Introduction
The tire is primarily the only part of a car that is in touch with the road. A balance must strike among traction, durability, overall, energy efficiency and comfort by the tire in cars. Due to all these factors, the designing and manufacturing of a tire is a complex process as compared to what is generally perceived .
Headquartered in the region of Clermont-Ferrand, France, the Michelin Tire Manufacturer is available in around 170 countries. It has more than 112,000 employees who work in various departments of the company. The company has a total of 68 production plants in around 17 countries. The company has established a specialized Technology Center that is responsible for carrying out research and development along with process engineering. The company has major operations in North America, Asia, and Europe .
Background
Michelin started his journey of the discovery in the year 1891 when a detachable tire for a bicycle was developed by him with the assistance of Andre. With the passage of time, he has expanded his business over 170 countries, 127 staffs with 80 production plants and 06 rubber plantations. The tires produced by Michelin are the best-considered tires throughout the world. Biggest market share is captured by him in this industry. Another product, except the tires, is quite famous produced by Michelin, is known as Green Guide and Red Guide. These are guides related to travel. Micheline, although, is considered as top leaders in the industry of tires, yet the competition is quite intense. Keeping in view, the competitiveness in the market, Michelin is to be vigilant for its products and comprehensive inspection must be conducted to dig out insufficient aspects .
Company profile
The company manufactures a variety of tires for various types of transport vehicles etc. The company offers following variety of tires :-
Recreational vehicle tires
Earthmover tires
Passenger & light truck tires
Agriculture tires
Bicycle tires
Aircraft tires
Heavy duty truck tires
Motorcycle tires
The company has sold around 2897 Million Euros worth of tires for car and light weight vehicles during only the first quarter of the year 2016. The sales of car and light weight vehicles for the first quarter of the year 2015 were 2777 Million Euros. Therefore, the company has managed to increase its sales from quarter to quarter during past one year by around 120 Million Euros. This growth shows an increase in market share by the company despite all the challenges being faced .
Following are the sales of the company for past 6 years:-
It is evident from this data that the company has managed to gradually increase its sales overs the year 2010-11 and 2011-12. However, there was a decline in sales of the company during the year 2012-13 and 2013-14. The company has again managed to increase its sales during the year 2015.
Financial health
In order to analyze the financial health of the company, a number of factors can be evaluated for past 5 years. These factors include following:-
Net sales, Change in sales: Net sales mean the total sales of the company in a particular year. Change in sales is the %age of change as compared to previous year’s net sales. Both of these financial indicators are a good tool in evaluating the financial health of a company. The higher a company’s net sales are the better its financial health would be therefore, companies try to keep this financial indicator at maximum level.
A total number of employees during a year: The total number of employees in a year show how much the company has manpower that is supported through paying them salaries. A company can hold a large number of employees if and only if it has money to pay them. This indicator shows company’s financial health through the indirect measure. The higher a company’s total employees the better its financial health would be, therefore, companies try to keep this financial indicator at maximum level.
Research and Development expenditures: When a company has a good level of financed and good future prospects, it spends a lot of money on research and development. This financial indicator may not directly tell the accurate financial health of a company but it tells a lot of information about the future targets and long-term goals of the company. The higher a company’s R&D expense is the better its financial health would be therefore, companies try to keep this financial indicator at maximum level.
Operating costs and margins: The operating costs and operating margins are the primary financial indicators in identifying profits and costs while running a business. These two indicators show a good picture of a company’s financial health. The lower a company’s operating cost and margins are the better its financial health would be, therefore, companies try to keep this financial indicator at a minimum level.
Financial expenses: When a company spends a lot in terms of financial expenses, the company’s financial health is considered to be good. The higher a company’s financial expenses are the better its financial health would be therefore, companies try to keep this financial indicator at maximum level.
Taxes: When a company pays a large amount of taxes then it means the government policies are not in favor of the business run by the company. The higher a company’s taxes is the bad its financial health would be therefore, companies try to keep this financial indicator at a minimum level.
Net income: The total income of the company after excluding the expenditures is the net income. This is the actual financial indicator that tells the financial health in direct terms since the net income is the primary objective of any business. The higher a company’s net income is the better its financial health would be therefore, companies try to keep this financial indicator at maximum level.
Net debt: The total loans and other debts pending to be paid by the company to other organizations and banks etc. is known as net debt. The value of net debt shows a good picture of the financial health of a company. If the net debt is high then it means that the company has bad financial health.
Equity: The equity of a company is the total amount of assets and other finances held by the company. The level of equity tells a detailed story of the financial health of a company especially if it is segregated in terms of different assets.
