FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

****

MID-TERM REPORT

CASE STUDY:

TYRE MAHARAKJAHS AGAINST CHINESE EXPORTERS AND TYRE

GLOBAL MAKERS. THE STRUGGLE FOR LEADERSHIP IN THE INDIAN
TYRE INDUSTRY

Group: Group 1

Subject: Strategic Management

Subject ID: QTRE312

Class: K60CLC1

Leader: Nguyen Cong Thinh

MSSV: 2112253070

Email: [email protected]

Ho Chi minh city, April, 2024

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MEMBER LIST AND PERFORMANCE

Name
No Tasks Performance Note
Student ID
Nguyễn Đức Toàn
1 100%
2112253621
Lê Tuấn Hoàng
2 100%
2112253027
Bùi Ngọc Trang Anh
3 100%
2115213004
Đoàn Thị Thanh Hằng
4 100%
2112253024
Nguyễn Hồng Ngọc Tuyết
5 100%
2113253012
Nguyễn Công Thịnh
6 100%
2112253070
Nguyễn Thị Thanh Hà
7 100%
2113253003
Nguyễn Khoa Nam
8 100%
2011155341
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TABLE OF CONTENTS

MEMBER LIST AND PERFORMANCE ............................................................... 1

LIST OF TABLES ................................................................................................. 4

LIST OF FIGURES ............................................................................................... 4

I. Using 5Fs to Analyze How Attractive is the Indian Tire Industry ......................... 5

1. Threats of New Entrants (Low) ..................................................................... 5

1.1. Economies of Scale and Capital Requirement ............................................. 5

1.2. Brand Identity, Product Differentiation and Customer Switching Costs........ 5

1.3. Other Factors (raw material, technology and distribution channels) ............. 6

1.4. Government Policies and Protection for the Sector ..................................... 6

1.5. Conclusion ............................................................................................... 7

2. Threats of Substitutes (Low).......................................................................... 7

2.1. Foreign Competitive.................................................................................. 7

2.2. Domestic Competitive ............................................................................... 7

3. Competitive rivalry (High) ............................................................................ 8

3.1. Market Dominance.................................................................................... 8

3.2. Market Segmentation and Differentiation ................................................... 9

3.3. Demand Growth Condition in the Industry ................................................. 9

3.4. Barriers to Entry and Expansion ...............................................................10

4. Bargaining Power of Customers (Low).........................................................10

4.1. Type distribution corresponds to three main channels in India ....................11

4.2. Conclusion ..............................................................................................12

5. Bargaining Power of Suppliers (High) ..........................................................13

5.1. Raw Material Dependency and Profitability Vulnerability:.........................13

5.2. Factors Driving Tire Input Cost Surge:......................................................13

5.3. Challenges with Rubber and Government Regulations: ..............................13

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5.4. Conclusion on Industry Challenges: ..........................................................14

II. Identify Companies Having the Strongest Influence on the Indian Tire Industry
Attractiveness ........................................................................................................14

1. MRF .............................................................................................................14

2. Apollo Tyres .................................................................................................15

III. Provide a Specific Sssessment of Barriers to Entry Protecting the Indian Tyre
Industry from Foreign Entrants ............................................................................16

1. Tariff Barriers ..............................................................................................16

2. Non-tariff Barriers .......................................................................................16

2.1. Uncertainty in Materials ...........................................................................16

2.2. Technology..............................................................................................17

2.3. Customer Demand ...................................................................................18

2.4. Domination of Lead Manufacturers...........................................................18

3. Conclusion ....................................................................................................18
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LIST OF TABLES

Table 1: Market Shares (in Volume) by Product (FY2018) .................................. 9

LIST OF FIGURES

Figure 1: Market Shares (in Value) of Tyre Makers in Indian (FY2018).............. 8

Figure 2: Variations in Input Costs (Brent Crude Oil, Carbon Black, Natural
Rubber and Synthetic Rubber Costs) ..................................................................17
Figure 3: Tyre Cost Structure in India ................................................................17
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I. Using 5Fs to Analyze How Attractive is the Indian Tire Industry

