Strategy of the Michelin group

Abstract

Competition: HIGH
Michelin is the world's leading tire manufacturer with 19.20% market shares in 2003. Its two main competitors are Bridgestone and Goodyear and each hold 19.10% and 17.40% market shares respectively in the same period. There are a multitude of other manufacturers like Continental, Pirelli, Yokohama, Cooper Tires, etc. Thus the environment is very competitive.

•Bargaining power of the customers: HIGH
SAR or 'Specific Absorption Rate' for tires is an aspect that tire producers have to take into account while churning out their products. Car manufacturers can take advantage of the competition between different tire manufacturers to obtain the best price. Thus the bargaining power of customers is strong.

•Bargaining power of suppliers: AVERAGE
For all the raw materials needed for manufacturing tires (rubber, chemical, metal reinforcements, etc.) Michelin signs long term contracts with its suppliers. Occasionally Michelin buys its raw materials from spot markets. Michelin produces 3.6% of the rubber it needs through the six plantations it owns. That's why the supplier's power of negotiation is limited.

•Substitutes: LOW
Tires can never be replaced by any other product on a new vehicle. So there cannot be any substitute.

•Threat of new entrants : LOW
The market for tire manufacturers is very competitive. The giants of this business area have implemented a strategy of buying and acquiring all of their competitors in order to eliminate them. Thus the threat of new entrants is low.