INDIAN TYRE INDUSTRY

CONTENT

1. Introduction 2
Nature of The Industry
Demand and Price
2. SWOT Analysis 4

3. Michael Porter’s Five Forces Model 6

4. PESTEL Analysis 8
5. Annexure 9

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 INTRODUCTION:

According to government’s reports, India has over 220 million registered vehicles and ranks
4th in passenger and commercial vehicles combined in the world which fuels the growth of
other complementary goods like tyres and other essential parts.

Indian tyre industry originated in 1926 through Dunlop Rubber Limited setting up their first
factory in West Bengal. MRF was established in 1946. From then on it has grown rapidly and
now employs more than 1 million people through labors, dealers, suppliers etc.

Like many industries, growth in Indian tyre industry can be subjected to factors like
technological innovation, modern facility, cheap labors, abundance of raw material. Indian tyre
industry in total has 39 manufacturing companies with 60 plants.

NATURE OF THE INDUSTRY:

Indian tyre industry heavily relies upon raw materials. The core difference of our domestic tyre
industry and the global tyre industry is the source of raw material. The ratio of natural and
synthetic rubber in tyre manufacturing facilities in India is about 60:40 whereas same ratio
globally stands at around 30:70.

DEMAND & PRICE:

Demand for tyre manufacturers in India can be broadly classified into 3 sections. Below
diagram depicts the demand hierarchy of demand in Indian tyre industry.

Broad Classification of demand

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If we classify the tyre industry depending upon sales, then it has three variants:

Increase in domestic demand for tyres is driven mostly by Industrial & Agricultural freight
activity and improving automobile sales due to growing consumers’ Purchase Power Parity.
Indian tyre market can be classified as moderate to low price sensitive since consumers also
look for functionality, dependability and durability. International brands carry higher costs due
to superior quality and brand loyalty.

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 SWOT ANALYSIS:

STRENGTH

 Indian economy is growing very fast and, with it purchasing power parity of Indian
consumers is increasing which means increasing number of vehicles on road. Indian
tyre can leverage on this.
 Indian roadways and in general transportation system have seen incredible
improvement in past decade like consolidated use of mechanised vehicles and, with it
usage of tyres.
 Like any manufacturing industry, R&D in tyre industry signifies a hallmark of strength.
Tubeless tyres, more durable synthetic compounds for tyre manufacturing are few of
the results of sophisticated and state of the art R&D facilities employed by Indian tyre
manufacturers.

WEAKNESS

 Tyre industry is hugely capital intensive. More than 400 crores are estimated for setting
up a manufacturing unit.
 Not only that, but it also requires high level technical expertise.
 Due to inflation and other natural causes natural rubber has become costly and
industry’s extensive dependency on it is one of its shortcomings.
 As there are more than 15 big players in the market and the product is highly
homogeneous there is always pricing war among them. It creates an extra liability on
the industry.
 Indian tyre export suffers from high fluctuation of Indian currency in international
markets.

OPPORTUNITIES

 Make in India campaign and other such initiatives by government implies growth in
number of manufacturing units within country, thus creating new openings for Indian
tyre industry.
 With open economy, Indian tyre industry can easily follow international quality
standards and improve their manufacturing and R&D facilities. Increasing the use of
artificial rubber in manufacturing are one of the benefits.
 Indian tyre industry with its less expensive product has competitive edge over other
global brands in international market. Indian tyre manufacturers have already entered
in East European and African markets.

THREATS

 New modes of transportation like monorail and improvement in other forms like metro,
railways may have negative impact on passenger vehicle industry and subsequently on
tyre sector.

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 Cheap imports from China and South Korea have started eating away market share of
the domestic players.

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 MICHAEL PORTER’S FIVE FORCES MODEL:

Threat of
New
Entrants

Threat of
Substitute
Industry Bargaining
Power of
Products
Rivalry Buyers

Bargaining
Power of
Suppliers

BARGAINING POWER OF SUPPLIERS:

The main raw material is natural rubber. But recently, the fall in domestic rubber production is
a concern for the industry. ATMA (Automotive Tyres Manufactures Association) confirmed
that its hurting the industry which now depends on the heavy taxed imports. Also the surge in
crude prices is a major concern for the tyre industry. Overall, this factor has become High.
BARGAINING POWER OF BUYERS:
It is High due to considerable number of firms (more than 40) in industry. The OEMs have
stronger position since they go for contracts with their relative tyre manufacturer and depend
majorly on brand association since they buy in bulk. The Replacement sector is not in much
strong position even though the demand in trucks and heavy load carriers is high due to poor
road conditions.
THREAT OF SUBSTITUTE PRODUCTS:
Considering the expansion of other modes of transport – metros, monorails, etc., which poses
a threat to automotive industry and thus, is a threat to tyre industry as well. This is balanced by
the increasing number of tyre industries catering to retreading as well. Overall, the threat is
Medium.
INDUSTRY RIVALRY:
It is High since the foreign players are expanding to domestic market. The domestic players –
with top 10 covering around 90% of market share have competitive share and thus cannot exert
any force individually on the market.

