Competitive Analysis

Basis for Competition

Basis Examples
Customer Oriented
Competition for the same budget A holiday in Europe vs. Buying a new Car
Competition between similar usage (generic) Pepsi vs. Water
Competition between similar category Pepsi vs. Mountain Dew
Competition between Brands (Form) Pepsi vs. Coke
Marketing or Promotion Oriented
Similar Positioning Indigo and Spicejet
Similar Media Pepsi and Coke
Similar Distribution Products of a similar “Category”
Similar Price Range Gold Flake Kings vs. Gold Flake Lights
Resources
Employees ITES Companies (Services in general)
Raw Materials Paradeep Phosphates Ltd. Vs. Tata Chemicals

Geographic
Territory For PPL, TC in WB and Godavari in AP
 How to select Competition?
• Customer-Based
– Perceptual Mapping
– Brand Duplication matrix

Time t+1
Time t A B C D E
A .6 .2 .2 0 0
B .2 .3 .4 .1 0
C .2 .3 .5 0 0
D 0 .1 .1 .5 .3
E .1 0 0 .4 .5

A, B and C form one group and D and E from the other group
Setting and Main
Issues
The Tyre Industry in India
Why Michelin does not operate in India?
Specific features of the road transport in India
Difficulties of foreign companies to enter the
Indian tire market and to break even
Low “radialization”
Strong and price-based competition
Low profitability of the main players
Low brand recognition
Why should Michelin enter the Indian tyre market and set
up a production facility in India?
Volume growth prospects (7 to 8% per year until 2015)
Expansion of the market for added-value tires (especially, radial
tires for commercial vehicles and radial tubeless tires for cars)
Willingness of Indian tire makers to collaborate with foreign
companies (imports of low-priced Chinese and Korean tires,
technological delay, pressures over the OEM market exerted by
automobile makers, …)
Little presence of Michelin in Asian emerging countries
High customs duty on imported tires (65% customs duty payable
for imported commercial vehicle tires
Industry Analysis
 5 Strategic Segments of users and
key needs
Type of Product Cars Commercial Two Wheelers
Vehicles
Cross Ply Yes (Price Solidity Yes(Price Yes(Price
and Durability) Hauling Load Solidity/
Solidity/ Durability
Durability
Retreadability)

Radial Yes (Price Yes (Price

Performance and Performance
Road Adhesion) Road Adhesion
Fuel
Consumption
Retreadability
 Strategic Segments and
Competitive Systems
Number of
Differentiation
Sources

Technological differentiation (tubeless and PAX)

and brand loyalty (replacement market)
Large
Segment 4
Segment 2
Segment 3
Towards Market
Maturity
Standardization
Few Segment 1
Strong threat of Chinese
(Price) and Korean imports Segment 5
and market maturity
Competitive
Position
Non-Solid Solid
9
 Competitive Forces (1):
Threat of New Entrants

Chinese and Korean imports, global and European tire makers (Continental, Pirelli, …)
(Labour cost advantage, technological differentiation, brand)
Investment size (between $US100 million and $US200 million for one plant)
Size effect and industry concentration
Customs duty and restrictive regulations
Access to distribution channels (OEM and replacement)

Limited Threat

10
 Competitive Forces (2):
Bargaining Powers

Bargaining Power Bargaining Power

of Suppliers of Clients
Natural rubber
OEM
Raw materials market
Tender offer (price-based market)
Highly volatile and increase in price
High concentration
Southern India and Sri-Lanka
Large volume of purchase
Realted quality
Low switching costs
Strong Low switching costs
Strong The Tire Industry pressures Replacement
Synthetic rubber in India Low concentration
Petrochemicals pressures
Limited volume of purchase
Strong increase in the petroleum price Technological differentiation
High concentration (“radialization,” tubeless, …)
Related quality Moderate Towards more brand loyalty
Added-value input Downstream integration by tire makers
(70% of the tire cost) to strong
pressures

