Nokian hopes new plant will broaden reach in North America

COLCHESTER, Vt.—The modest building is tucked strategically at the end of a winding access road, lined with brush and pine trees, a staple of the picturesque Vermont landscape.

Visitors must circle the 200,000-sq.-ft. building to reach the front entrance, where green signs that read "Nokian Tyres" and "safety" dominate the view.

The college town of Burlington, Vt., lies a short drive away, and 90 miles to the north is Montreal, the capital of Quebec, a province where winter tires are mandatory.

The unassuming North American headquarters of Nokian Tyres P.L.C. seem to fit the company as it stands today perfectly: A small fish in an unforgiving ocean of tire makers, earning its small market share—less than 1 percent in North America—mainly on the strength of its lineup of winter tires and ultra-high-performance offerings.

Compare that with the Nordic countries of Finland, Sweden and Norway, where the Nokia, Finland-based tire maker dominates the market, with brand awareness eclipsing 80 percent.

If executives at the North American operations realize the success they are shooting for—company executives have said they want to double North American sales in five years—Nokian soon could find itself swimming with the sharks.

This past May, Nokian—ranked No. 19 in Rubber & Plastics News' 2017 Global Tire Rankings with 2016 tire sales of $1.38 billion—took one of the first steps in growing its North American business, announcing plans to build a plant in the U.S., a $360 million, 830,000-sq.-ft. project in Dayton, Tenn.

The plant, Nokian's third worldwide, will concentrate on producing passenger, SUV and light truck tires specifically for North American consumers. It is scheduled to come online in 2020 with an eventual capacity of 4 million tires per year and 400 employees.

Site preparation has begun, with site leveling set to start within 30 days. The official groundbreaking ceremony is Sept. 20.

The state of Tennessee recently approved a $28.4 million grant that will go toward plant infrastructure, site development, equipment, construction and related work, according to terms of the grant. The location is large enough to accommodate a tripling of the planned facility's size.

"We have been focusing on this for a couple of years, but definitely this is a big step for us, taking us to the next level," Tommi Heinonen, head of North America, said with a smile, sitting in the conference room at the Nokian headquarters. "Having local manufacturing is a big thing."

Eyes on America

Nokian had considered building a plant in Central Europe to strengthen that market, another target area for growth, but the firm's board of directors chose instead to bolster its North American presence by constructing a factory closer to the new customers it so eagerly wants to attract.

Not only can winter tires be stored in a 600,000-tire warehouse that will be built alongside the Tennessee plant, but also the all-season and light truck tires specific to the North American market can be produced and shipped to customers faster and more economically, with a "Made in America" stamp so crucial to many buyers.

Heinonen said logistics was one of the determining factors to build the plant in the U.S.

"Everybody knows there is a duty when you take import tires to North America, and also logistics costs are quite high when you take everything from Europe here," he said. "We have been having quite a disadvantage compared to our competitors who have local manufacturers. That's definitely a big thing."

Heinonen added that the U.S. plant will enable the company's existing plants in Nokia, Finland, and Vsevolozhsk, Russia, to focus on producing winter and summer tires that sell well there.

"We are not messing around with their capacity (abroad) when we make our all-season tires," Heinonen said. "They are not sold in Europe. It makes sense to move here very fast. Same for light truck tires.

"We can get the North American-specific products here, and that releases capacity in Finland and Russia to Central Europe and other areas."

Lead time is another critical component, Heinonen said. Today, a tire reaches North America from Finland or Russia in four weeks "in a perfect scenario," Heinonen said, but usually it takes five to six weeks.

"But if the tires are built in Tennessee, and we have a 600,000-tire warehouse in Tennessee, that will make life much easier. We're cutting the lead time to customers. We'll be closer to customers."

Target areas

But opening a North American factory alone won't double sales in North America. Heinonen identified several key areas where Nokian has targeted:

• Distribution. The firm is expanding its distribution capabilities, "meaning our customers are working closer with the existing ones," Heinonen said. "That's a key for us. We will be expanding our warehouse—another important point."

• Products. Not only will Nokian have to add products specifically for the North American market, it also will have to add sizes for existing lines.

• Brand awareness. While brand awareness for Nokian's winter tires is strong in North America, particularly in Canada, that has to translate to the all-season side.

"We are doing much better now," Heinonen said. "There are no shortcuts—just hard work and investment."

• People. According to Heinonen, Nokian has been adding one position per month. About 127 are employed in North America, including 64 in Vermont. There are 75 employees at 11 company-owned Vianor retail tire and auto locations in New England.

