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Michelin and the Global Tire Industry in 1999

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  1. Analyse, using Porter's Five Forces Model, the structure of the global tire industry.
  2. Analyse, using an appropriate model, the competitive/business strategies of the major players in the global tire industry
  3. Strengths and weaknesses of Michelin
  4. Assess the pressures for global integration and for local responsiveness in the tire industry.
  5. Appendix

The threat of entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors. Firstly, economies of scale in the production of tires represent an entry barrier for potential competitors, as the market leaders have high levels of production allowing scale economies, especially in research and distribution.

The tire industry requires high capital investments which is necessary to build manufacturing sites, to invest in R&D and advertising. Moreover, it seems essential for companies competing in the industry, to own their main raw material plants (vertical integration). These huge capital requirements limit the pool of likely entrants.

In addition, the threat of entry is lowered by product differentiation and innovations. The latter is essential in the tire industry in order to maintain market shares, as tires are commodity products,. The reputation, brand and image of a firm are important sources for differentiation. As the industry is mature, strong brands established distribution networks, patent ownerships, and achieved cost advantages in production operations and processes due to experience, indicating high barriers to entry. Important evidence is given by the fact that the five biggest tire producers of today have been dominating the industry for many years (Case Exhibit 1).

[...] QUESTION 2 Analyse, using an appropriate model, the competitive/business strategies of the major players in the global tire industry The three major players in the global tire industry with regard to its market shares are Bridgestone/Firestone, Michelin and Goodyear. ( Bridgestone/Firestone Bridgestone/Firestone had the highest market share ( in 1998) in the tire industry. With the acquisition of Firestone in 1988 (horizontal integration) Bridgestone's initial strategy was to strengthen its market position in relation to its market shares. It can be assumed that this particular acquisition - although it was disastrous at first - helped Bridgestone to move from its weaker market position in 1978 (rank up to the market leader position in 1998 replacing Goodyear (Case Exhibit 1). [...]

[...] Drawing the strategic implications from the above, tire producers can hardly influence their profits in the OEM segment, as they are highly dependent on the buyers' decisions. Low profit margins are the result of high imposed costs and quality innovation) and low selling prices. In contrast, profit margins in the RM segment is higher, as retailers are not enforcing costly R&D and innovation activities, thus this market is more attractive. However, manufacturers have rather a highly limited ability to raise prices and earn great profits in both - OEM and RM segments, as they are generally highly dependant on buyers and are enormously competition driven. [...]

[...] In sum, Michelin's strengths outweigh its weaknesses also due to its current restructuring process putting more emphasis on Marketing, Service and Finance. As tires are hardly to differentiate, Michelin's differentiation focus strategy gives them a niche position in the market in which it successfully operates. QUESTION 4 Assess the pressures for global integration and for local responsiveness in the tire industry. To what extent do you consider the tire industry to be a global industry? The table below illustrates and pinpoints both pressures for global integration and local responsiveness. [...]

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