Rolling out worldwide
Having made its mark in Europe, Apollo Tyres of India is carefully plotting a strategy to enter the United States.
India's largest tyre maker, Apollo Tyres, has chosen the United States, the world's largest automotive market, as its next new production site after successfully establishing its brand and production facilities in Europe.
While Southeast Asia is also on the company's radar, it believes that shipping products from India instead of building a plant in Asean is still economically viable.
"The US plays a very important role in our growth strategy and given that we now have two domestic markets, India and Europe, our next stop has to be the US," said Neeraj Kanwar, vice-chairman and managing director of Apollo Tyres.
Mr Kanwar, who took over day-to-day operations of the Gurugram-based company from his father and current chairman Onkar in 2002, was speaking to reporters inside the company's new factory in Gyöngyöshalász, about 100 kliometres from Budapest, the capital of Hungary.
Neeraj Kanwar, vice-chairman of Apollo Tyres Ltd. Apollo Tyres
Currently, India contributes 69% to Apollo's consolidated revenue followed by Europe at 26%. The plant in Hungary is expected to supply the latter market with a total capacity of 5.5 million passenger car and light-truck tyres and 675,000 heavy commercial vehicle tyres by the end of Phase I in the fall of 2018.
The €475-million (US$518 million) plant will complement an existing facility in the Netherlands and cement Apollo's foot print in Europe. The unit is the company's first greenfield facility outside India.
Apollo sells between 7.5 million and 8 million tyres a year in Europe, where total demand is estimated at 560 million, according to the Freedonia Group, a Cleveland-based industry research firm.
"There is a lot of emphasis on building the market and the brand and that is how we want to go about it [in the US]," Mr Kanwar said.
Currently Apollo is selling "a very small amount" in the US but it is embarking on two years of research and development to improve its product company's coverage to 70% of what American vehicle makers and owners need. Today its coverage is a modest 5% via Apollo Vredestein.
Mr Kanwar said that once Apollo's product basket reaches 70% it will be able to create a market and a brand in the US with the aim of manufacturing there in the next four to five years because "freight is expensive" for the tyre business.
"Building a greenfield [plant in the US] is a given but creating the brand and the market itself is challenging. We believe we have a good story. We believe in our highly technical products and today I am happy to say that we are clearly the radial [tyre] leader in India, whether it's truck or passenger vehicles.
"Even in Europe, today our benchmark tyres are running neck-and-neck with our top competition, whether it is the Vredestein brand or the Apollo brand. Given the confidence we have in the technology, we believe we can create a market and a brand in the US."
Even though the US tyre market is highly competitive, Mr Kanwar noted that Europe was even more so, with more brands including Chinese products not seen in the US, but Apollo has managed to gain a 3% share there.
The company believes that once it can prove that its technology is unique and its prices are right, then US dealers and consumers will begin to see the value of Apollo tyres.
Tyres ready to be cured at Apollo Tyres' Chennai facility. Photos courtesy of Apollo Tyres
"I'm not in a rush [to enter the US]," he said. "I want to enter the market properly. You only get one opportunity given that it's such a crowded market. So we need to have the right product, the right brand strategy and the right retail strategy and then go in."
He estimated that it will take two years to get from 5% market coverage to 70%, and he believes that 10% of Apollo's global revenue should come from the US by 2022.
Apollo is the first major Indian tyre maker to start selling products in Europe. It is now exporting to more than 100 countries from India and Europe with combined global revenue of $1.8 billion in the year to March 2016.
It was the first Indian tyre company to make an international acquisition in 2006 when it acquired Dunlop Tyres International in South Africa, which was later closed due to an uncompetitive cost structure and continuous labour unrest in December 2013.
Apollo also became the first Indian company to own a manufacturing plant in Europe when it acquired the Vredestein Baden facility in Enschede, the Netherlands, in May 2009 and then went on to acquire Reifencom, one of the largest tyre distributors in Germany, in November 2015.
"I am often asked about China and I often say 'No, I am not going to China', and we are very clear about that," Mr Kanwar said.
In 2014, Apollo was poised to make the biggest-ever acquisition of a US company by an Indian buyer, a $2.5-billion deal for Cooper Tire, but disruptions at Cooper's Chinese joint venture caused the deal to fall apart. Workers at the Cooper Chengshan Tire factory in Shandong went on strike to protest that they were not adequately, and the relationship between Cooper and Chengshan was not as solid as it needed to be, The Financial Times reported at the time.
Visual inspection at Apollo Tyres' Chennai facility. Apollo Tyres
"Cooper is a four-year-old story. As I mentioned earlier, we follow a growth-oriented strategy, which can be organic or inorganic," Mr Kanwar told India's Business Today in an interview this month.
"We are always open if the right strategic fit comes along as an acquisition opportunity and it also makes financial sense. As of now, there is nothing on the table."
Mr Kanwar reiterated that his top priority in terms of expansion was to create a market in North America, where annual demand is around 475 million tyres per year, according to Freedonia.
In Europe, the tryes made in the Netherlands and Hungary will serve the replacement market as well as future original equipment manufacturer (OEM) business via the Apollo and the Vredestein brands. The plan is to make Vredestein a premium brand with the help of premium OEMs.
The plant in Holland is running at 90-95% capacity and one million tyres are still being exported from India to Europe annually.
Revenue from the Hungary plant is expected to be booked within the next 12-15 months, and a new range of truck and bus tyres is being planned for the UK, Ireland, Belgium and the Netherlands. Germany and other markets in Europe are also on the horizon.
"From being a replacement market-focused company in Europe, we will soon be starting supplies of our tyres to all the leading original equipment manufacturers in Europe, including Volkswagen and Mercedes-Benz," Mr Kanwar said.
Apollo Tyres' Global R&D Centre for Asia is located just outside Chennai in southern India. Apollo Tyres
As for Asia, Apollo's vision is to become the leader of all product categories. It currently leads in truck and light truck tyres and its passenger car tyre business is "growing at a really fast pace", he said.
Madras Rubber Factory currently has the biggest share of around 30% in India's tyre market followed by Apollo at about 20%. Total industry turnover in India is estimated at around $8.5 billion and demand for tyres, according to Freedonia, is around 220 million units per year
More than half of all tyres globally are sold in Asia Pacific. Around 70% of the world's rubber comes from Asia with Thailand, Indonesia and Malaysia the biggest producers globally.
Apollo has offices in Thailand, Indonesia, Malaysia and the Philippines, but Asia excluding India accounts for less than 5% of its consolidated revenue. This means that there is still more room to grow.
"Asean is a very important market for us. We started our operations there two years ago and gradually we are building the Asean base. We have offices in Asean that are selling all types of products in the region and we have already crossed the $150-million mark in Asean which means that it will continue to be a very crucial market for us," Mr Kanwar told Asia Focus.
"When I was in Thailand last time I told the dealers and our business partners that yes, we will look at Thailand but first we have to a figure for Asean which is self-sustaining for a greenfield (factory)."
Mr Kanwar said Apollo was also looking to export tyres, mostly the Vredestein brand, from European plants to niche markets in Asia. To build brand recognition, it has a partnership with Manchester United that is helping to lift its profile in football-mad Southeast Asia.
"Manchester United is a very well established brand, especially in Asia, therefore tying up with Man-U makes our brand much more significant and it shows much more leadership," he said.