Trading Places: How Tyre-Makers are Positioning Themselves in the World Economy

As Tyres & Accessories’ November issue went to press President Barrack Obama and David Cameron were out banging the drum for American and British business in India and China respectively. 24 hours after Obama set foot in the subcontinent, the Sunday Telegraph’s resident cartoonist was portraying the leaders of two of the richest countries in the western world as beggers seeking scraps from two so-called “emerging markets.”

While no-one is suggesting the global tyre majors are going cap in hand to the emerging markets – and they unlike the US or UK certainly have no need to be “beggars” – the top five tyre firms have said more about their future expansion strategies in the last few weeks than they have in the rest of the year. What is striking is that while the global players are fighting to maintain market share in the mature markets such as those within Europe, they are growing fast in terms of both production and retail in the domestic markets of some of the self-same countries that produce mid-range and budget competitors over here. For example while the leading Chinese tyre producers are increasingly investing in having a full time R&D, sales and support presence over here with a view to establish long-term positions and influential market shares in key European markets, some of the world’s largest tyre-makers are doing all they can to ensure that they have got their “China strategies” right. They expect the Chinese car parc to keep growing at the rapid pace that has made it pretty much the largest in the world, and that replacement tyre sales will follow suit. Getting the right production, distribution and retail operations in place now is key to their future success.

But China is just one example. What are fascinating to note are the differences in approach between the top five. Both Bridgestone and Michelin have factories in China and have announced plans to make significant investments in India. If the analysts’ reports are anything to go by, Michelin appears to be particularly interested…

Continental’s PCR plant is now on-stream in Hefei, Anhui Province China, but as yet only has a domestic market orientated partnership with Modi Tyres in India. At the time this was announced the analysts said Conti couldn’t afford anything more, but the fact that the company recently announced it had earmarked 500 million euros for investment in emerging markets would seem to counter this. This, though, isn’t destined for India, but is rather budgeted with doubling its Brazilian tyre production capacity in mind. However, with Conti sales growing by up to 60 per cent in China it wouldn’t be a surprise if they invested more there too.

While industry observers talk of the BRIC states (Brazil, Russia, India, China) being the key to the future – though some executives modify this to BIIC (Brazil, Indonesia, India, China) – Pirelli has opted for more South and Latin America-focused programme with substantial investments in Argentina (see Company News) and Mexico announced just days before this edition was printed.

The Telegraph’s joke was that the tail could now be wagging the dog. In light of the of the global economic meltdown that was unquestionably precipitated by property market speculators in the US and UK, the cartoon succinctly voiced the sense irony that two supposedly mature economic powers need help from those sometimes described as “developing.” How the tables have turned. It’s not quite the same in the tyre business, but it is interesting to see the [European] majors position themselves in the world economies, while the world economies come to Europe.