1.

INTRODUCTION

The origin of the Indian tyre industry can be traced back to 1926. Dunlop rubber limited was
the first tyre company to set up in India which was followed by MRF in 1946. Since then the
tyre industry has expanded and has become one of the competitive markets in the world. With
the growth in technology, the sector is set to grow further. There are nearly 40 players in
Indian tyre industry, of which 90% market share is from 11 players. The Indian Tyre Industry
is a central part of the automobile industry; it contributes to ~3% of the manufacturing GDP
of India and ~0.5% of the total GDP directly. During 2017-2018, the Indian tyre industry
witnessed a turnover of Rs 60,000 Crores. And the tyre volume demand is expected to grow
by 7-8% during FY18 and FY19, boosted by higher OEM demand and stable replacement
demand, says an ICRA research report.

2. PORTER’S FIVE FORCES

2.1 Rivalry among competitors 
The tyre industry in India is expected to post 7-8 percent volumes growth in FY2018. High
growth in complimentary sector like automobile is also benefitting the tyre industry. There
are five major tyre manufacturing firms that control around 80% of market share. To
establish a tyre manufacturing plant one needs to make high capital investment in property,
plant and equipment. This creates a high entry barrier. Tyres are homogeneous product, hence
there is hardly any difference in the products offered by firms. But they do differentiate on
some factors like price, grip, wear life, etc. The excess supply and homogeneity of product
makes it easier for the end customer to switch to another firm. All these factors contribute to
high rivalry among the firms in the industry. 

2.1.1 Barriers to exit 

The asset of the firm in industry are mainly its machinery and equipment which perform
specific function and hence cannot be used for other purposes. Along with equipment, firm
has to invest in property and plant which will result in high cost of exit. There are many
government regulations as well on the import of certain raw material required for the
production. Thus, all these factors will culminate in high exit barrier for the firm.

2.2 Barriers to entry

A tyre is manufactured by assembling a mixture of synthetic and natural rubber components.
The products range from offerings in a two-wheeler, passenger vehicles, and light and heavy
commercial vehicle segments. So, cost decreases when a firm offer in various sections and
thus invoking economies of scale.
In general, tyre Industry offers three variants – hard, medium and soft compound tyres. They
vary regarding lifespan, friction, and durability. Different kinds were used based on the
purpose of the vehicle.
Brand identity is high in the tyre industry as more than 90% of sales in Industry belong to top
eleven manufacturers like MRF, Apollo, CEAT, JK, and Michelin tyres. At the same time,
the switching cost is low due to the standards maintained in the automotive Industry. So, to
attract customers one has to provide better quality than its competitors and established
players in Industry have an advantage over others regarding Brand Identity. Tyre industries
target the markets of OEMs, replacement and in exports.
They need high capital to pay customs duties for raw materials, establish and operate plants,
and to face these capital expenditures they were raising debts. To meet competitions, each
firm is offering a wide range of products which also need huge sum in R&D. Many key
players in Industry have developed their technologies to achieve competitive advantage, and
firms like Continental are carrying on the innovation. As these are not available open source,
accessibility is restricted to new entrants. Natural rubber is primarily the raw material palette
in tyre Industry, and the gap in demand and domestic production is a concern. It attracts
customs duty to import under various trade agreements with ASEAN countries. So, the costs
are increasing because of the need to import raw materials like natural rubber, crude oil, and
carbon black. Restrictions to join Industry are low, and antitrust laws are in place to ward off
any unfair competition.

2.3 Bargaining Power of Suppliers 

65-70% of the total cost in manufacturing tyre is attributed to Raw materials. Natural rubber,
Poly Butadiene rubber, Styrene Butadiene rubber are the main raw materials used in making
tyre. The price variations in these materials will have large effect on the profitability of tyre
industry. There is a lot of fluctuations in raw materials costs. The price of rubber in both
domestic and international market has increased by 28% in the previous fiscal year and in the
years before it has been declined by 24% and 15% consecutively. The production of rubber in
the domestic market is not increasing as much as the demand is increasing. Import of rubber
is high due to competitive pricing in international markets. The threat of Forward integration
is also high as the raw materials alone constitute major share in manufacturing tyre. Overall
the bargaining power of suppliers is high in this industry
2.4 Threat of substitute
Chinese tyre manufacturers pose a serious threat to domestic production. It is possible to
switch among tyres, and it happens in the replacement market which constitutes 60% of trade
volume. Anti-dumping laws implemented by our government have proved ineffective as they
were based only on loss of profit. Natural rubber price has been reduced in recent times in our
country, thereby lowering the cost and increasing the profits. At the same time, brand loyalty
among consumers is observed as cheap substitutes vary regarding performance, grip and wear
& tear. Even price varies depending on performance and the brand we opt.

