Michelin

GROUP 6

Erik BrongerDimitrios KoufosUday MudholkarJulien St Girons

Rachelle TopacioPatrick Wiebusch

The History

• Founded by Michelin brothers André and Edouard

• Looking for new opportunities in 1889 when a cyclist came in with a flat tire

– It was a Dunlop rubber tube glued solidly to the wheelThis made it very difficult to repair

• A few years later they convinced carmakers of the utility of inflatable tires

Bibendum• At the Lyon Universal Exhibition in 1894, the Michelin brothers

noticed a pile of tires on their stand.

• Edouard said to André: “Look, with arms, it would make a man”

• “Nunc est Bibendum” – Now it is time to drink! Michelin drinks the obstacles!

The Company

• Family owned

• Special Status – Commandite Structure

• Very closed: “once almost as tough to enter as the no man’s land between the two Koreas”

Maps

Tires

Guides

Major Products

BCG MatrixIn

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HighRelative Market Share

STARS QUESTION MARKS

CASH COWS DOGS

Passenger Car & Truck

Tires

Maps & Travel Guides

High

Low

Low

Product Range

Michelin manufactures 28,000 different tires, from bicycle to space shuttle tires

Cars

Trucks

Agricultural

Planes

Bicycles

Space shuttle

Business Model

Family Business

Engineering Excellence

Research & Development

Innovation

Centralized & Secret

Strategic Planning Welfare of Employees

“Gerance”

Boss Mistress

Number 1

C3M Process

Radial Tires

5% of Sales

Intelligent Tires

Competitive Advantage

“Young Edouard”

Porter’s 5 Forces

Entrants

Buyers

Substitutes

Suppliers

Rivalry

Power of Suppliers

• Highly sensitive to fluctuation of raw materials– Natural rubber

– Petroleum Derivatives

• Existence of cartels for natural rubber and petroleum– INRO

– OPEC

• Presence of strong labor unions in European plants

Power of Buyers

• High buying power of car and truck makers in the OE market

• High buying power of independent dealers through group purchasing– Large retail chains i.e. Kwik-Fit, Speedy

– Small Dealers

Potential Entrants

• High capital requirements

• Need for economies of scale

• Limited access to distribution channels

• Governmental and legal barriers

Substitutes

• Growing refurbishment market

• No viable substitute for natural rubber

• Emergence of nanoparticle technology

Industry Rivalry

• Highly concentrated industry, with C4 over 60%

• Products not highly differentiated – leading to market consolidation

• 1999 industry-wide over capacity of 30%

• Diverse competitors in terms of national origin, cost strategy and management style

Industry Paradox

Commodity

Highly Technologically Sophisticated

Through:

• Branding

• High Quality

Customers

Industry

Differentiate

Products are...

Branding Strategy

• Cover all segments with different brands• Offer a full range to dealers

Brand Trio Strategy

MICHELIN

BF GOODRICH

UNIROYAL“good”

“better”

“best”

High QualityMichelin proves its products’ quality through supplying top Formula 1 and Rally teams

SWOT Analysis

• Highly reputable brand• Technical reputation• Innovativeness• Not dependent on

home market

• Weak Asian Markets• Subsidiary brands not

well-known• Slow reaction time• Slow implementation of

own innovations• Product driven

company• No MBAs!!

STRENGTHS WEAKNESSES

SWOT AnalysisOPPORTUNITIES THREATS

• Growth of private brands• Increasing power of independent

dealers• New processes by other major players• Goodyear becoming a low cost

producer• Continental becoming a system

supplier• Monopolistic prod’n of natural rubber in

Asia

• Only 20% - 25% of customers are lowest price buyers

• Sophisticated and “intelligent” tires

• Asia is largest growing segment• Outsourcing of tire & brake

system• Travel guides and maps using

the Internet

Recommendations

GROWTH STRATEGY

Car navigation systems

Internet, Mobile Phones, PDAs

Strengthen brand marketing strategy

Bibendum balloon (like Richard Branson)?

NASA Space Shuttle Supplier and Concorde Supplier after crash

Enter Asian Market

Joint Venture production agreement with an Indian local Manufacture NPV=17.5MUSD (IRR of 20%)

Diversify

route planning, displaying maps

traffic and weather information

finding hotels and tourist places…

Alliance research for nanoparticle technology BASF or Degussa Huls

Recommendations

OPERATIONAL STRATEGY

Review inventory policy

Optimization of entire Supply Chain

Upgrade Marketing & Finance

Attain more OE accounts•25% of its replacement car tire sales were generated by OE•Profound impact on the future replacement market

Faster reaction to market

Organizational Changes–Cost Cutting Methods–Training and Incentive Schemes for Employees

Updates

• In 2000– Michelin stepped up production in the US to meet demand after tire recall by

Bridgestone/Firestone – Michelin revamped its operations in Asia, including a new joint venture in China

with Shanghai Tyre & Rubber

• In 2001 – The European Commission fined Michelin nearly $20 million, claiming the company

engaged in anticompetitive behaviour by abusing its dominant position in Europe

• In 2002– Michelin launches travel portal : www.ViaMichelin.com

• In 2003– Positive free cash flow for the 3rd year running, even after 30% increase in total

investments– Michelin-Babolat partnership for cutting-edge tennis shoes– Michelin produces digital maps for GPS systems

• In 2004– Michelin established a joint-venture with “Apollo Tyres”, India’s second largest tire

manufacturer

2000 200420022001 2003

Questions &

Answers