Sumitomo Expects Much From China

For Sumitomo Rubber Industries Ltd. –Japan’s second largest tyre manufacturer after Bridgestone – the Chinese tyre market is a market of overwhelming potential. Although the company currently only generates an annual turnover of US$112 million in China out of a market worth $4.59 billion – a share of only 2.5 per cent, China is the market possessing by far the greatest growth rates for the Kobe based manufacturer. Compared with 2005 figures, Sumitomo’s Chinese turnover has doubled. And Sumitomo’s president Tetsuji Mino doesn’t expect less for 2007; an annual turnover of $220 million is the minimum Sumitomo plans to generate this year on the Chinese tyre market. “The growth potential of Asian tyre markets is just enormous,“ Mino stated in an interview.

For about ten years Sumitomo Rubber Industries (SRI) has followed a corporate strategy based principally on growth. The first chapter of this expansion story was the foundation of a global joint venture together with Goodyear Tire & Rubber in 1999; another chapter was the takeover of Ohtsu Tire & Rubber Co., a Japanese competitor (producers of the Falken brand). More recently, Mino adds, Sumitomo has focused on increasing capacities in its tyre factory in Vietnam and has just recently announced it will continue along these lines in the future. Since Sumitomo Rubber (Thailand) Co. Ltd. began producing PC and SUV tyres last November the company has announced that by the end of next year the Thai factory will have an annual output of 6.6 million units. And by 2010 there will possibly be a second tyre factory on the same site, making the location “one of the biggest tyre complexes in the world” with an annual production capacity of about 25 million tyres.

Although the ventures in Vietnam and Thailand were and are multi-million dollar investments, Sumitomo Rubber Industries was able to strongly increase its presence on the Chinese tyre market at the same time. In 2002 SRI entered into two joint ventures with the Chinese tyre manufacturer Hwa Fong Industrial Co.

Two years later, both companies started to produce tyres in two separate tyre factories, both based in Changshu, close to Shanghai. The Sumitomo Rubber Changshu Co. Ltd. produces tyres for the local Chinese market and the Sumitomo Rubber Suzhou Co. Ltd. in turn produces for export markets only. Hwa Fong only holds six per cent of the companies’ assets, making it a literal subsidiary of Japan’s Sumitomo.

Last year Sumitomo Rubber Industries produced about 80 million tyres worldwide. By 2015 this figure will be boosted to 120 million units. “By then we possibly have to add two or three more factories,” says Tetsuji Mino. A second tyre factory in Vietnam, which will commence operation by the end of this or the beginning of next year, is not included in this announcement. While Sumitomo is going to increase its global production capacities with the addition of 60 million units or 75 per cent, a further 60 per cent of these tyres will be sold on Asian markets, the sixth largest international tyre manufacturer hopes. At the same time SRI will decrease the share of its tyre production that is actually sold on its home market from a current 60 to 35 per cent – Sumitomo is becoming ever more international.