Michelin

1. Michelin GROUP 6 Erik Bronger Dimitrios Koufos Uday Mudholkar Julien St Girons Rachelle Topacio Patrick Wiebusch

2. The History • Founded by Michelin brothers André and Edouard • Looking for new opportunities in 1889 when a cyclist came in with a flat tire • It was a Dunlop rubber tube glued solidly to the wheelThis made it very difficult to repair • A few years later they convinced carmakers of the utility of inflatable tires

3. Bibendum • At the Lyon Universal Exhibition in 1894, the Michelin brothers noticed a pile of tires on their stand. • Edouard said to André: “Look, with arms, it would make a man” • “Nunc est Bibendum” – Now it is time to drink! Michelin drinks the obstacles!

4. The Company • Family owned • Special Status – Commandite Structure • Very closed: “once almost as tough to enter as the no man’s land between the two Koreas”

5. Tires Maps Guides Major Products

6. BCG Matrix Relative Market Share High Low High Maps & Travel Guides STARS QUESTION MARKS Industry Growth Rate Passenger Car & Truck Tires CASH COWS DOGS Low

7. Product Range Michelin manufactures 28,000 different tires, from bicycle to space shuttle tires Planes Space shuttle Agricultural Trucks Cars Bicycles

8. Number 1 Business Model Radial Tires Boss Mistress Innovation Intelligent Tires Research & Development C3M Process Engineering Excellence 5% of Sales “Gerance” Competitive Advantage “Young Edouard” Strategic Planning Welfare of Employees Family Business Centralized & Secret

9. Porter’s 5 Forces

10. Power of Suppliers • Highly sensitive to fluctuation of raw materials • Natural rubber • Petroleum Derivatives • Existence of cartels for natural rubber and petroleum • INRO • OPEC • Presence of strong labor unions in European plants

11. Power of Buyers • High buying power of car and truck makers in the OE market • High buying power of independent dealers through group purchasing • Large retail chains i.e. Kwik-Fit, Speedy • Small Dealers

12. Potential Entrants • High capital requirements • Need for economies of scale • Limited access to distribution channels • Governmental and legal barriers

13. Substitutes • Growing refurbishment market • No viable substitute for natural rubber • Emergence of nanoparticle technology

14. Industry Rivalry • Highly concentrated industry, with C4 over 60% • Products not highly differentiated – leading to market consolidation • 1999 industry-wide over capacity of 30% • Diverse competitors in terms of national origin, cost strategy and management style

15. Industry Paradox Products are... Commodity Customers Highly Technologically Sophisticated Industry Differentiate • Through: • Branding • High Quality

16. MICHELIN BF GOODRICH UNIROYAL Branding Strategy • Cover all segments with different brands • Offer a full range to dealers Brand Trio Strategy “best” “better” “good”

17. High Quality Michelin proves its products’ quality through supplying top Formula 1 and Rally teams

18. SWOT Analysis STRENGTHS WEAKNESSES • Highly reputable brand • Technical reputation • Innovativeness • Not dependent on home market • Weak Asian Markets • Subsidiary brands not well-known • Slow reaction time • Slow implementation of own innovations • Product driven company • No MBAs!!

19. SWOT Analysis OPPORTUNITIES THREATS • Only 20% - 25% of customers are lowest price buyers • Sophisticated and “intelligent” tires • Asia is largest growing segment • Outsourcing of tire & brake system • Travel guides and maps using the Internet • Growth of private brands • Increasing power of independent dealers • New processes by other major players • Goodyear becoming a low cost producer • Continental becoming a system supplier • Monopolistic prod’n of natural rubber in Asia

20. Car navigation systems Internet, Mobile Phones, PDAs Recommendations Enter Asian Market Joint Venture production agreement with an Indian local Manufacture NPV=17.5MUSD (IRR of 20%) Strengthen brand marketing strategy Bibendum balloon (like Richard Branson)? NASA Space Shuttle Supplier and Concorde Supplier after crash Diversify route planning, displaying maps traffic and weather information finding hotels and tourist places… GROWTH STRATEGY Alliance research for nanoparticle technology BASF or Degussa Huls

21. Recommendations Review inventory policy Optimization of entire Supply Chain Upgrade Marketing & Finance OPERATIONAL STRATEGY • Attain more OE accounts • 25% of its replacement car tire sales were generated by OE • Profound impact on the future replacement market • Faster reaction to market • Organizational Changes • Cost Cutting Methods • Training and Incentive Schemes for Employees

22. Updates 2003 2000 2001 2002 2004 • In 2000 • Michelin stepped up production in the US to meet demand after tire recall by Bridgestone/Firestone • Michelin revamped its operations in Asia, including a new joint venture in China with Shanghai Tyre & Rubber • In 2001 • The European Commission fined Michelin nearly $20 million, claiming the company engaged in anticompetitive behaviour by abusing its dominant position in Europe • In 2002 • Michelin launches travel portal : www.ViaMichelin.com • In 2003 • Positive free cash flow for the 3rd year running, even after 30% increase in total investments • Michelin-Babolat partnership for cutting-edge tennis shoes • Michelin produces digital maps for GPS systems • In 2004 • Michelin established a joint-venture with “Apollo Tyres”, India’s second largest tire manufacturer

23. Questions & Answers