APOLLO TOOK ON GORI AND RAISED THE STAKES
At the top of Pirelli for over a decade and CEO from 2006 to 2012, the Florentine manager is back on track as a strategic consultant for the Indian group: from Apollo Tyres’ European challenge to market changes, here is Francesco Gori’s vision
If it is true that the European market plays a huge part in climbing the international ranking, the Indian group Apollo Tyres is looking at reaching the top, not only through repeated acquisitions and major investments in new business ventures, but also relying on former Pirelli’s CEO, Francesco Gori’s strategic advice. Gori, left Pirelli back in 2012, after having been on the Board of Directors for over a decade.
Mr. Gori, after thirty years in the Italian tire industry, why this comeback alongside an ambitious new player ...
Soon after my resignation in 2012, I had already received a request for cooperation from the Kanwar family, the main shareholders of Apollo Tyres, confirmed later when the Indian giant was thinking about a takeover of Pirelli’s industrial tires division. But it all came to nothing because of the deal Pirelli has recently struck with a Chinese group. Although I have always loved challenges, I had more than a few qualms, given my strong relationship with Pirelli, where I believe to have greatly contributed in the company’s transformation and development.
What brought down your last doubts?
Seeing the company for whose independence I have always worked very hard fall into Chinese hands. Well, after that I considered myself free from any moral and emotional concerns. Hence the decision to get back in the game; not on a full-time basis, though, but through a consultancy service, which provides for my participation also in board meetings.
Apollo Tyres, who asked you to contribute to its success on international markets, is certainly very active: but is there also a potential for development?
Determined to escape the Indian borders and to keep growing, Apollo has both the financial strength and capabilities to succeed. Whether this will happen through mergers and acquisitions or through the development of the brand, remains to be seen. The fact is, this group is creating jobs and wealth in Europe. In Hungary, for example, a hundred kilometers from Budapest, a new 475 million Euro factory is being built, with an annual production of 5.5 million tires for cars and light trucks, in addition to 675 thousand industrial tires. And recently, the company announced a further 45.6 million investment for the acquisition of the German distributor Reifencom. Apollo’s energy and vitality was confirmed by the Vredestein take over, while in South Africa Dunlop was first acquired and then sold to Sumitomo. I like the dynamism of the group and I am pleased to contribute to its growth.
And in Italy, what are the possible consequences?
In general, in Italy as well as in Europe, where new opportunities arise, I believe that Apollo’s management will be ready to make a move, just as it happened, after a long courtship, with Reifencom. True, some brands are reducing their production capacity, certain factories built immediately after the war, are clearly not able to sustain the current levels of competitiveness required of new production plants. On the other hand, groups such as Hankook and Apollo have built new factories in Europe, which is not only a big market but also a major tire manufacturer.
If Europe’s competitiveness is not in doubt then, how should we consider the onslaught that Chinese manufacturers are launching on the continent?
Europe’s competitive edge must be viewed in a framework that has been enriched with new players. On the other hand, it is undeniable that the invasion of low cost products is undermining the existing business logic. Look at what is happening in the retreading sector, for example, the most affected by these tires coming from China, because a new product manufactured there, costs as much as a retreaded tire here, something that works against a sustainable economy since it means wasting one or two useful lives of a premium brand tire casing, wasting the natural rubber imported into Europe as well as synthetic rubbers and steel produced here. I hope that Brussels will soon establish a contribution-tax on all tires coming into the EU, in order to finance retreading and guarantee a circular economy.
Just as Apollo has done with Reifencom, other European producers too, such as Michelin, are making their moves on the distribution side ...
Monitoring the supply chain to create value investing on B2B and B2C active players, represents, for large manufacturers a defensive strategy to protect their market share, which is bound to impact on the Italian market, which is still the third largest in Europe.
The Internet isno longer viewed as a taboo, but is it an inevitable destiny for all?
Tires can be selected online, because it is definitely much more comfortable, but tire services such as mounting and balancing will always be the prerogative of professionals just as most tire sales. The proof is that in the US, the most advanced market and e-commerce in the world, the proportion of tires purchased via B2C is a mere 10%.
What are the key points of Apollo’s growing strategy?
It is still too early to define a strategic path: I first need to acquaint myself with the ins and outs of the group as well as the current market. There is no doubt, however, that the brand Vredestein represents a strong point. Especially in the All-season segment, one of the fastest growing segment, in which the Dutch brand was the first to believed and invested. And now that also Michelin and Pirelli are launching their products in the same segment, we expect further developments.
With Apollo’s new Hungarian production plant expected to be fully operative by 2017, what does the increased production output imply for the group?
Well, let us say that the main limitation to the development of the Vredestein brand, the relatively low production capacity of the factory in Enschede, falls away. An important prerequisite for a greater market share and an O.E.M. selective approach.
Are there any similarities to the work performed, over the years, as a Pirelli top manager?
Focusing on premium market positioning with the consequent exit from the commodity product segment certainly paid good dividends. When I inherited the leadership of the company, Pirelli had lost, during the 90, 3% of its market share and profitability was well below that of its main competitors. They used to sell tires to all automotive manufacturers, without exception. My first decision was to focus on premium car manufacturers. This is not applicable to Vredestein though, since it doesn’t feature in the lowest segments and still does not supply original equipment. Nowadays, volume based strategy, with Chinese companies in the forefront, does not pay. Their leadership in this regard cannot be undermined, not only because of their production capacity, but also due to cost competitiveness and reduced investments: on average their R&D absorbs less than 1% of the turnover and there is not much investing on the brand done over there either. And here is where similarities can be drawn with Pirelli, with the decision to focus on the premium segment, but in a substantially different way, considering that much of this strategy will pass through the distribution chain. Not to mention investments on the brand, collaborations and OEM supplies.
Among the collaborations you mentioned, can you tell us something on the idea to focus on design as in the past with Giugiaro?
The contribution of Giugiaro in terms of aesthetics and functional design has enhanced Vredestein, giving the brand a strong character. I do not know if there is room for further development, considering that Giugiaro recently left Italdesign as well as the rather difficult period Volkswagen is going through, but the technological contribution of Italian designers in the tire industry remains a good option.