Changing trends in China
By Gregers Lindvig
As previously stated, we see more developments in PCR tyres than in TBR tyres in the Chinese industry these days. It is becoming increasingly clearer to the factories that they need to do something of their own to stand out and create sustainable business for the years to come.
I have said it before: Those that fight the price wars with nothing else on the table will either empty their pockets or die. Naturally, they are under a lot of pressure to keep reducing prices. Not just from export customers, but even more so from the domestic trading companies, who want to stay alive as well – and what else can they compete on than price, as factories are developing their own skills in export and foreign customer relations. Some years back, factories thought it was convenient to have domestic trading companies dealing with their export clients, as they just wanted to focus on production and relations to their fellow Chinese. And business was easy that way, as supply was often short and competition sparse.
In recent years that has changed a lot. The factories have established their own export sales departments and have been able to employ sales staff with English language proficiency, enabling them to deal directly with foreign accounts. Earlier, the trading companies were able to get massive discounts by pooling together many customers’ demands and place large orders, but now the factories have eyed the chance to retain more profits by dealing direct.
Simultaneously, customers in all parts of the world have worked towards the same goal – to deal directly with the factories instead of filling the pockets of trading companies doing nothing but pushing papers and translating. Many have been frustrated, though, by the fact that the factories believed the trading companies added more profits than they did, with the result that many customers – especially in Europe – were not able to negotiate the same prices with the factories as they were quoted by the trading companies offering products from the very same factories. This is mainly due to the fact that they didn’t have a concept of how to negotiate in China, and in most cases also loyalty from the factory towards the trading company that brought the business from the customer in the first place.
Focus on brands
What I have heard from a few factory owners recently is that they want to focus more on their own brand(s) and decrease OEM customers. This goes against the trends of just a year ago, where many factories opened their previously tightly closed doors to OEM customers bringing just a little extra to the total output figures, as capacities increased faster than customer demands. Branding has traditionally not been a strong point for Chinese tyre manufacturers, although the focus has naturally been there to some degree for PCR, while being completely ignored on TBR. Somewhat understandable, as PCR caters to end users while TBR is a B2B product, but still interesting to see factories presenting their TBR catalogues with no mention whatsoever of their brand, only pattern designations. And when asked, they can usually come up with 3-4 domestic brands and even more for export, as this is their way of supplying more products to markets and maintaining exclusive distributors for each “brand”.
(Full Text in PTA April-May issue)