@ Riverstone's factory in Taiping which opened in 2H of 2014. NextInsight file photo.Can Riverstone capture the star?
Are you reaching for the star or feeding the pet in your business?
You may be familiar with Bruce Henderson’s classic growth-share matrix. The founder of Boston Consulting Group (BCG) championed the notion of companies having a portfolio of products with different growth rates and different market shares in order to be successful. In accordance to these parameters, a company’s products are interestingly labelled as Cash Cow, Pet, Question Mark and Star.
The success of this matrix is explained by the function of the balance between cash flows within the portfolio composition as high growth products require cash inputs to grow while low growth products should generate excess cash to support.
While some argue that business concepts are mostly academic and theoretical, I found some relevance in applying the matrix to Riverstone. Based in Malaysia and established since 1989, the glove manufacturer now adopts a two-pronged growth strategy with its specialisation in cleanroom and healthcare gloves. Differentiated by its niche customisation offering and R&D competencies, Riverstone has outperformed the Straits Times Index and its industry peers listed on Bursa Malaysia. The rally comes warranted as Riverstone’s first quarter’s (1QFY2015) financial results marked record high achievements in revenue and net profit.
With reference to BCG’s matrix, the cleanroom gloves produced by Riverstone could be labelled as the Cash Cow of the company, particularly so as they command approximately 60% market share worldwide for the higher-end cleanroom gloves that are focused on electrostatic discharge and ionic properties. These powder-free gloves are supplied directly to end customers -- typically HDD, HDD components and semi-conductor manufacturers.
The high market share is due to high barriers of entry to the market such as technical expertise requirments and stringent audit processes by customers. The growth rate for this segment, however, is slow due to the mature landscape of the HDD and semi-conductor industries, hence fulfilling the position of a Cash Cow.
Analysts from Singapore watching workers strip newly-produced gloves off the moulds at Riverstone's factory. NextInsight file photo.Building on the company’s strength in cleanroom gloves, the positive operating cash flow generated from the Cash Cow was directed to manufacturing healthcare gloves back in 2009. This contributes to building a balanced portfolio of products given that global demand for healthcare gloves continues to grow at a rapid pace of 10% annually till 2018. With a bite-size portion of the 165 billion market share, it is not surprising that Riverstone expects higher growth from its healthcare gloves segment as the company is on track to double its existing production capacity of 4.2 billion pieces of gloves yearly to 8.2 billion by 2018.
While this high-growth, low market share product may fall under the Question Mark section, it defies the conventional notion of the growth-share matrix as healthcare gloves drive positive operating cash flow for the Group. With increased industry competition from other glove manufacturers, healthcare gloves remain a rather commoditised product subjected to pricing challenges. Being a price-taker in the industry, it remains to be seen if healthcare gloves can eventually grow to be the Star of Riverstone.
What makes Riverstone special is its other Question Mark, a relatively new product within the cleanroom gloves segment that is corrosion-focused, supplied mainly to the mobile, tablets and LCD panel manufacturers. With different technical requirements compared to the traditional Cash Cow products, Riverstone has ramped up growth in this segment due to its R&D expertise and understanding of the requirements for cleanroom products.
Finally, where is the Star of Riverstone and has it been captured? With two Question Marks within Riverstone’s portfolio of products, it is important to note that they contribute positively to the Group’s overall operating cash flow so theoretically, they are a step closer to becoming the two Stars for the Group. As soon as Riverstone is able to increase their market shares, it will not be long till we capture two Stars to light up Riverstone’s growth journey.
