Indian Tyre Industry – An analysis

India represents the fourth largest market for Tyres after China, Europe and United States. It
reached a consumption value of 185 Million units in 2019. The market is expected to grow at a
moderate pace over the next five years.

The growth of tyre industry in India is based on two factors :

1. Increase in radialisation of tyres of buses and trucks
2. Growth in automotive sector

Some of the key players in the India Tyre market include MRF Limited, CEAT Limited, JK Tyre
and Industries Ltd and Apollo Tyres Limited.

We can use Porter’s Five Forces to understand the competitive landscape of the Indian Tyre
Industry.
Potential Entrants:
MODERATE

Due to favorable conditions in

India such as low labor costs –
International players are eying
the Indian market.

Un organized sector also poses

a threat.

Supplier Power: Competitive Rivalry Buyer Power: HIGH

MODERATE
Rubber – Bargaining power
low due to competitive credit
period & rates offered by
international suppliers.
Other Petrochemicals –
Bargaining power high because
highly dependent on
petrochemical derivative
prices.
High due to players moving Bargaining power of buyers is
towards automation & high as OEMs are bulk buyers
leading to competitive prices and in case of replacements,
and differentiation. the cost of switching is low &
industry is highly competitive
in terms of prices.
Substitutes &
Compliments:
MODERATE

Re-traded tyres can pose as a

substitute.

Similarly with growth of Ola &

Uber – automobile sector
growth is decreasing and this
also affects tyre industry.
1) BARGAINING POWER OF SUPPLIERS : MODERATE

For tyre Industry, the suppliers are for the two significant products:

Rubber

International rubber market is highly competitive. Most of them offer the tyre companies
150 days credit which is not the case if they buy from Indian suppliers. Even if Indian companies
offer credit, they cannot offer them at LIBOR, which is the London Inter-bank Offered Rate like
the International companies.

Hence bargaining power of Indian rubber suppliers is quite low.

Other Petro chemical based materials (Carbon black, Nylon tyre cord etc.)

The power of suppliers is high in this category as India there is a lot of scarcity in the case of
Petro based raw materials like carbon black and are hence very expensive. Also, the price of
NTC are highly irregular and depend on the prices of Caprolactam (a petroleum derivative)-it is
main raw material. As these prices are highly irregular and beyond the control of the tyre industry,
the bargaining power of the suppliers is quite high.

2) BARGAINING POWER OF BUYERS : HIGH

The two main categories of buyers of Tyres include –

Original Equipment Manufacturers

OEM’s are bulk purchases. By virtue of sheer volume, they command a high bargaining power.
Moreover, most OEMs strike a deal with car manufacturers not just on the platform of prices but
also based on brand equity.

Replacement segment

Though the demand of tyre replacement is high due to the poor condition of the Indian roads,
bargaining power of buyer is quite high because of high competition in terms of pricing. The cost
of switching is also quite low due to undifferentiated nature of the products.

3) THREAT OF SUBSTITUTES: MODERATE

Retrading of used tyres is becoming increasingly common. Though not very prevalent among
bigger vehicles, in small vehicle category – re-trading of tyres is extremely prevalent and can
pose as a threat to the tyre industry.

Similarly, growth of Ola, Uber and such services has caused de-growth in the automobile
industry, indirectly affecting the tyre industry.

4) THREAT OF NEW ENTRANTS: MODERATE

Threat of new entrants is moderate. Though its difficult to enter this market due to it being highly
capital intensive, the global climate is changing with several international manufacturers looking
at India as a possible market to expand due to benefits like low labor cost. In the coming years ,
China and India are likely to be hubs for tyre manufacturing with entry of many international
players into the market.
Apart from these , the unorganized sector is also growing to pose a threat to the established
players.

5) INDUSRTY RIVALRY : HIGH

High as even within the Industry , players are moving towards automated technology, like ERP
and SCM leading to some level of differentiation & competitive pricing. International players are
also entering the market.

Altogether Tyre industry is facing extremely competitive environment.