11
 Competitive Forces (3):
Intensity of Rivalry
Intensity of Rivalry among
Tire Makers in India

Volume industry
Growing market Strong
Price-based market and economies of scale
Input costs (70% of the tire cost) rivalry
High concentration (82%)
Price war and shrinking margins
BUT …
Steady “radialization” of the market and
more and more technological differentiation

12
 Competitive Forces (4):
Synthesis
 The tire industry in India has a low overall
attractiveness …
 Strong threat of low-priced Chinese and Korean tyre imports
 Strong pressures exerted by raw materials suppliers
 Strong pressures exerted by automobile makers
 Price war, fierce competition and low margins

 … BUT highly attractive niches are emerging

 Good prospects on the replacement market for added-value tires (radial and
tubeless) and growing importance of marketing factors (brand)
 Downstream (distribution) integration by tire makers: stronger control of margins
and brand development of a brand image (JK Tyre Steel Wheels and Ceat Shoppes)
 Little but steady expansion of the promising Radial/Commercial Vehicle segment
(high expected margins)

13
 Strategic Group Map (1):
Growth Strategy (2005)
Sales
MRF
Large Apollo Tyres
JK Tyres

Ceat
Birla Tyres

Small TVS Falcon Tyres

Srichakra
Tire
Narrow Wide
Range

14
 Strategic Group Map (2):
Growth Strategy in the Radial Tire Segment
(2005)
Sales
MRF
Large Apollo Tyres
JK Tyres

Ceat (Pirelli)
Birla Tyres (Pirelli)

Small TVS Falcon Tyres

Srichakra
Radial
None Narrow Wide Tire Range

15
 Strategic Group Map (3):
Positioning in the Car Tire Segment (2005)
Sales
MRF
Large Apollo Tyres
JK Tyres

Ceat
Goodyear India

Small TVS Falcon Tyres

Srichakra
Market
No Small Large Share

16
 Strategic Group Map (4):
Positioning in the C.V. Tire Segment (2005)
Sales
MRF
Large Apollo Tyres
JK Tyres

Ceat

Small TVS Falcon Tyres

Srichakra
Market
No Small Large Share

17
 Strategic Group Map (5):
Positioning in the 2- and 3-Wheeler Segment (2005)

Sales
MRF
Large

Ceat

Small JK Tyres Falcon Tyres TVS

Srichakra
Market
No Small Large Share

18
Performance and Strategy of the Main Players

19
 Economic Performance (ROI) and Strategy
of the Indian Tire Makers (2000)
TVS
Return On 18% JK Srichakra Mixed
Sales (ROS) Tyres Apollo Tyres (37.7%) Strategy
(13.6%) (21.8%)
MRF
15%
Ceat (32.9%)
(12.8%)

12% Differentiation
Falcon Tyres
Strategy (27.2%)
9% Michelin
(6.8%)

6%

3%

Asset
Turnover
0.5 1 1.5 2 2.5 3 3.5
(AT)
20
 Economic Performance (ROI) and Strategy
of the Indian Tire Makers (2003)
Return On 18%
Sales (ROS) Apollo Tyres
(32.7%)
15% Ceat Mixed
JK (13.2%)
Tyres Strategy
12% (11.8%) MRF TVS Falcon Tyres
Differentiation (22.8%) Srichakra (41.6%)
Strategy (29.4%)
9% Michelin
(7.1%)

6% Volume
Strategy
3%

Asset
Turnover
0.5 1 1.5 2 2.5 3 3.5
(AT)
21
 Economic Performance (ROI) and Strategy
of the Indian Tire Makers (2005)
Return On 18%
Sales (ROS)
15%
Differentiation Mixed
Strategy Strategy
12%

Apollo Tyres TVS

Michelin (15.9%) Srichakra
9% (8.1%) (20.9%)
JK MRF
Tyres
6% (6.9%)
(13.5%) Volume
Strategy Falcon Tyres
Ceat (12.2%)
(4.2%)
3%

