Post-independence development of rubber products manufacturing in Malaysia - Articles

Post-independence development of rubber products manufacturing in Malaysia

Professor Tham Siew Yean, Emeritus Professor, Universiti Kebangsaan Malaysia

Rubber trees were introduced to Malaya from Brazil in the late 19th century. From a few experimental saplings planted in northern Perak, an industry of immense proportions grew. With the take-off of the automotive industry in the United States and associated demand for tyres at the start of the 20th century, the natural rubber industry transformed the country’s economic fortunes, and has retained a role into the present century.

Malaya became the world’s largest producer of natural rubber by 1929, accounting for 51.6 per cent of global production (Lim, 1967). Much of the plantation expansion in the early decades of the 20th century was of large estates, funded by capital investment coordinated by British agency houses in the Straits Settlements, and raised in Britain through joint-stock company structures (Sultan Nazrin Shah, 2019).

British colonial commercial interests had little or no incentive, however, to produce rubber-manufactured goods to meet domestic needs, or for exporting to global markets. Policy prioritized imports, mainly from the United Kingdom, thereby stunting local industrial development. Apart from the manufacture of products required by Malaya’s tin mining, rubber footwear, and bicycle tyres and tubes, rubber-using industries were seen as more advantageously located near major centres of consumption.

Before independence in 1957, there is only anecdotal and fragmented descriptions of rubber products manufacturers. Some rubber abrasion-resistant products were manufactured locally by Linatex Company—originally the Wilkinson Process Rubber Company—that was established by Harrisons & Crosfield, a British Agency House with access to the country’s rubber plantations (Goldthorpe, 2015). There were also a few local Chinese entrepreneurs, such as Tan Kah Kee, Cheong Wing Fook, and Shum Yip Leong, who manufactured primarily rubber footwear for the local market (Lim, 1985).

According to Malaya’s 1957 population census, employment in the rubber manufacturing industry as a share of that for total Malayan manufacturing goods was below 2 per cent; and there were only about 32 firms, with 5,700 employees mainly concentrated in the Straits Settlements of Penang and Singapore (Goldthorpe, 2015).

After independence, there was a deliberate shift towards industrial development via the provision of tax incentives, under the Pioneer Industries Ordinance, 1958, to diversify Malaya’s commodity-dependent economy and to generate employment. Rubber products manufacturing, though small, was included as part of the industrialization efforts, with the number of firms expanding to 45 by 1963 (Goldthorpe, 2015). This was propelled by an influential report produced in 1955 by the International Bank for Reconstruction and Development, which emphasized the importance of expanding rubber research activities and recommended the manufacture of rubber goods for the domestic market, especially foam rubber products, and car and truck tyres (IBRD, 1955).

Starting from around the 1960s, Malaysia went through a period of import substitution, which attracted some foreign investors to the sector. For example, the British rubber manufacturer, Dunlop, established a local subsidiary, Dunlop Malaysia, to manufacture tyres and inner tubes in 1961, based on ‘pioneer status’, which used tariffs to protect it from imports (Goldthorpe, 2009). Export promotion was phased in after the mid-1960s, focusing more on developing light manufacturing goods such as electrical and electronics products, textiles, and clothing, which were mainly non-resource-based.

A factory in Klang, Selangor, manufacturing rubber shoes, 1963
Source: National Archives of Malaysia, Accession No. 2001/0028462W

A typical rubber manufacturing factory
Source: Malaysian Rubber Industry in 1970, by Michael Rogge

Thus, the expansion of rubber manufacturing was gradual, with the number of firms increasing to just 50 in 1970. Only in 1972 was there a specific recommendation to expand downstream rubber manufacturing activities, which was made by the Rubber Task Force Committee established by the Economic and Planning Unit of the Prime Minister's Department (Ahmad Farouk Haji S. M. Ishak, 1992). This push led to the approval of 135 new projects in rubber manufacturing in 1970–1978 (Lim, 1985).

The rest of this article describes and assesses Malaysia’s rubber-based manufacturing industry from the 1980s to the present, especially after the promulgation of the country’s first formal industrial policy in 1986, which had substantial institutional support.