ROE: ROE is an acronym of Return on Equity. This financial indicator shows how much profitable an organization is. The higher a company’s ROE is the better its financial health would be therefore, companies try to keep this financial indicator at maximum level.
The data of all these factors have been obtained from the official website of the company. Following is a detailed table depicting all these financial indicators for the company for past 6 years of operation :-
Mission
The company has the mission to lead the tire industry through dedicating itself towards sustainability in improving transport of people and goods. This is done through manufacturing and selling high quality and energy efficient tires for all types of vehicles as well as automobiles, airplanes, bicycles, motorcycles, earthmovers, trucks and farm equipment. The company also has the mission to convert its major operations on electronic systems. In this regard, the company has started offering support services for electronic mobility on its official website viamichelin.com. The company also publishes various restaurants and hotel guides along with travel guides, road atlases, and maps for traveling .
Vision
The company has a broader vision for its operations while keeping in view the requirements and comfort of the customers. The company wants that the driver of any vehicle when he starts driving the vehicle should feel safe and responsible. This is only possible through providing the best quality and highly reliable tires to the customers. If the tire is of high quality, then the driver feels safe while driving a car hence nothing is left to chance. Since tires are the only part of a car that actually touch the road while driving or even while parked, the tires must be of high quality. All other parts work fine if tires are efficient and reliable. The tires contribute to the fuel economy as well as safety through providing a strong grip on the road.
There is three major functions done by tires of a vehicle. The first function is taking the load which the tire do through lifting a complete load of the car and its passengers. The second important function of tires is to apply braking and acceleration torques to the road in order to stop or accelerate a car. The third important function of tires in a vehicle is to set and change it the direction of movement. The company has the vision to produce the tires that cover all these three functions in such a manner that the user finds the Michelin tires to be the best in the market.
The responsibility of a driver, besides many other, is mainly related to check the wheels of the vehicle. The driver is responsible that nothing would happen adversely and work perfectly. In this pretext, three important roles are played by the tire; carry the weight of the vehicle, driving road torque and transfer breaking etc.
The critical mission of tire involves handling and grip, which is why Michelin aims systematically to provide possible best performance. Michelin is keenly concerned with the safety of the passengers, drivers, road users and pedestrians. Moreover, it has also been tried by him to cover the tread life of the market and to enhance the energy efficiency of the vehicle.
All the parameters which significantly determine the performance of the tire are persistently being improved by Micheline. Although focusing on any one of the points was quite easy and cost effective, yet all the parameters were considered by him which are essential for the users. The major reason for good performance is the best characteristics of Micheline tire and guarantee for quality is one of the commitments made with the customers .
Environmental Analysis
One of the strategic tools is environmental analysis. All the internal and external elements are identified by this analysis which deeply affect the performance of an organization. In the analysis, opportunities and threats have been forecasted. The results of this analysis can be then used in the process of decision making. The analysis assists in aligning the strategies with the environment of the firm .
External environmental analysis
General environment
The industry of tire manufacturing is on a way to be recovered. In the year between 2010 and 2011, the revenue substantially grew, due to the reasons that sales growth resulted from the tires' demand during the recovery of the economy. Due to this growth, most of the big players were crashed out. Therefore, as a result, plants are closed due to the pressure faced by many companies and offshore operations are also closed in order to save the money.
Keeping in view the significant role of aircraft and automobiles’ production, the manufacturers of tires generally locate the plant near to the hub of car or plane manufacturers. Operators particularly concentrate among regions of Great Lakes and Southeast. In both the regions, the production facilities are tremendously unique in the world. It is estimated that about 50% of the total establishments are accounted in these two regions .
It is anticipated that the projected rate for tires’ sale in the Global Market would reach up to 2.5 billion until the year 2020. The rate of this increase is expected due to the reasons of the introduction of latest tire models. The main depending factor for tires market globally is the automotive industry, which is considered in turn the health of the economy of any country. While the trend of automobile production affects the patterns of demand in OEM sector of tire market, replacement cycle, vehicle population and the introduction of troublesome technologies have affected the demand pattern for replacement of tire sector. Employment level, GDP growth, discretionary spends of consumers and operating life of the vehicle averagely have influenced in the market of tires of passengers cars. Expansion of the vehicle commercially and health of the public transportation, construction, mining, and end-user industries of agriculture have influenced the demands for bus, truck, aircraft, utility and industrial vehicle and tires of farm implements.