2.5 Bargaining power of buyers

Indian tyre industry consists of two types of buyers. One is the Original Equipment
Manufacturers (OEM), and the other is the replacement market.
Original Equipment Manufacturers (OEM)
Original Equipment manufacturers include automobile industries such as Hyundai, Maruti,
etc. The demand from this segment depends on the demand for automobiles and the growth
of the automobile sector. As OEM purchase in bulk, tyre industry has less control over the
price in this segment. Tyre industry is raw material intensive industry and 65% -70% of
production cost is contributed from raw materials.
Lack of players reduces the buyers’ power somewhat as they have only limited options while
deciding which to purchase. But many players in the auto industry are giants like Hyundai,
who possess significant financial power. Thus, the price in the OEM segment remains
constant throughout, even when there is fluctuation in the price of natural rubber and this, in
turn, increases buyer power.
Replacement market
In the replacement market, customers are highly segmented decreasing buyer power, as these
dealers do not possess the same financial leverage that the giant automotive players possess.
OEM contracts create a higher switching cost for automotive manufacturers whereas the
replacement market is more likely to place periodical orders, reducing costs. This segment
has a higher margin business compared to the OEM segment. As per the statistics, the
replacement segment contributes 55% of sales whereas OEM constitutes 45%.
The possibility of forward integration by the tyre industry is highly unlikely as the two
industries, namely the automobile and the tire companies, are very different and it would be
difficult to compete successfully in both. Both industries are equally reliant on each other to
prosper, and often will come each other for long-term supply agreements.
Tyre plays an important part in any automobile industry. In the Indian context, the tyre
should be manufactured for optimal temperature as we have a wide range of climatic
conditions throughout our country and also for all terrains. Contribution to the quality of the
end product is thus high. Thus, the bargaining power of buyers in this industry is moderate to
high.

3. EXTERNAL FACTORS WHICH EFFECT TYRE INDUSTRY

3.1 Government Policies

Government is imposing 25% on raw materials and 15% duty on finished tyres. As a result
the domestic market is facing tough competition in producing tyres at lower cost compared to
imports and the anti-dumping law being imposed is on basis of loss of profit and is not a big
impediment. If the import duties on raw materials are reduced then the cost of production will
be reduced which in turn reduces the price for consumers

3.2 Climate changes

In India Kerala produces about 92% of country’s total natural rubber. High temperatures and
heavy rains will reduce the production of rubber. Natural disasters like floods which
happened recently in Kerala had a huge impact of rubber production in India. This reduction
in supply and increase of demand has led to increase in the tyre price

3.4 Changing Trends

In India tyre manufacturing is driven mainly on demand & supply and to most extent due to
automobile industry. There is increase in focus on fuel efficiency and reduction in emissions.
Hence tyre manufactures have to implement new mechanisms which will increases fuel
efficiency and provides better traction

4. CONCLUSION
 References
http://advantage.marketline.com.library.iimv.ac.in/Product?
ptype=Industries&pid=MLIP2642-0003
https://auto.economictimes.indiatimes.com/news/auto-components/how-tyre-industry-is-
evolving-and-adjusting-to-global-trends-and-requirements/64977118
https://www.slideshare.net/abhikulshrestha9/indian-tyre-industry-52472303

Table 3: Barriers to entry

Attractiveness Remark

Low High

1 2 3 4 5

Economies of scale Small Tea stall 4 Oil refinery Large Economies of scale can be
invoked as each firm produces
in large scale.

Product Low Sugar 5 Beer High Each manufacturer provides a

differentiation wide range of products. They
vary in terms of life span, grip
and durability.

Brand identity Low Sugar 5 Cigarette High 90% of sales belong to top
eleven manufacturers as per
volume.

Switching cost Low Diskette 2 Software High Low due to standards

maintained in automotive
industry. But brand loyalty is
observe d.

Access to channels of Easy Newspape 2 Petrol Limited Targets the markets of OEMs,
distribution r replacement and in exports.

Capital requirement Small Tea stall 4 Oil refinery Large Need heavy capital to invest in
technologies, plants and
equipment.