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THREAT OF NEW ENTRANTS:
Due to the high capital-intensive nature and technical expertise requirement, the threat is quite
Low for the industry. Also, looking at the rising raw material costs and deficiency in supply is
another hindrance for the domestic players. The emerging retreading sector is already taking
up the market share, thus entering in this industry has little to no incentive for the new firms.

Porters' 5 Forces
Rivalry among
competitior
4
3
Barriers to exit Threat of Substitute
2
1
0
Government Action Threat of new entrant

Bargaining power of Bargaining power of

buyer supplier

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 PESTEL ANALYSIS:

POLITICAL EFFECT: China was the major supplier of tyres for the Indian market because of its
relatively cheaper prices compared to the Indian tyre brands, but now with government
increasing the import duties on Chinese products, the import levels have decreased also clubbed
with the “Make in India” push by the government, there is a lot of scope for development in
the Tyre industry.

ECONOMIC EFFECT: The weak Rupee and correspondingly soaring oil prices have put a burden
on the automobile industry which would in turn affect the tyre industry. But the price and
supply of major raw materials like natural rubber have been at the constant level, helping the
tyre industry to balance its costs.

SOCIAL EFFECT: There has been a steady increase in the number of middle class, who want to
have their own vehicles, be it two or four wheelers; this would have a positive effect on the
tyre industry.

TECHNOLOGY: With advancement in automation processes, the tyre industry has also become
more automated and robust, leading to better quality of product. The new generation tyre
technology is expected to be much more spiked, with inclusion of chips and sensors to monitor
the running condition and send the information to the driver. The earlier technological
advancements were more concentrated on the direct benefits like the life, quality, lighter weight
etc., whereas the new innovations are way over the direct benefits, providing the other indirect
incentives like less fuel consumption, reduced friction, and adaptable to the road condition and
environment. The new generation tyres that may rule the future are smart tyres, 3D Printed
Tyres, Run-Flat tyres and Electric tyres.

ENVIRONMENTAL EFFECT: Automotive manufacturers are looking towards the trye industry to
come up with more innovation in design so as to reduce fuel consumption, thereby reducing
the harmful effects on the environment.

LEGAL: Implementation of GST and doing away with multiple taxes would benefit the tyre
industry. Also, the government policies towards relaxing legal barriers for ease of business in
the country will help going forward in the growth of the industry.

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 ANNEXURE

1. Table 1: Rivalry among competitors

Attractiveness Remarks
Low High
1 2 3 4 5
>40 major players with top 10 cquiring
No. of Large
competitors ✔ >90% of market share.
High vehicles demand but alternate modes
Industry Medium
growth ✔ of transport growth balances it.
High Fixed Cost for technology and to
Fixed cost High
✔ achieve economies of scale for price
competition.
Differentiat Medium Differentiation in terms of segment
ion ✔ targeted but little differentiation within
segment.
Switching Low ✔ Price competition is high among firms,
cost thus low switching cost.
High sourcing of technology, production
Strategic High
stakes ✔ and other processes thus enabling
strengthening of industry.

2. Table 2: Barriers to exit

Attractiveness Remarks

Low High

1 2 3 4 5

Asset High Buyer, seller ✔ The seller and buyer are

specialization in effective mutual
exchange

Cost of exit High Fixed costs, ✔ The sunk cost for

sunk costs company in tyre industry
is very high.

Government Low Rules ✔ The imports and exports

restrictions are not restricted, can be
done at ease

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 3. Table 3: Barriers to entry

Attractiveness Remark

Low High

1 2 3 4 5

Economies of Low Competiti ✔ Since it is a competitive

scale on market, it will take time
for new entrant.

Product Medium ✔ There are differentiated

differentiation products in the tyre
industry, it will be
difficult for a new entrant
to enter in all of them.

Brand identity High Strong ✔ Top 3 brands have around

brand 60% of the market share.
identity

Switching cost High Capital ✔ Since capital investments

intensive are high, switching cost is
high.

Access to Medium Distribut ✔ Distribution channels are

channels of ors and available in the secondary
distribution resellers market, but targeting
OEM’s will be difficult.

