Tire Industry Capstone Project Marketing Essay

The report examines the global Tire industry. the industry is dominated by 10 firms controlling 95 of the global market. First, the report analyses the fundamentals of the industry followed by an analysis of each of the company’s performance. The report later analyses the key success factors and indicators for the industry and makes recommendations as to the way forward.

Introduction

The tire industry is a large-scale market that produces high quality original and replacement tires with the use of natural and synthetic rubber. These tires produced from natural materials and synthetic rubber is greatly utilized by motorcycles, trucks, cars, earthmoving equipment, aircrafts, bicycles, and scooters. The tire industry is divided into different sections that include America, the Asia-Pacific, and Europe. This constitutes about 95% of the world’s market. Our list of ten selected public companies has their headquarters represented among these markets, and thus the percentage of their sales per market varies.

Despite a global recession, a number of these tire firms has demonstrated a strong performance, and the recovery has especially been pronounced in the Europe and markets of Canada, United States and Mexico. The contents will reveal in what areas these ten public firms are particularly delivered, and some ways in which they are still struggling, or have room for some improvement. While the growth has traditionally been viewed in the West, the emerging markets in Asia such as China prove to be a battleground for revenue and sales growth of the future. The relative leaders in this industry are Michelin and Goodyear, with the lowest performing firms as Kumho and Yokohama. Some of the firms’ decisions have placed them in a favorable position to dominate opportunities around the globe, while others have an overwhelming amount of disadvantage in meeting such goals.

Performance requirements such as high-speed test, endurance test, low pressure test, road hazard impact test, bead unseating test, and accelerated aging test. The endurance test show that the test results increase linearly in stringency based on the number of tire failure. However, the top performing firm is the Michelin meeting the performance criteria with over 90% in all the criteria. Michelin is technologically a better tire company compared to the rest, while Kumho is the least performing tire company.

List of the Ten Public Firm in the Tire Industry

The top ten tire firms include:

1. Bridgestone Corporation

2. Compagnie Générale des Établissements Michelin

3. Good year Tire and Rubber Company

4. Continental AG

5. Pirelli & C. S.p.A.

6. Sumitomo Rubber Industries Ltd.

7. Yokohama Rubber Company, Limited

8. Hankook Tire

9. Cooper Tire & Rubber Company

10. Kumho Tire Co. Ltd

Key Success Factors and Key Success Indicators

For the purposes of this research paper, we will analyze three key success factors namely the financial factors, human resource and customer satisfaction. For each of the KSF identified for analysis, there are at least three key success indicators as listed below;

Customer Satisfaction

Customer average rating as given through company annual surveys

Awards for crucial success

Position among top 20 in the country

Human resource

– Employee count growth

– Proportion of workers who have higher education

– Revenue per worker

Key Financial factors

Return on equity

Return on asset

Leverage ratio

Gross margin ratio

Annual sales growth

The ability to adapt to new technology

Investment in IT

In-house staff training

BPR change initiatives

Customer satisfaction

Average score

Awards received

Position in top 20

Sustainability indices as reported in the respective companies sustainability report for the last year.

Percentage of material reused

Percentage of material recycled

Reduction in material use

In their similar research work, Ghosh, et al. (2001) came up with a distinctive formula for awarding the weights to individual critical success indicators. For the purpose of this paper, Ghosh, et al’s weightings on the respective KSI are adopted. The scores of these tree factors are given equal weight at 33.3% due to their perceived equal importance in the industry. However, the key success indicators in each of the three categories are given different weights as per their perceived importance in the realization of the respective KSF. All the KSF along with their associated KSI are scored in the excel sheet and weighted totals calculated.

Some of the key KSFs that we have identified include sustainable practices, public perceptions, consumer responsibility, the economy, in addition to environmental stances and practices. The KSIs include the market share that each firm possesses, the number of countries in which they operate, the percentage of business devoted to tires, as well as the number of employees per dollar of revenue and diversification of the board in terms of country of origin. These KSF and KSI were selected to effectively evaluate the relationship that between other external factors that will make tire production in the industries thrive. A key success factor could also include dealer or brand loyalty, and how well company’s can retain their customer basis.

It is believed that sustainable practices of how the wages and benefits exist will greatly promote the success of tire production, in addition to how the merchant network or tire distribution is handled; considering the fact that production is directly controlled or is dispensed out on a franchise basis. When it comes to public perception, this deals with whether the brands from a specific region are favored, due to their ascribed value. In addition, the devotion to advertising in terms of dollars on a by-region basis would be an interesting KSI under the KSF of public perception. Consumer responsibility is how they respond to incentive programs offered by merchants, or where they turn to purchase – whether they go in store or defer to online shopping.

One other interesting KSF that we are concerned with is the environment. What this means in terms of a KSI is the method and rate of scrap tire disposal. In addition, interest is the consumption levels of electricity, water, fuels or others necessary for disposal and manufacturing. However, it is anticipated that this KSF will majorly determine the long term success of tire firms. When it comes to the KSF of the economy, differentiating it from the internal finance of companies is not certain, using the KSI and KSF to assess and analyze performance in the tire industry is justified.

