Nexen Tire Corp., which has labored in the shadows of its bigger Korean brethren Hankook Tire Co. Ltd. and Kumho Tire Co. Inc. for the past several decades, is embarking on a series of moves designed to more than double the firm's size and enhance the brand's image globally.
Nexen—the name is derived from “next century”—signaled its intentions loud and clear a couple of years ago by committing $1 billion over 10 years to a car and light truck tire plant in Changnyeong, where production started on a limited basis in March and is being ramped up steadily toward the first production level of 3 million tires annually.
The new factory, company executives said recently, is key to Nexen's goal of exceeding $2.5 billion in sales and becoming a global Top 15 tire maker by 2018 and top 10 by 2020.
Seoul, South Korea-based Nexen broke ground on the plant, its second in South Korea and third overall, in June 2010. The factory is ramping up production with 500 employees initially and should be producing at a rate of 3 million tires a year in this its first year of production.
The plant will be expanded in a series of investments over the coming six years, Nexen said, to reach 60,000 units a day, or 21 million a year, by 2018 with about 2,000 employees.
The long-term goal is to build capacity to 60 million units by 2018 and 80 million units by 2020, growth that will necessitate a fourth factory at some point, according to Byung-Woo Lee, Nexen's executive vice president of sales.
Nexen executives used the occasion of the opening of the 4.65 million-sq.-ft., highly automated plant in Changnyeong, in southeastern South Korea not far from the key port of Busan, to make public the firm's goals for the coming years.
Mr. Lee told journalists from the U.S., Europe and Japan attending the plant's opening that Nexen Tire is financing the Changnyeong plant project through cash flow and other internal measures and has a manageable debt ratio.
Nexen Tire reported global sales last year of $1.3 billion, with an operating income ratio of 13 percent. This sales volume ranks the firm 25th worldwide. Company officials said it's too early to say whether their aggressive growth plans might include acquisitions or joint ventures.
Nexen Tire is owned wholly by Nexen Corp., a more diversified holding company with interests in industrial tires, golf balls, rubber masterbatch, etc.
The new plant mates world-class manufacturing equipment—from global producers such as Kobelco Co. (internal mixers), Nadada Engineering Co. (extruders), VMI Epe (tire builders) and Mitsubishi Corp. (curing presses)—with home-grown automated materials and semi-finished product conveying systems for a nearly 100-percent hands-free production environment.
As such, the production methodology is relatively conventional, but when mated with the robotic conveying systems, the plant yields a high degree of productivity.
Mr. Lee said Nexen elected to make this investment in Korea to ensure the level of quality as the company embarks on its global growth strategy.
The Changnyeong plant is one of three Nexen operates. The others are in Yangsan, South Korea, and Qingdao, China, where annual output is ramping up to 20 million and 10 million units, respectively, by 2015.
Nexen also maintains research and development facilities globally, at the Yangsan plant and Qingdao plants, in Richfield, Ohio, and Frankfurt, Germany. Nexen has increased spending in recent years measurably and now spends roughly 2.5 percent of annual sales on R&D.
Next on the R&D agenda is the construction of a test track near the Yangsan factory.
Nexen said its goal for the plant is for it to produce “world-class ultra-high-performance” tires that also are eco-friendly. Nexen also said the plant offers “green growth development.”
Nearly two-thirds of Nexen's sales are generated outside of South Korea, with North America accounting for about 40 percent of export sales, or roughly 28 percent of global sales. Diamond Bar, Calif.-based Nexen Tire U.S. handles sales in the U.S. through warehouses in Ontario, Calif., and Atlanta and through a handful of major wholesalers.
Nexen earlier this year established Nexen Tire Inc. in Markham, Ontario, to spearhead the company's plans in Canada. Former Nexen Tire America top executive Jack Oh is heading up that project.
With sales in North America of approximately $350 million to $400 million, Nexen is among the dozen largest tire companies operating in this market. The brand is estimated to have about a 2-percent share of the consumer tire market overall, but a considerable portion of the brand's sales are in high-performance SKUs.
The brand is handled by 20 of North America's largest retail dealers, according to Tire Business' annual analysis of the retail industry.
One of those dealers, Dan Hennelly of Hennelly Tire & Auto Inc. in Fort Lauderdale, Fla., said the brand is a “competitively priced quality tire” with a surprisingly high consumer brand recognition that fills a void between the low end and the major tire makers' associate brands.
Nexen Tire pitches the brand as an upper level second-tier brand, competing with the major tire maker's associate brands and other well-known import and private brands, according to Joo Ho Song, senior managing director, global marketing.
Nexen is attempting to improve the brand's awareness—and thus its value—Mr. Song said, through a three-pronged marketing strategy:
* Move steadily into motorsports, first with street-bred competiton tires, then pure-bred racing slicks for touring cars and eventually formula cars;
* Improve the brand's OE position with leading car makers worldwide; and
* Compete effectively in consumer magazine testing throughout the world.
Nexen's motorsports program for now is focused on drifting in the U.S. and Europe and some limited road racing in Asia, but plans are to expand to race tires for touring cars by 2015 and formula cars by 2017.
On the OE front, Nexen recently gained a fitment with Fiat S.p.A.—which is expected to lead to fitment approvals with Fiat's Chrysler L.L.C. business in North America—and is developing a run-flat tire that's scheduled to hit the market early next year.
The OE fitments with Fiat are for the 2013 version of the Italian car maker's Multipla multi-purpose-vehicle—which is slated to be sold in North America starting next year—and for Fiat's Doblo light commercial vehicle, starting in 2014.
These two fitments reflect Nexen's strategy to expand its OE business to a quarter of its annual sales by 2017, Mr. Song said, up from about 15 percent currently.
Most of Nexen's OE growth will be in markets outside of Korea, according to Mr. Song, who said the firm's goal is to be selling 3.5 million OE tires overseas by 2017 vs. just 276,000 this past year. In South Korea, OE sales are expected to grow about 7 to 8 percent a year, during this same time, to 4.7 million units.
Nexen started supplying Hyundai Corp.'s U.S. assembly plant last year and has more OE fitments in the works.
As for the run-flat, Nexen indicated it would be offering versions of its N7000, N8000 and Winguard tire lines. Executives did not elaborate on the run-flat's construction but said the models would be sold worldwide in the aftermarket.