Analysis of the Global Tire Business

psychoanalysis of the Global play give away BusinessI. Company synopsis1. basic OverviewThe January 2010 issue of Modern break Dealer magazine published the 2009 gross sales data for the spherical fall apart assiduity, and Hankook run down popd seventh on the list for the fourth consecutive year since 2006. gross sales go through grown an average of 13.9 percentage annually for the past decade, bringing the cumulative rate to 133 percent for the period. More than 70 percent of the tax income is earned outside Korea.2. Financial OverviewHankook Tire Co. posted change 2010 earnings year-on-year with its net gather r distributivelying 424.8 peerless thousand million won ($381 million) populate year, up 21.1% from 350.8 meg won a year earlier. The overall world(prenominal) increase has come on the back of brisk sales in both domestic and overseas market places. gross sales jumped 19.3% to 3.35 one thousand million won, and operating profit rose 5.5% to 367.5 b illion won. In a separate statement, the community said its consolidated sales, including figures from its overseas operations, reached 5.36 trillion won last year with operating profit coming to 585.8 billion won. According to the annual report the company is targeting 6.06 trillion won in global sales in 2011.3. Organization StructureHankook put ons organizational structure is hyaloplasm structure. Under Global chief operating officer, there are Global Staff (Head quarter by functional Division) and regional Headquarters (Head quarter by Geographical Division). Both Functional division and Geographical division have the same level of Structure in Global CEO Table 1-1 Under Global CEOSourced by Hankook Tires annual report, 2010Global distribution network consists of four regional headquarters and 80 subsidiaries sales offices and its products are sold piecewide in about 180 countries.4. SWOT compendiumStrengthsOverall, a advantageously financial statementA positive daub rec ognition on the world market (high tone + get-go bell)A healthy labor- guidance relationsThe worlds major tire factory and the proper distribution conduct to market demand, buildingWeaknessesLow investment than expected in the industry (Total asset increase, non-current ratio cut back than industry average)RE market is relatively weak compared to the OE marketOpportunitiesDomestic auto demand increases cod to tax credited for old vehicles and hybrid vehicles.After the global financial crisis, global tire price competitiveness is getting higher(prenominal). chinas tire market increases due to chinas auto market growthThreatsFrom 2009, the prices of natural coat and synthetic rubber (raw material prices due to the high price elasticity) is rapidly risingII.Industry Business Analysis1. Industry Environment analysisThe global tire market accounted for approximately US $140 billion and 1.25 billion volumes in 2008, according to Research in Tire. While the worldwide tire industry is tranquillize largely driven by the well-known multinational companies (in size order) Sales amount of Bridgestone, Michelin and Goodyear are 46% of total sales for top 75 ranked companies (2008 geezerhood). Sales portion (of world top eleventh to 7th Tire companies) increased to 31% in 2008 compared to 20% in 1998. Its because the subsequent tire companies base on the high growing market much(prenominal) as chinaware, Taiwan, India, and Russia are getting larger. On the other(a) hand, the sales portion of 3 Korean companies in the world market steadily increase in 2010s and have developn 56% from 2006 year.Tire Industry has the entry barrier such as huge a capital injection, technology competition, brand establishment, and distribution channel, so it is formed as oligopoly in each nation. But top raking companies has the competitive in major market of northeasterly-America and Europe.This market is divided into pursual basic categories OE (Original Equipment) which pro viding to Car manufacturing companies, and RE ( surrogate Equipment) which providing to tire distribution. RE market size is 34 propagation gravidger than OE market. Compared to OE sales which are stirred by the volume of car proceeds, RE has stable using up market in proportion to the registered number of car and average operating mileage of car. Table 2-1 orbit Major Tire Companies2. Competitor analysis1) MichelinStrengths100 years of tradition with the highest international brand ken and increase reliability, high technology based on more than 10% of homeopathic products are extremely priced. Michelin recently after driving it to the driver of a flat tire platform developed by us after a run on the world market has raised more than 2%. By triumphful overseas, and currently has 57 global offices with two thirds of the total production is done overseas.WeaknessesMichelins raw(a)(a) products are released once e really two years. This once in six months compared to other c ompanies to launch unseasonedfound products launched at longer intervals tends to slow the market responsive.2) Kumho TiresStrengthsColor tires, aircraft tires, racing tires, passenger tires, motortruck and bus tires, industrial tires, and a variety of excellent products and sell to the general consumer confidence and job-oriented consumers are demanding. In addition, through the diversification of high-performance products to market is change magnitude grip. In addition, the current four car race competition among the terzetto has been supplied by Kumho Tire.WeaknessesCar racing is non an active participant in the company as an formal support is simple, has done. Also entered the Chinese market early in the shift is not performed correctly, but not fixture, market function is very low.3) NexenStrengthsBased on stable labor-management relations for 3 consecutive years of financial tire forcer has the best financial structure. In addition, the price is so competitive.Weakn essesBoth low technologies value-added market takes due to the low productivity focused mainly the domestic market. But overseas sales by focusing on profitability are difficult to expect.III. International Business Strategy Analysis1. Ideal International Business Strategy AnalysisPressure for global integrationGlobalization of markets Basic needs of customers are not quite different globally. The convergence of customers for an automobile tire makes tires makers go global. Tire industry has