Michael Porter's Five Forces Model, a way to look at Indian Tyre Industry.

Michael E Porter's five forces model is any day a best tool to analyze any business industry. So with this article I have tried to look at Indian Tyre Industry through Porter's view.

1) Bargaining power of supplier Bargaining power of suppliers can be segregated in two parts according to the demand of industry. Rubber There are two reasons behind this being low first one is most of the tyre firms get150 days credit for buying the rubber from international market which is not the case if they buy it from domestic rubber growers. And the second reason is, this credit is being offered at LIBOR, which is the London Interbank Offered Rate. It is the rate of interest at which banks borrow funds from other banks. Other Petro chemical based material (Carbon black, Nylon tyre cord etc.) The power of suppliers is high in this category as India is limping back in case of Petro based raw materials like carbon black and chemicals which account low in quantity terms but are high cost generators. Also the price of NTC fluctuates in line with the prices of Caprolactam (a petroleum derivative)-its main raw material. The prices of these materials are beyond control of tyre industry. 2) Bargaining power of buyers This can be seggeregated into two parts as follows. OEM's The OEMs are always in strong position when the bargaining power of buyers is concerned. The reason behind this is most of them are having contract with their relative tyre manufacturer under which the prices of tyre remains stable for this OEM irrespective of market price. The benefits are given to them as they are buying in bulk and the relation gives the tyre firms some thing called brand association. Replacement

The scene in replacement segment is quite reverse as the bargaining power for the replacement segment is moderate due to the fact that the buyers are not that strong as compared to OEMs. The demand in buses and truck segment is always high because of Indian poor road conditions apart from this the purchase is made in small units. 3) Threat of substitute It is moderate or as the industry is facing opposition from retreading sector all over the globe. This cheaper option, around 20-25% of the original tyre cost, is present in developed countries since some decade back. And this is heading to wards strong position here in India too. 4) Threat of new entrants The threat of new entrant is moderate or can be described as low because the industry is highly capital intensive and the level of technological expertise required is also highly specific. But if we see from domestic (Indian) industry's point of view, this better can be defined as high. The reason being, global tyre industry is already seeing mergers and acquisitions in order to restructure. And as of now India and China going to be the hub of activities as far as tyre industry is concerned due to low production cost as well as other relevant benefits. So for any of the global big shot Indian company will be a good option to go for. 5) Industry rivalry High, because gradually the overseas players are expanding their wings over Indian tyre industry and also a limited and every player is moving towards automated technology, like ERP and SCM. Apart from the aforementioned reason, the industry is seeing high competitive scenario at present because of various reasons like rising input costs, low realizations from growing OEM segment where the vehicle manufacturers are not ready to share the burden of tyre firms, the portion of replacement pie continuously taken away by the retreading sector which is slowly but firmly rising its head and that to in high realization segment of Bus-Truck tyres and last but not the least the unorganized sector is always there to give head ache to these established players like CEAT, JK, Apollo and MRF etc.