NO EXCUSES Capacity upgradesBy Bruce Meyer
CLEVELAND—GITI Tire Co. Ltd., the second largest Chinese tire maker, didn't use the higher tariffs on consumer tires imported from China the last three years as an excuse to let its business decline in the U.S.
On the contrary, GITI registered higher sales in the U.S. during the period of elevated tariffs, officials of the Singapore-based Chinese tire maker said at ITEC 2012 in Cleveland, without offering specific sales or growth data to support the claim.
The company was able to increase sales by bolstering customer service, staying true to its distribution plan and offering good quality products in what GITI calls the “value tier” of the tire business, Herve Richert, executive director of sales and marketing, said in an interview with Tire Business following the ITEC Keynote Address by GITI Executive Chairman Dr. Enki Tan.
In comments to Tire Business after his keynote presentation, Dr. Tan said having to deal with the elevated U.S. tariffs on Chinese consumer tires the past three years made GITI Tire a stronger competitor because it had to focus on the added value it brings to its customers in the U.S.
Among the changes he cited were improvements to the distribution supply chain and improvements in the products themselves.
Mr. Richert said the U.S. is just one of a number of countries that have turned to antidumping measures that global players such as GITI have to deal with at any given time.
“There are protectionist measures everywhere in the world,” he said, referring specifically to Brazil, India, Columbia, Egypt and Turkey.
Overcoming such barriers requires a strategy that involves sticking to an established business plan, developing a range of products suited to local needs, keeping manufacturing state of the art and offering 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,” said Mr. Richert, who joined GITI in 2008 after 21 years with Group Michelin.
“It's what our customers and the consumers have to expect from us.”
Mr. Richert's comments echoed a sentiment Dr. Tan expressed in his talk, namely: “We cannot be ordinary anymore. We must do something exceptional to survive.”
Julianto Djajadi, vice president of marketing for GITI Tire (USA) Ltd., said the tariffs in the U.S. 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 tires produced by the world's top-tier tire makers.
“We have a very good quality product that the market recognizes,” he said. “We've been able to maneuver throughout the time.”
Speaking shortly before the tariffs expired Sept. 26, Mr. Richert said GITI was ready to go forward in the U.S. 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 tire maker realizes the competitiveness of the tire business and credits its success in the U.S. to the relationships it has built with its dealer network here, Mr. 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, vice president for consumer and commercial sales for GITI Tire (USA), 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 tires are cheap and not well-made is not warranted, noting that all of the world's top tire players now have factories in China. “It's not really about the tires being made in China, but 'who' makes it in China,” Mr. Richert said.
On its own, GITI Tire ranks No. 15 among the world's tire makers with 2011 tire sales of $2.89 billion, according to Tire Business' 2012 Global Tire Report. It also owns just shy of 50 percent of Indonesia's P.T. Gajah Tunggal TBK, which reported tire sales of $1.24 billion last year, ranking it No. 26.
GITI employs more than 30,000 workers worldwide, has sales and marketing operations in 13 countries and sells tires in more than 100 countries. Mr. Richert said.
GITI's product range includes tires for cars, light trucks, trucks, buses and motorcycles, and the company is an OE supplier for General Motors Co., Volkswagen A.G., Fiat S.p.A., Nissan Motor Co. Ltd. and Ford Motor Co.'s Volvo and Ford truck units.
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, Mr. Richert said.
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, whereas in 2000 the country's total production was just 2 million vehicles.
GITI services the Chinese aftermarket through a combination of 17 company-owned distribution centers supplemented by 12 regional operations. “It gives us access to more than 20,000 customers directly,” Mr. Richert said.
The company's roots actually start in Indonesia, where Gajah Tunggal began operations in 1951.
International markets outside of China and Indonesia 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 U.S., the officials said.
Even in international markets where it doesn't have its own sales organization 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,” Mr. 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 tire on their shelves when the consumer asks for the tire,” he said. GITI serves the U.S. market though a chain of five wholesale distribution centers.
And while it positions itself as a value offering, it benchmarks its quality against the industry's top players. Mr. Richert claimed its truck tires offer the best cost per mile in the industry, not just in the U.S. but Europe as well.
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 complex of factories in Indonesia.
Mr. Richert said the tire 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 tires in the existing Indonesian plant, to supplement the bias production there now. Within the next couple of years, the radial capacity for those tires will rise to as much as 2,000 tires a day, according to Mr. Richert.
The tire maker also is looking to invest in more modern production processes at its other plants to get beyond the labor-intensive technology currently in place. He said that will improve quality, boost productivity and shield GITI somewhat against the inevitable rise in labor costs in China and Indonesia.
“What happened in the western world will happen in China and it will happen at a much faster pace,” Mr. Richert said. “This is a reality of today.”
But it's not necessary to modernize 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 modernize an entire factory and then try to be competitive in 13- and 14-inch tires.
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,” Mr. Richert said. “When you're in a crisis mode, when you're suffering and have to downsize and at the same time invest to modernize, 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 U.S. 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 tires,” Mr. Richert said. “They won't compromise quality, but they want it to be affordable.”
Bruce Davis, Tire Business special projects reporter, contributed to this article.
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