Industrial Master Plans, 1986–2030

Policies

The call for resource-based industrialization, which included rubber products manufacturing, can be traced back to the Third Malaysia Plan (1976–1980) (Ahmad Farouk Haji S. M. Ishak, 1992). The 1980–1981 global primary commodity crisis, which greatly depressed prices, provided the impetus for diversifying from primary commodity exports to using these commodities for industrial development. Markets for processed commodities were deemed less volatile than markets for commodities.

Two special studies were conducted for identifying the market potential and marketing channels for Malaysian-made rubber goods in major consuming markets. Their results provided the basis for the rubber products manufacturing sectoral study in the First Industrial Master Plan (IMP1, 1986–1995) launched in 1986. The Plan recommended continuing the export-led industrialization strategy but, crucially, emphasized the promotion of resource-based industries, as these have a higher local content and are higher value added. Resource-based manufacturing was also used as a means to diversify from non-resource-based industries such as electrical and electronics goods, which had emerged with the opening of free trade zones in the early 1970s.

The rubber products sectoral study in IMP1 aimed to make the sector one of the leading manufacturing subsectors, and to increase domestic rubber use as well as promote global exports, especially for tyres and tubes (Lim, 1991). IMP1’s strategies for developing rubber products were extensive and far-reaching, covering product development via preferential and promotional treatment, human resource training, research and development (R&D) support through the rubber research institutions (see below) as well as harnessing the partnership of industry associations (Table 1).

There was also a suggestion to overcome the marketing and export challenges for the sector’s small and medium-sized enterprises (SMEs), via a central marketing and sales agency. State-owned enterprises in the plantation sector were also urged to venture into rubber product manufacturing. Besides the incentives applicable to the manufacturing sector, rubber products were given a natural rubber discount of 20 cents per kilogramme for export-oriented rubber product manufacturers (Fadillah, 1991). An electricity discount of up to 20 per cent of the company’s electricity bills was also announced in the 1985 budget.

IMP1 therefore laid a solid foundation for developing rubber product manufacturing with its comprehensive plans. Subsequent industrial master plans—IMP2 and IMP3—continued to promote product development, by emphasizing the need to expand the types of products manufactured while continuing to stress the importance of technology and human capital or skills development for this sector (Table 1). IMP2 recognized the role of synthetic rubber as a complementary polymer while promoting standards and linkages between the various agencies in the sector. IMP3, in contrast, promoted outward investments for rubber products manufacturers, in line with the general trend of increasing outward investments since the 1990s.

Some Malaysian firms had chosen to relocate their manufacturing outside the country to maintain their export competitiveness in labour-intensive manufacturing owing to the loss of comparative advantage in these sectors with increasing wage rates at home, while other producers with lower labour costs have emerged inside and outside Southeast Asia, especially China (Tham, 2007). IMP3 also wanted to capitalize on Malaysia’s institutional strength by making the country a regional centre for testing and certification of manufacturing standards and related services.

In 2017, towards the end of the IMP3 period, a new industrial park—the Kedah Rubber City project (see below), dedicated to rubber development including rubber manufacturing—was announced as a national strategic project for the Northern Corridor Economic Region. The project planned to capitalize on the use of natural rubber as it is located at the heart of the natural rubber belt near the Malaysia–Thailand border. It received an allocation of RM320 million in the federal budget of 2016 for its development, and the project is very likely to be fully operational by 2030. The 1,244-acre (503-hectare) project aspired to attract RM10 billion in investments and generate some 15,000 jobs and generate Rm14.7 billion to GDP within 15 years of its completion (Athukorala and Narayanan, 2017; NCER, 2024).

The New Industrial Master Plan 2030 (NIMP 2030) launched in 2023 indicates a preferred strategy for non-resource-based manufacturing to revitalize the manufacturing sector as resource-based manufacturing was prioritized under previous plans (MITI, 2023a). Although rubber products are not on the priority list, specific rubber products are targeted, such as medical gloves, condoms, and catheters under the prioritized medical devices sector. Likewise, prioritized chemical advanced materials in NIMP 2030 include bio-based additives with rubber, and nano materials with rubber (MIDA, n.d.)

