This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
I. Company Analysis
1. Basic Overview
The January 2010 issue of Modern Tire Dealer magazine published the 2009 sales data for the global tire industry, and Hankook Tire placed seventh on the list for the fourth consecutive year since 2006. Sales have grown an average of 13.9 percent annually for the past decade, bringing the cumulative rate to 133 percent for the period. More than 70 percent of the revenue is earned outside Korea.
2. Financial Overview
Hankook Tire Co. posted improved 2010 earnings year-on-year with its net profit reaching 424.8 billion won ($381 million) last year, up 21.1% from 350.8 billion won a year earlier. The overall global increase has come on the back of “brisk sales in both domestic and overseas markets.” Sales jumped 19.3% to 3.35 trillion won, and operating profit rose 5.5% to 367.5 billion won. In a separate statement, the company said its consolidated sales, including figures from its overseas operations, reached 5.36 trillion won last year with operating profit coming to 585.8 billion won. According to the annual report the company is targeting 6.06 trillion won in global sales in 2011.
3. Organization Structure
Hankook tire's organizational structure is matrix structure. Under Global CEO, there are Global Staff (Head quarter by functional Division) and Regional Headquarters (Head quarter by Geographical Division). Both Functional division and Geographical division have the same level of Structure in Global CEO
[ Table 1-1 ]
Under Global CEO
Sourced by Hankook Tire's annual report, 2010
Global distribution network consists of four regional headquarters and 80 subsidiaries & sales offices and its products are sold worldwide in about 180 countries.
4. SWOT Analysis
- Overall, a good financial statement
- A positive brand recognition on the world market (high quality + low price)
- A healthy labor-management relations
- The world's major tire factory and the proper distribution channels to market demand, building
- Low investment than expected in the industry (Total asset increase, non-current ratio lower than industry average)
- RE market is relatively weak compared to the OE market
- Domestic auto demand increases due to tax credited for old vehicles and hybrid vehicles.
- After the global financial crisis, global tire price competitiveness is getting higher.
- China's tire market increases due to china's auto market growth
- From 2009, the prices of natural rubber and synthetic rubber (raw material prices due to the high price elasticity) is rapidly rising
II.Industry & Business Analysis
1. Industry Environment analysis
The global tire market accounted for approximately US $140 billion and 1.25 billion volumes in 2008, according to Research in Tire. While the worldwide tire industry is still largely driven by the well-known multinational companies (in size order); Sales amount of Bridgestone, Michelin and Goodyear are 46% of total sales for top 75 ranked companies (2008 years). Sales portion (of world top 11th to 7th Tire companies) increased to 31% in 2008 compared to 20% in 1998. It's because the subsequent tire companies based on the high growing market such as China, Taiwan, India, and Russia are getting larger. On the other hand, the sales portion of 3 Korean companies in the world market steadily increase in 2010s' and have taken 5~6% from 2006 year.
Tire Industry has the entry barrier such as huge a capital injection, technology competition, brand establishment, and distribution channel, so it is formed as oligopoly in each nation. But top raking companies has the competitive in major market of North-America and Europe.
This market is divided into following basic categories: OE (Original Equipment) which providing to Car manufacturing companies, and RE (Replacement Equipment) which providing to tire distribution. RE market size is 3~4 times bigger than OE market. Compared to OE sales which are affected by the volume of car production, RE has stable consumption market in proportion to the registered number of car and average operating mileage of car.
[ Table 2-1 ]
World Major Tire Companies
2. Competitor analysis
100 years of tradition with the highest international brand awareness and increase reliability, high technology based on more than 10% of homeopathic products are highly priced. Michelin recently after driving it to the driver of a flat tire platform developed by us after a run on the world market has raised more than 2%. By successful overseas, and currently has 57 global offices with two thirds of the total production is done overseas.
Michelin's new products are released once every two years. This once in six months compared to other companies to launch new products launched at longer intervals tends to slow the market responsive.
2) Kumho Tires
Color tires, aircraft tires, racing tires, passenger tires, truck and bus tires, industrial tires, and a variety of excellent products and sell to the general consumer confidence and job-oriented consumers are demanding. In addition, through the diversification of high-performance products to market is increasing grip. In addition, the current four car race competition among the three has been supplied by Kumho Tire.
Car racing is not an active participant in the company as an official support is simple, has done. Also entered the Chinese market early in the shift is not performed correctly, but not localization, market share is very low.
Based on stable labor-management relations for 3 consecutive years of financial tire manufacturer has the best financial structure. In addition, the price is so competitive.
Both low technologies value-added market shares due to the low productivity focused mainly the domestic market. But overseas sales by focusing on profitability are difficult to expect.
III.International Business Strategy Analysis
1. Ideal International Business Strategy Analysis
Pressure for global integration
Globalization of markets: Basic needs of customers are not quite different globally. The convergence of customers for an automobile tire makes tires makers go global. Tire industry has similarities in products, customers, and even operating structures. The objectives of tire makers are mainly how to focus on minimal costs and maximum value.
