Becoming a Global Force

Canada-based worldwide wholesale operation, Hercules International, had long considered how to develop its ‘global’ position. Then, at the end of 2007, Corporate Business Development Officer, Joe Recchia announced plans to maintain a presence in all the major tyre trading routes by opening offices in Latin America, South East Asia, the Middle East, China and Europe. Then Hercules was aiming to grow “from international to global player in 2008.” Seven months later, those offices are all either running or near opening. Tyres & Accessories spoke to Joe Recchia and Hercules vice president sales and marketing Josh Simpson and found out how the plans are progressing.

Hercules International took the decision to move from an international to global business in 2007. Throughout the process the company’s intention has always been twofold: to develop the position of its key Hercules brand in the global marketplace; and to support rather than compete with local customers. From Recchia’s point of the view, the driving force behind the global move is to be present in each area with people who know that specific market in order to develop appropriate product lines and therefore better serve customers.

From T&A’s perspective the biggest news is that Hercules’ plans are progressing rapidly in Europe. The wholesaler has already made the necessary arrangements (through a third-party logistic company) to run a warehousing operation in Rotterdam. This move is being described as a relatively temporary action and is therefore expected to last around three years, as the company’s is continuing towards its long-term goal of acquiring a “strategically placed presence in the European market.” Recchia wouldn’t be drawn into giving further details on what that might mean, but the company is definitely considering acquisition options. In addition, the company will be ready to open a new office in Barcelona in the next 60 days.

But its not just about getting people on the ground. It’s also about product development. According to marketing vice president, Josh Simpson, one of the reasons the Hercules team attended May’s Essen Show was in order to identify which particular product offerings are suitable to which markets – with a view to adapting the Hercules range as required. “It is clear to us that the EU sets the standard [in terms of product development and design] and the US follows within a certain period of time,” Simpson commented.

Currently European business only represents around 10 per cent of Hercules’ overall sales, but it clear that executives want to increase this in ways that support its model of offering geographical exclusivity to customers who buy the Hercules brand. Hercules International is also continually reviewing which markets have particularly strong wholesale influence and would therefore make a good European base. Simpson was reluctant to give specific details about exactly what this might mean in terms of acquisitions. He did, however, agree that the Germany and the UK are both examples of wholesale-strong markets.

The first ‘global’ office to get underway was Hercules Latin America earlier in 2007. Founded by virtue of the company’s acquisition of TDI, the Latin America regional office is based in Miami, USA, but seeks to take advantage of its strong geographical position in relation to both the Latin American and Caribbean markets. This warehouse is now fully manned, with an additional seven representatives generating sales on the road.

Next up were offices in the Middle East, South East Asia and Europe. The Singapore office, which covers the Far Eastern markets with the exception of China, is already up and running. More recently Hercules gave Anirudh Rathore responsibility for the new Dubai office. According to Recchia, he has been training in the Ontario, Canada head office for the last months and is now fully prepared for his new assignment. Rathore is due to enter the marketplace in July.

And finally, for now, there is the Qingdao, China office that T&A reported on earlier this year. This operation is poised to expand into the company’s global distribution centre shortly – company representatives out there are already staffing the new warehouse, while they finalise the location.

Production pressures

Hercules International describes itself as a wholesaler to wholesaler business. However, with the amount of tyres the company produces across its various private brand labels and across a number of different factories – you may as well call them a tyre manufacturer. And with the responsibility of producing come the pressures – which are particularly sever at the moment. Everyone has heard about China’s decision to up VAT rates on tyre production and the recent difficulties associated with securing shipping, but were you aware of the effects of the Olympic games on production capacity? When you add in the fact that demand for steel, oil and rubber and fillers is all “far outstripping supply”, you can see that it is not as easy as it once was to get tyres in China.

As a result, Hercules’ plans for to enter China in a bigger way via the OE route are currently said to be on ice. Hercules representatives first mentioned the OE concept at the end of 2007, were the programme was expected to be well underway by the middle of 2008. However, the Olympics, increasing raw material price pressures and the lack of supply on some product fronts mean these plans are well and truly on-hold for the time being.

Hercules dealing with challenges on the home from, as the whole North American market faces relatively a tough time. However, despite these pressures, company represents are confident of Hercules’s ability to ride the storm. “Hercules remains stable with growth… and [we] predict further incremental growth,” vice president for marketing, Josh Simpson commented. Looking forward, the company is on-track for an even more optimistic outcome: “We are looking at programmes that will double the size of the business in the next three to five years,” Joe Recchia commented.

There are no plans to bring in any more additional brands to the Hercules stable, which currently includes brands such as Hercules, Ironman and Merit, so this means the company’s ambitious targets rest heavily on the success of the success Hercules marketing programme and the geographic exclusivity the company offers with it.