1. Threats of New Entrants (Low)

According to Porter (2008), the new entrants bring new capacity and a desire to gain
market share that puts pressure on prices, costs, and the rate of investment necessary to
compete in an industry. Thus, the threat of new entrants puts a cap on the profit potential
of an industry. The threat of entry in an industry is determined by the level of entry
barriers that are present and the reaction entrants can expect from incumbents. The
barriers to entry include factors like:

1.1. Economies of Scale and Capital Requirement

Capital requirements: highly capital-intensive, with high fixed costs for setting up
manufacturing plants, research and development, marketing and advertising, and
distribution, especially when a firm wants to reach economies of scale.
- A new firm that is interested in entering the market needs to conduct in-depth
research beforehand. An entering firm would need a tremendous amount of implicit and
explicit knowledge in order to design and manufacture a product.
- A tyre manufacturing facility is very specific and specialized; therefore in the
event of a failure or malfunction, the cost of repair is extensive.
- The tyre industry is well-known for its reliance on capital investments, where
raw material costs account for 60-65% of revenue. Other sustainable costs include
SG&A, which accounts for 6-12% of revenue, and staff costs, which account for 7-14%
of revenue.
A large amount of capital for entering the industry is required, economy of scale
prevails and make it significantly difficult for new entrants from both domestic and
foreign markets to enter the industry.

1.2. Brand Identity, Product Differentiation and Customer Switching Costs

Existing suppliers have strong brand recognition and customer loyalty: Some tyre
brands such as MRF, Apollo Tyres, JK Tyre, and CEAT, with both MRF and Apollo
ranked 15th and 17th among the top 30 largest tyre markets in the world have strong
brand recognition and customer loyalty in India, which makes it difficult for new
companies to gain market share.
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Product differentiation: the tire industry is homogenous so it is difficult to have an

outstanding product unless you have reached the price or quality advantage to compete
with other established brands with high brand identity.
Switching Costs: In the Indian Tyre Industry, there are a lot of tyre manufacturers
competing for the market share. These tyre manufacturers compete with each other by
offering different pricing policies, discounts, promotions, etc. The result of this
competition is that customers are able to find affordable tyres across different brands.
This lowers the cost barrier for switching.
Therefore, the dominance of big players in the market, the challenges in attracting
customers and establishing competitive advantage can lead to bad conditions and
subsequently faced financial distress (Falcon Tyres filed for bankruptcy in 2017, Birla
Tyres sold off one of its subsidiaries,...).

1.3. Other Factors (raw material, technology and distribution channels)

Access to raw materials: Tyre inputs, such as natural and synthetic rubber and
crude oil, have become more expensive due to their cyclical price increase, the
depreciation of the Rupee and the 25% customs duty imposed on imports by the Indian
government. Moreover, some tyre manufacturing facilities cannot operate at full scale
as they are short of supply due to bad crop of natural rubber in India.
Technology: Having been created and established by the existing competitors, it
would be really challenging for the potential new entrants in the industry to bring out
such technologically advanced products that can compete in the existing market.
Access to distribution channel: In the OEM (Original Equipment Manufacturer)
market, the distribution channel is primarily controlled by big players. Additionally, the
replacement market comprises thousands of independent garages and tire dealers who
are mostly exclusive distributors. This means the new entrant in the industry has to
compete with the major players or other small competitors which have established and
provide the dealership and networks.

1.4. Government Policies and Protection for the Sector

The Indian government imposed an anti-dumping duty and Good and Services Tax
(GST) to protect domestic industry from cheap Chinese imported tyres, which can be
hard for foreign, especially low-cost companies to enter the market.
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The tyre industry in India is highly regulated, with stringent standards set by the
Bureau of Indian Standards Act, 2016. New entrants must comply with these
regulations, which require them to invest more money and time. This could be a
significant barrier to entry, preventing new players from entering the market.

1.5. Conclusion

The threat of new entrants is relatively low. However, in the view of the domestic
(Indian) industry, the threat of new entrants can be relatively high. Because the
international or foreign players can gain advantage through partnership or mergers and
acquisitions with local companies.

