SHANGHAI, China — Bigger is better when it comes to Shanghai Tyre & Rubber Co. Ltd.´s newest tire plant, according to the firm´s chairman.
Shanghai already operates a year-old factory in Rugao, China, that can produce 1 million radial truck and bus tires and 50,000 radial off-the-road tires annually. But Chairman Xian Fan´s goal is for the facility to grow into the world´s largest some day, meaning it would exceed Michelin´s Allessandria, Italy, truck tire factory that has the capacity to make 7 million truck tires a year.
Within three years, the company plans to increase the plant´s total to 3 million truck and bus tires and between 100,000 and 150,000 radial OTR tires. And the plant has plenty of open land for more expansion including the possible introduction of radial farm tire production in the next two to three years.
Fan cited three advantages he believes will help the Rugao plant become No.1 in output.
The first is China´s close proximity to sources of raw materials for tire building, including natural rubber, as well as other ingredients such as carbon black and synthetic rubber.
A second advantage is in the production of tire-building equipment. "China, right now, can produce some of the best equipment in the world," he said, at a cost 30-percent cheaper than equipment made elsewhere. "Every cost in making equipment is cheaper than the cost in Japan or (South) Korea," he said.
The final advantage, he said, is the size of the Chinese market and the country´s population of 1.4 billion people. China has 26,500 miles of highways-the second longest network in the world-and is expanding the system 10 to 15 percent every year.
"Once the freeway (system) is set up, it will become the largest transportation market in the world," he said.
Despite the firm´s goals, Fan said he won´t expand the plant blindly.
"When the market demands something, I´m going to make something," he said. "First quality, second cost and after service. We must have a very good association between the sales plan and the factory expansion."
Unlike many of the world´s largest tire companies, Shanghai Tyre focuses primarily on the truck and bus, off-the-road, industrial and specialty tire market. The firm doesn´t make passenger and light truck tires, having sold a majority stake in the business to Michelin in 2001.
Fan also has set a corporate goal of becoming one of the 10 largest radial truck and bus tire makers in the world by 2010. He wants to do this in concert with his vision for the company-focusing first on safety, second on advancing technology, third on economical costing and fourth on the environment.
Four of Shanghai Tyre´s tire plants are located in China, considered by most Western competitors as the center of low-cost manufacturing. Fan agreed labor costs are low in China. At Shanghai Tyre, the average labor cost is $6,000 per year per employee on average, which he said is already the highest in China.
At the Rugao plant, the labor cost is maybe half that, he said. By contrast, he said the U.S. labor cost may be about $47,000 a year.
That doesn´t keep Shanghai Tyre from looking for other ways to cut costs. The chairman said he recently visited Africa and indicated the company might consider building a plant there some day.
"We might have a factory close to the raw material source or where the labor cost is even cheaper," he said. "Maybe we will invest in Africa or east Asia where there is natural rubber production."
He said for a company to be successful, it must meet the requirements of the market and manage costs in order to obtain competitive pricing. When he started at Shanghai Tyre, the company was nearly bankrupt. Since then he has restructured the operation-slashing the payroll to 3,648 employees from 17,500-and installed new machinery.
Sales have grown 25-percent annually since then, and he said the firm is profitable.