Term Paper: Tire Industry Tire Manufacturing

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SAMPLE EXCERPT:

[. . .] Mishaps like Firestone have shaken the creditability of the tire industry yet players have been fast in recovering their business [Nakra 2003].

The competitive pressures stemming from seller-buyer collaboration and bargaining

Sellers in the industry do not differ greatly but it can be said that they do specialize in their niche category. The trucking industry, farm equipments and automobiles all have specialized dealers who make sure that the tire manufacturers comply to their needs. Buyers in this sense therefore can collectively bargain with the manufacturers in directing the production of tires for specific purposes. What makes this factor significant is the fact that they are the target consumers and they are in control of the level of profitability the distribution channel reaps. Hence they have an upper hand thereby can also dictate the terms and conditions of the products bought if not over the price. Like consumers of other industries, the specialized categories like the OE, the light trucks as well as the farm vehicles all require special production technology. To compensate the manufacturers can demand high price for their products yet at the same time are assured of the consumer base [Bridgestone Official Web site 2003].

To summarize, a Porter Five Forces analysis indicate that the tire manufacturing industry is categorized by intense rivalry among the top manufacturers but at the same time it diversified and long chain of distribution and supply chain open doors for intermediary competitors. A company specializing in one or more category cannot survive the competition for long unless it has a broad range of products as in the case of Goodyear. Thus it can be said that the tire industry has high power in competitor's rivalry and market attempts to win customers. While the other three rank a bit lower in importance.

3) Drivers of change in the industry

Given the above analysis it can be said that the industry is dependent on the following drivers and have a deep impact on the way the companies in the industry perform:

1. Shrinking market share that would is gradually negating market share for particular category. Instead it has increase the potential of the overall market share as more and more categories are being developed to cater to the individual consumers.

2. Globalization has increased the level of competition in between the distribution chain but it has also increased the complexity of consumer preference. Tire companies would have to follow the demands of these consumers or lose out in the competition.

3. With the Gulf oil crises currently prevailing in the industry, the cost of tires manufacturing would increase which would leave an impact on the cost benefit of the tire production category.

4. The involvement of the government in the industry plays a great role in the control the players has over the market. Intervention through legalities has thus increased great risks for the manufacturers.

5. Changing society and lifestyle in the recent years have increased the demand for attractive cars which in turn means there is an increase in the demand for tires. Furthermore, as dual income families are increasing, the need to have separate cars has also increased the purchase of cars. Thus it can be said that the future of the tire industry in medium long-term has great potential [Nakra 2003].

4) Companies in the Strongest/Weakest Positions

The top three companies in the industry include Goodyear, Michelin and Firestone. Goodyear perhaps the leader among them all not only in broad product range but are also based on the kinds of supply chain it maintains. The company has focused its target on the consumption level of the luxury cars and hence the OE category for its marketing strategy. The basis for its sales lies in the fact that the company has been able to maintain a good customer base over the years so much that over 55% tires replaced by Goodyear consumers prefer to buy from the same company. Brand loyalty therefore is the focus of this company which it has been able to maintain. Advertising as well as through shareholder loyalty, it has been able to survive the toughest brunt the industry faced such as the terrorist attacks, the airline mishaps, legal cases of rivals within the industry. A push of 30% on advertising expense thus helps the company to reach to unprecedented level of success among other rivals. However, what differentiates Goodyear from the other companies is the fact that it is innovative and it meets the demands of the consumers [Nakra 2003; Russell 2003].

Second on the list are Michelin and its subsidiaries. Michelin similar to Goodyear also follows a brand loyalty and consumer base strategy to capture its market. The company focuses on consumer base from its supply chain. For example through Honda consumers Michelin forms its independent consumer base and target the rest of its tire buyers through specialized categories such as trucks, racing cars, farmer vehicles etc. Michelin therefore is assured of the market it has but what it does to increase the company's product attractiveness is through indirect advertising and promotional strategies. The Mayor of Mobility campaign during 2002 for example shows that the company uses consumer base from other companies to target its customers through evaluation of demographics and consumer behaviors [Nakra 2003; Michelin Man Launches 2002].