2. Threats of Substitutes (Low)

2.1. Foreign Competitive

In an expanding tire market, several leading companies have recently faced

challenging competitive conditions, leading to financial difficulties and resulting in
corporate restructuring and industry consolidation.
The competitive pricing from Chinese and Taiwanese exporters in the replacement
market appears to be a significant destabilizing factor.
Moreover, over time, the enforcement of ADD has had adverse effects on the
Indian tire market. It has redirected Chinese commercial flows into the passenger vehicle
radial tire segment.
In conclusion, China poses a moderate threat to replacing the domestic Indian tire
industry in the passenger vehicle radial tires segment.

2.2. Domestic Competitive

The replacement market occurs when tires wear out or get punctured. In this
segment, there is a small gap in the penetration of counterfeit products. However, despite
Indian customers being highly sensitive to price, they would not opt for counterfeit
versions due to the significantly superior quality of the originals.
Therefore, the threat of substitution by counterfeit goods is low.
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3. Competitive rivalry (High)

3.1. Market Dominance

The effects are high because of the intense rivalry between domestic giants such
as MRF, Apollo Tyres, and JK Tyre, and international players such as Michelin,
Bridgestone, and Goodyear.
Threat from Domestic Competition:
- In FY2018, the Indian tyre market amounted to approximately Rs. 595,000
million. This market is made up of 39 Indian and foreign companies operating Tyres,
JK Tyre and CEAT―stand out with cumulated sales accounting for around 65% of the
entire tyre market.
- In terms of volume, the local 60 manufacturing facilities along with dozen of
importers (mostly Chinese). However, four Indian tyre makers alone―MRF (leader),
Apollo industry concentration is even stronger, especially in the commercial tyre
segment

Figure 1: Market Shares (in Value) of Tyre Makers in Indian (FY2018)

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Table 1: Market Shares (in Volume) by Product (FY2018)

Threat from Chinese Exporters:
- The entry of Chinese tyre manufacturers posed a significant threat to domestic
players. Chinese tyres often entered the market at lower prices, challenging the market
share of Indian tyre companies. This intensified competition, particularly in price-
sensitive segments. They grab a record 14.9% share of commercial vehicle radial tyres
sold to the replacement market

3.2. Market Segmentation and Differentiation

Companies likely segmented the market and differentiated their offerings to target
specific customer segments.
- Apollo Tyres has followed two directions for growth: product range extension
and internationalisation.
- In 2017, MRF started distributing its products online through its website and the
MRF T&S network.

3.3. Demand Growth Condition in the Industry

Vehicle sales were strong during 2017-2018, driven by factors such as

urbanization, infrastructure development, and easy financing options. New vehicle sales
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contributed to the demand for original equipment manufacturer (OEM) tyres, while
replacement demand remained steady due to aging vehicles and wear and tear.
Some sense of the relationship between the tyre and fuel consumption has grown
over several years: they have been led to think in terms of cost per kilometre rather than
the tyre buy-in cost, which prompts them to include the tyre mileage and retreading in
their cost calculation.

3.4. Barriers to Entry and Expansion

The dominance of key players in the Indian tyre industry is reinforced by

significant barriers to entry and expansion.
These barriers include high capital requirements for setting up manufacturing
facilities, the need for extensive distribution networks, strong brand recognition, and
regulatory compliance.
→ As a result, new entrants often find it challenging to compete with established players,
further consolidating the industry's structure.
Cost: Tyre inputs, such as natural and synthetic rubber and crude oil, have become
more expensive due to their cyclical price increase
→ High fixed costs require significant investment.
→ Challenging for new players to enter and compete in the market.

4. Bargaining Power of Customers (Low)

In FY2018, the Indian tyre market is made up of 39 Indian and foreign companies
operating locally 60 manufacturing facilities along with dozens of importers (mostly
Chinese). However, four Indian tyre makers alone―MRF (leader), Apollo Tyres, JK
Tyre and CEAT―stand out with accumulated sales accounting for around 65% of the
entire tyre market. In terms of volume, the industry concentration is even stronger,
especially in the commercial tyre segment.
As Indian customers are highly price sensitive, they are attracted by tyres imported
at low prices from China. These imported tyres have an average price that is 30% lower
than tyres sold by Indian companies.
Besides, some Indian companies (JK Tyre, Apollo Tyres and CEAT) have tried to
team up with Chinese tyre makers in order to jointly produce radial tyres and match the
lower-priced imported Chinese tyres.
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Conclusion: The switching costs are LOW due to the large number of sellers in the
tyre industry, despite being dominated by a few large tyre manufacturers.

