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Hartalega: Taking Off the Gloves?

Published 27 Feb 2017
Reference 6272
Topic Strategy
Region Asia
Summary

Malaysian publicly-listed Hartalega has grown to become one of the world’s largest nitrile glove manufacturers. Still predominantly managed by the founder’s family, it is renowned for its innovation and quality. Its growth and operational achievements have translated into a stellar financial performance, boosting its stock price 20-fold since 2008 (while the Malaysian stock market has been flat). Among other factors, its success is the result of a commitment to innovation and technology, as well as a competitive strategy that builds upon Hartalega’s strengths. Having grown into a billion-dollar company (by market capitalization) and one of the largest glove manufacturers in the world, Hartalega still has ambitious plans to almost triple its production capacity in the next four years. However, the planned expansion comes at a challenging time. First, Hartalega’s competitors are enjoying substantial economies of scale and are investing in technology and product quality to rival that of Hartalega. Second, if the expected increase in supply outstrips that of demand, there is a possibility of overcapacity in the glove market, which could shrink margins and harm profitability. In this regard, Hartalega’s margins have already fallen by approximately seven percent since 2011. Finally, as Hartalega embarks on its ambitious plan, given its size and complexity, it must transform itself from a traditional family business into a business with a professionalized management and a more formalized structure and governance. Thus, despite its great success, Hartalega is faced with substantial challenges.

Teaching objectives

The case lends itself well to the instruction and application of key strategy concepts and frameworks pertaining to the analysis of both external factors affecting the firm’s strategy and performance (including Porter’s Five Forces and the PESTLE framework) as well as firm-internal drivers (including the resource-based view, generic strategies and strategic positioning, as well as activity systems). As such it offers a good introduction to core strategy tools and frameworks, and a good basis to explore competitive strategy, notably how to expand and grow a business in a challenging industry and highly competitive environment. It also covers aspects of multinational strategy (particularly from the perspective of a firm in a ‘rapidly developing economy’), the decision to adopt an original equipment manufacturing (OEM) business model vs. own brand manufacturing (OBM), and how to transition from a traditional family-run business to professional management.

Keywords
  • Strategy
  • Competitive strategy
  • Core strategy
  • Competitive industry
  • Family-run business
  • Transformation
  • OEM vs. OBM
  • Growth strategy
  • Expansion
  • Malaysia
  • Manufacturing
  • Succession
  • Innovation in manufacturing
  • Resource-based view
  • Q21617