Asset
Turnover
0.5 1 1.5 2 2.5 3 3.5
(AT)
22
 Economic Performance (ROI) and Strategy
of the Indian Tire Makers: Synthesis
 A high but steadily decreasing profitability
Betweeen 2000 and 2005, the ROI of Ceat and MRF has
been divided by 3, that of JK Tyres, TVS Srichakra and
Falcon Tyres by 2
Only Apollo Tyres curbs the decrease of its profitability
Negative profit drivers (see competitive forces analysis)
 A tendency to a strategic “bipolarization” 
Development of a differentiation strategy based on
innovation and branding by JK Tyres and Apollo Tyres
Development of a volume strategy by the Indian tire
leader MRF and the 2- and 3-wheeler tire specialists, TVS
Srichakra and Falcon Tyres
Worrying situation of Ceat
23
International Positioning and Ambition:
Mapping (Lasserre, 2003)
100+

Global Capabillity Index (GCI) Global

player
Global
sourcer

Regional
dominant
player

Regional Regional Global

player exporter exporter

0 100+
Global Revenue Index (GRI)
24
 Global Revenue Index (GRI)

GRI = Σ In[CumRn + (CumR-R)n]

In Industry demand in region n as a % of world demand

 Rn Revenue achieved by the firm in region n as a % of total sales

 CumRn Cumulative % of revenue achieved by the firm in

ascending order for all regions
Source: Adapted from Lasserre (2003)

25
 Michelin: GRI (2002)

Rest of the North

Europe (%)
World (%) America (%)

In 0.43 0.29 0.28

Revenue Rn 0.13 0.35 0.52

CumRn 0.13 0.48 1

(CumR-R)n 0 0.13 0.48

CumRn+
0.13 0.61 1.48
(CumR-R)n
In[CumRn+
5.59 17.69 41.44
(CumR-R)n] (%)

GRI of Michelin = 64.72

26
 Michelin: GRI (2005)

Rest of the North

Europe (%)
World (%) America (%)

In 0.47 0.27 0.26

Revenu Rn 0.15 0.36 0.49

CumRn 0.15 0.51 1

(CumR-R)n 0 0.15 0.51

CumRn+
0.15 0.66 1.51
(CumR-R)n
In[CumRn+
7.05 17.82 39.26
(CumR-R)n] (%)

GRI of Michelin = 64.13

27
 Global Capability Index (GCI)

GCI = Σ In[CumCn + (CumC-C)n]

 In Industry demand in the region n as a % of world demand

 Cn Number of employees in the region n as a % of total personnel

 CumCn Cumulative % of number of employees in ascending

order for all regions

Source: Adapted from Lasserre (2003)

28
 Michelin: GCI (2002)
Africa and South North
Asia (%) Europe (%)
Middle-E. (%) America (%) America (%)

In 0.07 0.06 0.3 0.29 0.28

Number of
Employees Cn 0.02 0.05 0.09 0.2 0.64

CumCn 0.02 0.07 0.16 0.36 1

(CumC-C)n 0 0.02 0.07 0.16 0.36

CumCn+
0.02 0.09 0.23 0.52 1.36
(CumC-C)n
In[CumCn+
0.14 0.54 6.9 15.08 38.08
(CumC-C)n] (%)

GCI of Michelin = 60.74

29
 Michelin: GCI (2005)
Africa and South North
Asia (%) Europe (%)
Middle-E. (%) America (%) America (%)

In 0.08 0.06 0.33 0.27 0.26

Number of
Employees Cn 0.03 0.05 0.09 0.19 0.64

CumCn 0.03 0.08 0.17 0.36 1

(CumC-C)n 0 0.03 0.08 0.17 0.36

CumCn+
0.03 0.11 0.25 0.53 1.36
(CumC-C)n
In[CumCn+
0.21 0.66 7.5 15.37 38.08
(CumC-C)n] (%)

GCI of Michelin = 61.82

30
 Michelin: International Positioning
and Ambition (2002)
100+

Global Capability Index

2002

Michelin: European and

U.S. dominant player

0 100+
Global Revenue Index
31
 Michelin, Bridgestone and Goodyear:
International Positioning and Ambition (2005)
100+ Goodyear: Global
player