The rise in the demand of automobile in connection with improvement in the economy worldwide and subsequently rise in the manufacturing of automotive will enhance the demand for tires of OEM in short and medium term tenures. The persistent rise in the demand for passenger cars in the markets of developing nations like China and India and projected rise in the automotive ownership in NONBRIC nations like South Africa, Turkey, Egypt, Vietnam, Indonesia and Colombia will also assist sustaining growth in OEM tires in next few years. The market involved with the replacement of the tires will be benefited from rising average of the vehicle life globally. Enhancement in the age of vehicles resulted in more replacements in turn replacement of tires is demanded vigorously. Additionally, weather extreme conditions, overloading of the vehicles and poor conditions of the road are assisting in rising demand for replacement of tires.
The introduction of latest models and technology developments are some of the main factors by which the growth in the market of the tires have occurred. The factors by which the more scores can be gained are the tires with characteristics like grip on the wet surfaces, low noise levels, comfort, and higher traction & safety levels. It is anticipated that in future the growth would be driven by UPH (Ultra High performance) offering extra control on driving despite flat tire issue.
As per the statement is given in a research report on tires, the fastest and largest growing market of the world is considered the markets of Asia Pacific. The major factors in the region are the extensive demand for the vehicles and presence of developing manufacturing industry in nations like India and China. In this pretext, it is observed that the market of 2 wheeler tires is growing tremendously with a sale of 5.4% of CAGR during the analyzed period .
Industry environment
As per another research report, it is expected that a global tire automotive industry would reach to an anticipated value of dollars 250 billion by the end of 2019. In this pretext, the main factors are the enhanced demand for the green tires, growth in the sales of passenger and commercial vehicles and enhancing level of the radicalization of the tires. Enhancing factory automation and technological innovations are the factors which may contribute in propelling the world tire automotive industry in coming years. Huge usage of new bio-based ingredients and enhancement of vehicle production are the factors which can stimulate further the industry of tires worldwide. The automotive tires’ demand is being grown significantly from the economies which are emerging like; Vietnam, Thailand, India and China. It is expected that industry of tires will be boosted by demands from these nations .
Strategic Group Maps
It is observed that Michelin tires are popular enough as compared to Goodyear and Bridgestone in a period of the time. In the original market of the equipment, tires in Brazil and North America are plus, which shows that its market has been increased. However, its market of replacement is reduced both in North American and Europe. The loyal customers replaced by Michelin, which depicts that opportunity and benefit have been lost by Michelin to expand the market. It is anticipated that this circumstance may happen due to the high prices and some issues regarding quality or safety aspects. The performance of Micheline was not termed as satisfied by its customers, therefore, more attention is to be given to replacement market so the customers are kept intact and also to attract new potential customers.
The main suppliers of Michelin are divided in South and North America, Asia and Europe. The composition of the tires is quite complex. The nature rubber, cord, steel cord and carbon of Micheline tires are respectively imported from Brazil, Nigeria, China, and Belgium. There are many rubber plants which are the assets of Michelin, but still to fulfill the needs of the customers, rubber is purchased from other countries. Therefore, cooperation is being made by Michelin with other manufacturers or industries for raw materials. As for as the credibility of the suppliers of Micheline is concerned, it is reported that it has not satisfied suppliers. The supply in some time not stable and prices of the raw material are quite high resulting the higher cost of the product. Whereas, the customer need the products on relatively cheaper prices .
Internal environmental analysis
Resources
Headquartered in the region of Clermont-Ferrand, France, the Michelin Tire Manufacturer is available in around 170 countries. It has more than 112,000 employees who work in various departments of the company. The company has a total of 68 production plants in around 17 countries. The company has established a specialized Technology Center that is responsible for carrying out research and development along with process engineering. The company has major operations in North America, Asia, and Europe .
Capabilities
The company primarily deals with tire manufacturing. The company has the capabilities to produce, distribute and market tires for a large variety of vehicles. Michelin in producing new products and brands for various markets of the world and producing different categories of the tires placed the company at a competitive advantage. More significantly, the product quality and strong brand of Micheline offer company the power of pricing to automotive manufacturing and consumers. The premium price can be demanded by the company for the products along with the features and benefits attractive for the customers.
Activities
The continental structure is being used by the governance of Micheline. As there is no BoD of Micheline, therefore, its organizational structure is quite flat. However, the board of the supervisors and management partners has been setup having semi-open systems two in numbers. The administrative behavior of the company is supervised by the board of the supervisors. CEO must have the responsibility of the property of the company as its own. The governance structure of Micheline is quite special. As per rules of Micheline, in the case of CEO departs, the responsibility lies on management partner as the supreme power of the group. In this case, he would not be supposed to discuss the matters to be decided. For instance, on the 26th May 2006, the Michelins’ CEO passed away in an accident, instantly the management partner took the responsibilities without any confusion or hesitation on the same day .
