Chinese tire-makers leapfrogging Western manufacturers

Based on report published in July/Aug issue of European Rubber Journal

The often negative perceptions of Chinese tires may betray the reality that manufacturers there are catching up with their Western counterparts, according to China tire industry expert David Shaw.

In a presentation at the Future Tire Conference, held 27-28 June in Cologne, Germany, the Tire Industry Research CEO said China had devised a number of programmes to improve its competitiveness in many industries, including tire & rubber.

The schemes include China’s 13th five-year development plan (2016-2020), and “Made in China 2025” strategic plan which call for more automation, stronger brand values and upgrading manufacturing.

“If you look at Chinese tire-makers and their revenues in 2016, 2015 and 2014, you will see that between 2014 and 2015 all of them saw a decrease in their turnover. This year, they were not too bad. So, China is recovering,” noted Shaw.

Explaining the dynamics of the industry, Shaw said some of the leading Chinese companies, including Aeolus Tyre, Double Coin Holdings, Sailun Jinyu Tyre and Shandong Linglong Rubber have undergone “a lot of financial restructuring.”

Consolidation

The industry will see some consolidation too, forecast Shaw, noting that sales of the top 30 Chinese tire makers combined are the same size as Bridgestone’s.

“They don’t have enough money for research, they don’t have enough money to recruit [experienced] people, they don’t have enough money for advertising, they don’t have enough money for R&D. They need to get more concentrated, in order to deliver what the industry needs,” he said.

As for its competitive edge, China is no longer about employing lots of people.

“It’s about trying to upgrade  business to become more competitive with the West and even leapfrog over the West,” Shaw pointed out.

A key policy adopted by the Chinese government is the ‘one belt, one road’ strategy, which will see Chinese companies extend their reach overseas.

“So, it’s not about employing many people in China, it’s about spreading the power and influence of China to the rest of the world. And they are doing a pretty good job,” he added.

Some of the latest international moves include Guangzhou-based Wanli Tire’s recent announcement of a $1-billion investment in South Carolina, US.

Triangle Tyre is also expected to make an announcement on a new tire manufacturing plant in the US and Shandong Linglong Tire is considering building a factory in eastern Europe, for which Poland, Serbia, Slovakia and the Czech Republic are contenders.

These are in addition Qingdao Sentury Tire’s announcement, last year, of plans to build a €470-million plant in Georgia, US and a Giti plant currently being constructed in South Carolina.

Investment

Besides the moves to the West, a series of investments have been made by Chinese tire makers in south east Asia. These are mainly in Thailand, where Linglong Group, Zhongce Rubber and Sentury have all set up off-shore plants. Vietnam, Malaysia, Indonesia and Kazakhstan are also hosting Chinese tire makers.

“And this is a myth about Chinese tires that they are of bad quality.,” said Shaw. “A lot of them are. There are 600 tire makers in China and about 500 of them make really bad tires. They are all the things that all the reputation says.

But there are a dozen or so who are much better, he added.

For instance, said Shaw, Zhongce Rubber has the capacity to produce 50 million truck tires annually, which is a third of global demand for new truck tires.

“And they do it with plenty of different brands, so it’s not easily identified how strong they are in the truck tire business,” said the China industry expert.

Another smart move by the Chinese tire leader is its linking-up with Alipay, the Google-pay equivalent of Chinese e-commerce giant Alibaba, to better serve its customers.

“Zhongce is working with Alipay in order to help their customers and fleet customers to order tires and integrate backwards with Zhongce’s manufacturing system. I don’t think anyone in the West is doing that,” he added.

While government support plays a major role in the so-called “leapfrog”, Shaw believes that lack of legacy has given an edge to the new kids on the block.

“A lot of Westerners have the Western legacy premium brand. They have 30-50 factories a lot of which have legacies, different manufacturers, different technologies.

“But these Chinese companies, a lot of them started in the last 10 years or so and have been building brand-new, state-of-the-art factories in various parts of the world and they will build more.”

To conclude, Shaw said Chinese tire makers could surpass their Western counterparts and suggested that manufacturers in the West should not be “complacent”.