Globalization of production: Standardization of tire drives the globalization of market. Since tire industry is typical the manufacturing industry, it can benefit from economies of scale and cluster effects at specific locations such as Hungary aiming European market.
Pressure for local responsiveness
Customer divergence: Customer and country divergence are middle due to following reasons. Since a tire is complementary goods of an automobile, a tire market is strongly affected by an automobile market. In developed countries, there is no big pressure for local responsiveness because economic conditions and infra structures for a tire market are quite similar. However, in developing countries such as BRICs the gap between rich and poor are wide and road conditions are very different. It means that Hankook tire has to figure out what the customers want.
Host government policies: A tire industry is perfectly related to an automobile industry and many local companies try to enter its home and expand their business. Therefore, host government such as China might be sensitive and hostile to foreign company.
Therefore, it might be a good way for Hankook tire to choose Global Strategy or Transnational Strategy.
2. What Hankook Tire did?
5 R&D Centers: Korea, U.S.A, Germany, China, Japan
5 Factories: Korea(2 factories), China(2 factories), Hungary
4 Regional headquarters and 80 subsidiaries & Sales office
Sold its products to 164 countries
Hankook Tire is steadily improving its image as a premium brand through
aggressive global marketing and continuous research and development efforts.
3. Hankook Tire's entry to other countries
Internationalization Phase and Entering Countries
1) Beginning phase (1981-1998)
Established Hankook Tire America Corporation (1981)
Established its Beijing branch in China (1994)
Established Europe Technical Center (ETC) (1996)
Established China Technical Center (CTC) (1998)
2) Expansion phase (1999-present)
Completed Jiangsu and Jiaxing Plant in China (1999)
Opened Europe Distribution Center (EDC) in the Netherlands(2001)
Hungary Plant begins production(2007)
100 millionth tire produced in China(2007)
Detailed information by main countries
A. Objectives of Internalization
- To create demand in the fast growing market with high infinite potential
- Expand its tire business in China with increasing automobile industry
B. Consideration for Site Selection
- Economic: Continuous double digit growth. Explosion of middle-high income consumers
- Social/Political: Communist country geared toward open policy. Easy to enter due to its similarity to Korea in terms of social, cultural and geographical aspect
- Tire Industry: World largest tire manufacturing company (over 337 million yearly, *source -Tire Business), World highest growth rate on domestic market sales
C. Entry Mode
- Founded Beijing branch in 1994 and exported
- Establishment of Joint-Venture with Chinese Company which is located in Jiangsu and had a good relationship with them
- Established China Technical Center in 1998 and completed Jiangsu and Jiaxing plant in 1999
- Expansion of distribution channel in 10 major cities
- Roll-out of T'Station one-stop auto service concept in Shanghai in 2007
- Operating 40 T'Stations and 400 Tire Towns in China
- Recorded 20% of market share which is 1st in China and 1.4 trillion won of sales revenue in 2010
- Supplied its products to more than 30 automobile companies in Chinese market such as Volkswagen, PEUGEOT, Ford and NISSAN
[ Table 3-1 ]
Hook Tire's ability of production and plan for expansion
Plan for expansion
Build additional factories in Hungary (+500)
Establish 3th factory in China and 1st one in Indonesia
Making a plan to produce 110 million a year until 2014
Sourced by Hankook tire's IR
A. Objectives of Internalization
- Cost Reduction for Distribution and Manufacturing
- Hungary is a good place for first foray before expanding its entry into Western Europe countries
B. Consideration for Site Selection
- Economic: Risk minimization of current exchange rate among EU countries
- Social/Political: Reduction of possible trading disputes and not imposing antidumping tariffs among EU countries
- Tire Industry: Europe is taking 30% of world tire market
C. Entry mode
- Established of Europe Technical Center in 1996 and began Hungary Plant in 2007
- Decided to build additional two more factories in 2010 to be able to manufacture 12 million per year
4. Evaluation and key learning from previous case
The tire industry is multinational in nature; therefore, production plants are situated in virtually every geographic region, particularly in North America, Europe, Japan, other Asian countries. Strategic supplies of natural rubber integral to the production of certain OTR tires are situated near the equator in many of the Asian countries, including Malaysia, Indonesia, Thailand, India, and China.
Large global tire plants in many regions of the world have the capability to produce a variety of tires including passenger car, truck and bus, and certain OTR tires, variably dependent upon logistics, demand, and affiliation.
In this competitive industry, Most of Hankook tire's international business turned out to be sustainable. Especially, the success in Chinese market is meaningful in respect of Hankook tire has been leading other competitors with high quality strategy operating Tire Town and differentiation strategy managing premium store T'Station. The next step was to expand its market to Europe, America, and other countries. To be successful in these new markets as they did in China, Hankook tire should analyze the target market thoroughly and implement appropriate strategies optimized to each market.
IV. Company's TO-BE Analysis
1. Should Hankook Tire really go to global market?
As shown above, Hankook Tire has been tried to expand their business to global for a long time and seems to place good position in China market. With the effort, the company shows possibility to be a global big player with competitiveness. Thus, they need to keep their global strategy and to expand global business further. Before the expansion, however, Hankook Tire should scrutinize below questions.
