Yokohama & Kumho Tires - A marriage made in heaven?
So. Yokohoma and Kumho are getting together, are they. On 29th November the two tire manufacturers, Yokohama Rubber and Kumho Tire announced that they were planning to co-operate in R&D and back this up with purchases of shares in each others company. Is this a sign of strength as two companies get together to pool their resources? Two plus two equals five. Or perhaps it’s the tire industry equivalent of two invalids leaning on each other for mutual support.
Based on past precedent, it is probably neither. In 1999 Goodyear Tire & Rubber teamed up with Sumitomo Tire in a wide-ranging collaboration involving exchanging control of various manufacturing plants, joint ventures in R&D and in purchasing as well as share purchases to give cross holdings in the other company. This collaboration has lasted but it has never got any deeper as was initially expected. Indeed, to some extent it has been diluted as Goodyear has sold some of its investment in Sumitomo. More recently there have been discussions between Toyo Tire and Bridgestone which resulted in a series of collaborative ventures in production, procurement and logistics, again sealed by a share exchange which resulted in Bridgestone owning nearly 8% of Toyo Tire but Toyo owning a much smaller proportion of Bridgestone.
Combined tire sales 5th in the world - above Pirelli
What are Yokohama and Kumho Tire hoping to make of their presumptive alliance. They are both important, though not dominant, tire manufacturers. In terms of world ranking of tire manufacture Yokohama is seventh, Kumho twelfth. If added together their tyre sales would place them fifth in the league table, above Pirelli. Yokohama is the larger of the two companies but they are not so dissimilar in size that one would dwarf the other; Kumho Tire is about 70% of the size of Yokohama but Kumho concentrates almost exclusively on tires whereas Yokohama makes other rubber based products as well. Taking only the tire sales of each company, Yokohama is only 10% larger than Kumho.
Yokohama has a reputation for high quality tires; Kumho has grown rapidly and has not yet established itself in the same way. However, it has developed its global marketing network much more than Yokohama. Almost 90% of Yokohama tire sales are to its domestic market or to North America. Kumho Tire, on the other hand, is spread much more widely. Only about 40% of its sales are to the domestic market with the other 60% spread roughly evenly between North America, Europe and the Rest of the World.
Knowledge of high performance tires shared
So, how will the two companies make the most of their strengths? The obvious answer is that Kumho will take advantage of Yokohama’s knowledge of high performance tires. In return, Kumho Tire might introduce Yokohama to some of the markets in Europe, the Middle East and South America where it has experience and existing networks. However, the published agreement says nothing about possible marketing co-operation. Could it be that Yokohama has a longer term objective of buying into Kumho Tire? Superficially this might appear attractive but Kumho has many problems. It is part of the Kumho Asiana Group, one of the large chaebol that dominate the Korean economy. For the last two decades it has expanded aggressively but the group as a whole experienced difficulties due to over-ambitious acquisitions. It grew from being the 13th biggest conglomerate to the 8th largest but the buying spree increased the debt load and the downturn in 2008 meant the company could not service its debts. As a result Kumho Tire and some other of the group companies have entered into voluntary workouts, the equivalent of America’s Chapter 11 proceeding.
In these circumstances there would appear to be very little advantage for Yokohama to take any more than a token stake in Kumho Tire, even if the chaebol was willing to sell. Unless Yokohama can take advantage of the global tire network established by Kumho, the link with Kumho would seem to be rather more “give” than “take.” However, perhaps the graphic designers know something we don’t. There could be some savings from a collaboration; the logos of the two companies are very similar and would be easy to combine!