Rubber City, however, as a national project, is mentioned in the NIMP 2030 sectoral document for rubber products (MITI, 2023b). The project continues to receive incentives for attracting investments, including full tax exemption for up to 15 years, investment tax allowance for up to 10 years, as well as exemptions from import duty and stamp duty, and deductions on pre-operational expenditure.

Table 1 Plan strategies for the development of rubber products

Note: RRIM = Rubber Research Institute of Malaysia; MRRDB = Malaysian Rubber Research Development Board.
Source: Compiled by author.

Institutional Support

Several key rubber research institutions have helped the rubber industry in its upstream development, notably, the Rubber Research Institute of Malaysia (RRIM), which was established by the colonial government in 1925 to improve methods of cultivation, pest control, processing, as well as yields, given that rubber was an important export commodity for the British Empire (Kawano, 2019). After independence, the RRIM continued to develop high-yield varieties and to encourage their use in replanting. Importantly, the RRIM laid a solid foundation for the development of natural rubber, which became the basis for the venture into rubber products manufacturing.

The Malaysian Rubber Research Development Board (MRRDB) was subsequently established to oversee the research, technical development, and promotional work of the Malaysian rubber industry. MRRDB has two research institutions under its wings, namely RRIM and the Tun Abdul Razak Research Centre. The latter focuses on research for practical uses of rubber, including on research on advanced materials, upscale rubber products, engineering processes, and biotechnology. MRRDB is thus able to provide technical support for domestic manufacturers through its research institutes and technical advisory service units.

Later, in 1998, the Malaysian Rubber Board (MRB) was established by the merger of the three key agencies responsible for Malaysia's rubber industry, namely the RRIM, MRRDB, and the Malaysian Rubber Exchange and Licensing Board (MRELB). The MRB operates as an agency under the Ministry of Primary Industries. It is crucial in enhancing the capability of the rubber industry through research and development, technical and non-technical support services, and regulatory functions, through the issuance of licences and permits, which encompass the upstream (production), midstream (processing), and downstream (manufacturing) sectors. MRB also reviews and recommends to government improvements related policies, regulations, and procedures.

The MRB has a product certification system for rubber quality assurance. For example, the MRB Product Certification Mark is granted to rubber product manufacturers that meets its requirements. In keeping with the shift towards sustainability, the MRB is developing the Malaysian Sustainable Natural Rubber (MSNR) standard, through which the MSNR will be awarded to MRB licence and permit holders that meet the MSNR’s five principles: no deforestation for rubber planting, rubber planting in accordance with the National Land Code, environmental sustainability, social compliance, and supply chain traceability (Bernama, n.d.). MSNR enforcement is set to begin on 1 January 2025, and MRB licence and permit holders must comply with its standard operating procedures to obtain MSNR certification.

Two types of cesses are collected to fund the MRB. The first is a tax on rubber exports, imposed since 1907. Nearly a century later, a cess of 0.2 per cent on the export of rubber products was also imposed by the Malaysian Rubber Board in 1999. Some 80 per cent of this second cess is used to support the programmes and activities of the Malaysian Rubber Council (MRC), established in 2000, as a company limited by guarantee under the Ministry of Plantation and Commodities, for the promotion and marketing of Malaysian rubber and rubber products on global markets. The MRC maintains offices in the United States, China, and India, indicating the critical importance of rubber exports as Malaysia already has a national trade promotion agency, MATRADE, under the Ministry of Investment, Trade and Industry (MITI). MATRADE was established in 1993 and modelled after JETRO in Japan.

Trade associations have been active since they were involved as key stakeholders delivering outputs related to IMP1. Thus, the Malaysian Rubber Products Manufacturers’ Association (MRPMA), Malaysian Rubber Glove Manufacturers Association (MARGMA), Malaysian Rubber Processors Association (MRPA), and Association of Malaysian Medical Industries (AMMI) are all part of the Board of Trustees of MRC, besides other representatives from the relevant ministries.

Performance of the Rubber Products Sector

International Trade and Employment

Export performance is vital as the sector was developed specifically to promote exports. Malaysian exports of rubber products soared in 1985–1990 from 1970–1984 (Figure 1), as the number of manufacturing establishments expanded rapidly from 151 to 255 with generous incentives such as pioneer status and a five-year tax break. External circumstances provided another impetus for growth, especially in glove manufacturing, as the global pandemic of HIV/AIDS continued to spread through the 1980s, driving up demand for medical gloves. The average annual rate of export growth for that period was 45 per cent, from a relatively low base. Subsequently, the second half of the IMP1 period (1991–1995) registered slower average growth of 15 per cent. Although imports also grew, the trade surplus in this sector continued to swell with the far stronger export growth.

