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After decades of development, China has long been the world’s largest tire producer by relying on its traditional development model of investment expansion, low-level redundant construction, and quantitative expansion. However, it also causes the tire industry’s current relative capacity surplus and low-end product homogeneity. Serious situation. Of the world's top 75 tires in 2013, sales in the top three were US$73.7 billion, accounting for 40% of total sales, while total sales of the top ten tire companies in China were US$21.8 billion, accounting for only 9.2% of total sales. .
China has to turn from a tire-producing country to a powerful country. Mergers and acquisitions are the only way to go. The development experience of the foreign tire industry has clearly confirmed this point. Observing the M&A behaviors that have taken place in the Chinese tire industry for more than 20 years, we can see how foreign tire companies have achieved in-situ production and scale expansion through mergers and acquisitions. Domestic tire companies hope to continue to become tire giants with international competitiveness through mergers and acquisitions. .
First, the historical evolution of Chinese tire industry mergers and acquisitions
After China's accession to the World Trade Organization, foreign auto giants have taken over China, China's auto industry has entered a phase of rapid development, and the demand for tires has also shown an explosive growth. In the face of unlimited business opportunities, tire companies at home and abroad have adopted on-the-spot acquisitions to achieve on-the-spot production or expand production scales in an effort to snatch more market share.
1. M&A Behavior of Foreign Tire Enterprises in China In the late 1990s, with the relaxation of policy environment and the improvement of legal norms, some foreign tire companies chose to directly compete with domestic tire companies that had difficulty in acquiring M&A, in order to accelerate the pace of the Chinese market. Enter Chinese market. The period of concentration was from the 1990s to the mid-1920s.
Top three of the world's top 75 tire companies: US Goodyear, Michelin of France, and Bridgestone of Japan passed the acquisition of Dalian Rubber Plant, Shenyang Tire Plant, and Shenyang No. 3 Rubber in 1994, 1995, and 1996, respectively. The plant directly entered the Chinese market and achieved localization of production. Based on this, it gradually expanded its production scale and increased its market share. Singapore Jiatong Tire performed five mergers and acquisitions between 1993 and 2003, acquiring Anhui, Chongqing and Yinchuan respectively. In addition, a tire factory in Jilin and a new factory in Fujian completed a comprehensive strategic layout in the Chinese market.
US Cooper Tire, Carlisle, GPX International Tire acquired the assets of Chengshan Tyre Co., Ltd., Guangdong Meiyan Tire Co., Ltd. and Hebei Tire Co., Ltd. in 2006 and successfully entered the Chinese tire market; Italian MAI Group in 2008 and Shandong Jinyu Tire Group entered into a joint venture with Mai Chi (Shandong) Tyre Co., Ltd. to enter the Chinese engineering tire market; Japan Toyo Tire acquired Shandong Yinshi Luhe Rubber Tyre Co., Ltd. in 2011.
2. M&A Behavior of Chinese Tire Enterprises Compared with foreign tire companies, domestic tire companies have more purposes for implementing mergers and acquisitions. Some companies are in order to achieve diversified operations, through the merger and acquisition into the tire industry; some companies are to obtain scale advantages, expand the volume through mergers and acquisitions, reduce operating costs; some companies also extend the industrial chain through mergers and acquisitions, improve the comprehensive competitiveness of enterprises .
From 1996 to 2010, there were 5 domestic mergers and acquisitions in the tire industry. The second was the implementation of mergers and acquisitions by companies outside the industry to enter the tire industry. For example, Qingdao Double Star Co., Ltd. (hereinafter referred to as Double Star) absorbed and merged Qingdao Huaqing Industrial Group Co., Ltd. in 1998; China National Chemical Corporation acquired Qingdao Huanghai in 2006. Rubber Group and Aeolus Tyre Co., Ltd. share part of the equity. 3 is to further expand the scale and realize the scale effect, including the Shuangqin Group Co., Ltd. (hereinafter referred to as the Double Money Group) in 1996 and 1998 respectively acquired the Haikou Tyre Factory and the Jiangsu Tyre Factory. Double Star acquired Dongfeng in 2007 ( Shiyan) Tire Co., Ltd.
