THE MARKET FOR TYRES IN EAST AFRICA

Competition heats up as tyre manufactuers engage in uphill battle to gain market supremacy in East Africa

Wherever wheels are turning No matter where the road, the name that's known Is Firestone... Where the rubber hits the road....

 

The popular jingle by Kenya's sole tyre manufacturing firm, Firestone East Africa (1969) Ltd, has long since become little more than a memory somewhat following the flooding of the local market by an estimated Sh6 billion worth of imports. The invasion has not only ended the giant firm's local domination, but sent its profits sliding to an all-time low. The firm's main competitors include French giant, Michellin Tyres and Italy's Pirelli Tyres, both of whom have made significant inroads and stabilised prices. Pirelli is locally represented by Nyanza Petroleum Dealers Ltd, who also deal in Firestone tyres and are importers of Alliance tyres for agriculture machinery and earth-moving equipment.

 

Then there is Tanzania's General Tyres, a subsidiary of Continental Company of Germany, which since 1994 has marketed its products locally through Highlife Tyres & Services of Nakuru. Apart from the new radial tyres, also in the market are large quantities of imported second-hand products. Although there is no accurate data available, the private multinationals appear to have ended the virtual monopoly Firestone enjoyed before deregulation in 1993.

 

In a recent interview the company's managing director, Yasuhiro Itoh, said though the company once had a nearly 100 per cent market share, things have changed. The company's pre-tax profits have been declining over the recent years. Firestone, which at one time controlled 72 per cent of the Kenyan market, and now claims approximately 40 per cent export niche in Uganda, employs 700 workers. Some estimates put the Firestone market share for new tyres at just over 60 per cent, while Michellin, Continental and Pirelli, who claim to control 10 per cent of the market, have taken up the remaining 40 per cent.

 

Last year, despite a 14 per cent decrease in industrial raw material costs owing to lower volumes of new vehicles bought, Firestone produced 545,000 tyre units, or 95 per cent of the previous year's production, 20 per cent of which was exported. Critics of the company say some of the tyre makes are about 20 years old, while rivals (read importers) are capable of supplying the same at almost similar or even lower prices. The company has also been affected by global patterns where vehicle manufacturers are making vehicles which use particular tyre brands.

 

Players in the tyre business worldwide are not renowned for fair trade practices and Kenya is no exception. In 1995, all tyre companies operating in the United States were summoned by the Federal Bureau of Investigation (FBI) after accusations that the multi-million dollar firms were engaged in cartel-like cost-fixing in the country. In Kenya, Itoh says, a significant bulk of uncustomed products have entered the local market. Firestone, which also imports tyres from the parent company, Bridgestone Corporation of Japan, say they have been in touch with the treasury over the issue, but the practice continues.

 

"We are not worried about fair competition," said Itoh, who believes control has been tightened at the port of Mombasa. Tyres attract a duty of 35 per cent which, according to Itoh, should place the prices of imported and locally manufactured tyres roughly at par, with only marginal price variations on some brands. But both Pirelli and Firestone say retail and wholesale prices of some foreign products in the market are well below the expected minimum if costs of production, transport, insurance and duty are considered, an indication that there is illegal dumping. Itoh says Firestone does regular cost analyses worldwide and is in a position to tell when rival companies are contravening legalised trade practices. Tyres from the Preferential Trade Area (PTA) are rated at eight per cent, but the managing director of Highlife, Rajesh Taka, says they are no longer dealing in General tyres due to bureaucracy at the border, and a "time-wasting" inspection by SGS at the Namanga border point. SGS, which operates in 140 countries, was contracted to do pre-shipment inspection by the Tanzania government last December. Highlife used to sell one to two trucks of tyres, but have switched to the distribution of Firestone goods. Rajesh says the Tanzanian tyres, which also came with a guarantee, were hampered by low consumer interest in the Kenyan market.

 

Apart from lack of infrastructure, most illegally imported tyres, have a quality problem emanating from storage; some are poorly stored in godowns in hot places like Dubai for months, which seriously compromises quality. Before Firestone established its manufacturing plant in Kenya nearly two decades ago, all tyres were imported. The government, eager to promote import-substitution, imposed quotas and tariffs to protect the local industry, which gave the company a virtual monopoly. However, some imports were allowed since there were vehicles in the market which could not use the company's products.

 

Fifteen percent of Firestone, a member of the Sameer group of companies, is controlled by Bridgestone Firestone Inc of the US, which, in turn, is a subsidiary of Japan's Bridgestone Corporation. In 1987, the Japanese company bought Firestone Tyre and Rubber Corporation of the US, which also owns much of war-ravaged Liberia's rubber plantations. Before 1995, buoyed by a weak Japanese yen, Bridgestone was the world's foremost tyre producer. But as the value of the yen against major hard currencies shot up, and dollar-based sales plummeted, it was overtaken by Michellin.

 

In recent times, the tyre companies in Kenya have carried their rivalry to the airwaves, each claiming superior products. While Pirelli and tyres_dubaiMichellin needed introduction since they were new in the market, a Firestone survey showed that the Michellin campaign was having a significant impact on sales and Firestone was forced to embark on their own campaign. Michellin is exclusively marketed by Kingsway Tyres who, however, declined to comment. Pirelli, which is sold locally by Nyanza Petroleum Company, has confined its marketing strategy to advertisements painted on Stage Coach buses, which, ironically, use Michellin tyres! Although the most popular Michellin adverts target matatu and small cars, Firestone claims there has been no major impact by their rivals in this area. Then there is the issue of warranty. While Firestone products boast that they "come with a written guarantee", Michellin advertisements proclaim "the name is the guarantee". But Firestone is not daunted, offering replacement for any tyre damaged due to errors arising from manufacturing, stressing the fact that its tyres are tailor-made for Kenyan roads.

 

Besides new tyres, there are also low-quality second-hand ones which soon wear out on the country's rough roads. The managing director of Pirelli (Europe), Valter Donati, says that most used tyres are dumped into the African market after exceeding the legal use limit in European and other developed countries. The thread of the tyres is so shallow that it makes nonsense of the cheap prices, and they also have a poor surface grip.