Core competencies
The core competence of Micheline has been considered as its proficiency in the products in the developing markets. The proficiencies are technologically advanced, more durable in fuel efficiency and safety. Moreover, the expertise of Michelin has a strong history of innovations, therefore, the recognition of its brand has successfully created a trust for superiority and quality product for the customers. Strong brand and product innovation has always been a key to success for the strategy of Michelin. Innovation has been a part of its people as well as its academic capital. It is based on the transfer of knowledge among skills of functional combinations, departments, resources, technologies, and skills. Intellectual or academic capital and knowledge, more than any physical assets, organizational tangible resources are considered as key ingredients and competitive capability of the firm.
Strategic Analysis
Corporate level strategy
Negotiations with retailers are also holding by Michelin annually, for communication to the retailers, to know situation prevailing in the market and to resolve the serious issues. Invitations are also being made by Michelin to the various teams of cars in order to exchange and communicate the ideas, share service values and providing information. Although the promotion for Michelin means diversity, yet it is observed that the coverage is not quite wide .
Business level strategy
Michelin has a long history of its brand. It has a good reputation in the market having a significant symbol of high-quality product. However, the localization of the product in not sufficient due to non-consideration of the real situation of the roads, pursuit of the comfort, not enough durable, therefore it is recommended that resistance of tire wear should be strengthened. There are many production lines of Micheline. Despite these many lines of production, it has multiple strategies of brand control at every level of the market demand and no conflict has been observed among the strategies. This is one of the reasons of effective improvement in the share of market and enhancement in product profit. Therefore, it is concluded that diversified strategy is adopted by Michelin. Concentric diversification and horizontal diversification product can be produced by Michelin. For instance tire skid chain and inner liner of tire etc. The customers can easily be satisfied by fulfilling their needs. It has no internal competition. The value of new tire is expressed by Michelin to their customers and not about the price. It reflects price quality of the new tire .
Entrepreneurial strategy
For fulfilling the desires of customers, Michelin constantly carries the innovation in the technology as make tires of first bicycle, first of the world, first tire of the car, first tire of the truck, first tire of radial plane, first tire of meridian motorcycle, first snow tires etc. these are major technical achievements of Michelin in its history. The basic reason of its competitive advantage in the market is that it always focus on innovation and technology. A development and tire research center have been set up by Michelin at Clermont-Ferrand in order to make technical innovation. The cost of this center is estimated in the millions euro. This huge investment indicates that Micheline has concentrated upon technology importance. Therefore today, in most of the countries, the people follow tires with low pollution and energy consumption. Many challenges are being faced by Micheline as far as new technology is concerned.
The green tire in the market is considered as a type of the technology which is aspiring for the whole of the tire industry. It is a type of the radial tire for application of latest design and materials. This leads to reduced rolling resistance, less consumption of fuel and low exhaust emissions. As far as the safety is concerned, the green tire is considered much safer, more comfortable, energy saving and extra durable as compared to any other kind of tire. The thing which is considered as most impressive is the performance of tire in protection environment.
In this regard, a lot of development has been made and advanced technologies have been utilized by Michelin. Recently, the latest generation of the fuel-saving tire has been launched by Michelin. This is upgraded kind of green tire having less noise and higher efficiency. It is estimated that in future the usage of green tire would enhance manifold and it would become more popular than others. The customers will be attracted by the series of green tires due to which it is expected that market share will be triggered. This shows that Michelin will be having great opportunity in the market .
Mergers/acquisition and partnerships
There is no major merger or acquisition that took place in the past.
International strategy
The company has a broad strategy to cover international markets. In the original market of the equipment, tires in Brazil and North America are plus, which shows that its market has been increased. However, its market of replacement is reduced both in North American and Europe. The loyal customers replaced by Michelin, which depicts that opportunity and benefit have been lost by Michelin to expand the market. The main suppliers of Michelin are divided in South and North America, Asia and Europe.
Problems identification
There are two major issues faced by the company. The first issue is regarding replacement of transport system of cars by the mass transit system, especially in big and developed cities. The second problem faced by the company is the production of cheap tires by china and offering such tires in the global market to capture most of the market share.
