China: No slow-down signs
By Gregers Lindvig
First, let it be carved in stone that overall production capacity and selection of tyre sizes, specs, and brands in China are still increasing at a breath-taking pace. And there are no signs of this slowing down any time soon. After all, major strategic decisions in large enterprises in China tend to be based on values such as statement power; extreme speed and scale of growth; and/or keeping up with the neighbour. Not, as in Western enterprises, on market research, customer demand, and innovation – although customer orientation is gradually on the rise in China as well. Driven by necessity due to high competition, though, much more than by a desire to satisfy the customer. But, we have also started to see cracks in the wall here and there, as making strategies based on plan economy and subsidies from local governments will only get you so far. Recent reports show that some of the major players in the largest tyre production hub in China have reduced or even stopped production, one factory is said to have laid off 1,000 workers, and others have stopped delivering the “low profit” export orders while increasing focus on the domestic market. I won’t mention any names, as I don’t want to be accused of slander, but the rumours are very solid.
The reasons for these developments are numerous, but the ability to make strategic development decisions based on sales markets and spread out risks is without a doubt fully as important as internal issues as cost of funding, production and economic management, etc. There are naturally serious funds invested in the tyre factories, but solidity is often alarmingly low, and it’s common for factories to make financial guarantees for each other in order to obtain bank loans, creating the risk of a domino effect if one of them should crash. Factories with a narrow focus, say on the US market, for example, must be feeling the heat now with the imminent threat of new and much higher anti-dumping laws against Chinese PCR in the US.
(Full Text in PTA Dec-Jan issue)