Michelin has a unique opportunity to emerge from the financial recession that crippled the tire industry in 2009. Not only did the company survive this downturn, but they are better positioned to increase their market share as the industry rebounds. It was found that the company should further leverage its dedication to environmental sustainability to increase its product diversification. The company has already emerged as a leader in this pursuit and has brought to market innovative technologies that reduce fuel consumption on the vehicles that they are equipped with Michelin's tires. Michelin should work to further capital this competitive advantage. This strategy will work to carve out a niche in the short-term while better positioning the company for the inevitable increase in environmental regulations.
Michelin is a French owned tire manufacturer that has the highest percentage global market share controlling about fifteen percent of the global market. Michelin is a massive corporation that employs over one hundred thousand people at close to seventy different factories (Michelin, 2012). The company is active on every continent in the world and they have marketing operations in approximately one hundred and seventy countries. Michelin has one of the most competitive product mixes in the industry and markets over four thousand different models of tires. Furthermore, Michelin is also one of the oldest company is the industry with a history that dates back to 1889 at which time it was officially founded by the Michelin brothers.
Michelins vast product mix has been crafted to be able to target many narrow specialty niches such as tires for airplanes and tires for heavy equipment. Michelin has benefited through diversification of their product mix which has allowed the company to capture market share and brand loyalty. Through a diversification strategy coupled with a dedication to quality has allowed the organization the ability to offer innovative solutions for a variety of different applications. Michelin's ability to maintain high quality throughout all of their global operations can be seen as a competitive advantage and also allows the company to position itself as a premium product.
The automotive industry in general is considered to be one of the most solid segments of the economies in developed countries. This industry has many subsidiary segments associated with it as well. In the U.S. market alone, if you include suppliers, car services, garages, and retailers, there are a total of about five million people who are employed in this industry not including the petrol industry that supplies the power supply to fuel the motor engines (Seeking Alpha, 2010). Thus the health of the automotive industry can be an indicator of the health of the overall economy since so much of the economy is dependent of the production and consumption of vehicles in industrialized nations. The U.S. industry alone represents about a fifteen billion dollar a year industry with over one hundred companies who compete in this market segment (Seeking Alpha, 2010). However, the top four companies generate more than seventy five percent of this revenue stream; the top companies include Goodyear, Bridgestone, Michelin, and Cooper (Hoovers, N.d.).
Figure 1 - World Market Share (Bridgestone, 2002)
After the global recession emerged, the tire industry experienced a significant downturn driven by a decrease in demand. The Dow Jones U.S. Tire stock index, which represents a conglomeration of tire companies, indicates a twenty five percent drop in total sales over the period of September 2009 through August 2010. This downturn was driven by two primary factors. First, since consumers had less disposable income they delayed replacing worn tires on their existing vehicles. Furthermore, new car sales were also down which represents another significant source of industry activity. Thus the recession had a massive impact on the tire industry across the board.
Figure 2 - Dow Tire Index (Seeking Alpha, 2010)
Raw Material Limitations and Tire Production
Tire production and the technology associated with it have evolved to new levels of sophistication over the last few decades. Now manufactures have more options available for meeting different objectives in product design such as efficiency, durability, or performance. In some applications there can be over two hundred different raw materials that can go into the production of a single tire. Although rubber is one of the primary components, synthetic rubber is commonly used as well as various reinforcing materials such as steel wire, steel cord, and polyester. Natural rubber comes from the sap of rubber trees and is generally imported from large rubber plantations in countries such as Indonesia, Malaysia, Thailand, and Brazil (Hong, 1996). Globally, the tire industry uses nearly roughly seventy percent of world's natural rubber production (Melson, 2006). Furthermore, roughly sixty percent of the production costs of a tire can be attributed to the price of rubber. Therefore the industry is extremely sensitive to any fluctuation in the global rubber market. Since 2009 the market price for natural rubber has increased by about sixty percent. More of the industry is beginning to incorporate as much synthetic rubber as the price of natural rubber increases. However, synthetic rubber is derived from petroleum and is also subject to market price volatility. Furthermore, demand for these raw materials is exponentially increasing as demand from China and India grows steadily. Optimizing raw material use will be a critical factor in the future of the industry as non-renewable resources begins to dwindle. It is likely that such market pressure will lead to materials innovations in order to stem off rising costs. This will undoubtedly serve as the competitive advantage of the future and currently Michelin has positioned their research and development activities to attempt to overcome such obstacles.
There are strategies that can help an organization respond to a financial downturn. A common strategy is to reduce the size of operations to meet the new demand. Generally, one of the first departments that receives such cuts is often the marketing or advertising budgets. However for many companies this is actually one of the biggest mistakes that can be made. Marketing can be the key to success to surviving or possibly even thriving in such difficult macroeconomic conditions. Michelin is in a strong position to rely on marketing to further diversify its product positioning in order to maximize consumer value and increase market share.
Michelin has already positioned itself as a leader in innovation and sustainable development. Michelin has capitalized on its R&D investments to design tires that have a smaller eco-foot print through minimizing fuel consumption. In 2010, Michelin has released a new truck tire called "Michelin X Energy Saver Green." On average it permits the standard family car to reduce fuel consumption by 520 liters per year thanks to a better road holding (Michelin, 2012). Not only can such a niche serve for replacement tires among environmentally conscious consumers but these tires are now included as original equipment on vehicles like Mini Cooper, BMW 3 Series and Volkswagen Passat. Furthermore, Michelin's environmental efforts have already received attention and have actually received such honorary titles such as the official tire of Yellowstone Park (Schwartz, 2009).
Figure 3 - Green Energy Saver Tire (Michelin, 2012)
Given the tire industry exponential growth that the industry has experienced in recent years, the tire industry has generated over ten billion scrap tires in stockpiles in landfills worldwide (Life, N.d.). There are also many sustainability issues, both environmental and social, in the development of the raw materials such as rubber that go into making tires. Therefore, if Michelin could further diversify their operations to specifically confront these issues then this might be the foundation of a green marketing program that could help the company carve out a new niche in the market place and gain market share in several consumer segments. Furthermore, as environmental regulations are…