4.1. Type distribution corresponds to three main channels in India

First, tyres are directly sold to carmakers through a business-to-business channel,

also known as OEM (Original Equipment Manufacturers)
The OEM market in India encompasses both domestic and international
carmakers, showcasing a diverse landscape of vehicle manufacturers. Maruti Suzuki
commands the passenger vehicle market with a 47% share, while Tata Motors leads the
commercial vehicle sector with 55% market dominance. Two- and three-wheeler
segments are highly concentrated, with Hero Moto, Honda, Bajaj, and TVS collectively
crossing the 20 million unit sales mark in 2018. In the tractors and agricultural vehicles
domain, Mahindra Motors, TAFE, and Swaraj emerge as dominant players. This
underscores the significant concentration and competition among major tyre buyers,
with certain players holding substantial market shares across various automotive
segments in India.
As their major customers are heavily concentrated in competitive segments, these
OEMs have obtained large price cuts for large purchases sizes from suppliers such as
tyre companies, while the latter have been unable to pass on higher raw material prices,
fearing market share losses. The major challenge for the Indian tyre industry is to reach
profitability despite the ups-and-downs of the supply market and its dependence on large
customers.
→ With only a number of car manufacturers dominating the automobile industry
compared to the number of tyre makers, the bargaining power of buyers in the OEM
market is HIGH.
Second, the replacement market takes place once the tyres get worn out or
punctured. It consists of garages and tyre dealers, including small retailers and large
distribution networks:
As regards the replacement market, it consists of thousands of independent garages
and tyre dealers. Some are exclusive (franchised or not) distributors, while others are
multi-brand. The trend is towards vertical integration of distribution and development
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of online distribution by tyre makers. This is notably the case for JK Tyre, with the
development of “JK Tyre Steel Wheels,” and for CEAT, with “CEAT Shoppes.”
The replacement market for the tyre industry is much less dynamic due to better
tyre mileage and improved road infrastructure. It is also much more uncertain since it
annually varies according to tyre imports.
In the replacement market, the price of tyres is a priority purchase criterion for
customers, particularly for those who have a motorcycle, a scooter or a three-wheeler
(“tuk-tuk”).
→ Due to the large number of buyers (in the form of tyre dealers, garages…), the prices
of tyres being a priority for customers, and the better tyre mileage and better road
infrastructure requiring less replacements, the bargaining power of buyers in the
Replacement market is relatively LOW.
Third, tyres produced by the Indian tyre industry are exported abroad.
Tyre exports have reached Rs. 100 million in 2017. Recording a 20% increase, the
US has emerged as the biggest market for Indian tyres exports. The US market has
imported 28 million tyres from India, accounting for 15% of all Indian exports. Indian
tyre companies are also present in other emerging economies in Latin America, South-
East Asia, the Middle East and Africa.
Although India will experience high or hyper-growth, uncertainties and risks will
also rise in such a fast pace that tyre companies could see their return on investment
dented and their growth thwarted. Even for large Indian companies that have expanded
their operations abroad, they remain greatly dependent on the Indian market for their
turnover, growth and profitability. Their home country remains their so-called “cash
cow” market.
→ With the Indian tyre industry being heavily dependent on the domestic market and
the fair number of foreign importers, the bargaining power of buyers in the Export
market is relatively LOW.

4.2. Conclusion

In the Indian tyre industry, the bargaining power of buyers varies across market
segments. In the OEM market, where tyres are directly sold to carmakers, buyers wield
significant bargaining power due to the dominance of a few car manufacturers, enabling
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them to negotiate favorable terms and price cuts from tyre suppliers. Conversely, in the
replacement market, characterized by independent garages and tyre dealers, buyers'
bargaining power is relatively low, influenced by the large number of buyers, price
sensitivity, and factors leading to fewer tyre replacements. Similarly, in the export
market, the bargaining power of buyers remains relatively low, as Indian tyre companies
heavily rely on the domestic market for their turnover and profitability, despite some
presence of foreign importers.

