AGRICULTURAL TIRES, THE HEAT IS ON
Well known brands and challengers, face to face with a technological gap continually narrowing, increasingly relying upon on-the-field strategies: a short description of an off-highway market under turbulent transformation
Mino De Rigo
It is the industry’s segment where challengers have gained the most over established manufacturers. Furthermore, it is the market niche with the highest medium and long term potential. For agricultural tires, with a 2013 total sales figure of 1.675.000 ( 1% more over 2012, according to europool Etrma data ), the prospect is of a steady growth. Which appears to be destined to grow further, if it is true that the world population is constantly increasing and agricultural land is being reduced; hence the need to increase crop yields, possible only through greater farming mechanization: more machines equals more tires. A trend confirmed by the figures of the first quarter of the year, which show European sales up 7% over the same period in 2013. Simultaneously, also the market competition is heating up: as shown at the recent edition of the Reifen exhibition in Essen, where premium manufacturers had to face a numerous group of Asian producers. If Chinese manufacturers still do not represent a great threat due to a widespread perception of poor quality, the same cannot be said about Indian manufacturers such Alliance Tire Group (ATG) and Balkrishna Tires (BKT), but also about fellow Indian Ceat and Malhotra, the Korean Tiron and the Turkish Starmaxx. On the opposite side, we find the more established producers like Michelin, Titan-Goodyear, which still supplies Oem tires for important brands like John Deere, Case New Holland, Kubota and Agco, and a new Bridgestone range, that recently celebrated, at Reifen, its entry in a market so far tackled through the Firestone tire range.
Production costs vs innovation
“It is generally true – says ATG Ceo, Yogesh Mahansaria – that the main market players have long ignored the progress made by the newer competitors. Therefore, while the technology gap narrowed, they have focused on brand value”. Emerging manufacturers gain market space thanks to lower production costs: an advantage destined to wane in a few years, yet to date still not completely balanced by an adequate R&D activity, able to compete with premium companies. And if the business volume, able to support and finance R&D, is reduced, potential for innovation is reduced as well.
The competitors did not lose any time, making a great effort in bridging the gap; both investing on production processes, and offering a wide range of products with a greater choice of agricultural tires for every kind of use. Incidentally, if the increased competitiveness of Asian brands does not include companies from the land of the dragon, the reason must be found in the peculiar characteristics of the agricultural tire market, a market of small sales volumes and a multitude of designs, where success depends often in having hundreds of product codes. Among long term players, Mitas shows an enviable consistency, with over two hundred codes, and recently celebrated its ten years license agreement ( extended to 2019 ) through which it produced over 300thousand tons of tires for agricultural use for Continental; even though the objective is “ to shift part of the weight on the Mitas brand – as confirmed by the Marketing and Sales Director Andrew Mabin – already from 2014”.
Specialize and prosper
For its part, Trelleborg, whose technological leadership is undermined by other competitors, “ is occupied – says Maurizio Vischi, President of the Wheel Systems – in consolidating its position expanding in the U.S.A.”, where the multinational company is opening a new factory in Spartanburg, to meet the demand for extra-large agricultural tires. The premium segment is targeted by Bridgestone, with its new Vt-Tractor, developed in the Rome R&D centre: “ We’re looking at – says Marketing Manager Lorenzo Piccinotti – the high-end part of the market not covered by Firestone. That’s why we’ve decided to focus on XL size tires for High-Power tractors and harvesters, to be sold only in Europe”. Apollo Vredestein, on the other hand, is not betting only on the European market, and has announced a 50% increase of the production capacity of its Dutch plant in Enschede. “We’re talking about investments – says Marco Paracciani, Global Marketing Manager of Apollo Tires – that will allow us to produce not only larger tires for agricultural use, but also to tackle new markets, in America and Asia”. Making good use of “If” and “Vf” technologies ( Increased flexion and Very high flexion respectively, originally introduced by Michelin ), which allow tires to work with lower air pressure under the same load, compared to an equivalent standard radial, so as to improve the tire’s footprint and grip, reduce soil compression and lengthen the tire’s lifespan. The same technologies though, are available by the best equipped Asian manufacturers.
Marketing strategies and the web
Just as ATG, whose reputation in the U.S. is based primarily on flotation radial tires ( literally To float, that is wider tires and therefore able to reduce contact pressure and soil compression ) bearing the Alliance brand for Hi-power tractors and harvesters. If the market is taking great strides towards technological leveling, success or failure of the single producer will depend mainly on the strategic approach, marketing and visibility on the one hand, market positioning and product range on the other. All the more so if we consider the increasing pressure placed on farmers, with incomes constantly dropping despite rising consumer prices, making production efficiency a must: if new machines cannot be bought to improve production, new tires are a feasible option. Purchasing, on the other hand, has witnessed a major change. A farmer’s dependence on the dealer next door has reduced due to the greater role played by Internet: thanks to the web, in fact, information and updates are available 24x7. A change in purchasing habits that affects a customer’s choice, since each client can identify and evaluate what he needs before physically going to the dealer. This forces the manufacturers’ distribution chain to follow their real and potential customers – now more than ever inclined to customer infidelity – online.
NEW PLAYERS AT THE TOP, ATG IS FIRST IN LINE
A three brand portfolio, present in 120 countries over five continents, a 500mln dollar turnover and an insatiable desire to increase its share in the OTR tire market (vehicles for agriculture, forestry, construction, earth moving, mining, harbors and airports ), in which the seeds were planted years ago, but blossomed only in 2007. When Yogesh Mahansaria, who had recently left BKT as Executive Director, decided to purchase an Israeli company, Alliance Tire, already active on the European agricultural tire market and in economic difficulties for some time. The recovery starts, with the financial support of a private equity company, Warburg Pincus, a new production plant is established in India followed by the takeover of the American Gpx company, Atg’s gateway to the stars and stripes market for OTR tires used by the forestry department and by construction companies. Atg races through the stages, so much so that Warburg Pincus last year sold its shares to Kkr earning four times the original investment. Today Atg, that can boast over 2thousand product codes ( branded Alliance, Galaxy and Primex), is the sixth biggest producer of OTR tires, a 9 billion dollar sector, and about 10% of the entire world tire market. About to open a new production plant in India, and involved in developing new marketing channels to tackle the East European and South American markets, Atg has another important goal: to become, within five years, the leading company of the sector.