Figure 1 Malaysia’s exports of rubber products soared after the mid-1980s

Note: Data for imports of rubber products in 1991–1992 are not available.
Source of data: Compiled by author from Lembaga Getah Malaysia (Malaysian Rubber Board) statistics various years.
https://www.kpk.gov.my/kpk/statistik/stats-data-set

But Malaysian exports encountered unexpected problems during the IMP2 period. The United States, the country’s largest export market at the time, initiated an anti-latex campaign in 1998, which included a ban on importing powdered latex gloves owing to protein allergy issues (Lee et al., 2020). This led to a drop in rubber goods exports in 1998–1999 (Figure 2). Malaysia responded by imposing a cess on selected rubber products in 1999, which included rubber gloves, to neutralize the US anti-latex campaigns. The cess was then used to fund export promotion via the MRC. Nevertheless, the average rate of export growth during the IMP2 period was far slower at 9 per cent.

During the IMP3 15-year period, average export growth in rubber products was higher at 13 per cent simply because of the dramatic export increase in the Covid-19 pandemic year of 2020, with a massive increase in demand for rubber gloves (Figure 2). There had been slight drops in exports due to the 2009 global financial crisis and in 2019 before the Covid-19 pandemic. Rubber products exports fell sharply in 2021 and 2022 as demand contracted with the end of the pandemic, emergence of excess production capacity in Malaysia, investigations into worker abuse in glove factories, and heightened competition from China and Thailand (Lee et al., 2024). But in 2023 Malaysia still remained the world’s top rubber glove exporter, followed by China and Thailand (WITS, 2023).

Cheaper products, however, particularly industrial and general rubber products, as well as cheaper tyres and related products, have generated rising imports from abroad, especially from countries in the Association of Southeast Asian Nations (ASEAN). Still, a trade surplus has been observed in the rubber products sector since 1985.

Figure 2 Malaysia’s rubber products exports have exceeded imports over nearly three decades

Source of data: Compiled by author from Lembaga Getah Malaysia statistics various years.
https://www.kpk.gov.my/kpk/statistik/stats-data-set
https://www.kpk.gov.my/kpk/images/mpi_statistik/

Despite the increasing value of rubber products exports, the share of Malaysia’s rubber exports in total exports ranged between 1.5 per cent and 2.5 per cent in 1990–2022, excluding the exceptional year of 2020 (Figure 3). Thus, rubber products exports are a relatively small contributor to national exports, which are largely driven by electrical and electronics in the manufacturing sector.

Figure 3 The share of Malaysia’s rubber products exports in total exports surged during Covid-19, and fell back by 2022, but it still remained less than 4.5 per cent of total exports

Source of data: Compiled by author from Lembaga Getah Malaysia statistics various years.
https://www.kpk.gov.my/kpk/statistik/stats-data-set
https://www.kpk.gov.my/kpk/images/mpi_statistik/

Likewise, the share of rubber products jobs in total manufacturing employment is small, expanding from around 2 per cent in 1985 to a peak of 7.5 per cent in 1990 during IMP1 and staying at around 6 per cent during IMP2. It increased to 7.2 per cent in 2018 during IMP3 before dropping to 4.5 per cent in 2022 (Figure 4).

Figure 4 Malaysia’s manufacturing employment in rubber products was only a small fraction of total manufacturing employment even at its peak in 1990

Source of data: Compiled by author from Lembaga Getah Malaysia statistics various years, and for 2010–2019 Kementerian Perladang dan Komoditi (Ministry of Plantation and Commodities).
https://archive.data.gov.my/data/ms_MY/dataset
https://www.lgm.gov.my/webv2/pdfViewer/nrStatistic

Consumption of Natural Rubber

Although rubber products manufacturing was encouraged to use natural rubber produced locally to increase domestic value added, consumption of synthetic rubber has also increased. In 1983, consumption of synthetic rubber in Malaysia was a mere 8 per cent (Lim, 1985) with natural rubber having the edge given its easy availability, as importing synthetic rubber incurred additional freight charges. However, declining natural rubber production led to increasing imports of natural rubber and consumption of synthetic rubber as the quality of synthetic improved. By 2000, consumption of synthetic rubber in Malaysia had increased to 13.3 per cent (FMM, n.d.) and by 2020, at 51.5 per cent, had surpassed that of natural rubber.

