Tariffs don't slow down Giti Tire

By Bruce Meyer, Crain staff (R&PN)

Cleveland, Ohio -- Giti Tire Co. Ltd. didn't use the higher tariffs on consumer tyres imported from China the last three years as an excuse to let its business decline in the US

Instead, the Singapore-based firm, which has its tyre production both in China and Indonesia, has seen sales rise in the US during the period of elevated tariffs.

The company was able to achieve the increase by focusing on bolstering its customer service, staying true to its distribution plan and offering good quality product in what it calls the “value tier” of the tyre business, said Herve Richert, Giti executive director of sales and marketing.

He and other company executives discussed Giti's global tyre business and future plans during an interview at the International Tire Exhibition & Conference, held Sept. 18-20 in Cleveland and organised by ERJ's sister publications, Rubber & Plastics News and Tire Business.

Richert said the US tariffs are one of a number of antidumping issues that global players such as Giti have to deal with at any given time. Other nations with such barriers, he said, include Brasil, India, Columbia, Egypt and Turkey. “There are protectionist measures everywhere in the world,” he said.

The main factor is to stick to your own firm's business, develop a wide range of products, keep manufacturing state of the art and offer a quality product at a fair price. “We believe if we do this right, we believe we have a good chance, whether there's a tariff or no tariff,” Richert said. “It's what our customers and the consumers have to expect from us.”

Julianto Djajadi, vice president of marketing for Giti Tire (USA) Ltd., said the tariffs in the US were more of a problem for the budget consumer lines. Giti's value offerings are positioned above these low-price options but below the premium tyres produced by the world's top-tier tyre makers.

“We have a very good quality product that the market recognises,” he said. “We've been able to maneuver throughout the time.”

Speaking shortly before the tariffs expired Sept. 26, Richert said Giti was ready to go forward in the US either with or without the duties. “We're working very closely with customers to manage the transition properly,” he said. “They were pleased to see that we were committed to the market. We did not walk away.”

The tyre maker realises the competitiveness of the tyre business and credits its success in the US to the relationships it has built with its dealer network here, Djajadi said.

“They're very loyal to us as we are loyal to them,” he said. “It's a combination of a good, long-term business partnership and relationship.”

Tom McNamara, Giti Tire (USA) vice president for consumer and commercial sales, said this sales approach buffers it from those that import products through brokers and offer little in terms of supply or service. “That's what keeps us here and why we stick to our initiatives,” he said. “We put ourselves at this level with the right partners to insulate us from this mess (the tariffs.) I think we're very well prepared for this and I think our customers believe that too.”

The officials also said the market perception that Chinese-made tyres are cheap and not well-made is not warranted, noting that all of the world's top tyre players now have factories in China. “It's not really about the tyres being made in China, but 'who' makes it in China,” Richert said.

Global success

On its own, Giti Tire ranked as the world's No. 15 maker with 2011 tyre sales of $2.89 billion, according to ERJ's recently published Global Tyre Report. It also owns just shy of 50 percent of Indonesia's P.T. Gajah Tunggal TBK, which Richert said gives it consolidated sales of about $4.2 billion.

It employs more than 30,000 worldwide, has sales and marketing operations in 13 countries, and sells its tyres in more than 100 countries. Richert said Giti offers a wide range of high-quality tyres for cars, light trucks, trucks, buses and motorcycles. It is recognised globally by vehicle makers, with original equipment fitments with such firms as General Motors, Volkswagen, Fiat, Nissan, Volvo and Ford trucks.

About 58 percent of the consolidated sales come from its two domestic markets, China and Indonesia, where it touts leading positions in both OE and the aftermarket, according to Richert.

Its strong OE market share with all leading Chinese vehicle producers-along with international car makers with operations in China-bodes well for Giti as China is now the top vehicle producer in the world, he said. “China exported almost 1 million vehicles last year. In 2000 its total production was just 2 million vehicles.

Giti services the Chinese aftermarket through what it said is a unique distribution network, with 17 owned distribution centers spread across the country supplemented by 12 regional operations. “It gives us access to more than 20,000 customers directly,” Richert said.

The company has a long heritage in Indonesia, where PT Gajah Tunggal started operations in 1951. It serves Toyota as an OE supplier and has a network of regional distributors that he said gives Giti coverage across the nation.

“It's the backbone of our leading position in Indonesia,” Richert said. “We are extremely strong in truck tyres and motorcycles tyres.”

International markets outside of China and Indonesia have accounted for about 42 percent, or $1.8 billion, of consolidated sales, a percentage that has remained fairly constant, he said. It employs the same multichannel approach to marketing with an emphasis on long-term relationships that it does in the US, the officials said.

Even in international markets where it doesn't have its own sales organisation in place, in many of the nations it has dealt with the same importers and distributors for decades. “We understand the meaning of partnership and the importance of engaging in long-term sustainable relationships with our business partners,” Richert said. “It really is the pillar of our market approach.”

Giti focuses on making sure its product is of top quality and its fill rates are close to 100 percent, “because we know the retailer can't afford not to have the tyre on their shelves when the consumer asks for the tyre,” he said.

And while it positions itself as a value offering, it benchmarks its quality against the industry's top players. Ri-chert claimed its truck tyres offer the best cost per mile in the industry, not just in the US but Europe as well.

Capacity upgrades

Giti is constantly expanding the capacity of its existing factories in China and Indonesia to meet market needs, he said. It has six plants in China and the P.T. Gajah Tunggal facility in Indonesia, according to data from ERJ's Global Tyre Report.

Richert said the tyre maker also is looking at opportunities to establish facilities outside of its core domestic markets and beyond its current footprint.

Earlier this year, Giti acquired about 250 acres of land in Indonesia, east of Jakarta. Part of the land will be used to build a proving ground, with groundbreaking expected in the coming months and completion expected in the next two to three years, he said. The rest of the land will be used for future capacity expansion in Indonesia.

Giti also has started to install equipment for truck and bus radial tyres in the existing Indonesian plant, to supplement the bias production there now. Within the next couple of years, the radial capacity for those tyres will rise to 1,500 to 2,000 tyres a day, according to Richert.

The tyre maker also is looking to invest in more modern production processes at its other plants to get beyond the labour-intensive technology currently in place.

He said that will improve quality, boost productivity and shield Giti somewhat against the inevitable rise in labour costs in China and Indonesia.

“What happened in the western world will happen in China and it will happen at a much faster pace,” Richert said. “This is a reality of today.”

But it's not necessary to modernise all capacity at once.

He said it's important to do it in such a way as to adapt to the mix of your products. For example, it makes no sense to modernise an entire factory and then try to be competitive in 13- and 14-inch tyres.

At the same time, Giti feels the urgency to not wait unit it's too late. “When you're still in a growth mode, it's easier because you can incrementally add to your factory,” Richert said. “When you're in a crisis mode, when you're suffering and have to downsise and at the same time invest to modernise, that's rough financially.”

Giti's future growth will mostly come from emerging markets, with 60 percent projected to come from Asia. But at the same time, the firm won't ignore mature markets like the US and Western Europe. Those mature markets still represent a majority of its sales outside of China and Indonesia.

“We see opportunities in mature markets because there are more and more consumers who want a good deal for their tyres,” Richert said. “They won't compromise quality, but they want it to be affordable.”

From Rubber & Plastics News (A Crain publication)