5. Bargaining Power of Suppliers (High)

5.1. Raw Material Dependency and Profitability Vulnerability:

The Indian tire industry's heavy reliance on raw materials, including synthetic
rubber, natural rubber, carbon black, and Brent crude oil, underscores its susceptibility
to changes in input costs. With these costs accounting for 60-65% of sales income and
49-59% of the total cost structure, any fluctuations in raw material prices directly impact
profitability. This vulnerability highlights the need for proactive strategies to mitigate
risks associated with raw material price volatility.

5.2. Factors Driving Tire Input Cost Surge:

Recent increases in tire input costs can be attributed to several key factors. Firstly,
cyclical price hikes in raw materials have led to amplified production expenses, adding
pressure on manufacturers. Secondly, the depreciation of the Rupee against other
currencies has further inflated costs, particularly for imported materials. Additionally,
the imposition of a 25% customs charge on imports by the Indian government has
intensified financial strain on tire manufacturers. Moreover, supply shortages resulting
from India's poor natural rubber crop have exacerbated the situation, driving prices
higher and disrupting production.

5.3. Challenges with Rubber and Government Regulations:

Within the realm of raw materials, rubber poses significant challenges for the
industry. Constituting 33-39% of tire production costs, natural rubber faces issues
related to yield and demand fluctuations. Furthermore, government taxes on imported
rubber add another layer of complexity to the cost structure. These challenges
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underscore the need for effective management strategies to navigate the complexities of
the raw material supply chain and regulatory landscape.

5.4. Conclusion on Industry Challenges:

In conclusion, the Indian tire industry is confronted with a myriad of challenges,

ranging from raw material dependency and price volatility to regulatory complexities.
To thrive in this dynamic environment, tire manufacturers must develop robust
strategies that address these challenges holistically, ensuring sustainable growth and
resilience in the face of market uncertainties.

II. Identify Companies Having the Strongest Influence on the Indian Tire Industry
Attractiveness

1. MRF

MRF employs a differentiated business strategy that is highly responsive to the

current customer demands. The company has effectively leveraged economies of scale
while prioritizing customer satisfaction. This strategy has led to the development of
products that stand out from competitors based on two key attributes: superior quality
and enhanced durability.
The company boasts a diverse product portfolio that spans the entire tyre market,
encompassing tyres for passenger vehicles, commercial vehicles, farm equipment, and
off-road vehicles. MRF is a dominant player in most of these segments, holding a 24%
share in the overall tyre market value as of 2018. Specifically, MRF leads with 23% of
the passenger vehicle segment, 37% of the two- and three-wheeler segment, and
maintains a leadership position in the agriculture and OTR tyre segments. With eight
manufacturing facilities and an extensive distribution network that includes 5,000
dealers, MRF also embraces digital sales through its own and its network’s websites.
Given its market prominence, MRF naturally sets a high entry barrier for new
competitors, thus diminishing the industry's attractiveness to new entrants. In 2018,
MRF reported nearly $2.4 billion in sales, demonstrating its significant advantage in
economies of scale, distinct product differentiation, and extensive distribution network.
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2. Apollo Tyres