After entering 2011, domestic tire companies will move from horizontal mergers and acquisitions to vertical mergers and acquisitions, and from scale-up to perfection of the industrial chain. Among them, there are 5 mergers and acquisitions that expand the scale of operations. For example, Shuangqin Group acquired Xinjiang Kunlun Tire Co., Ltd. in 2014, and Saihua Holding Co., Ltd. (hereinafter referred to as Saihuan Group) acquired Shandong Jinyu Enterprise Co., Ltd. in 2012. Shenyang Peace Meridian Tire Manufacturing Co., Ltd. acquired equity in engineering tires of Shandong Jinyu Tire Co., Ltd., and shares in FORTERubber International Inc. and GOMA International Corp. in 2014.
There are 3 mergers and acquisitions in the extension of the industrial chain. For example, Shuangqin Group acquired Huatai Rubber Co., Ltd. in 2011. Racer shares acquired Taihua Loyong Rubber Processing Plant and British distributor Kings RoadTyres Group Limited in 2012 and 2014, respectively.
Second, China's tire industry development status analysis
1. Local policies have become increasingly strict In recent years, the rapid development of China's tire industry has benefited from the rapid growth in the demand for automobiles and the fact that natural rubber prices have been declining since 2008, resulting in an increase in the overall profitability of the tire industry. Chinese local governments provide various types of preferential policies and facilities for tire companies to attract investment, promote the rapid development of the local economy.
After the Third Plenary Session of the 18th CPC Central Committee proposed comprehensive deepening of the reform, the Chinese government's economic growth mode shifted from maintaining growth to adjusting the structure, and the development mode of high consumption and high investment could no longer be followed. Under this situation, local governments have become more rational in attracting investment. Not only have preferential policies and conditions been gradually reduced or eliminated, but also the company’s environmental protection and energy conservation requirements have become more stringent. For example, at the beginning of 2014, the Shandong Provincial Government passed the “Implementation Opinions on Resolving the Contradiction of Serious Overcapacity†in principle, and tires and other industries were included in the overcapacity industry in Shandong Province.
2. Severe structural overcapacity According to the incomplete statistics of the tire industry associations, in 2013 China added about 15 million pieces of all steel tires and about 100 million pieces of semi-steel tires. From the equipment tendering and bidding situation in 2014, new projects and production capacity are still hot.
At present, Michelin, Bridgestone and other companies have more than 20 factories in China, focusing on the mid-to-high end Chinese tire market, and China has more than 500 small-scale tire companies, focusing on the low-end market. Despite the small number of factories, the world’s tire giants still accounted for about 70% of the market share of China’s passenger tire market, with a market share of about 30% of heavy-duty tires.
According to the statistics of the Tire Industry Association, in 2013, the proportion of exports of radial tires to the Michelin Chinese factory was about 3%, and that of Bridgestone was about 5%, while the proportion of Chinese tire enterprises' radial tire exports was about 45%. While the world's tire giants are trying to meet the demand of the domestic high-end market, domestic tire companies have made every effort to expand their exports in order to survive in the low-end saturated competitive market. As a result, more and more frequent trade protection barriers have been encountered.
3. Low concentration of industrial markets At present, there are many Chinese tire companies, and the industry concentration is far below the world average. According to the statistical data of the Tire Branch of the China Rubber Industry Association in 2013, the top three companies with income from radial tires accounted for 27.64% of the total income of the radial tires of the 48 associations. In the 2013 annual list of 75 global tires, sales of Michelin, Bridgestone, and Goodyear's Big Three accounted for 39.36% of the top 75. The United States tire market analysis report pointed out that Goodyear, Michelin, Bridgestone's three companies accounted for more than 60% of the US tire market share.
