Cooper Tire and rubber is a United States based firm with headquarters in Finlay, Ohio. It specialises in the design, manufacture, selling and marketing of replacement tires for motor vehicles and trucks. It is the second largest tire manufacturing company in the United States, after Goodyear. Cooper Tire and Rubber has fifty nine manufacturing, sales, distribution and design facilities located in different locations around the world. The Chinese market contributes a quarter of Cooper Tire and Rubber sales volume.
With the intensified competition in the tire industry from the foreign companies to gain a consumer base, companies have developed predatal tendencies to gain a market share for instance the British companies have attempted to gain control of the vibrant United States tire market but with no success. Companies have opted for other means to stay put in the market; mergers, acquisitions and takeovers have become a trend of the dominant companies leading to big and fewer independent firms in the tire market (Schniederjans, 1998).
Cooper Tire and Rubber has acquired other companies in its diversification strategy to stay relevant in the market. In 2004 it acquired the United Kingdom Avon Tyres which manufactures tyres for motorcycles, racing vehicles and cars. In 2006, Cooper Tires and Rubber got a Chinese Government approval to acquire a fifty one percent stake in a Chinese based firm, Shandong Chengshan Tire Company, which manufactures automobile and truck tires for the Chinese local market and for export purposes in foreign countries. Again in 2007, Cooper Tire and Rubber entered into another contract with Chinese based company, Kenda Rubber and established a manufacturing facility in Eastern China. Cooper later obtained full ownership of Shandong Chengshan Tire.
Cooper has a commanding market share in the Chinese tire industry and should not enter into any partnership or merger with other entities. With the stiff competition in the market, Cooper should concentrate more on expanding its products and its technology, for instance the venture tire market for aircrafts wheels, wheel chairs, cycles, e.t.c. in order to broaden its customer base. Sole ownership of Cooper is aimed at adding-value to the firm. Schniederjans (1998), suggested that by including other shareholders in the ownership, this would dilute the value of the firm and it could also lead to diseconomies of scale in its operations.
However, a joint venture could also be advantageous to Cooper. Through joint ownership the company will reduce its risk levels to lower levels, also it eliminates unhealthy competition among firms and firms can benefit from synergistic effects. In case, of liquidity problems, a joint venture is in a better position than a sole player in the market, since a joint venture has a wider spectrum for sources of capital. The internet is a cheaper means of communication between people over long distances and also it is a source of information for the company. With the current technology, the company could also outsource its minor duties via the internet.
Surveys conducted by the J. D. and Associates in 2009, show that there is a relation between original equipment satisfaction and replacement sales, increased satisfaction in OE tires may lead to a rise in customer loyalty for replacement tires (Chase & Jacobs, 2003).
China has emerged to be vibrant for most company’s products and most manufacturing companies are making a way to the China market to capture a portion of the large and growing market. With the threat that domestic companies face due to the stiff competition from the large foreign companies, the Chinese government has moved in to protect the local market by imposing very high import tariffs on imports to the Chinese market. In response to this, the European and American countries hastened trade barriers to Chinese goods by increasing the trade barriers and trade restrictions which made it impossible for the Chinese firms to penetrate the foreign markets. China was forced to adjust its tariffs and trade regulation policies to match the International Conventions on protective and revenue tariffs.
In 2009, the International Trade Commission found out that the Chinese tire imports into the American market was depressing the U.S. market. The President, Obama, announced a thirty five per cent tariff that is regressive by five percent for three consecutive years on rubber products and tires imported into the United States. Although, this gave the United States tire manufacturers an upper hand over the foreign firms, it is predicted that the customer will eventually bear a higher tariff impact indirectly as the price of tier one and two tires escalate. These are the poor quality products that the normal consumers can afford especially during this time of economic downturn and the raw materials needed to subsidise the production of tier one and two tires in the United States. An example is the Shandong Chengshan Tire Company which entered into a co-venture with Cooper to manufacture automobile and truck tires for the Chinese local market and for export markets.
With the escalated cost of doing business in the Republic of China, Coopers Tires and Rubber plans to increase their distribution of Chinese manufactured tires into new foreign markets like in the European market, to offset the loss made in China. Although this can prove to be a difficult venture as other Chinese based firms also plan to market their products to the European market. Given that distribution affiliation between China and the US country over Kenda Tires company and Cooper Tires and Rubber have worsened, thus Kenda Tire company would compete directly against Cooper Tires and Rubber in other markets. At the moment Goodyear is still considered the most successful company in the tire industry and continues to dominate the market over the other companies. Cooper is facing stiff competition from other companies such as Kenda Tires Company and Goodyear, which are threatening to overlap it in the market (Supply Chain Leader, 2007).
The rapid change in the tire industry’s structure due to the undercurrent of stiff competition and economic wave, has led to reduction of employees in the facilities as a means of driving down costs and sustaining profitability levels. Labor is no longer cheap as it was years ago and companies have adopted technological operations that have mechanized their operations, hence mass retrenchment of employees. Difficult economic times have also made labor expensive; there has been a double digit increase in wage rates. Trade unions agitating for the rights of employees have also impacted the rise of wage rates.
Over the years, the tire replacement market has received enormous growth over the original equipment market because car owners believe that replacement tires are more durable and offer the best course on the road. With the replacement market been Cooper Tires and Rubber’s niche, it has received great growth in sales volumes and also cushioned itself against the turbulent times in the new-car sales (Schniederjans, 1998).
Currently the biggest problems facing Cooper Tires and Rubber in trying to achieve its objectives, is the inability to sustain its profitability levels over time. Another problem facing Cooper is the impact of taxation and political issues on its profitability. With the current struggles between the China and United States governments, this is hurting Cooper’s profitability and instability in conducting its overseas operations. Trade protective barriers such as, restrictions in funds expatriations, high tariffs, and trade quotas in foreign countries is affecting its profitability and unpredictability of its operations.
Most of the car buyers tend to buy replacement tires of the same brand as the ones that were originally on with the car when it was bought. Figures show that one out three car owners will replace their tires with the brand which was originally on the car. Thus tire manufacturers are compelled to cut their prices and persuade automobile manufacturers to choose their product. Cooper could concentrate on this strategy so as to gain a wide customer base (Supply Chain Leader, 2007).
The tire replacement industry involves many middlemen, agents and arbitrageurs who take advantage of the market and make a lot of profits from direct sales to the customers at the expense of the manufacturers. Most of the companies sell their products in wholesale quantities and allow agents and middlemen to market their products on their behalf. The Cooper Tires and Rubber needs to streamline its distribution channels by look at the possibility of increasing their bottom-line by cutting out the middleman and opening more “Cooper branded retail stores”. Cooper needs to establish its niche market and offer direct services to its customers without engaging agents.
The tire industry has a role to play towards environmental issues. It focuses on reuse, harmless ways of disposing worn out tires and recycling of tire waste products. Of late China has had a bad reputation towards its role in environmental issues. Other countries claim that China is not putting into consideration adequate measures to save the environment. The world is going green to save the environment, so should the tire industry; new tires that are friendly to the environment and also do not deplete the available resources should be introduced in the market (Chase & Jacobs, 2003).
Chase, R. B. & Jacobs, R. F. (2003). Operations Management for Competitive Advantage. New York, NY: Hill/Irwin.
Schniederjans, F. (1998).Operations Management in a Global Context. M.J., NY: Quorum Books.
Supply Chain Leader. (2007). Ideas and innovations from i2. Cooper Tire Rolls Out New System for Better Demand Fulfillment. Web.