- What are the core competitive points of Hankook Tire?
- What were the key success factors of Hankook Tire for China market?
- Is the success factors are applicable to other markets such as Europe and America?
2. Does Hankook Tire still have the chance globally?
Most of all, the critical success factor of globalization of Hankook Tire is successful penetration into China market based on competitive price with better quality, preoccupancy, and well-established brand value. Tire industry has been threatened sharp rising of the price of raw materials and it results short-term shortfall of profitability. Global top-tier players are suffering from the situation of increasing price of natural rubber under lower demand of tires and do not show sufficient capacity to prepare for business recovery. Whereas, Hankook Tire maintains relatively higher profitability than other global top-tier competitors and it may give good opportunity for the company to be grown by ‘survivor effect'. Moreover, the good profit structure makes Hankook Tire offer good suggestion to dealers. There is no doubt that it is the right time for Hankook
3. Our suggestions
Hankook Tire ranked 1st place of PCR (passenger car radials) with 30% market share in China, which is one of the biggest potentials, and marked 7th in worldwide tire market. However, strong global competitors are continuously expanding their investments in China market and thus the competition is getting much fiercer. Furthermore, the price of raw materials is going up and it does deteriorate the operation profit. Therefore, we would like to suggest three strategic pillars for Hankook tire to acquire competitive edge of global competition and to explore new chance for the growth as below.
1) Reinforcement of the leadership in Emerging market focusing on China
Aggressive penetration and expansion strategy of Hankook Tire for emerging markets is most appropriate to broaden the gap with following competitors at this point.
- Enhance competitiveness in Original Equipment (OE) tire market through strategic alliance with one of the big automobile companies such as Hyundai-Kia motors which is the 2nd player of China automobile industry.
- Preoccupy upcoming explosive market of Replacement Equipment (RE) tire through technology driven, value added products such as UHP(Ultra High Performance)
- Expand T station business, a new distribution channel which makes high profitability through direct sales to consumer, provides highly qualified service and image, and enables CRM.
- Develop localized tire products considering Chinese specific culture, weather, and economics. For example, customized tires for reckless driving and overloading vehicles.
- Diversify product portfolio from tires for PCR to bus, truck, and light trucks.
2) Expansion of growth opportunity in Developed market such as America
US market registered cars are 250 million and among this newly producing car only shares 13 millions. It is the biggest RE tire market preferring premium brands. Hankook Tire started to export 1986 and 2010 sales revenue reached US$ 1billion. Market share of Korean tire companies in US market gradually increased from 2.5% in 2000 to 8.9% in 2009. It is primarily driven by increased preference to Korean brands of US dealers. Korean brands demonstrate significant higher market shares than wholesalers' distribution rate and it provides the dealers higher profit. Moreover, top-tier players still maintain oligopoly but decrepit facilities and inefficient cost structure let disappear advantages of local production. Closing of the factories decreases capability of production in US and thus the amount of export tends to increase continuously. Lastly, as US government adopted a protectionist stance as evidenced by the imposition of an additional 35% safeguard tariff on Chinese-made tires, Hankook Tire should handle the rapidly changing business environment with appropriate countermeasures at the right time. To leverage the above opportunities, we would suggest expanding the business with premium tires based on local production and efficient supply chain management (SCM), getting competitive edge in North and South American area.
- Build a new factory in Mexico and produce two separate line products; Mexico has several advantages as supplying headquarter for North and South America: Free trade with US, lowest labor cost among North America countries, and geographic advantage for effective supply between North and South America. Two separate line products may satisfy different needs of the customers: technology-driven, premium tires for North America and cost effective, low price tire for South America.
- Accelerate market penetration taking advantage of relatively high profitability. Hankook Tire should expand Original Equipment (OE) tire sales and distribution channels because OE lasts averagely five years before replacement and around half have a tendency to keep their original brand in the timing of replacement. If Hankook Tire has an advantage on production of functional OE tires or distribution with aggressive investment under depressed tire market, allied with major automobile companies such as Ford which already established cooperation, it would be good chance to make a new leap forward as one of the big global players in tire industry.
3)International business management for long-term competitiveness
For the long-term success of global business for Hankook Tire, our team suggests that high global efficiency and high local responsiveness be needed as strategic alternatives for international strategy
- Achieve economies of scale on the long term point of view. Due to the nature of the tire industry, the economies of scale with high foreign investment with extensive coordination would be effective way to strengthen the long-term competitiveness.
- Secure global scale efficiency through the localization
Since 2009, Hungarian plant has achieved to save the short-term logistic costs and shorten the delivery period from 2-3 weeks to 2-3 days. And also enhanced market recognition in Europe. This is good example to have raised the market share through the localization. To build the next-planed Indonesia and China plant may helpful to strengthen long term competitiveness.
Decentralization Strategy by ongoing training program for local people. Trained local people could take the initiative to enhance not only the production efficiency and quality but also the sales. Thus, training program for local makes to strengthen the long term competitiveness