Apollo Tyres holds a substantial share of the Indian market, with 17.7% in value
as of 2018, making it the second-largest tyre manufacturer in India. The company has
not only solidified its stance in the domestic market but has also pursued growth through
acquisitions and international expansion, distinguishing it from its peers.
Unlike many of its competitors who focus primarily on domestic growth and
exports, Apollo Tyres has adopted a more aggressive international expansion strategy.
This includes acquisitions such as the purchase of Dunlop Tyres South Africa and
Vredestein in the Netherlands. These strategic moves have allowed Apollo Tyres to
access new markets and distribution networks, thus broadening its global footprint and
reducing dependence on the Indian market.
Apollo Tyres manufactures a wide array of products that cater to various segments
of the market, including passenger vehicles, commercial vehicles, and two- and three-
wheelers. In recent years, the company has made a significant push into the two- and
three-wheeler segments, further diversifying its product base and targeting new
customer segments.
Apollo Tyres is known for its innovative practices and customer-focused
strategies. This includes adopting new technologies and improving product quality to
meet global standards, which enhances customer satisfaction and brand loyalty. Their
focus on quality and customer satisfaction is critical in maintaining a strong market
position and influencing industry standards and practices.
The financial strength of Apollo Tyres, highlighted by substantial sales growth and
international revenue, supports its expansive and aggressive strategies. In 2018, Apollo
Tyres' global presence was emphasized with a significant portion of its revenues
generated from international markets, showcasing its capability to leverage global
opportunities.
Apollo Tyres has also excelled in marketing and distribution. The company has a
well-established network of exclusive retail outlets, branded as "Apollo Zones," which
help in maintaining a strong brand presence and ensuring widespread product
availability. This network is crucial for maintaining direct contact with consumers and
strengthening market influence.
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III. Provide a Specific Sssessment of Barriers to Entry Protecting the Indian Tyre
Industry from Foreign Entrants

1. Tariff Barriers

With the increase in imposed duties on Chinese and Taiwan imports - the Anti-
Dumping Duty in 2017 on commercial vehicle radial tyres, and the following set of
duties in 2018 on passenger car radial tyres - obviously created some obstacles to these
businesses. However, even with those actions in tariff, they still could come up with
alternatives, like greenfield investment, to effectively enter the market. In addition, apart
from the two nations above, there are also possible entrants from other countries that
might become huge competitors but are yet to be considered. Hence, tariffs bring a
moderate barrier to entry

2. Non-tariff Barriers

2.1. Uncertainty in Materials

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Figure 2: Variations in Input Costs (Brent Crude Oil, Carbon Black, Natural
Rubber and Synthetic Rubber Costs)
Violality in tyre input price, mainly on natural rubber and crude oil, is a result of
cyclical price increase due to various reasons. The relationship between these materials
is also noticeable, leading to the pressure that both might simultaneously surge. Since
they account for the highest in estimated total cost, this could be a challenging problem
in pricing strategy. On the other hand, quality of rubber crop within the nation is also
unstable.

Figure 3: Tyre Cost Structure in India

2.2. Technology

There are mainly two types of tyres in the industry - the traditional “cross-ply” and
the wind of modern “radialization”. Each of these has its pros and cons, and their usage
also varies according to different customer segments - radial tyres are blooming among
passenger vehicles, while cross-ply tyres still lead the two-wheeler market. The level of
technological requirements is not extreme, and so technology is a low barrier to entry.
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2.3. Customer Demand

Being mentioned as a price sensitive market, Indian tyre consumers pay heavy
attention to cheap products. Nevertheless, the quality of tyres is also highly assessed
visibly in the rejection of some China imports due to dissatisfied supply, addressing to
a need for highly competitive products. In short, customer demand is a relatively high
barrier to entry.

2.4. Domination of Lead Manufacturers

Four Indian tyre makers alone - MRF (leader), Apollo Tyres, JKTyre, and CEAT
- account for nearly 65% of the entire market in terms of sales, and for volume the
concentration is even higher, covering the majority of market segments. Heavy
competition under financial distress led to company restructuring and industry
consolidation (the sale of Birla Tyres’s subsidiary, Cavendish to JKTyre for example),
resulting in even more concentration within the India market. Such dominance under
domestic support might become a heavy constraint to foreign competitors, though the
spread of Chinese and Taiwanese imports indicates that smart strategy still opens a path
for entry. Because of that, domination of lead manufacturers is a moderate barrier to
entry.

3. Conclusion

While the competition of Indian Tyre market is already intense where domestic
businesses are trying to take the lead from cheap imports and lead players still hold their
dominance, the support from the government for national manufacturers brings
additional burdens to foreign competitors. In combination with high capital risks, the
industry is showing a moderate barrier to entry overall.