Questions for case study Analysis

Questions for case study Analysis

Michelin in India

Questions:

1. What is the structure of the tire industry in India (Five forces in the industry, strategic success factors in the industry)?

Porter Fiver Forces

Rivalry: Competition in an economy is a key factor that companies need to take into account as it determines their success in their operations. Competitors in a market can be favorable or unfavorable. The Indian market is categorized into three groups that include original equipment manufacturer, replacement market, and the export market. The OEM market, which is found to correspond to direct tire purchases by the carmakers, is made up of the primary Indian as well as non-Indian automobile firms. The primary tire buyers include Maruti Udyog, Toyota Motors, which is a Japanese company, Tata Motors, and multiple foreign firms, including Hyundai, Honda, Ford, General Motors, and Dacia Logan.

The identified companies contribute to increased competition that leads to fierce war and hence leads to a significant decrease in the level of profitability.

Suppliers: the suppliers of raw materials used in the manufacturing of tires enjoy considerable command over what is supplied in the market.  The prices of natural rubber are high, as well as the increased cost of petroleum, and the tire manufacturers are compelled to be keen on the price changes from the suppliers of the raw materials. The trend is also expected to witness an upward trend, especially for the Indian players. It is also very challenging for the companies in the Indian market to obtain the necessary raw materials and especially the good quality natural rubber. The suppliers with access to the required good quality rubber also to enjoy their monopoly due to the scarcity of the products. Therefore, this a considerable factor that influences negatively the Indian companies as they will make use of poor quality rubber. .

Customers: in the replacement market, the customers usually consider prices in making their purchases. The price of tires is taken into consideration as a priority purchase, especially for the customers with a three-wheeler or a motorcycle. The customers based in India are usually attracted by import tires that are sold at lower prices form countries such as South Korea, compared to the prices from local manufacturers. Primarily, the lower prices for the imports were mainly due to the fact that they attracted lower custom duties. The imported vehicles have an average price of 30% below the prices for the Indian firms.

Substitutes: the Indian market is characterized by close substitutes. Imports from other countries such as China and South gives the customers a wide variety of choices to make from the products available in the market. In most cases, imports in the market attract lower prices compared to locally manufactured tires. Therefore, companies face threats where customers may shift to the low price tires if the prices of local tires remain high. There are also numerous local and foreign companies in the Indian market that bring about a broad variety of tires in the market. The existence of many manufacturers in the market makes the close substitutes become a key factor for Indian companies that they need to take into consideration in their operation.

New entrants: the Indian market is characterized by numerous companies and players. The high competition has attracted high costs of business in the tire manufacturing industry. Due to the high number of industry players, the entry costs are also set very high such that new entrants find it challenging to enter the market. Despite the fact that there are numerous tire manufacturing companies in the market, there is an entry barrier for new firms.

Strategic Success Factors

Strategic success factors of a company include the measures taken by the management to ensure that the company attains success in its operations in the industry. The tire industry in Indian is a competitive market and calls for companies to take strategic measures that allow the profitability and growth of the company.

Acquisition: Among the key strategic success elements adopted by the companies includes mergers and acquisition technique. This is a common strategic measure for companies as the firms come together to increase the market base and reduce the competition level in the market. The acquisition allows a firm to gain a competitive advantage compared to the rivals. In a market with numerous players, the acquisition is a key success factor that a company operating in the Indian market should adopt.

Technology: technological advances have been witnessed across all industries, and the manufacturing industry is not an exception. The use of modern technology in production has significant benefits to the companies, including cutting down on costs of operation as well as improving the quality of tires. The use of new technology in production allows tire companies to generate tires that stand out in the market and attract their customers as they meet the needs and contribute to customer satisfaction. This a key success factor and a competitive edge in the tire manufacturing industry. Some of the technologies used in the tire industry in India include radial technology as well as incorporating other advanced technologies from other manufactures outside the country.