Access to technology Easy Generic 4 AIDS Restricte Many of key players in

drugs medicine d Industry have developed their
own technologies to achieve
competitive advantage, and
firms like Continental are
carrying on the innovation. As
these ae not available open
 source, accessibility is
restricited to new entrants

Access to raw Easy Distilled 4 Ivory Restricte Natural rubber is primarily the
material water d raw material palette in tyre
Industry, and the gap in
demand and domestic
production is a concern. It
attracts customs duty to import
under various trade agreements
with ASEAN countries

Government None Tea stall 3 Public bus Substanti Restrictions to join Industry are
protection in UK al low, and antitrust laws are in
place to ward off any unfair
competition.

Table 5: Bargaining power of buyers

Attractiveness Remark

Low High

1 2 3 4 5

Number of Small Air bags for 3 Toothpaste Large Moderate. Buyers are of 2
buyers cars types- replacement and OEM,
of which replacement section
is more.

Availability of Many Fountain pen 4 AIDS Few low, almost 40 players are
substitutes medicine present in India. There is no
substitutes is other than low
cost exported tyres.

Switching cost Low Diskette 2 Software High Low switching cost for buyers

Buyer’s threat of High Air bags for 2 Cars Low low. There are two sections of
backward cars buyers – OEM and
integration replacement. If buyers are the
automobile manufacturer,
possibility for them to do
backward integration and
produce tyres is unlikely.

Industry’s threat Low Air bags for 2 Oil High Low, probability of tyre
of forward cars refinery industry producing
integration automobiles is highly unlikely

Contribution to Low Low end 4 Semi- High High. Tyre plays an important
quality packaging conductor part for any automobile
chips industry. In Indian context,
tyre should be manufactured
for optimal temperature as we
 have a wide range of climatic
conditions throughout our
country and also for all
terrains.

Table 6: Bargaining power of suppliers

Attractiveness Remark

Low High

1 2 3 4 5
Limited number of suppliers
Number of suppliers Small PC 2 Tea stall Large
and larger concentration is
from Kerala

Availability of Few PC 1 Tea stall Many Natural Rubber & Synthetic

substitutes Rubber is to be used. No
other alternatives

Switching cost High PC 4 Garment Low Switching cost of suppliers

is relatively low as they can
supply for other industries

Supplier’s threat of High PC 2 Wide Low As raw materials constitute

forward integration bodied maximum proportion in cost,
jetliner there is high of suppliers to
forward integrate
There is limited supply of
Industry’s threat of Low Petrol 3 Garment High
raw materials in india and if
backward integration pumps retailers
possible may be large
players might backward
integrate
Rubber is main ingredient
Contribution to High PC 2 Low end Low
and the quality of it will
quality packagin
affect the quality of whole
g
tyre along with technologies
involved in making it
Low Talcum
Contribution to cost 5 Oil High 60-65% cost is attributed
powder
refining and fluctuations in price
largely effects tyre cost

Industry’s Low Vinyl 2 Cars High 2/3rd of natural rubber

importance to record production is used by tyre
supplier industry. Natural and
synthetic rubber can be used
in transport, health, weapon,
mining, construction and
many other industries
 Table 7: Government actions

Attractiveness Remark

Low High

1 2 3 4 5
Import duties on raw
Industry protection Low Tea stall 2 Public bus High
materials is 25% but only 7%
in UK
duty is imposed on finished
tyres. Hence domestic
market is facing huge
competition. Anti-dumping
duty imposed is not being a
deterrent as it is based on
profit and loss but not on
whole level

Industry regulation High Chemica 2 Software Low There are strict regulations
(pollution, etc.) ls and penalties in case of
deviations from regulations.
There is high concentration
on reducing emissions as it
indirectly effects automobile
emissions as well

Customs and tariff High Garment 3 Software Low There is high acceptance and
restrictions abroad demand of Indian tyres in
international market and that
is expected to grow in future.
But the anti-dumping duty of
countries will play a huge
role as it might give tough
competition from china

Table 8: Overall assessment

Attractiveness Remark

Low High

1 2 3 4 5

Barriers to entry 4 High, new entrants can’t achieve economies of scale and
due to brand loyalty the new entrants will find it difficult
to capture market share.

Rivalry among competitors 3 Moderate, as there is no differentiation and moderate

switching cost.

Barriers to exit 1 Low, high barriers to exit due to heavy asset used for
specific purposes and government regulation
Power of buyers 3 Moderate, as the buyers are segmented into 2, in which
automobile players has high bargaining power whereas
replacement market is highly segmented and doesn’t
enjoy any bargaining power.

Power of suppliers 4 High, due to high chance of forward integration. By

suppliers.

Threat of substitutes

Government action 3 Moderate, there is strict regulations and penalties in case

of deviations from regulations and the Anti-dumping duty
imposed

Overall attractiveness