Apollo Tyres sets about its aim of becoming a Europe-based global brand
In the late 19th century, King Leopold II of Belgium became one of the richest men in the world, fed fat from the profits of his personal fiefdom in Africa, the Congo. It so happened that the monarch got his hands on the colony at the very time one of its most abundant resources, rubber, was becoming as precious as gold.
Fuelling this rubber boom across the globe was the material’s use in the manufacture of tyres. Initially, it was the bicycle that generated the demand. Then, in 1889, two brothers in France, Edouard and Andre Michelin, established a tyre company which became the first to produce removable pneumatic tyres for use in cars.
The rest is history and even well over 100 years later, Michelin maintains a dominant position in the European tyre market.
Given higher than global average margins, Europe is a lucrative region for any tyre company. To give an idea of its size, the massive emerging economy of China is estimated to have a demand for 22 million units of tyres in the passenger car segment by 2015. But Germany alone accounts for 44 million units a year now. The entire European market is 300 million units annually.
It is, however, a saturated market, with 140-160 brands in the passenger car tyre segment battling for market share. The big names like Michelin, Goodyear and Bridgestone dominate.
Indian challenge
One newcomer is, however, hoping to dent this status quo. India’s Apollo Tyres formally launched its brand in the European continent in June and is convinced that within the next five years, it will rank amongst the top 10 tyre manufacturers in the world.
“In Europe, the tyre pie is not growing, so the cold fact is that to succeed, we have to take away business from other competitors,” says Marc Lutyen, the Brussels-based Chief Marketing Officer of Apollo.
According to him, Apollo’s special proposition will not be cheaper prices as much as greater speed and flexibility in bringing products to market. Last year, Apollo bought Dutch tyre company Vredestein, acquiring its manufacturing facility and gaining market access through its 14 branches and local sales teams across the continent.
As a result, Europe today accounts for 24 per cent of the company’s revenues, when as recently as 2006, all of Apollo’s revenues originated in India.
Apollo’s global march has been facilitated by acquisitions (apart from Vredestein, it has also bought Dunlop Tyres in South Africa and Zimbabwe) and Lutyen reveals that further buys are actively being explored. “The aim is to more than double our turnover within the next five years,” he says. As of April, the turnover was $1.74 billion (Rs 8,100 crore), up from $400 million (Rs 1,860 crore) five years earlier.
But while Apollo may have big plans, it’s not an easy time for the industry. Raw material prices are shooting up. In India, a 180 per cent price increase took place last year, says Lutyen. Vredestein itself was affected by the trying times. Apollo bought the company from its Russian owners, Amtel-Vredestein, who were forced to declare bankruptcy.
Breaking in
More, Europe is a particularly difficult market, with the highest benchmarks in the industry. In 2012, the EU will announce new tyre standards-related legislation, which will increase the cost of the product. But Lutyen says Apollo will be able to meet the standards. “In Europe, it is not price that matters as much as safety, service and quality and we offer all these,” he says.
Adding: “The fact is that the European economy is flat but in India it is performing well.” He claims buoyant economic growth in Apollo’s home market will help give it a competitive advantage globally.
Apollo is currently in talks with big names like BMW and Volkswagen to supply them tyres for Europe. “We work with these companies in India and South Africa already and over the next two years, will also look to supply them for their premium cars in Europe,” he says.
To begin, Apollo is looking exclusively at the German, Dutch, British and Italian market places, where Vredestein had an existent market share. From April, more will be added to the target-market list, such as Belgium, Austria, Sweden, France and Greece, among others.
“We are going slowly to begin with, because we want to synchronise the capacity to produce with sales,” says Lutyen. Plans are being implemented to increase the capacity of the plant in the Netherlands by 20 per cent over the next year.
Taking on the European tyre market is a formidable challenge and it’s likely to be tough going. Yet, if Apollo is able to project itself as an unpretentious, innovative and flexible player, its other advantage, of being Indian at a time when this is perceived as an advantage than a liability, may just be enough to ensure it a smooth ride forward.