Diverse production lines: one of the key success factors in business includes diversification, where a company engages in distinct lines of production and numerous business activities. Although the tire industry may still focus on the production of the same product, the existing companies reap massive benefits from engaging in broad production lines to meet the widespread customer base. These lines of production increase the supply in the market to meet customer demand, which in return contributes to increased sales and profitability of the business. Diverse product lines are key strategic success factors that tire manufacturing companies need to adopt to meet the demands of all customers in the market.

Distribution: In production, the distribution of goods and services is key to the operations of a business. The channels of distribution determine how the business reaches its customers or brings its products to the market and available for customer consumption. Designing distribution channels that will ensure that customers receive the tires when required, at the right place, and the right form will improve their trust and loyalty of their customers. Increased customer loyalty and trust translates to improved sales and hence the growth of the business. Besides, designing a distribution channel that maximizes profits and minimizes losses is key for the success of a business.

Commercial vehicle tire market: The Indian market has been characterized by tremendous success if the companies focus on commercial vehicle tires. For instance, MRF managed to perform considerably well in the market as it emerged the leading firm in the primary tire markets, including commercial vehicles, two-wheelers, cars as well as three-wheeler tires. The volume of sales in the Indian market includes commercial vehicles. This shows that the strategy is key for any tire company operating in the industry.

2. 2. What is the structure of competition in the tire Industry of India(Strategic group mapping, Industry Matrix, and competitive grid)?

The Indian industry is characterized by numerous competitors and players contributing to considerable production capacity. The number of tire industries has increased in the market over the years the increased number of market participants has led to increased rivalry between the existing companies. This causes more pressure to the carmakers and a corresponding increase in research and development to ensure that companies remain updated on the new opportunities and technologies to venture in. The competitive products in the market include three-wheelers and operation on commercial vehicles. Further, the Indian tire industry has, over the years, witnessed rationalization and also mass concentration.

The price wars are very evident in the tire industry as a result of the high number of companies. Due to stiff competition based on the prices of products, the companies eventually realize reduced profits. Besides, the tire manufacturers also compete for the scarce naturals rubber that forms the key raw material in the manufacturing of tires. The competition for raw materials drives their prices high, increasing the cost of production.

The other competitive aspect in the market includes the use of modern technology in tire manufacturing. The industry has been seen to incorporate the new technologies to improve tire qualities, as well as cut down on the cost of production. Companies with the ability to use the latest technology realize more competitive advantage, causing the new business to try to enter the market find it challenging to meet the high costs.

3. What is the performance and strategy of the main player in India?

The tire industry in India is characterized by numerous players generating massive amounts of tires in the market. The key players of the tire industry include MRF, JK Tyres, Ceat, Birla Tyres, TVS Srichakra, Falcon Tyres, Goodyear India, and Bridgestone India.

MRF was the leader of the tire industry in India, with a 21 percent share of the entire market sales. This included the commercial tire, three-wheeler, and two-wheeler vehicle tires as well as car tires. The performance of the company was, however, more pronounced on the commercial vehicle tires. The company also was the first firm to adopt the radial tire for commercial vehicles. JK industries are also regarded as the pioneer, especially for radial tires in India. The company managed to own its distribution network and also saw the improved performance as a result of technological links with other firms such a German company continental. JK Industries formed the leader of the commercial vehicle tire market, and it has witnessed vast sales over the past years.

Ceat is a subsidiary of RPG operating in the Indian market and managed three production facilities across the Indian market. The company has its own distribution brand channel and has, over the years, realized increased sales. The company enjoys a large number of exports to other markets that contribute to its improved sales. Birla Tyres approaches its production in different ways, such as commercial vehicles taking the largest percentage. The firm realizes sales from exports to other markets in over 43 countries. Apollo Tyres managed four facilities of production and also had its own brand distribution network. The company realized sales amounting to $ 447.1 million, and it also saw considerable export of products of  8%. The company also acquired other firms such as Dunlop South Africa, which was its international development strategy. The next company in the Indian tire industry included the TVS Srichkra that managed only one production facility supported by a  robust network. The company’s performance in the year 2005 was $39.8 million in sales. Goodyear India is also a key player in the tire industry that managed to be listed in the Bombay stock exchange. The company has witnessed an expansion trend over the years and also managed its distribution network. The business also was recognized as the primary radial tire supplier to Maruti and claimed to command a 14 percent share market. The last main player in the Indian tire industry is Bridgestone India, which enjoyed a 30% share of the radial car market segment.