Factors Driving Profitability

The players in the tire manufacturing industry are operated out of a number of major centers, and in order for them to earn and maintain a profit, they must ultimately transact with corporate or smaller-consumers. Analyzing the growth rate and operating margins of the firms reveals that just as they are dispersed in where their boardrooms, headquarters, plants, and branches are located – they likewise differ on where such revenue and sales are captured. To further complicate factors, some of the weaknesses confronting these firms are regionally based, while others have a global reach and threaten the whole of their operations. Thus, the mixture of strengths and weaknesses facing the firms is ripe of both extreme differences in addition to some unavoidable similarities.

Undoubtedly, one of the major factors that seem to affect all the participants is the increase of prices of raw materials. In this context are crude oil, rubber, and other inputs to the manufacturing process. While it is deserving of a separate discussion altogether, the price of one barrel of crude oil has been on the rise amidst global conflict, uncertainty, and other issues. This is a necessary input in the manufacturing of tires and it is not easily replaceable. A direct result of this factor that drives (or threatens) profitability is that the price of products tends to increase as the surge in cost of raw materials is passed on the consumers.

Another factor driving profitability then is the type of market segments on which the tire manufacturer focuses on. For example, some of the firms such as Kumho and Yokohama have placed much dedication towards niche markets such as construction, or others, that may be willing to fork over more money for a higher quality product.

Due to the diverse approach of these tire manufacturers; we placed much emphasis on the financials aspect. More than the fact that these figures were, on the whole, easy to locate, they are closely connected with a phenomenon that will soon confront the industry. This issue in the horizon is that of so-called “unfunded” pension and retirement benefits. As a result of this impending crisis, we determined that the financial conditions of firms would be closely related to how they may overcome such.

One other reason we determined that this was a crucial factor of performance was that the baby boomer generation concept would imply that a large group of full-time workers would, at the same time, attempt to cash out on such benefits. It means that firms with a high debt-to-equity ratio have less leverage to move around funds to overcome a shortfall when it comes to paying out employees on a mass-scale. Likewise, those with relatively lower revenues would have a particularly challenging time to maintain their operations and to fund such retirees.

Some other key performance indicators we determined had significance was the relative market share of each firm, in addition to the number of countries where operations existed. We figured these were important given that some of the more successful firms such as Bridgestone are more diversified geographically. The reason this is important can also be understood in the context of global economics. If one is operating a firm such as Kumho or Yokohama and the Korean or Japanese region respectively endures some domestic market turmoil, it is unlikely that the average trend of sales from international markets will be able to keep them from reporting negative financials, or even facing insolvency.

A damaging annual period will not only weaken a firms reputation or brand image, but will also cause the company to struggle to keep the support of investors – potentially coming with major consequences. On the other hand, as Bridgestone’s record demonstrates, having equal or at least some level of balanced representation across the globe means that the only way they will significantly suffer is if there is a financial crisis or some type of market volatility on a global scale. Even so, it is unlikely that such a disaster would have equal effects in each continent or country, or that it would occur simultaneously. It means that in the wake of disaster, a firm that is well-spread across the globe would be able to earn a profit in some areas, while losing in others, and be able to maintain its existence.

A further key performance indicator of interest is the customer segments facing the tire manufacturing industry. For example, there has been the trend for companies teaming up and pooling their productive resources in order to transact with high-ticket market segments such as the airline industry. We determined that this key performance indicator is derived out of the Porter force of bargaining power of buyers. It is also directly connected and can help firms individually, and overall, to overcome the struggles that come from increasing raw material and commodity prices, globally. If carefully constructed, such agreements between rivals can assist in overcoming their mutual threats, and allow them to devote more resources and attention to important fields such as research and development, or creativity. Subsequently, more useful technologies and more desirable products will be churned out, in a mutually (or internationally) beneficial manner that will allow each industry player to maximize their own chosen attribute of differentiation. For example, some firms may devote much energy towards passenger cars, while another focuses on non-highway equipment, or high performance tires. If working together can help to alleviate the hurdle of increasing input prices in the manufacturing process, there will be a net benefit on the industry in the quality and the number of products disseminated to the market segments.

Bibliography

Datamonitor: Compagnie Generale des Etablissements Michelin. Company Profile. Publication Date: 5 Aug 2011.

Datamonitor: The Yokohoma Rubber Co., Ltd. Company Profile. Publication Date: 24 Feb 2012.

Datamonitor: Bridgestone Corporation. Company Profile. Publication Date: 29 Jul 2011.

Ghosh, B. Liang, T., Meng, T., Chan, B. (2001). The key success factors, distinctive capabilities, and strategic thrusts of top SMEs in

Singapore. Journal of Business Research. Vol. 51(3): 209

Marketline: Kumho Tire Co. Inc. Company Profile. Publication Date: 31 May 2012.

Porter, M. E. The Five Competitive Forces That Shape Strategy. Harvard Business Review, January 2008.

Appendix and exhibits

Tire Industry:

NAICS Code: 326211

Top Ten Companies:

1. Bridgestone Corporation

2. Compagnie Générale des Établissements Michelin

3. Goodyear Tire and Rubber Company

4. Continental AG

5. Pirelli & C. S.p.A.

6. Sumitomo Rubber Industries Ltd.

7. Yokohama Rubber Company, Limited

8. Hankook Tire

9. Cooper Tire & Rubber Company

10. Kumho Tire Co. Ltd