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Affected by the industry's liberalization and the steady growth of the auto market, China’s tires have also been “moving forward†in recent years. Before and after the accession to the WTO, the multinational tire giants once “slid through†and major domestic tire companies have also stepped up mergers and reorganizations. After experiencing the first wave of joint venture restructuring, with the further intensification of competition, the pattern of China's tire industry is undergoing new changes.
Recently, the world's tire giant Michelin officially launched the "Michelin with you" service in the domestic market, only one day later, its old rival Goodyear immediately tit for it, launched a "car nanny plan." Different from previous strategies such as capital increase and production expansion, the two major tire giants have invariably focused their competition on after-sales service. According to relevant sources, this indicates that the domestic tire industry has shifted from a simple joint venture restructuring in the previous two years to a new stage of industry integration with technology, service, and brand competition as well as “internal competitionâ€.
Steady growth highlights the highlights
The booming domestic auto market in recent years has benefited the tire industry.
According to statistics, in the past two years of 2004 and 2005, China's tire industry also showed a steady growth. 2004 was a bumper harvest in the tire industry. Its output reached 239 million, an increase of 18.7% from 2003, and total sales revenue reached 79.35 billion yuan, an increase of 37.6%, creating a new level in recent decades. In 2005, China’s tire industry produced a total of 283 million tires, an increase of 18.5 percentage points from 2004, and a sales revenue of more than 80 billion yuan.
Due to the frequent joint ventures of multinational tire giants and some domestic tire enterprises have stepped up the pace of technological upgrading, the meridianization level of China's tire industry has made significant progress, which is also the biggest bright spot in the steady growth of the market. According to statistics, in 2005 China's total tire production, the number of radial tires reached 142 million, radialization rate reached 50%; all steel radial tires were about 31 million, an increase of 50%; semi-steel radial tires were about 111 million , a year-on-year increase of 70%. In terms of exports, last year China exported about 90 million tires, an increase of 31% over the same period of last year, and the export delivery value reached US$3.2 billion, an increase of 50% over the same period of last year.
The healthy competition in the tire industry has also reversed the old “scattered, chaotic, and small†pattern of China’s tires, and its production concentration has improved. According to statistics, in 2005, the tire production in Shandong Province accounted for 35.28% of the national total, while the development of the tire industry in the Yangtze River Delta region was also very rapid. Its output accounted for 27.63% of the country's total.
It is worth noting that the tire industry in China has also suffered from the tests of rising raw material prices and falling vehicle prices in recent years. According to a person related to Triangle Tire, from 2002 to 2005, the price of rubber alone has increased by 1.5 times; while the continuous decline in the price of domestic vehicles has also made tire companies truly feel the cost pressure transmission of vehicle manufacturers. Under such circumstances, it is not easy for the tire industry to achieve such a result.
Three plates brewing changes
In China, there are hundreds of tire manufacturers, but under careful analysis, it can be roughly divided into three major segments.
The first section is the three giant multinational tires of Michelin, Goodyear and Bridgestone. These three companies have successively established joint ventures or wholly-owned companies in China. In the international market, the three companies accounted for more than 60% of the market share, with strong strength and advanced technology, also occupy a leading position in the domestic market. Among them, Michelin has occupied 20% of the market share of domestic replacement tires.
The second section is a Sino-foreign joint venture such as Giti, as well as a number of domestic tire manufacturers with certain strengths, such as Fengshen, Double Star, and Huang Hai. These enterprises have relatively similar levels in the mid-range passenger car and light duty radial tire market, occupying a considerable market share, and serving as the “strength forces†and “market followersâ€.
The third plate is a domestic bias tire production enterprise. As foreign tire companies rarely produce biased tires in China, this market is sang by domestic companies. According to statistics from the China Rubber Industry Association, in 2005, the sales revenue of 43 member companies of the association was 67.99 billion yuan, of which 25.32 billion yuan was biased. Although technically backward, the output value and market are not small.
Market leaders are striving to pull the gap between their followers and their followers. After successively completing the production layout of capital increase and production expansion, the three giant tire giants have shifted the focus of their competition to after-sales services and brand marketing. The Michelin “Follow Your Own†war broke out in Goodyear’s “Baby Sister Care Planâ€. Michelle tire brand manager Ye Feifei is also outspoken. “The tire replacement market has two main parts. The first part is the loyalty purchase of the original manufacturer. The higher the visibility of the tire brand, the greater the percentage of loyalty purchases. The second is the pulling effect of the brand." Of course, the emphasis on after-sales does not mean that it will give up its product strategy. According to Ye Fei, since small-displacement vehicles will continue to be positive in the country, Michelin will also be equipped with tires for economical family car.
The power faction has never slowed down. Although they did not respond promptly to the tire giant's brand competition strategy, a series of joint venture restructurings have long been in full swing. In March 2005, Dongfeng Tire was formally hosted by Qingdao Shuangxing, which started with shoemaking. In the same year, Singapore Jiatong Tire also acquired *ST birchwood and changed it to Jiatong. In January this year, Sinochem Group, a subsidiary of Sinochem Corporation, And equipment companies also successfully acquired the Yellow Sea shares.
In these three sectors, the largest variable is the domestic biased tire production enterprises. According to the new consumption tax policy, the tax rate for biased tires will be reduced from the previous 10% to 3%. Although the 7% rate of decline has brought billions of profit opportunities for many skewed-children enterprises, the chairman of the China Rubber Industry Association, Geng Hongzhen, still issued a warning: if a skewed tire manufacturer fails to make good use of national policies, it will increase its accumulation. Technological transformation will face the danger of being eliminated.
Technical services determine success or failure
Huge car ownership and a continuously growing auto market make the domestic tire market destined to continue prospering. According to Yefei’s prediction, the tire industry in China will continue to grow at a rate of 15% this year. As for the prediction of tire overcapacity, some people in the industry believe that it is simply a result of the “structural†surplus caused by too many biased tires and poor product technology.
The tire industry is a combination of labor-intensive and technology-intensive industries. Although China's tire industry still has a certain cost advantage, labor costs in foreign countries generally exceed 15%, while labor costs in China do not exceed 5%. With foreign investment in China to set up factories, this comparative advantage is gradually losing. Therefore, grasping the R&D and upgrading of radial tire technology has become a top priority for domestic tire companies.
According to professionals, compared with the original market, the replacement of the tire market is twice that, accounting for nearly 70% of the entire tire market, the role of after-sales service in the tire industry can not be underestimated. In response, Hou Yucheng, vice president of Triangle Tire Co., Ltd. suggested that Chinese companies should use their "home-grown" advantages to gain the initiative in competition. While paying attention to differentiated production and reducing costs by expanding scale, we must strengthen the construction of after-sales services. He also predicted that the future tire market will be an increasingly competitive market. In the long run, the entry of foreign-funded enterprises will also increase the overall level of the tire industry in China, and at the same time it will further integrate the industry. A large number of mergers and acquisitions will also take place in three to five years.