Hankook’s Explosive Growth
With so much recent media coverage of Hankook’s European activities and new state of the art facility in Hungary, it is easy to forget that Europe is only one market in which the South Korean tyremaker has plans. And while those living in Europe will naturally pay more attention to activities taking place close to home, Hankook is by no means neglecting its Asian markets, and is in fact paying particular attention to China. Recently Tyres & Accessories was given the opportunity to interview Hankook global CEO Suh Seung Hwa and find out more about the company’s aims for the large and still growing Chinese tyre market.
“China is a vibrant market,” declared Mr. Suh when asked if Hankook’s recent activity in Europe signalled any shift in priorities. He added that the tyremaker expected a large increase in sales from its Chinese operations in 2007. Between 2002 and 2004 the Chinese tyre market experienced what Mr. Suh called “explosive growth,” and by 2006 the passenger car tyre market was still increasing by more than 15 per cent per year, the largest growth of any market the tyremaker participates in.
“Apart from the Korean domestic market, Hankook is expecting fast growth in [the] Chinese market,” said Mr. Suh. “The Chinese market has been playing an important role in the process of Hankook achieving its number seven position globally, and will keep making a contribution to Hankook’s growth.” The global CEO further stated that he sees growth of China’s tyre market also as being “the growth of Hankook.”
And Hankook indeed is growing in China. The company reports that it currently holds the largest market share for passenger car tyres in China, and when its third factory – now in the planning stage – is operational, Hankook’s tyre output and sales are expected to equal those in its home market. By the end of this year the tyremaker also hopes to have established a distribution network throughout the entire country.
Given that Hankook only marked their first full decade in China in May, it is understandable that Mr. Suh spoke with pride about the company’s accomplishments since first establishing a presence in the country. “During these ten years, we’ve not only achieved the number one market share, but also built up solid cooperation with most of the main auto manufacturers in this market, as well as won the trust of consumers,” he said.
The ten years since Hankook’s arrival in China has seen many tyre majors attempt to grab a share of the huge market. To counter this ever-fiercer competition the South Korean manufacturer intends to establish a place for itself in higher margin market segments. “Hankook Tire plans to gradually increase UHP tyre sales volumes,” commented Mr. Suh, adding that the company intends to establish a name for itself as a premium brand in China through several channels, including advertising, developing a retailer network and adjusting production structures in its factories.
Part of Hankook’s strategy also includes OE supply deals with premium automakers. According to Mr. Suh, Hankook presently supplies tyres to more than 30 manufacturers in China, including foreign giants such as Ford and Volkswagen plus a number of domestic manufacturers. However it especially has its eye on securing further contracts with manufacturers of prestige cars, such as the deal commencing this year that sees the tyremaker supply OE tyres for the Audi A6L and A4. “Being the tyre supplier for famous auto manufacturers can positively influence customers,” said Mr. Suh. “Our ultimate goal is to make OE customers replacement market customers; the OE supplier market will boost the retail market’s development.”
Hankook’s ambitions in China extend to the truck tyre market. The company’s first truck tyre factory entered production in 2003, and Mr. Suh comments that initially the factory’s export rate was relatively high. But the pendulum has swung in favour of the domestic market, as he explains. “The export percentage will drop as we increase our share in OE and retail markets in China. The Chinese truck tyre market is the next key market for us to explore, and we will continually increase our share in [the] domestic market.” Confirmation of the growth of this sector can be seen in Hankook’s decision to increase capacity at its truck tyre factory this year.
One product that Mr. Suh sees as having a limited future, however, is bias truck tyres. “Radial tyres are the company’s core business,” he affirmed. “Currently, the Jiangsu factory still produces some bias tyres to meet some customer groups’ demand, but the whole market for bias tyres is comparatively small and shrinking…we will not make additional investment for bias tyres.”
The South Korean tyre major’s Chinese facilities are self supporting, possessing the capacity to fulfill both domestic and overseas sales. In late March Hankook celebrated the 100 millionth tyre produced by the company in China and the facilities in Jiaxing and Jiangsu today have a combined annual capacity of 28 million units. Mr. Suh confirms both factories play an important role in supplying Hankook’s global markets.
“The production capacity of China’s factories take up around 40 per cent of Hankook Tire’s global production volume, and more than half the products made by the China factories are sold to overseas markets. From these figures, you can see the strategic importance of China’s factories in Hankook Tire’s global market.” The global CEO added that Hankook’s targeting of the new auto market, in which he sees an increasing demand for tyres, will ensure Hankook Tire’s China factories remain a mainstay in Hankook Tire’s overseas selling system.
The opening of Hankook’s new facility in Hungary – a factory Mr. Suh played a key role in establishing during his time as president and COO for Europe, a position he held until March 2007 – will have little impact on the company’s China-based activities, according to Mr. Suh, as Europe only receives a comparatively small proportion of the output from Hankook’s two Chinese factories. When asked if Hankook would be left with unutilised capacity in China following the Dunaujvaros plant coming on-stream, Mr. Suh replied: “The current situation is that we have more demand than supply, and in other words, we don’t face a freed-up capacity problem” (since the opening of the Hungarian facility). China’s growing automotive market guarantees that the opposite applies; production levels and capacity will need to keep on expanding in order to meet projected sales levels.
Important as these Chinese market sales may be to Hankook, the company’s production facilities in China will remain an integral part of global operations. “Hankook Tire’s five global factories will continue to work together closely to meet customer demand,” said Mr. Suh.
“Guaranteed by the steady and excellent product quality from our Chinese factories, the products made there are being directly sold to the main American and European auto manufacturers, and receive our clients’ recognition. Therefore, Hankook’s Chinese factories are a very crucial part in our global supply chain.”
As previously mentioned, Hankook’s plans to establish itself as a brand in China in part revolve around establishing a retail network. To this end the tyremaker is currently implementing its “T-Station” franchise system in China. “From a business strategy perspective, the implanting [of the] T-Station concept helps our transition from a manufacturing company to a manufacturing & service enterprise, which is important for our long term and sustainable growth in the Chinese market,” comments the global CEO. Hankook is keenly aware of the vast size of China’s after-sales market, and is confident that the T-Station brand is the correct vehicle to facilitate growth in this area.
“T-Station is a well-known Korean brand and has succeeded in Korea,” explains Mr. Suh. “We introduced this concept into China to expand the Chinese market and lift the brand value of Hankook in China on the one hand; and [to] offer advanced services to Chinese consumers on the other.” In China, Hankook operates both direct-invested and franchised T-Station outlets. Currently distributors from Haerbin, Shanghai, Fuzhou, Wulumuqi and Chengdu have applied for franchises, and Hankook Tire plans to open 300 T-Stations across China within five years.