From the development experience of the tire industry in developed countries, when market competition intensifies, and some enterprises that cannot adapt to competition are eliminated or merged, the industry concentration will gradually increase, and finally several powerful large-scale tire companies will be formed. From the national tire industry policy issued in the past two years, this kind of guidance can already be seen, and the integration of the domestic tire industry will become inevitable. In the past two years, companies such as Shuangqin Group and Race Wheels Corporation have started mergers and acquisitions.
4. Internet Acceleration Model Innovation With the vigorous development of the Internet in the country, the network economy has begun to penetrate and extend into traditional areas. Enterprises in the traditional fields are faced with unprecedented challenges and baptisms. According to the report of iResearch, in 2013, the transaction volume of China's online shopping market reached 1.84 trillion yuan, accounting for 7.9% of the total retail sales of consumer goods. Philip Kotler, the father of modern marketing, points out that the Internet is now pushing marketing to a value-centric 3.0 era.
The broad prospects of the e-commerce market and the huge potential profits have attracted many traditional companies to test water e-commerce in order to seek longer-term development. For the Chinese tire industry, the development of e-commerce has also reached a new stage. The trend of online tire trading is unstoppable, and it must occupy an advantageous position in the future competitive landscape. Tire enterprises must innovate marketing modes and thinking modes to create for customers. More value. Pioneers of foreign tire electricity suppliers, such as TireRack and Delticom, have all achieved success. Domestic tire electricity suppliers are also exploring development models. Some tire companies are accelerating their access to the Internet.
Third, the future of China's tire industry mergers and acquisitions
In the future, the term "mergers and acquisitions" will no longer be unfamiliar to Chinese tire companies, but it is a common occurrence in companies around them and even in themselves. For enterprises, mergers and acquisitions are an important means to optimize corporate governance, enhance competitive strength, and grow into an industry giant. Across the US and Europe, there are altogether 7 to 8 tire companies, but the market share of companies is more than 70%. These companies are constantly becoming bigger and stronger through mergers and acquisitions, and their M&A behaviors range from dozens of times to as many as hundreds. Such a development model will also be reproduced in the Chinese tire industry. Specific M&A behaviors can be predicted and analyzed from the following three aspects.
1. Horizontal mergers and acquisitions to increase industry concentration Horizontal mergers and acquisitions are horizontal integration of companies within the industry. This is the most important M&A method in China's tire industry in the past 20 years. In the past two years, due to the sharp drop in the price of natural rubber, the overall profitability of the tire industry has been relatively good. Internal and external companies in the attractive industry have increased their investment. The serious structural surplus in the industry has led to a continuous decrease in the overall operating rate of the industry and increased competition. In the past two years, tire companies have continuously lowered the prices of their products, and the competition among enterprises has shown a trend of price wars.
Once the price of natural rubber that has fallen to the bottom began to rebound, due to the lag in price transmission of raw materials such as natural rubber and the inertia of the market, coupled with the price war among tire companies, the rate of price increase of products is much slower than the rate of decline. Just like the price war that broke out in the mid to late 1990s of the color TV industry, there will be a large number of companies that will be in a loss-making situation, or even unable to survive.
At that time, it will also be a period of large-scale horizontal mergers and acquisitions in the tire industry. In the end, there will probably be no more than 20 tire companies. According to the statistics of the world’s top 75 in 2013, 3 to 5 companies will enter the world. top ten. In this process, we must focus on the mergers and acquisitions of tire companies in Shandong that account for more than 45% of China's total production capacity. Currently, Shandong Province has about 300 tire companies, and its annual output is less than half of the 500,000 small tire factories.
