Kossan’s second attempt on Vietnam

KLANG: Glove maker, Kossan Rubber Industries Bhd, which saw its first venture into Vietnam fall through in 2007, could make a second attempt to foray overseas as early as this year, said its managing director and CEO Datuk Lim Kuang Sia (pix).
"We are very keen on expanding our glove operation in Vietnam. We want to buy a piece of land and put up a factory there," Lim told SunBiz in a recent interview.
Lim has set his sights on a leasehold land, located in a large-scaled industrial park in Ho Chi Minh, equipped with a one-stop centre which is a convenient location for logistics and distribution.
"I just went there and had a look at the land. I still haven't made up my mind. The land condition looks good, the area looks very nice, and the details of agreement is also fair, but we have not firmed up anything yet," said Lim.
He did not give any definite timeline for the cross border expansion but said Kossan might be able to close the land purchasing deal by year end.
"Frankly speaking, we did not set any timeframe yet. We will buy the land first, but if anything (capacity expansion) were to happen in Vietnam, it will be next year, not now," he added.
To recap, Kossan had conducted preliminary studies on setting up a factory in Vietnam for glove production in 2007.
The expansion plan eventually did not materialise, as the rubber glove maker was concerned over the business-unfriendly environment and unstable government policy in the Indochinese country.
Additionally, high-inflation as well as the sharp depreciation of the Vietnamese dong, mainly due to the global financial crisis, halted Kossan's planned investment in Vietnam.
However, things have changed. Seven years after the world financial crisis, the overall sentiment and market condition in Vietnam has turned positive.
According to Lim, who is also the founder and substantial shareholder of Kossan, doing business in Vietnam today is relatively cheaper than in Malaysia.
"In Vietnam, the energy and labour costs are lower, while the land cost is even much cheaper than here," he said.
In addition, Vietnam, which enjoys Generalised Scheme of Preferences (GSP) privileges, also provides tax incentive and pioneer status for companies seeking to invest in business expansion.
"This is our plan for future. Looking at a longer term, Vietnam could be a good location for us to do business, at least for the next ten years," said Lim.
In contrast, the operating environment at home has become more challenging.
"There is no doubt that Malaysia has good infrastructure, but labour is a key problem, while the cost of recruiting mid-range management personnel is quite high in Malaysia, not to mention rising energy prices," said Lim, adding that the water rationing in Selangor has been causing serious problems to the local manufacturers.
"While Malaysia is facing water crisis, Vietnam has tonnes of water," he said.
Going forward, the rubber glove tycoon said Kossan will be looking into expanding its product range from the overseas operation, to produce more common items and more competitive items. As for Malaysia, he said it shall remain as Kossan's home base to produce more sophisticated products.
Kossan has also allocated between RM70 to RM90 million as capital expenditure this year, mainly for purchasing plants and machinery, as well as to partly-finance its capacity expansion plan for its new plants.
In total, Kossan is investing about RM100 million to build three new plants, which will bring its installed capacity to 22 billion pieces per year from 16 billion currently.
Some RM30 million will also be allocated for the group in the next two years, to advance the degree of automation on the production floor aiming to reduce the reliance on low skilled labors and create greater productivity.
For the next phase of business expansion and growth, Lim said Kossan has acquired a plot of freehold industrial land measuring about 56 acres in Batang Berjuntai, Selangor in February 2013.
This strategically located land bank is sufficient to keep the group busy for the next three years from 2015 onward.