What’s different about desegmentation in the agricultural tyre sector?
The influence of non-premium brand tyre manufacturers and of non-European produced tyres has markedly increased in the wider European agricultural tyre market. Something else that the data suggests is that a degree of desegmentation has occurred because all this has been set against a series of financial crises in Europe and its respective national markets. Not only are there opportunities for those entering the right niche at the right time, it would seem that there are opportunities for those entering the market at a different position to the historically dominant players.
The apparent re-shaping of the market is taking place across three planes. Firstly there is the general desegmentation that has occurred as a result of external economic pressures. Then there is the increasing market share amongst Indian manufactured tyres and therefore Indian tyre manufacturers too. At the same time there has been the development of a couple of neo-premium brands that are seeking to capitalize on this environment. All of which begs the question what role do Chinese firms play?
Opportunities for neo-premium and up-and-coming companies
What we can see is that agricultural tyres have experienced what has been common across the various market segments – that is that external financial pressures have slowed down the market. Being a business to business market, what has taken place in the agricultural segment is perhaps most akin to what to took place in OTR and commercial vehicle tyres in the years since the crash – OE demand dried up and so tyre supply did too. And with cost pressure on the original equipment manufacturers, this also presented an opportunity for lower priced competitors to approach some of the biggest name vehicle makers in the sector for supply deals. This all fitted in with the strategic background for these up-and-coming companies, which broadly rest in two categories neo-premium manufacturers and up-and-coming companies.
Neo-premium refers to businesses like Trelleborg and Mitas which both have their roots in the history of premium tyre manufacturers (Pirelli and Continental respectively), but have since sought to forge more independent strategies and identities than when they were under the roofs of their respective progenitors. This is particularly the case with Trelleborg, which according to what some industry analysts recently said in conversation with Tyres & Accessories, has been the fastest at transferring the brand value and price point from the historical forefather, while at the same time injecting new life into product range and expounding a lively new approach to the business.
However, there is evidence that other key competitors in this category are also doing well. Mitas, the trading name of Czech rubber group CGS, is a particularly good example of this with sources now suggesting that its sell-in unit volumes put it at number two in Europe when it comes to agricultural tyres. Like Trelleborg, Mitas has been very successful in gaining high profile OE fitments both with the licensed Continental marquee and with Mitas itself. One example of this is the fact that Mitas signed a contract with CNH-Kamaz Industry LLC, the Russian manufacturer of Case IH and New Holland tractors and harvesters, to supply tyres for these vehicles throughout 2013. Across all its brands (and therefore including the Continental moniker) OE is stronger still, with the company responsible for supplying significant proportions of the tyres required by virtually every leading agricultural OEM in Europe. All this is said to mean a market share of around 28 per cent in addition to its second position rank in the European sector. Market share is said to be 9.5 per cent in globally, with the company fourth overall.
In each of these cases the strategy offers both marketing and manufacturing volume benefits in a sector where the top five manufacturers have either exited this business or have opted to avoid to heavy direct involvement in OE business in favour of the more lucrative replacement business.
Why no China?
The second category – up-and-coming players – refers to leading Indian-producing agricultural tyre suppliers, which are highlighted in “Success beckons in niches”. The influence of companies such as BKT, which demonstrates particular strength in the UK with its BKT and Supreme brands, should not be underestimated with the company claiming that it occupies 10-12 per cent market share in Europe and something like 4 per cent globally.
However, what is of particular interest here is the fact that India is the location of factories such as these rather than China. In virtually every other industry segment – especially passenger car and truck and bus tyres – China’s influence on the economy and mid-range segments has been very significant. However up till now this cannot really be said for the agricultural tyre segment. OTR – especially the lucrative large sized radials – have received particular attention from leading Chinese firms, but it is as if farm tyres have escaped their gaze.
Think of China and most people think of cities like Beijing and Shanghai. In the tyre business it might be somewhere in the country’s Shandong “rubber province” like Qingdao; all modern and seemingly continuously developing cities. Go further inland and the rate of progress has been much slower for the entire decade that has transformed the huge nation’s eastern seaboard mega-cities. All this means that, while takes place across large swathes of Chinese countryside, mechanized agriculture is way off the global pace. And, as domestic market OE has in the past tended to strongly influence the output of Chinese tyre manufacturers, this means the sizes and applications of the relatively few Chinese-produced agricultural tyres are somewhat out of kilter with global and specifically European demand.
But there is certainly huge potential. Just look at the fact that in 2011 only 41 per cent of Chinese farm work was mechanized, while there is a total 122 million hectares of arable land in China. Western Europe offers 75 million hectares. And this is why Trelleborg bought the former Hebei Starbright facility in Xingtai, China almost two years ago – to position the company for future domestic OE and replacement demand. What’s more, this development is something that will – for the market as whole – almost certainly develop an export dimension at some point in time. The reality is that generally speaking the market and the manufacturers are not quite there yet.
All this makes the recent statement from top 10 Chinese tyre manufacturers like Triangle and the Infinity brand (which is connected to a few leading factories in the People’s Republic – see textbox for latest news) all the more interesting.
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