2. Vertical mergers and acquisitions to enhance the value of the industry chain Vertical mergers and acquisitions are mergers between upstream and downstream companies in the same industry. Longitudinal mergers and acquisitions in China's tire industry have been concentrated in the past three years, and are led by the Shuangqin Group and the Race Wheels Corporation. Vertical mergers and acquisitions are to integrate raw material resources, down to integrate channel resources. When the price of natural rubber in 2009 went up, some domestic tire companies chose to acquire the production and processing companies of the countries where the natural rubber was produced in 2011 to 2012 in order to obtain effective supply guarantee during the tight supply phase of natural rubber.
However, from the perspective of the balance of supply and demand of international natural rubber in the period to come, natural rubber is in the stage of oversupply, and taking into account the future of China's tire production capacity will slow down. China's tire companies are no longer eager to integrate upstream raw material resources, and the likelihood of upward mergers and acquisitions will be greatly reduced.
However, the production capacity of China’s tire companies is still being released, ensuring that the smooth marketing of products has become a problem that China's tire companies must pay attention to. Therefore, downward integration of channel resources becomes an inevitable choice. In particular, when China's tire companies go international, direct acquisition of tire sales channels in foreign markets can quickly open overseas sales channels, saving a lot of construction time and trial and error costs. In this process, we will focus on mergers and acquisitions by industry leaders such as Shuangqin Group, Hangzhou Zhongce, Shandong Linglong, and Sailing Company.
3. Mixed mergers and acquisitions to meet the new trend of development Mixed mergers and acquisitions take place between companies in different industries. For the Chinese tire industry, the Internet has undoubtedly brought about great changes to the tire companies, changed the business model, marketing channels, changed the business and user transactions and communication modes, and then changed the status and pattern of the supply and demand sides in the market This requires tire companies to explore and experiment with e-commerce models.
At present, there are mainly four kinds of e-commerce models in China's tire industry. First, dealers set up online stores on third-party e-commerce platforms such as Taobao and Jingdong. The main purpose is to obtain factory rebates at low prices; second is tire companies on Tmall. The establishment of official online stores, such as Bridgestone and Chaoyang, can both strengthen brand promotion and try out the hydropower business model. Third, tire companies set up their own online business platform, which requires strong brand support, such as Michelin's promotion. System; fourth is the professional automotive aftermarket vertical shopping website sales of tires, such as the way Tiger, fetal passengers, wheat tires, etc., through a unified and standardized services and relatively low prices to attract customers.
For tire companies, the second method can not be of great help to sales promotion, and is subject to third-party platform and logistics restrictions; the third method requires strong brand support and a complete network of retail stores to complete the entire layout needs A lot of time and capital. Therefore, we can focus on the mergers and acquisitions between tire companies and professional auto aftermarket vertical shopping websites. For tire companies, the acquisition of such websites is a better choice for direct access to tire e-commerce.
Fourth, the conclusion
In the numerous mergers and acquisitions that have taken place, the success rate of mergers and acquisitions is less than 40%. Compared with the history of M&A in the United States for more than 100 years, M&A in the Chinese tire industry has just started. The experience of tire companies is not yet abundant. In the M&A process, we must pay attention to knowing ourselves and ourselves, in order to increase the success rate of M&A. The first is to fully evaluate the company’s own M&A capabilities, including core resource output capabilities, M&A process management capabilities and M&A risk management capabilities. Second, it is necessary to formulate a detailed M&A strategy and conduct in-depth investigations into the M&A companies to minimize M&A risks; In the implementation of mergers and acquisitions, it is necessary to combine the economic cycle and the capital market cycle to effectively reduce the cost of mergers and acquisitions. Fourth, the smooth integration after mergers and acquisitions, especially the integration and integration of culture.
Through a series of mergers and acquisitions, it is hoped that China's tire industry can emerge from several truly tire giants with international competitiveness, and promote the transformation and upgrading of the entire tire industry in China, and realize the dream of a strong national tire!
Commentary: Mergers and Acquisitions Are the Only Way for Chinese Tires to Become Bigger and Stronger