Capital High Highly ✔ Very high capital

requirement capital requirements.
intensive

Access to Low Cost ✔ It is difficult for new firms

technology to get hold of cutting edge
technologies used by
bigger brands.

Access to raw Medium Availabili ✔ There are many large

material ty is good suppliers available.

Government Low FDI ✔ There is no protection

protection provided by the
government.

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 4. Table 4: Threat from substitutes

Attractiveness Remarks

Low High

1 2 3 4 5

Availability of Low Natural and ✔ There is no near substitute

close substitutes Synthetic that replaces Rubber
rubber

Switching cost High NR ✔ Costlier and awareness is

Alternatives also less

Substitute’s High NR ✔ The cost for production of

price-value Alternatives alternative substitutes like
non-NR Tyres is Higher

Profitability of Low NR ✔ The production material

the producers of Alternatives costs for non-NR materials
substitutes is very High

5. Table 5: Bargaining power of buyers

Attractiveness Remarks

Low Hig
h

1 2 3 4 5

Number of High ✔ As automobile industry

buyers grows no of buyers grow

Availability of Less ✔ Not much substitute of tyre is

substitutes there for buyers, like
importing from other
countries

Switching cost Low ✔ Switching cost to different

manufacturer is high as there
is brand loyalty among both
parties.

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Buyer’s threat Low ✔ There is very little chance of
of backward automotive industry to get
integration into tyre manufacturing

Industry’s threat Low ✔ Tyre industry has to depend

of forward on its dealers for mass market
integration and contracts for automotive
industry, so there is a little
chance of forward integration
✔
Contribution to High Indian consumers actually do
quality care about quality in this
regard.
Tyre industry not able to
Contribution to Low ✔ transfer cost to buyers due to
cost strong position of buyers.

Buyer’s Medium ✔ There are no of buyers

profitability available to the manufacturer
which in tern creates a lot of
demand but there is mainly a
single industry available as
consumer to the tyre
manufacturer. So, there
is there is a trade-off among
buys and sellers.

6. Table 6: Bargaining power of suppliers

Attractiveness Remarks

Low High

1 2 3 4 5

Number of Small Natural ✔ The market consists of small

suppliers rubber, number of suppliers with large
carbon volume.
black
Tyre industry is the major buyer
Availability Low ✔ of natural rubber accounting to
of Natural over 70%, so there are no easy
substitutes rubber substitutes available.

Switching High NO major There are no other alternatives

cost alternatives ✔ for the suppliers to switch to.

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Supplier’s This threat is very low as the
threat of Low Fixed costs ✔ fixed costs and technologies
forward involved is very high.
integration
Industry’s Although growing rubber is
threat of Medi Synthetic ✔ difficult, manufacturers are
backward um rubber looking at using synthetic
integration rubber.

Contributio Medi Good ✔ Since the trye manufacturing

n to quality um quality process is standardized. Quality
rubber of raw materials is important.
Very Largest
Contributio High contributor ✔ Natural rubber is the most
n to cost important ingredient in tyre and
most used.
Although there are not many
Industry’s Low Alternates ✔ major players, the rates and
importance are availability of Natural rubber is
to supplier available high enough to switch to another
supplier.

7. Table 7: Government actions

Attractiveness Remarks

Low High

1 2 3 4 5
Government Government has
Industry High ✔ imposed import tax on
protection Chinese and South
Korean tyre import
Pollution Pollution control board
Industry Medium control ✔ has imposed law on all
regulation manufacturing units to
(pollution, etc.) adhere to the pollution
limits and to create
degradable products
Export and There are issues while
Customs and Medium currency ✔ exporting to
tariff restrictions fluctuation international market
abroad due to variation in
currency market.

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8. Table 8: Overall assessment

Attractiveness Remarks
Low High
1 2 3 4 5
Since the capital
requirements and
Barriers to entry ✔ technology barriers are
high, barrier to entry is
high.

Rivalry among Large number of

competitors competitors and high
✔ competition leads to
relatively high competition.

Barriers to exit As there is a large fixed

Power of buyers
Power of suppliers
Threat of substitutes
Government action
Overall attractiveness
cost involved, this would
✔ be high.
Buyers power is high,
hence the attractiveness is
✔ high.
Medium, as there are few
large players and
✔ attractiveness is medium as
the prices and supply is
constant.
Substitutes are not easily
available, so attractiveness
✔ is thus high in this regard.
Government had increased
regulations on imports and
✔ pollution.
Based on the above factors,
the industry attractiveness
✔ is low to moderate.

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