The first problem is quite beyond the control of the company since there is not that can be done to stop people from using mass transit systems or stop government or private sector to make such systems. Moreover, it would not be beneficial for the environment as well as general public to stop using mass transit systems; therefore, the company can’t overcome this problem through direct solutions.
On the other hand, the second problem or challenge faced by the company that is regarding cheap tires produced and sold by Chinese companies can be overcome through offering cheaper tires or other solution of direct and indirect nature. Solution or strategies to address problems will be covered in recommendations part of this report.
Most of the tire makers internationally are getting a huge amount of profit from China. The operating margins from the tires of a passenger car are above 20 percent. There are only a few of the regions which match this percentage, and there in none seen in the China offering such kind of volume. It is a profitable and good business for next few years. On the other hand, the domestic companies are incredibly operating on quite slim margins. The margin in these cases in noted as single digits and in most of the case it is observed as single digit at the lowest level. The margin for international companies is high due to the following reasons;
The premium vehicles are on OE specification
Primarily they operate in high-profit sectors.
The China’s truckers love the product of Michelin, although they know that it is too expensive. They persistently are buying the product from Chinese tires truck suppliers.
SWOT Analysis
Following is the SWOT analysis of the company :-
Strengths
Michelin is primarily one among the top tire manufacturers around the globe.
Michelin Tire Manufacturer is available in around 170 countries.
It has more than 112,000 employees who work in various departments of the company.
The company has a total of 68 production plants in around 17 countries.
The company has a specialized Technology Center that is responsible for carrying out research and development along with process engineering.
The company possesses high market share and excellent level of brand equity.
The company has highly qualified and competent professionals in its Research and Development Department. These employees possess a high level of creativity and innovation.
The company holds a strong financial position in the market.
The company has a large number of a variety of tires covering almost all types of transportation.
The company has started offering support services for electronic mobility on its official website viamichelin.com.
The company also publishes various restaurants and hotel guides along with travel guides, road atlases, and maps for traveling.
Weaknesses
There is a high level of competition faced by the company from various other tire brands.
The company has not entered into a number of emerging economies around the globe.
The company has a financial position that is highly leveraged.
Opportunities
The emerging economies are good potential markets for the company to expand its business.
The company may increase awareness of people on various services offered by it to the customers to build an even better brand value and recognition.
The company has good scope in improving its distribution and supply chain management system through incorporating latest information technology based systems.
Threats
The prices of raw materials in the tire industry is highly volatile which need to be considered well before production begins.
The company faces a high level of competition from various other tire manufacturers nationally in the United States as well as internationally.
The government policies including taxes and export duties on the automobile sector highly affect the manufacturing of tires since production and export of automobiles correlate with the tire production.
Replacement of cars for transportation with the mass transit systems like metro and trains for local transport results in reducing demand for automobiles hence reducing demand of tires.
Changes in the foreign exchange rates especially due to inflation cause variable tire prices hence reducing the demand for export.
China has started producing much cheaper tires for the international market that has resulted in reducing the overall market share for the company for its exports.
Using Strengths and Opportunities to Overcome Weaknesses and Threats
The company may expand itself in the emerging economies like India, Pakistan, and various African countries in order to expand its business. The company may also move its production line to cheap production countries like China. The company may improve its distribution channel through effectively utilizing the best and cheapest source of production, transportation and marketing of the products.
Recommendations
While keeping the two major problems faced by the company, two major strategic alternative can be recommended. The two major issues being faced by the company need to be considered prior presenting recommendations. The first issue is regarding replacement of transport system of cars by the mass transit system, especially in big and developed cities. The second problem faced by the company is the production of cheap tires by china and offering such tires in the global market to capture most of the market share.
Strategy alternative 1
This strategy would cover the problem faced by the company in terms of mass transit systems used by people. The first problem is quite beyond the control of the company since there is not that can be done to stop people from using mass transit systems or stop government or private sector to make such systems. Moreover, it would not be beneficial for the environment as well as general public to stop using mass transit systems; therefore, the company can’t overcome this problem through direct solutions. However, the company may produce tires for mass transit systems and may also expand its product range to cover other consumer products made from rubber in order to effectively utilize its production and maintain high level of profits.
Strategy alternative 2
This strategy would cover the problem faced by the company in terms of cheap tire production by China. This problem or challenge faced by the company can be overcome through offering cheaper tires or other solution of direct and indirect nature. Solution or strategies to address problems will be covered in recommendations part of this report. The company may also outsource its production to China through carrying out merger or acquisition with a Chinese tire manufacturer; however, this solution would cost a number of jobs to the company.
References
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