0 Replies Latest reply on Dec 19, 2017 2:35 PM by Joseph Semuju

    How China and European counterparts are currently faring in the East African “Tyre Market”

    Joseph Semuju

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      Africa has got a wild growing market for tyre and automobile currently. But believe me you, this calls on the different global automobile manufactures to reflect on the price tags in relation to the GDP and per capita income of the different countries/economies in the region as each one of them prepares to grab a well-defined share of the available significant market.

      The existence of an unstoppable transformation from poverty to middle class in the many African countries/economies pushes the demands for automobiles to an all-time high ever in the region.

      This creates continuous market growth for all kinds of tyres such as passenger car tyres, off-the-road tyres, industrial tyres, agricultural tyres, truck, bus and trailer tyres as well as motorcycle and bicycle tyres with the uncontrollable “Boda - Boda” related innovative solutions such as Safe Boda and Tugende initiatives in Uganda that plan to extend their brands to the rest of the East African countries.

      By tradition, European tyre manufactures have had a huge control over the African tyre & automobile markets and many European brands were top selling tyres in many African countries for a long while.

      However, in recent times, European tyre firms have already begun to lose grounds to Chinese and other Asian brands in many emerging markets not only in Africa, but around the world. Chinese tyres are gaining popularity in several African markets.

      Many developing countries, majorly in Africa, are price-sensitive markets and prefer to import low-priced Chinese tyres rather than the expensive European and American brands. As a result, China has emerged as a leading exporter of tyres to many African countries currently.

      Some years back, all tyre companies operating in the United States were summoned by the Federal Bureau of Investigation (FBI) after accusations that the multi-million dollar firms were engaged in cartel-like cost-fixing in the country.

      Whereby In Kenya, a significant bulk of uncustomed products have entered the local market. Firestone, which also imports tyres from the parent company, Bridgestone Corporation of Japan, say they have been in touch with the treasury over the issue, but the practice continues.

      International tyre manufacturers say retail and wholesale prices of some foreign products in the market are well below the expected minimum if costs of production, transport, insurance and duty are considered, an indication that there is illegal dumping.

      15% of Firestone, a member of the Sameer Group of Companies, is controlled by Bridgestone Firestone Inc. of the United States of America (USA), which, in turn, is a subsidiary of Japan's Bridgestone Corporation.

      Japanese company bought Firestone Tyre and Rubber Corporation of the US, which also owns much of war-ravaged Liberia's rubber plantations.

      Before 2005, sustained by a weak Japanese yen, Bridgestone was the world's foremost tyre producer. But as the value of the yen against major hard currencies shot up, and dollar-based sales plummeted, it was overtaken by Michelin.

      Tyre companies in Kenya have carried their rivalry to the airwaves, each claiming provision of superior products. While Pirelli and Michelin needed introduction since they were new in the market, a Firestone survey showed that the Michelin campaign was having a significant impact on sales and Firestone was forced to embark on their own campaign.

      Michelin is exclusively marketed by Kingsway Tyres. Pirelli, which is sold locally by Nyanza Petroleum Company, has confined its marketing strategy to advertisements painted on Stage Coach Buses that indeed use Michelin tyres. Although the most popular Michelin adverts target Matatus and small cars, Firestone claims there has been no major impact by their rivals in this area.

      On the issue of warranty. While Firestone products boast that they "come with a written guarantee", Michelin advertisements proclaim "the name is the guarantee". But Firestone is not daunted, offering replacement for any tyre damaged due to errors arising from manufacturing, stressing the fact that its tyres are tailor-made for Kenyan roads.

      Besides new tyres, there are also low-quality second-hand ones which soon wear out on the country's rough roads. The managing director of Pirelli (Europe), Valter Donati, believes that most used tyres are dumped into the African market after exceeding the legal use limit in European and other developed countries. The thread of the tyres is so shallow that it makes nonsense of the cheap prices, and they also have a poor surface grip, he added.

      An increase in tyre import duties has been requested for South Africa, owing to the large quantity of substandard tyres that are being brought into the country from China. The cheaper tyres provide unfair competition for local tyre manufacturers, who are concerned with the risk the thinner tyres pose to the safety of heavy vehicles such as taxis.

      Supporting NUMSA's campaign, South Africa's top four tyre manufacturers (Bridgestone, Continental, Dunlop and Goodyear) have brought the Government's attention to their safety concerns for the widespread use of tyres of inferior quality. The new Toyota Quantum taxis, a larger version of the minibus taxi, are most at risk of accidents caused by the cheap tyre imports. To cut costs, taxi drivers replace their 15-inch Quantum tyres with cheap 14-inch tyres, which are thinner and cannot carry the car's weight.

      The effect is being felt by local manufacturers who are experiencing a significant decrease in demand as a result of the effects of the recession in the car industry. Bridgestone, Continental, Dunlop and Goodyear are currently cutting back on up to a quarter of their labor force.

      China’s tyre production far outweighs the country's local demand for tyres, and so tyre dumping on foreign soil has become a necessary evil.

      Etienne Human understood that the South African tyre manufacturing industry is losing over Rands 1 billion per year as a result of the dramatic increase in tyre imports. He attributes this increase to sloppy checking systems by customs officials.

      As a result, imported tyres account for almost half of the tyres in the South African market.

      He also added that tyre manufacturers applied for anti-dumping import duties against Chinese companies but their application was unsuccessful.

      Even after significant efforts in the most developed countries in Africa, the ambush in the name of Chinese tyre manufacturers continues. Chinese tyre manufacturers have continuously broken the myth about European technological superiority by producing high quality tyres at relatively manageable costs.

      The European brands well known for charging high prices for their products, now seem challenged and are indeed being forced to roll back their profit margins to be able to compete with Chinese manufacturers.

      What is your take on this?

      Source1: https://www.africa-business.com/features/business-in-africa.html

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