The name “Michelin” on a worldwide scale means much more than tires.
Depending on the perspective, it might mean a collection of city guides and maps used by travelers and food lovers everywhere. It might translate to global success with many racing teams on many circuits.
Or it might be the more familiar moniker of a white, tire-like icon—the Michelin Man, officially known as Bibendum—who appears as the company's symbol in logos, advertising and just about anywhere else.
When it comes down to it, though, Michelin's prowess, simply, is in the everyday tires its customers put on their cars and trucks, construction equipment and airplanes. The Clermont-Ferrand, France-based company makes and sells 177 million tires annually to serve needs in 170 countries, and 94 percent of its revenues come from tire sales.
The tire maker is committed to its role as a global supplier, with 67 production sites in 19 countries and more than 109,000 employees worldwide. It's also proven to be adept at making adjustments in changing—and often difficult—conditions by moving, reducing and building capacity when demand has declined or business has blossomed in growing markets.
Michelin's model for success in a region is to “think globally and act locally,” said Richard (Dick) Wilkerson, chairman and president of Michelin North America Inc. The company's preferred approach, he said, is to produce tires in the geographic zone where they are sold.
“Strengthened by a global network and more than 100 years of experience, we then rely on the talented work forces with each zone as the backbone of our operations,” he said.
For example, in North America—which has 18 production sites and accounts for more than a third of global sales—about 90 percent of the tires sold there are made there, Wilkerson said.
Michelin's North American unit has been the most profitable tire maker in the region over the past six years, he said.
The company's largest and most mature markets—Europe makes up 45 percent of revenues—continue to produce profitably even as it looks to expand elsewhere. There still is plenty of investment as well—as an example, earlier this year Michelin announced an expansion project at its Norwood, N.C., aircraft tire facility.
But emerging markets in Brazil, China and India are showing rapid growth compared to more mature countries with well-established infrastructures and tire markets, Wilkerson said.
Production capacity for passenger and light truck tires in fast-growing countries is expected to rise by 80 percent and double for truck tires between 2008 and 2016, he said.
Demand for Michelin products in some of those markets has outpaced the company's ability to expand its industrial presence there, Wilkerson said. For example, China and Brazil currently are net importers of Michelin tires.
As a result, the company is stepping up its expansion efforts in those areas, thus adhering to its “produce locally” model and offering customers the best possible price and products, he said.
Plans include capacity increases in China and Brazil and the unveiling of Michelin's first truck tire facility in India, Asia's second-largest market behind China.
Michelin in 2009 revamped its geographic organization to align itself more effectively with the market conditions in each of the regions it serves, creating eight “geographic zones.”
The structure recognizes market and regulatory distinctions and allows the company to be better-aligned with its customers, Wilkerson said.
The new organization empowers regional management and supports the development of local talent, a “crucial factor in attracting and retaining the best people, thereby securing Michelin's long-term success,” he said.
Dealing with tough times
Despite the growth and potential in emerging markets, the recent economic crisis revealed dramatic decreases in the tire sector and others throughout the world, Wilkerson said. The downturn has been the key market driver since it began in mid-2008, he said.
Michelin's 2010 first-half results, released July 30, showed sales and production volume gains over the like period last year, but the levels have not yet reached those of 2007.
Net sales for the first six months of 2010 were about $10.8 billion—up 17 percent from the same period of 2009—with net earnings of more than $657 million, compared with a $159 million loss last year.
Revenues were up in all regions in the passenger/light truck and truck tire sectors for both original equipment and replacement markets, with the lone exception being OE passenger/LT tires in the Africa/Middle East region, where sales were down 1 percent from 2009.
In North America, Wilkerson said, plants are running full schedules, 24/7, to meet demand for Michelin products. At several sites, the company has reduced or eliminated traditional summer shutdowns.
However, Wilkerson cautioned against overconfidence resulting from recent successes.
“As we look at the gains we've made year-to-date, we must keep in mind the extraordinary market drops that we experienced in late 2008 and 2009,” he said. “The economic context remains unsettled, and we are keeping a close eye on some clouds on the horizon.”
Overall though, the company is pleased at how well the North American unit and the global operation as a whole have navigated their way through the economic crisis, Wilkerson said.
“In a severely down market, the Michelin brand gained share and our manufacturing operations continue to make productivity improvements,” he said. “This is a testament to the skill and commitment of our people across the entire organization. Our people remain our most valuable asset.”
Cultural and language differences across its production and customer base present a constant challenge for Michelin and most other multinational organizations.
Michelin looks to be as consistent as it can be in several areas, including quality—in design, production and performance—Wilkerson said.
Likewise, the company's core values of respect—for people, customers, shareholders, facts and the environment—are consistent across its organization, he said.
In addition to cultural issues, factors such as road conditions and driving habits can differ significantly across continents, Wilkerson said.
For example, roads in the U.S. are designed to evacuate water to the outside shoulder; commercial trucks in North America look quite different from those in Europe; and roads and the materials used to construct them vary significantly in different areas of the world.
Legal requirements and regulatory guidelines also differ among the eight regions in which Michelin operates, he said. “Michelin must account for all of these variables and more as we design the best tires for each market we choose to serve and grow our commercial presence.”
Whether the company is supporting its continued growth in its more mature geographic markets or upgrading its efforts in places like China, India and Brazil, Wilkerson likes the way the company is positioned for the time being, and the future as well.
“A commercial presence in 170 countries and 67 major manufacturing facilities in 19 countries on five continents,” he said. “That's a significant global footprint.”