• Availability. Heinonen said his firm must ensure it has "the right tires in the right places here in North America." The key, he said, is increasing warehouse capacity.

Busy year

It's been quite a year so far for the tire maker.

On June 1, Hille Korhonen, an executive with more than 20 years' experience in the international consumer business and a Nokian board member since 2006, took over as CEO. She replaced Ari Lehtoranta, who resigned at year-end 2016.

As a prelude to the announcement of the new plant, Nokian consummated two major marketing initiatives.

First, the tire maker became the official tire of nine Powdr Adventure Co. ski resorts, building on the brand's strong winter tire reputation.

Nokian leveraged its successful affiliation with several ski resorts in Central Europe to partner with Powdr Corp. in North America. Powdr's resort in Killington Resort, in Killington, Vt., has hosted Alpine World Cup events.

Powdr also operates a resort in Copper Mountain, Colo., near Denver, an area where Nokian has targeted for growth.

"We were looking for something (in the U.S.), and with my background in sporting goods, it was easy for me to see the alignment of the two brands and trying to work with a resort partner such as Powdr Corp., which has such a great portfolio of ski resorts across the U.S.," said Hans Dyhrman, Nokian's director of marketing.

"We wanted to align our brand with consumers who appreciate that outdoor lifestyle, that maybe ... are focused on making sure that they get their family (to the resort) safely, that they can get there and not be stuck in the snow."

Scoring with NFL

Nokian also has struck a deal with the National Football League, becoming the league's official tire in Canada. (Bridgestone remains the NFL's official tire in the U.S.)

The relationship, Dyhrman said, is a perfect match.

"The NFL wanted to take a fresh look at their partnerships across Canada, and with our strength in Canada, especially compared to the U.S. and our focus on winter tires, I think they saw a good opportunity in our business," he said.

Each side did its due diligence, Dyhrman said, "but as I got to know the team more at the NFL and talked a little more about their business goals and our business goals, it really seemed like it was going to be a surprisingly good fit."

Dyhrman said Nokian can't hide from the fact the NFL does not field a team north of the border, and that hockey—not football—is Canada's No. 1 sport.

"However, the timing of the season lines up absolutely perfectly with our winter business," Dyhrman said, noting that the NFL seasons kicks off in September, just when consumers begin to think about winter tires, and heats up in the cold, usually snowy months of November, December and January.

"It made a lot of sense to tie ourselves to the NFL and utilize their near universal brand awareness to help bring some more awareness to our brand," Dyhrman said.

The moves seem to be working. While other tire makers have seen sales remain flat or fall, Nokian reported double-digit increases in sales and operating profit for the quarter and half-year ended June 30, according to the company's most recent financial report.

Sales for the quarter increased 16.5 percent to $425.3 million and operating income jumped 21.5 percent to $101.8 million. The six-month report was just as strong, with earnings up 19.6 percent and sales up 17.2 percent.

Sales in North America surged 8.7 percent in the first half, but that was behind gains in Russia and Eastern Europe (84.4 percent) and Western Europe (10.6 percent).

Officials say the strategy for continued growth in North America revolves around staying focused in three key designated markets: lower New England/Hartford Conn.; the Denver market; and the Pacific Northwest, including the Seattle/Portland corridor.

"We feel these are strong markets for us to grow with our dealers," Dyhrman said, "so we're investing increased marketing activities there."

Expanding lineup

The firm aims not only to expand brand awareness, but broaden the appeal of the Nokian brand so consumers don't think of it in terms of a winter tire brand only.

"Making tires for demanding winter conditions is some of the hardest (research and development) technical quality challenges," Heinonen said. "We can excel in that area, so we feel consumers will be willing to give us a chance in other product segments."

Nokian has plans to bolster its all-season and light truck tire lineups that appeal to the U.S. market. The European market tends to be performance-oriented, while mileage and comfort resonate in North America.

Heinonen said Nokian's newest light-truck tire line, the Rockproof, has been a qualified success since it was released last fall. He said the company thought the niche was smaller, but has since discovered that it is even bigger for the LT tire.

"We know we have a hole in light trucks, and that's something we have noticed and are working on," he said.

Heinonen added Nokian intends to be a full-scale premium player. "We know that our products are not yet meeting that criteria," he said.

The U.S. plant is a huge step in making that a reality. The buzz started after May's plant announcement—and the evidence is in his inbox. Heinonen said he and other officials average 20 emails a day regarding the tire maker's plans.

"Everybody wants to be partners with us, either sell something to us or buy something from us," Heinonen said. "It definitely has been a pleasant surprise how much publicity this plant gives us."