Goodyear
Global Capability Index

Michelin: European and

Michelin U.S. dominant player

Bridgestone

Bridgestone: Global
exporter

0 100+
Global Revenue Index
32
International Expansion Strategy and
Organizational Structure of Michelin

33
 International Expansion Stages Model
(Stopford & Wells, 1972)
(+)
Multinational Transnational or
Strategy Global Strategy

Foreign product
diversity

Global
Export Strategy
(-) Strategy

0% Foreign sales 100%

as % of total sales 34
 Michelin’s Global Strategy

(+)

 
Foreign product
diversity
            

2005 (51%)
15 lines of products &
8 brands
2002 (48%)
(-) 13 Lines of products &
6 brands

0% Foreign sales 100%

as % of total sales 35
 Michelin’s Global Structure (2005)

North Africa
America
Centralized Hub
Key assets, responsibilities
and decisions are centralized
Eastern Western
Europe
France Europe

World-Class Brands South Operational Control

Asia
Michelin and   America Tight control of
BFGoodrich  decisions, resources and
information

36
Performance and Strategy of Michelin

37
 Michelin: Change in Economic
Performance (ROI) (2000-2005)
Return On 12% 2002
Sales (ROS) (7.5%)

10% 2005
2000
(6.8%) (8.1%) 2004
(8%)
8%
Differentiation
Strategy 2001
(6%) 2003
6%
(7.1%)

4%

2%

Asset
Turnover
0.2 0.4 0.6 0.8 1 1.2
(AT) 38
 Michelin: Change in Financial
Performance (ROE) (2000-2005)
Return On 12% Debt Decrease and
Investment (ROI)
Economic Strategy of
10%
2005 Value Creation
(30.2%) 2002
(28.3%)
8% 2000
(30.2%)
2004
6% (28.2%) 2001
(26%)
2003
4% (26.4%)

2%

Debt
Leverage
1 2 3 4 5 6
(DL)39
Synthesis

40
 Michelin’s International
Expansion Strategy (Synthesis #1)
 Michelin is the world tire leader
Between 19 and 20% of the world tire sales by value (2000-2005)
A high profitability (with a ROI ranging from 6 to 8%)
Optimization of input costs
A strong financial value creation for its shareholders (with a ROE
ranging from 26 to 30%)

 Michelin is vertically integrated

Downstream integration: Control of natural rubber’s price and
quality (plantations in Nigeria and Brazil)
Upstream integration: Control of margins and brand image
(Euromaster in Europe and TCI in the US)

41
 Michelin’s International
Expansion Strategy (Synthesis #2)
Michelin is a regional dominant player of the world
tire industry
Strong industrial and commercial presence in North
America and in Europe (around 50% of Michelin’s sales are
achieved in Europe)
Selective expansion in emerging countries (Eastern Europe
and Brazil)
Little presence in large Asian emerging countries (India
and China)

Michelin has opted for a global strategy based on

strong world-class brands and standardized
management processes and systems across the world

42
Michelin’s Strategy of Entry into India

43
 Why Does Michelin Select the
Radial Tire/C.V. Segment?

 Steady radialization of commercial vehicle tires

 Good growth prospects
 Low intensity of rivalry
 High profitability
 Low customs duty

44
 Why Does Michelin Select the Joint
Venture as its Entry Mode into India?
 Specific features of the tire distribution and of
the OEM market
 Share investment ($US70 million) and risks with a
local player
 Unequal JV equity distribution (Michelin has a
majority stake - 51%)
 Quick access to the Indian market (Apollo Tyres is
in charge of the marketing and distribution of
tires
45
 Why Does Michelin Select Apollo Tyres
as its Indian Partner?
 2nd tire maker (market share: 20.5%)
 1st manufacturer of C.V. tires (market share: 26%)
 Development of radial technology
 Downstream integration (large own-brand
distribution network and more than 4,500 exclusive
and multi-brand dealers)
 Strong brand image
 Strong economic and financial performance

46