures supplied by Yip, just over 51 percent of U.S. medical gloves were produced in Malaysia in 2000, while Thailand with 30 percent, Indonesia with 8 percent and China with 6 percent trail in production. Sri Lanka also has a fractional market share in that mix of rubber-producing nations.

As to the latex allergy issue, she says U.S. hospital workers are “scared of protein allergies without understanding them,” and that in many cases workers have “switched to vinyl gloves because the gloves are cheap and don’t contain proteins.” However, she warns that such a conversion is “not a solution because studies have shown that vinyl gloves are five to 13 times more likely to leak than are latex gloves. Latex gloves are best for barrier protection, and there is no synthetic glove that can match latex gloves for quality and donning.”

But the very nature of the manufacturing process used to create SMG products has driven up production costs, and in such a low-margin business that equation amounts to market difficulties. Malaysian companies invested in research and development to improve the quality of their gloves, she says. But thanks to group purchasing and other competitive factors, prices for the gloves have slipped or have risen only slightly. Low prices help U.S. hospitals, but are hurting Malaysian producers who are spending more on production and paying higher labor costs, hand over mounting distribution fees, vying for market share with neighboring countries and dealing with rapidly rising oil and fuel expenses, adding up to declining sales and a treacherous model for successful business.

Malaysia a peaceful paradox

According to a Consular Information Sheet issued this summer by the U.S. State Department, Malaysia is a constitutional monarchy with an elected federal parliamentary government. The country is comprised of 13 states, 11 on the Malayan Peninsula and two, Sabah and Sarawak, on the Island of Borneo. The capital city is Kuala Lumpur. Malaysia is a multiethnic country of 23 million people. Malays form the predominant ethnic group. The two other large ethnic groups in Malaysia are Chinese and Indians. Islam is the national religion. Bahasa Malaysia is the official language although English is widely spoken.

The State Department says there have been no known specific terrorist threats against U.S. facilities or interests in Malaysia. However, the Abu Sayyaf Group, a terrorist band from the southern Philippines, has kidnapped tourists from resort islands off the eastern coast of Sabah. U.S. citizens have been urged “to use extreme caution” when traveling in the coastal region and islands of eastern Sabah.

That being said, Malaysia is one of the safest countries in Southeast Asia for resident and visiting Americans. The overall crime rate is low, and violent crime involving tourists is relatively uncommon.

Then, on Sept. 20, the State Department issued what it terms a Public Announcement “to reflect continuing concern about the possible heightened risks to American citizens and American interests in Malaysia,” especially in the state of Sabah, from attacks by the Abu Sayyaf Group. This Public Announcement expires on March 22, 2003.

As a point of history, on May 27, 2001, members of the Abu Sayyaf Group kidnapped 20 people, including three American citizens, from a resort on the Philippine island of Palawan and took them by boat to Basilan Island in the southern Philippines. Two of the Americans were subsequently killed. The third was wounded during a rescue operation. Since April 2000, Abu Sayyaf has taken a number of people hostage, including foreign tourists on the islands of Sipadan and Pandanan. The State Department’s current Public Announcement for the Philippines indicates there is a concern that the ASG may attack U.S. citizens and others again. The group is under attack by the armed forces of the Philippines at this time.

And in September, it was revealed that the U.S. missed many opportunities to pursue two of the Sept. 11 hijackers after they had been spotted at an Al Qaeda meeting in Malaysia 18 months before the attacks.

November