Currently, there are only two major producers of synthetic rubber in Malaysia—Synthomer and Revertex. The former is a major producer of styrenebutadiene (SBR) and acrylonitrile-butadiene (nitrile) latex, and is a global leader both in nitrile latex for dipped gloves and in SBR latex for construction. Malaysia has thus fallen from being the world’s largest producer of natural rubber in the 1930s to the eighth largest in 2022 (MRC, 2024), behind Thailand, Indonesia, Viet Nam, India, and China, among others.

Kedah Rubber City

In September 2022, Hong Seng Consolidated Bhd, a major Malaysian glove manufacturer, announced that 40 per cent of the land in Rubber City had been sold, with the company purchasing the bulk of it (44.5 hectares). Hong Seng had earlier stated it would build a Nitrile Butadiene Latex NBL plant (a RM3 billion project) during the peak of the Covid-19 pandemic at the height of global rubber glove demand. But the plan was shelved in September 2023 for several reasons, including project and funding requirements as well as external factors, such as weak market sentiment over the glove industry after the pandemic (The Edge, 2024).

In view of this setback, in November 2023 it was announced by the Kedah state government that it had agreed to a proposal by the Northern Corridor Implementation Authority—Kedah Rubber City’s implementing agency—to include four new clusters, namely polymer-based industry, green technology, renewable energy, machinery and equipment (M&E) in Kedah Rubber City, given uncertainties in the international rubber-based products market. It will therefore not be hosting strictly rubber industries alone but will also target investments for the four new clusters.

These back-and-forths underscore the difficulties encountered in attracting new investments in rubber products despite the overall increase in inflows of foreign direct investment (FDI) into the country since 2021. Rubber City is driven by the availability of natural rubber as an input for rubber-based products, as in the initial phase of the development of this sector in the 1980s.

But changes since mean that Malaysia is no longer the largest producer of natural rubber and depends on rubber imports from Thailand. Moreover, in resource-based industries, the availability of a strong raw material base is also no longer the sole determinant of the development of downstream industries, because raw materials can be easily transported with efficiency improvements in logistics and transportation, to production locations elsewhere that meet the other preconditions for competitive industrial production (Athukorala and Narayanan, 2017). Furthermore, Thailand launched its own Rubber City in Songkla in 2017, posing competitive threats to the development of Malaysia’s project.

Challenges in Moving Forward

Dualistic Manufacturing Sector

The dualistic structure—targeting domestic and global markets—observed in the early development of the sector has persisted. The “Big 4” glove producers in Malaysia are Top Glove, Hartalega, Kossan, and Supermax, concentrated in the states of Selangor and Perak, with a reported 38.2 per cent global market share; they are also making inroads into the domestic market, which has more than 125 manufacturers (Lee et al., 2024; MIDA, n.d.).

Malaysia emerged as the world’s leading glove manufacturer
Source: EHM Project, 2023

There are more than 40 companies in the tyre and tyre-related products subsector comprising 11 tyre producers, while the remaining companies produce retread tyres, inner tubes, and other accessories (MIDA, n.d.). Continental Tyre PJ Malaysia, Continental Tyre AS Malaysia, Toyo Tyre Sdn Bhd (Japan), and Goodyear Malaysia are the key players in this sector. However, Goodyear Malaysia is shutting down its factory and exiting the country by end 2024; another firm, Silverstone, closed in 2021.

Malaysia has more than 185 companies, mainly SMEs, producing a wide range of rubber goods for the domestic and global markets. These include mountings, beltings, hoses, tubing, seals, and sheeting for the automotive, electrical and electronics, machinery and equipment, and construction industries. This dualistic structure is not surprising as it prevails in other manufacturing sectors where there are a few large, listed companies MNCs while the rest of the manufacturing sector is dominated by SMEs. In 2021, out of 74,390 Malaysian manufacturing establishments, 71,612 (96 per cent) are MSMEs.