similarities in products, customers, and even operating structures. The objectives of tire makers are mainly how to focus on tokenish follows and maximum value.Globalization of production Standardization of tire drives the globalization of market. Since tire industry is normal the manufacturing industry, it can benefit from economies of scale and cluster effects at specific locations such as Hungary aiming European market.Pressure for local responsivenessCustomer divergence Customer and coun try divergence are centre due to following reasons. Since a tire is complementary goods of an automobile, a tire market is strongly affected by an automobile market. In developed countries, there is no big pressure for local responsiveness because economic conditions and infra structures for a tire market are quite similar. However, in developing countries such as BRICs the gap between rich and poor are wide and road conditions are very different. It means that Hankook tire has to figure out what the customers want.Host government policies A tire industry is absolutely related to an automobile industry and many local companies try to enter its home and fatten their business. Therefore, troops government such as China might be sensitive and hostile to foreign company.Therefore, it might be a good way for Hankook tire to choose Global Strategy or multinational Strategy.2. What Hankook Tire did?5 RD Centers Korea, U.S.A, Germany, China, Japan5 Factories Korea (2 factories), China (2 factories), Hungary4 Regional headquarters and 80 subsidiaries Sales officeSold its products to 164 countriesHankook Tire is steadily improving its image as a bounteousness brand throughaggressive global marketing and continuous research and development efforts.3. Hankook Tires entry to other countriesinternationalization Phase and Entering Countries1) Beginning phase (1981-1998)Established Hankook Tire America Corporation (1981)Established its capital of Red China branch in China (1994)Established Europe proficient Center (ETC) (1996)Established China Technical Center (CTC) (1998)2) Expansion phase (1999-present)Completed Jiangsu and Jiaxing syllabust in China (1999)Opened Europe scattering Center (EDC) in the Netherlands(2001)Hungary set begins production (2007)100 millionth tire produced in China (2007) detail information by main countries1) ChinaA. Objectives of InternalizationTo create demand in the fast growing market with high infinite potentialExpand its tire busine ss in China with change magnitude automobile industryB. Consideration for Site Selection economical Continuous double digit growth. explosion of middle-high income consumersSocial/Political Communist country geared toward open policy. Easy to enter due to its analogy to Korea in lines of social, cultural and geographicalal aspectTire Industry World largest tire manufacturing company (over 337 million yearly, *source -Tire Business), World highest growth rate on domestic market salesC. immersion ModeFounded Beijing branch in 1994 and exportedEstablishment of Joint-Venture with Chinese Company which is located in Jiangsu and had a good relationship with themEstablished China Technical Center in 1998 and completed Jiangsu and Jiaxing plant in 1999Expansion of distribution channel in 10 major citiesRoll-out of TStation one-stop auto service concept in Shanghai in 2007Operating 40 TStations and 400 Tire Towns in ChinaD. Outcome save 20% of market share which is 1st in China and 1.4 trillion won of sales revenue in 2010Supplied its products to more than 30 automobile companies in Chinese market such as Volkswagen, PEUGEOT, cut across and NISSAN Table 3-1 Hook Tires ability of production and plan for expansionHomeAbroadTotalPlan for expansion4,300China 2,8007,600Build additional factories in Hungary (+500)Hungary 500Establish 3th factory in China and 1st one in IndonesiaMaking a plan to produce 110 million a year until 2014Sourced by Hankook tires IR2) HungaryA. Objectives of InternalizationCost Reduction for Distribution and ManufacturingHungary is a good place for first foray before set forthing its entry into Western Europe countriesB. Consideration for Site SelectionEconomic Risk minimization of current exchange rate among EU countriesSocial/Political Reduction of possible trading disputes and not imposing antidumping tariffs among EU countriesTire Industry Europe is taking 30% of world tire marketC. Entry modeEstablished of Europe Technical Center in 19 96 and began Hungary Plant in 2007Decided to build additional two more factories in 2010 to be able to manufacture 12 million per year4. Evaluation and key learning from previous caseThe tire industry is multinational in nature therefore, production plants are situated in virtually every geographic region, particularly in North America, Europe, Japan, other Asian countries. Strategic supplies of natural rubber integral to the production of certain OTR tires are situated near the equator in many of the Asian countries, including Malaysia, Indonesia, Thailand, India, and China.Large global tire plants in many regions of the world have the capability to produce a variety of tires including passenger car, truck and bus, and certain OTR tires, variably dependent upon logistics, demand, and affiliation.In this competitive industry, Most of Hankook tires international business turned out to be sustainable. Especially, the success in Chinese market is meaningful in respect of Hankook tire h as been guide other competitors with high quality strategy operating Tire Town and differentiation strategy managing premium store TStation. The next step was to expand its market to Europe, America, and other countries. To be successful in these new markets as they did in China, Hankook tire should analyze the target market thoroughly and implement appropriate strategies optimized to each market.IV. Companys TO-BE Analysis1. Should Hankook Tire really go to global market?As shown above, Hankook Tire has been tried to expand their business to global for a long m and seems to place good position in China market. With the effort, the company shows possibility to be a global big player with competitiveness. Thus, they need to keep their global strategy and to expand global business further. Before the expansion, however, Hankook Tire should scrutinize below questions.What are the cell nucleus competitive points of Hankook Tire?What were the key success factors of Hankook Tire