Hangzhou ZhongCe grows and grows – but prudently
Without exception, Chinese tyre manufacturers aim their European market production at the budget segment, where they are most competitive. However the ‘cover charge’ costs for entering the European market – the expensive testing for REACH and the tyre label – plus swelling production costs in China due to raw material and labour expenses are reducing their competitiveness in Europe. Any manufacturer wishing to build up long-term customer relationships and secure a healthy market share without needing to rely upon spot market brokers and purchasers must therefore focus upon their distribution channels and, in particular, deliver a product whose quality is far removed from the old ‘low budget equals low quality’ stereotype. One company already taking considerable steps in this direction is Hangzhou ZhongCe; recently the company allowed its European customers a glimpse behind the scenes at its factory in China and discussed its plans for the future.
Hangzhou ZhongCe Rubber – a company established more than 50 years ago and best known in Europe through its “Westlake” and “Goodride” brands – is today the tenth largest tyre maker in the world and the largest in China. Last year the company boasted an annual turnover of some £2.19 billion, and in the first half of the current year alone its turnover increased a further 31 per cent. With annual production currently reaching almost eleven million truck radials (last year the company produced 8.9 million truck tyres), the Chinese manufacturer considers itself to be the world’s fourth largest commercial vehicle tyre manufacturer. In addition to this truck radial production, several million cross-ply tyres and 18 million passenger car tyres are produced in Hangzhou ZhongCe Rubber’s factories, and the manufacturer claims that its Xiasha facility (located near the company’s head office in Hangzhou, not far from Shanghai) has a capacity of seven million units per annum, which would make it the largest truck tyre factory in the world. Completing this impressive picture of China’s market leader is a new passenger car tyre factory, which is currently nearing completion and will be capable of producing ten million tyres a year, plus a vacant block of land alongside this new plant that is already earmarked for a further passenger car tyre plant with a 20 million unit capacity.
Statistics and figures such as those above speak volumes on their own, yet a further feather was placed in Hangzhou ZhongCe’s cap in October 2011 when it became the first Chinese tyre maker to switch its passenger car tyre production for all global markets over to REACH compliant production, even though this meant a sizable increase in production costs. And last but not least, early next year the first tyres bearing the European tyre label will enter the market. According to company management, “good results” were achieved in the three label categories.
When speaking with senior management at Hangzhou ZhongCe, including company president and chairman Shen Jin-Rong, two main character traits become apparent. First of all, the company possesses the self-confidence, the means and the opportunities to achieve seemingly limitless growth. The motivation for this is not solely determined by enviable production figures, a point confirmed when Shen talks about his company’s “mission”: Hangzhou ZhongCe doesn’t merely want to become one of the world’s leading tyre manufacturers – a benchmark many ‘serious’ Chinese manufacturers strive for – rather, the company wants to utilise the “most modern equipment”, the “newest technology” and the “best raw materials” in the manufacture of products that are tailor made to meet its customers’ needs. And when speaking here of “customers”, Hangzhou ZhongCe isn’t referring to those dealers infamous for making a ‘quick pound’ through cheap, mass-produced Chinese goods. Instead, the customers this Chinese tyre maker is focusing on are those in the budget segment who are interested in a reliable, good brand.
The second noticeable characteristic is the company’s environmental focus. China is known for its immense environmental problems and many companies there consider taking up ‘green’ issues as little more than a public relations exercise, empty promises that bear no resemblance to their factories’ day-to-day operation. Hangzhou ZhongCe, on the other hand, has voluntarily fitted its factories with energy-saving lighting and is one of only a few tyre makers in China equipped with an echo-free room – an “anechoic chamber” – for testing and minimising road noise emissions when developing new products. Management at Hangzhou ZhongCe are, incidentally, still at a loss to explain how the ETRMA determined earlier this year that two Westlake tyres, along with many other Chinese products, failed to conform with REACH standards – they suspect that grey market imports not intended for Europe were tested in place of approved European market tyres. The company’s official response several weeks after the ETRMA announcement should, however, be interpreted as a clear commitment: Hangzhou ZhongCe decided it would only manufacture passenger car tyres using PAH-free oils. Some other Chinese manufacturers have chosen the other path and to a large extent are withdrawing from the European tyre market. It is to Hangzhou ZhongCe’s credit that it complied with REACH half a year before it needed to.
According to Werner Portugal, managing director of Qingdao Diamond Tire Co., Ltd., distributor for the Westlake brand in several European markets, anyone who can prove themselves a reliable partner with quality products should be able to continually increase demand for these products, and do so via a pull effect rather than a quantitative push, which would have a negative impact upon price. Therefore, as Hangzhou ZhongCe is already one of the world’s largest tyre makers, management at the company’s head office in China and also in Europe would be imprudent not to attempt an upwards shift from the budget segment. Indeed, while management in Hangzhou are aware of the company’s current position within the tyre world, a desire exists to alter the Westlake brand’s position within the lower market segment and in the middle term overtake its competition in the European market, even though potential to grow turnover in this budget segment is still thought to exist. But should such a shift be attempted, caution is needed; others have miscalculated their attempts to move from one market segment to another, only to find themselves battling falling sales after implementing price increases.
The Chinese, however, are old hands at long-term planning and approaching things in a way that in this part of the world may be considered conservative, and thus act prudently and with the future in mind. This is also the case at Hangzhou ZhongCe, even though the speed at which it is currently expanding in the passenger car tyre segment also serves as a catalyst for much short-term change.