ESG Compliance

Environmental, social, and governance (ESG) issues are pressing issues, especially in view of climate change and its massive impact. The rubber glove industry in particular was dogged with forced labour issues during the pandemic when demand for rubber gloves exploded and all companies were trying to ramp up output (Hutchinson and Bhattacharya, 2021).

In view of these challenges and the demands for sustainable practices on imports from, especially, the developed world, MARGMA issued a statement in 2021 outlining the sector’s commitments on ESG compliance (The Edge, 2021). MARGMA represents 95 per cent of glove manufacturers and supply chain associate members.

For the environment, MARGMA aims to reduce GHG emissions in operations to be carbon neutral by 2050, in line with Malaysia’s overall climate commitments. MARGMA members are working with MRB and MRC on water conservation, biodegradability, energy efficiency, and green labelling.

MARGMA is also working with the International Labour Organization (ILO) to enhance the social pillar, and to improve on the ILO’s 11 indicators of forced labour, given that the sector in Malaysia is dependent on foreign workers, estimated to be about 55 per cent in 2021. The ILO (2024) reported concrete actions taken by Malaysian glove-manufacturing firms to improve how they employ foreign workers, including ensuring zero-recruitment fees. With these actions, six of the seven Malaysian companies that had their goods held owing to forced labour issues are now once again exporting to the United States.

On ethical and fair business practices, MARGMA claims that the sector has consistently invested in strict quality control for safety and standards owing to its a healthcare status. Members, for example, undergo about four levels of audits—internal, customer-driven, independent third-party, and government audits by the Ministry of Human Resources.

The biggest challenge is SME compliance in the industry, especially in the non-glove segment, as these companies lack financial and human resources for shifting towards ESG compliance. Further, a World Wide Fund for Nature (WWF) study on the natural rubber value chain in the country found two key issues related to ESG compliance: a lack of sustainability and of traceability (WWF-M, 2021). Such gaps are rooted in the production system, because smallholders dominate it. The incentives, or lack thereof, is a major influence on their attitudes towards the environment.

Synthetic rubber also presents a challenge because its production has a heavy environmental impact owing to its use of petrochemicals, energy-intensive processes, and generation of hazardous waste. It also uses fossil fuels and accumulates waste in landfills and the natural environment more generally. Thus, there are also traceability requirements that track the ESG compliance of synthetic rubber used as inputs in producing gloves.

Research and Innovation

The Malaysian rubber products industry has benefited from research at government institutes such as the MRB, which has focused on improving the quality of natural rubber. These institutes have improved the quality of rubber gloves by enhancing its anti-allergy and anti-microbial properties. Another development is specialty rubber such as Ekoprena and Pureprena. Ekoprena is a new generation of epoxidized natural rubber (ENR) and is classified as a green material because it is produced from a renewable natural resource, unlike synthetic rubbers, which are derived from petroleum-based resources. These enhancements can be applied for tyres, footwear, and other manufactured products.

Still, the focus on application remains on the traditional segments, while what is aspired to is diversifying rubber products towards use in aerospace, infrastructure, and construction. Importantly, for the downstream segment, research by large companies is equally needed going forward because the cess from the export of rubber products is used primarily for marketing and export promotion, while the cess from rubber exports is used heavily for improving the quality of rubber.

Secondary data are, however, poor, and data collection has to be improved for a more accurate mapping of the spectrum of emerging rubber products that can meet modern needs and other targeted non-traditional sectors. In particular, data collection on the private sector’s own research and innovation efforts is unavailable. Large leading glove companies such as Top Glove claim to have invested in R&D and have filed patents (Top Glove, n.d.), but there is no third-party verification nor research on the matter owing to paucity of data.

Conclusion

Rubber products manufacturing in Malaysia has evolved since the mid-1980s. While the country had an early-mover advantage in natural rubber production, this advantage has eroded. Instead, numerous competitors have emerged with strong government and research support. These include Thailand, Indonesia, other countries in ASEAN, and China. The future of the industry therefore lies in creating new competitive advantages rather than following the same strategies.