for Ch ina market?Is the success factors are applicable to other markets such as Europe and America?2. Does Hankook Tire still have the chance globally?Most of all, the critical success factor of globalization of Hankook Tire is successful penetration into China market based on competitive price with better quality, preoccupancy, and well-established brand value. Tire industry has been threatened shrill rising of the price of raw materials and it results short-term shortfall of profitability. Global top-tier players are suffering from the situation of increasing price of natural rubber under lower demand of tires and do not show commensurate capacity to prepare for business recovery. Whereas, Hankook Tire maintains relatively higher profitability than other global top-tier competitors and it whitethorn give good opportunity for the company to be grown by survivor effect. Moreover, the good profit structure makes Hankook Tire offer good counselion to dealers. There is no doubt that it is the right time for Hankook3. Our suggestionsHankook Tire ranked 1st place of PCR (passenger car radials) with 30% market share in China, which is one of the biggest potentials, and marked 7th in worldwide tire market. However, strong global competitors are continuously expanding their investments in China market and then the competition is getting much fiercer. Furthermore, the price of raw materials is going up and it does deteriorate the operation profit. Therefore, we would like to suggest three strategic pillars for Hankook tire to acquire competitive advance of global competition and to explore new chance for the growth as below.1) Reinforcement of the leadership in Emerging market focusing on ChinaAggressive penetration and expansion strategy of Hankook Tire for emerging markets is most appropriate to broaden the gap with following competitors at this point.Enhance competitiveness in Original Equipment (OE) tire market through strategic alliance with one of the big automobi le companies such as Hyundai-Kia motors which is the 2nd player of China automobile industry.Preoccupy upcoming explosive market of Replacement Equipment (RE) tire through technology driven, value added products such as UHP(Ultra High Performance)Expand T lay business, a new distribution channel which makes high profitability through direct sales to consumer, provides passing qualified service and image, and enables CRM.Develop localized tire products considering Chinese specific culture, weather, and economics. For example, customized tires for reckless driving and overloading vehicles. alter product portfolio from tires for PCR to bus, truck, and light trucks.2) Expansion of growth opportunity in Developed market such as AmericaUS market registered cars are 250 million and among this newly producing car only shares 13 millions. It is the biggest RE tire market preferring premium brands. Hankook Tire started to export 1986 and 2010 sales revenue reached US$ 1billion. Market share of Korean tire companies in US market gradually increased from 2.5% in 2000 to 8.9% in 2009. It is to begin with driven by increased preference to Korean brands of US dealers. Korean brands demonstrate significant higher market shares than wholesalers distribution rate and it provides the dealers higher profit. Moreover, top-tier players still maintain oligopoly but decrepit facilities and inefficient cost structure let disappear advantages of local production. Closing of the factories decreases capability of production in US and thus the amount of export tends to increase continuously. Lastly, as US government adopted a protectionist stance as evidenced by the imposition of an additional 35% safeguard tariff on Chinese-made tires, Hankook Tire should shell out the rapidly changing business environment with appropriate countermeasures at the right time. To leverage the above opportunities, we would suggest expanding the business with premium tires based on local production and ef ficient supply chain management (SCM), getting competitive edge in North and South American area.Build a new factory in Mexico and produce two separate line products Mexico has several advantages as supplying headquarter for North and South America Free trade with US, lowest labor cost among North America countries, and geographic advantage for effective supply between North and South America. Two separate line products whitethorn satisfy different needs of the customers technology-driven, premium tires for North America and cost effective, low price tire for South America.Accelerate market penetration taking advantage of relatively high profitability. Hankook Tire should expand Original Equipment (OE) tire sales and distribution channels because OE lasts averagely five years before replacement and more or less half have a tendency to keep their original brand in the timing of replacement. If Hankook Tire has an advantage on production of functional OE tires or distribution with ag gressive investment under demoralize tire market, allied with major automobile companies such as Ford which already established cooperation, it would be good chance to make a new leap forward as one of the big global players in tire industry.3) International business management for long-term competitivenessFor the long-term success of global business for Hankook Tire, our team suggests that high global efficiency and high local responsiveness be needed as strategic alternatives for international strategyAchieve economies of scale on the long term point of view. Due to the nature of the tire industry, the economies of scale with high foreign investment with extensive coordination would be effective way to strengthen the long-term competitiveness.Secure global scale efficiency through the localizationSince 2009, Hungarian plant has achieved to save the short-term logistic costs and shorten the delivery period from 2-3 weeks to 2-3 days. And as well as enhanced market recognition in Europe. This is good example to have raised the market share through the localization. To build the next-planed Indonesia and China plant may helpful to strengthen long term competitiveness. decentalisation Strategy by ongoing provision program for local people. Trained local people could take the initiative to enhance not only the production efficiency and quality but also the sales. Thus, training program for local makes to strengthen the long term competitiveness