Firestone ranks third in the category of tire production. Firestone although earned prestige among automobile companies as well as direct consumers alike but in the recent years it has lost its competitiveness due to the recall incident of the Ford Explorer. For this reason consumers are reconsidering their preference to buy their tire. Nevertheless it still holds a significant market share among the other rivals and its presence in the market cannot be ignored [Nakra 2003].

5) Key Success Factors for Competitive Success

From the above it can also be observed that the strongest relationship between success and profitability lies in the distribution channel in the industry. Some of the key factors include:

Cost of operations and production,

Innovation through R&D

Branding

Industry competitiveness

Key intermediaries in the channel of distribution

Niche marketing

Among the above perhaps the most important aspect are the factors marketing through key intermediaries and the innovation through R&D. These key success factors allow the companies to operate in a dynamic global environment including offering the players the ability to produce for the local as well as foreign markets. As more and more regional cooperation forms around the world for better economic prosperity, it can be said that these factors would allow the companies to expand vertically as well as horizontally. Export processing as well as distribution through independent dealers can expand the scope of the market for direct consumption and through supply chain.

Conclusion

Given the above analysis, one can say that the tire manufacturing industry is categorized by extreme industry rivalry yet it is also the most diversified with scopes to expand according to the needs of the consumers. Diversity in consumers such as direct consumers, dealers, specialized consumer, company associations, associated industry etc. all greatly influence the market share. Furthermore, players in the industry must focus on research and innovation initiatives to identify the need of the future consumers. They are likely to succeed to harness loyal customers for future profitability.

APPENDIX

SALES AND INCOME FIGURES FOR KEY TIRE COMPANIES

SALES

INCOME

From the 1998 Annual Reports: ($million)

Goodyear

Bridgestone

Groupe Michelin

PASSENGER CAR TIRE -NORTH AMERICA

From the 1998 Market Share Reporter:

1996 data)

Market Share

Goodyear

Michelin

Firestone

B.F.Goodrich

Cooper

Bridgestone

General

Kelley-Springfield

Dayton

Dunlop

Lee

Presence Shares of Tire Manufacturers

Brand

Passenger OE %

Retail points of sale %

Replacement Market %

Goodyear

Michelin

Firestone

Goodrich

General

Bridgestone

Sears

References

Nakra, Prema. Industry Analysis: Goodyear. Accessed on 23-10-2003 at http://www.academic.marist.edu/~jzej/PartII.htm

Federal Ranked #1 Taiwan Tire Manufacturer in Sales Growth for 2001. Accessed on 23-10-2003 at http://www.federaltire.com.tw/NewsReleases_1.asp?NewsReleaseID=2

Russell, John. Goodyear leaders say they are ready to meet challenges of tough times. Ridder Newspapers. Motorway.com Accessed on 23-10-2003 at http://lang.motorway.com/home/articles/goodyrtires.asp

Ludwig, Saul. Analyst Saul Ludwig paints an intimate portrait of the tire industry. Modern Tire Dealer. January 2003 Issue. Accessed on 23-10-2003 at http://www.tireindustry.org/features/mtd_ludwig.asp

Porter, Michael E., Competitive Strategy: Techniques for Analyzing Industries and Competitors. 1998

Michelin Man Launches 'Mayor of Mobility' Campaign to Boost Tourism in Baltimore and Other Cities; Receives Proclamation at City Hall Rally. PR Newswire. Issue: March 5, 2002.

Bridgestone Official Web site. Accessed on 23-10-2003 from: http://www.bridgestone.co.jp/ir/ar/2000/03power.html

Additional Readings

Lazich, Robert S., Market Share Reporter 1998, Gale Research Inc. Detroit, 1997.

Monthly Investment Report, Standard & Poor's, March 1999.

Noga, Edward, "The Pitfalls of Purchasing," Rubber & Plastics News, Feb.22, 1999.

Quick Facts and Figures, http:/www.goodyear.com/about/school/quick.html,04/29/99.

U.S. Industry & Trade Outlook '99, The McGraw-Hill Companies and U.S. Department of Commerce/International Trade Administration.

Boyd, Justin, "Goodyear's Brash Five-Year Pledge Hits Snafus," Rubber & Plastics News, Jan. 11, 1999.

Boyd, Justin, "Choosing Carefully: Goodyear's OE Fitments Drive Replacement Sales," Rubber & Plastics News, Feb. 08, 1999.… [END OF PREVIEW]

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