What makes Chinese tires so competitive?

In 2020, there is an article in Le Journal du Dimanche that titles “Chinese tires sweep across Europe.” According to a Tire Business study in 2019, the Chinese tire makers increased their market share from 4% to 23% since 2000. And some big tire manufacturers are closing plants in Western Europe and created some backlashes because of job losses, which exacerbate the trade disputes. With trade pressures from the US and Western Europe, we can still see that Chinese tire makers have gain market shares in other countries. Instead of labeling China as the trade manipulator, we should look deeper to understand what makes Chinese tire makers so competitive and see whether it will continue.

China leverages its huge population and low wages to get a manufacturing advantage. As average annual salary in China is $10,390 USD now compared to $7,260 USD in Thailand, $4,050 USD in Indonesia, $2590 USD in Vietnam, and $2120 USD in India. You could see China doesn’t have the competitive anymore. However, nowadays tire manufacturing is very automated and wages are not the critical factor of total costs.

Chinese are extremely willing to invest in capital investment, such as plants and machines. It is the most important cause of China’s competitive advantage. With its internal and export market scale, it can afford the best tire manufacturing machines in the world. With good machinery, it is not difficult for the Chinese to produce good quality tires.

With favorable local government policy, rapid increase in the China market, and internationalize of the global marketplace in the last 40 years, it created the perfect platform for a lot of Chinese tire makers to grow during that time. We can see that among the top 75 tire makers in the world, 34 are Chinese ibn Tire Business' ranking.

However, the Chinese are still behind in developing their proprietary technologies that can compete with other international brands in the highest performance categories.

Also, the Chinese are still trying to grow their brands internationally. It forces them to compete on price, which is a double-edged sword. It helps them grow market share quickly, but cannot command a higher price and invest heavily in R&D and marketing in order to grow to the next level. You can see from the graph that even with the most number of manufacturers are in the top 75 and the most number of tires sold. The total revenue of Chinese companies is behind international brands per company. French Michelin’s sales alone are also close to all Chinese combined.

However, the Chinese know the problem. Not only they are investing heavily in this, but also changing the industry's structural dynamic to help alleviate the problems and compete with the big international brands. There are a lot of recent developments on those fronts and I will report that in later articles. Please forward this article to your colleagues if you find the information useful.

Sources:

https://www.lejdd.fr/Economie/ces-pneus-chinois-qui-deferlent-sur-leurope-3993089

https://www.worlddata.info/average-income.php

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