HAM BERGER STRATEGY CONSULTANTS

HAM BERGER STRATEGY CONSULTANTS

Proudly presents:Proudly presents:

The The

ConferenceConference

Hear from Michelin’s CEO and industry analysts

Hear from Michelin’s CEO and industry analysts

Be informedBe informed

Interact and recommendInteract and recommend

Javier Fungairino

as

Neil Mullineux The World Tire Industry Analyst

Guillaume Beck

as

Edouard Michelin “Michelin Head Honcho!”

Sophia Liang

as

Amelie TyredHam Berger Consultant

Spencer Rosen

as

Phil Rubber Ham Berger Consultant

Antonio Paguio

as

Chuck A.Tire Michelin Global Solutions

Please welcome our first speaker:Mr. Neil MoulineuxTire Industry Analyst

History• The tire industry was born at the

end of the 19th century by providing

bicycle tires.

Mid 20th - Dramatic quality improvement

• Dunlop… …rubber tire

• Goodyear… air-filled tire

• Michelin…. the removable tire

History• In the 1990s after a price war companies were not able to differentiate. They were not able to innovate like in earlier years.

They had to concentrate on:

- Increase in productivity- Capacity shortage- Organizational changes

• Several tire makers formed alliances and joint ventures.

Industry StructureTire: A commodity product

• In history, tire companies have achieve to create cheaper and longer lasting tires.

• Improvements in this industry are slow and mainly based on modern technology.

Competitive advantage

• Capacity utilization, cost structures.

• Operations management, and research and development.

Competition

• Michelin, Bridgestone, Goodyear, 54 % • Bertrand Oligopoly market - “the top ten firms

- 80% of world production”• Brands - development of run-flat tires (such

as the Michelin PAX concept)• Focus on the materials used, tire design,

surface performance, winter tires….

Please welcome our honorable guest:

Mr. Edouard MichelinCompagnie Générale des Etablissements

Michelin (CGEM)

Corporate governance = Competitive advantage

2 Partners (+ 1 Interim)• COMMANDITE

• FAMILY BUSINESS

• CORPORATE CULTURE MichelinVille, Education, Healthcare…

• IDENTIFICATION

René Zingraff & Edouard Michelin

1924, Edouard Michelin: “When a fact contradicts theory, we should opt for the fact.”

2002, Edouard Michelin: “We have one profession and one mission: contribute to long-term progress in the field of

MOBILITYPlace

Euromaster

TCI

Promotion

F1Bibendum Challenge(China 2004)

Price Product

Innovation

R&D

•My Mistress = R & D

•Distribution Network

•T.O.U. (SBU)

Please welcome:Ms. Amelie Tyred

Ham Berger Consultant

Quiz

Which 2 of Porter’s 5 forces have minimal influence on the tire industry?

Power of supplier?Power of buyer?Rivalry among existing competitors?Threat of new entrants?Threat of substitute?

Answers to the Quiz

ConsumerConsumerMinimal Threat of New Entrants

Unattractive Industry• Low margins• Capital intensity• Strong channel needed• High tech & knowledge

ConsumerConsumerMinimal Threat of Substitutes

High Demand for Vehicle• Heavy truck freight needed esp. in developing countries• Short-term: eco-friendly, run-flat tires• Limited: maglev, hovercraft

Which 2 of Porter’s 5 forces have minimal influence on the tire industry?

Power of Supplier

• Michelin’s raw material price went up 21% in 2003 Chemical

14%

Steel & Fabric18%

Filler28%

Natural Rubber15%

Synthetic Rubber25%

• Rubber prices expected to rise 10~15% in 2004

• Tire manufacturers have low control over the price of raw materialsdemand & supply

VS

Power of CustomerSegment Mix: Passenger Car-Light Truck and the Truck markets(accounted for 84.1% of Michelin’s sales in 2002)

Replacement

70%

Original Equipment

30%

VS

Loyalty Ratio:• 65% in Europe • 58% in North America

• Must shift production with car industry to growth markets • Car makers squeeze suppliers for lower prices

Rivalry among Competitors

Please welcome:Mr. Phil Rubber

Ham Berger Consultant

Michelin’s SWOT

• WeaknessesWeaknesses– No. 3 in Asian market

– Time to market

– Bureaucracy

– Low productivity

– Lower brand visibility due to lack of outlets

• StrengthsStrengths– Tech. innovations– Brand equity

• Bibendum– Value added services

• Tire-related• Maps & guides

– Global portfolio• No. 1 in Europe and the

World (sales)– Family business structure

with leadership embracing change

Michelin’s SWOT

• ThreatsThreats– Job cuts changed

the employment culture

– Maturity of industry

– Fierce competition

– Raw material price fluctuations

• OpportunitiesOpportunities– Asian market

especially China

– High performance sector growth in Europe

– SUV segment in the US market

Please welcome:Mr. Chuck A. Tire

Michelin Global Solutions

Industry Review

• $70B tire market• Projected 5% p.a.

growth

The tire market continues to grow but at a slower pace

• 84% of tires sold are for cars, l-trucks & trucks

Passenger cars, light trucks, and truck are the cash cows

Worldwide market (by tire category)

51%

1%3%6%

33%

6%Passenger Car and LightTruck

Truck

Two-wheel

Earthmover

Agricultural

Aircraft

Industry Review

Industry Review

• 88% of market is in Europe, N.A., Asia

• China 15% growth p.a.

Asia, particularly China, is a key growth area

Michelin Update47% of sales comes from Europe

Geographical breakdown of main manufacturers' Net Sales (%)

0%

20%

40%

60%

80%

100%

Michelin Bridgestone Goodyear Continental Pirelli

Europe North America Other zones

Michelin Update

• Investments of €3.2b since 2000– Build capacity of existing facilities– New developments such as China an Russia

Michelin invests on higher returns

RecommendationsSWOT

Value ChainPorter’s5 Forces

MICHELINMICHELIN

GrowthRecommendations

• OEM market to build brand loyalty• Replacement market for high growth

areas (SUVs and upscale vehicles)• Growth in Asia and Russia• Grow awareness of other brands

OperationsRecommendations

• C3M process = flexibility & cost-effective• Inventory reduction• Productivity improvement• Outsourcing Non-core functions• Flexibility and Control

– Price accordingly– Targets adjusted for business environment– Curb volatility by hedging– Invest in rubber tree plantations

Competitive AdvantageRecommendations

• Innovation, design, quality & marketing

• Efficiency and speed to market

• Customer satisfaction

• Employees as the greatest asset

• Corporate culture as the main driver of competitive advantage!

Some Parting Words:Mr. Edouard Michelin

Compagnie Générale des Etablissements Michelin (CGEM)

" A company’s performance is not assessed only in terms of its economic results. It is also measured by its ability to develop its employees and to take its place harmoniously in the communities and Society around it."

Edouard Michelin, April 2003

Parting Words

What do you think?What do you think?

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