4. Are this industry and its various segments attractive to existing competitors and new entrants?

The tire industry in India has multiple segments, including commercial vehicle, car, three-wheeler, and two-wheelers, off the road and agricultural vehicle tires, as well as LCV tires. The tire industry has proved to be attractive to the market players, with each company recording significant sales; nevertheless, increased competition in the market has led to a reduction of the profitability level. The most promising segment is commercial vehicle tires that have a higher demand. The commercial vehicle tires also have higher sales prices compared to car tires and hence provide the companies an attractive return.  The challenge that tire companies face in include higher costs and scarcity of the natural raw materials such as rubber. Therefore, the firms make use of poor quality materials for their tires. Generally, the various segments have significant demand giving tire companies opportunities for profitability and growth.

5. strategic evaluation of the Industry’s attractiveness as well as an in-depth analysis of the structure of competition.

MRF has managed six production facilities and has its own network of distribution. This allows the company to have a 21% share in the tire sales across the Indian market. Besides, the firm is also recognized as a leader of the primary tire markets in the industry. MRF is also considered the first company to provide radial tire, especially for commercial vehicles.

JK Tyres has its own distribution network and four production facilities. It also managed to establish links with other companies in technology, including Germany company Continental. JK Tyres concentrated in commercial vehicle tires and car tires, and it is considered a leader in the attractive commercial vehicle tires with a 25.2% share of the market. The company has also utilized technology in its production to improve the quality of tires.

Ceat, which is a subsidiary of RPG, managed three facilities of production, especially in India. Its production of tires included a wide range and different types making the company record the widest range among the competitors. Birla company also boasts of the adoption of manufacturing technology from Pirelli, which includes the construction of radial tire lines. The company heavily focused on commercial vehicles that attracted huge returns. Apollo Tyres had four facilities of production and its own network of distribution. It is also used the acquisition approach by merging with Dunlop South Africa. TVS Srichakra was also recognized as a leader in tires and tubes, especially for the two-wheelers. The company managed only one facility of production that was supported by a robust network of more than 2050 brand dealers. Falcon Tyres engaged in a wide range of products, including commercial vehicle tires, car tire as well as two-wheeler and three-wheeler tires. The firm also created long run partnerships with companies such as  Yamaha Motors, Bajaj Auto, and Hero Honda. Falcon Tyres was placed second in the production of two-wheeler and three-wheeler vehicles.

6. Position the companies in strategic maps.

Performance analysis

MRF (2005)

ROI     = net profit/ total investment *100

= 1755.8/21386.8 *100 = 8.21%

ROE    Net profit/ shareholders’ equity

= 1755.8/7540.5 = 0.23

JK Tyres

ROI     = 1394/14240.2*100 = 9.79%

ROE    = 1394/11860.4 = 0.12

Apollo Tyres

ROI ₌ 1777.6/15615 *100 = 11.38%

ROE     ₌ 1777.6/5767.4 = 0.31

Ceat,

ROI ₌ 450/10695.85 *100 = 4.21%

ROE     ₌ 450/6301.38 = 0.07

Falcon Tyres

ROI     = 64.21/1206.68 *100 = 5.32%

ROE    = 64.21/287.26 =  0.22

TVS Strichakra.

_{ROI =} 143.3/1256.3 *100 = 11.41%

ROE     ₌ 143.3/470.4 = 0.30