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Cooper Tire & Rubber Company, established in 1914, specializes in the production and promotion of rubber items for diverse customer needs. Their product range encompasses tires for cars, trucks, and motorcycles, along with inner tubes, NVH control systems, automotive sealing solutions, and fluid delivery systems. (source: http://www.coopertire.com/about/)
The focus of the case study is primarily on the tire industry, thus the subsequent analysis will be centered around this.
Cooper Tire & Rubber co. has achieved considerable growth and profitability, however, in order to remain competitive in the Replacement Tire Industry, Cooper needs to embrace new technology and improve efficiency while controlling costs.
In order to develop successful strategies, it is vital to analyze both the macro and micro external environment as well as evaluate the company's resources and capabilities.
The External Environment The Macro environment; PEST framework
The use of both NAFTA and GATT has provided opportunities for tire manufacturers to benefit from inexpensive labor.
By producing their tires in nations with low-cost labor, like Mexico, companies can decrease their expenses.
The foreign trade sub zone status is advantageous for smaller companies like Cooper because it reduces their duty payments on imported raw materials.
This allows them to compete internationally even with limited budgets.
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The tire market is dominated by the URW union, a heavily unionised industry. In recent years, the union has successfully negotiated higher wages and improved benefits for workers through long and persistent strikes.
The overall impact on the industry is determined by the economic demand for vehicles, which is influenced by the strength of the economy and the disposable incomes of consumers.
During the early 90's recession, the car industry experienced a significant impact.
This led to both increased competition for replacement tires and decreased demand for original equipment.
Consequently, numerous companies entered the replacement market in order to maintain competitiveness.
The stability of gasoline prices has directly impacted the tire industry in terms of the distance drivers travel. Following a period of volatility, the current price of gasoline has become both affordable and consistent.
The standard of living directly affects the demand for tire replacement in the tire industry. This connection is evident in the US, where suburbanization has led to greater wear and tear on tires, leading to an increased demand for tire replacement.
Furthermore, the transportation sector witnessed a growing inclination towards buses, taxis, and trucks as opposed to the rail system. This shift resulted in a significant increase in the demand for tires.
Some vehicle owners are reluctant to buy new tires as they prefer saving money for a future car purchase. Consequently, affordable tire manufacturers in the replacement tire market have gained popularity.
Technological advancements have simplified the manufacturing process for companies in the OE market, enabling them to produce tires that cater to their customers' unique requirements.
With the introduction of new technology, companies are now able to produce high-quality products at lower costs, which has made it crucial to have the latest technological equipment in order to stay competitive in the market.
Entering the industry may discourage new businesses due to the significant investments required for plants and equipment. Meanwhile, incumbent companies have obtained economies of scale by mastering mass production techniques and garnering production knowledge through their experience.
The level of brand loyalty among consumers is moderate, however, there are no financial costs associated with switching from an established manufacturer to a new competitor. Taking into account these factors as obstacles to entry, the barriers to entry for new competitors would be classified as moderate to high.
The original equipment (OE) market is heavily concentrated, with Goodyear, Michelin, and Bridgestone being the dominant players in the market that is experiencing slight growth. The competition is intense, and the competitors primarily compete based on price and differentiation in product technology.
Cost reduction is utilized as the crucial competitive strategy in the replacement market, which tends to be more fragmented.
Competitive structure leads to increased rivalry in both markets as tire manufacturing companies struggle to preserve their revenues and market shares.
The industry's exit barriers prevent incumbent companies from leaving when profits are low. These barriers mainly consist of investments in plants and equipment, as well as pensions and insurance for workers.
The level of rivalry among established companies is fairly high, as indicated by the competitive structure and high exit barriers.
Buyers in the OE market, such as automobile and truck manufacturers, have the advantage of buying tires in large quantities. This enables them to easily switch suppliers in order to find better deals on high-quality products at affordable prices. It is important to note that if a tire manufacturer were to lose just one buyer, their market share would be significantly reduced. Hence, these buyers hold substantial influence over the industry.
The tire replacement market includes different types of buyers such as independent tire dealers, service stations, major department stores, and automobile dealerships. Independent dealers are the main retail channels and account for approximately 66 percent of the replacement market. They have proven their ability to influence customers' choices and can negotiate favorable agreements with tire manufacturers. However, these retail channels have limited bargaining power due to their smaller purchasing volume. As a result, tire companies have the flexibility to consider alternative options like opening their own retail stores or collaborating with other dealers.
The low power of raw material suppliers is due to the availability of commodities in large quantities from various sources on global markets. This allows tire manufacturers to easily change suppliers. Additionally, tire companies can choose to vertically integrate and acquire the processes required for obtaining raw materials. However, there is a lower chance of suppliers becoming competitors by entering the tire manufacturing industry because it has high barriers to entry.
The tire industry's demand and profitability are intrinsically linked to both the oil industry and the manufacturing sectors for automobiles and trucks.
The decline in gas prices leads to higher vehicle usage, resulting in increased tire damage. Consequently, there is a greater need for new tires. The decrease in new car purchases implies that drivers are keeping their vehicles for longer durations, further increasing the demand for replacement tires. The production and sale of new vehicles impact the demand for original equipment (OE) tires. It is important to mention that global production of new vehicles has remained steady recently.
The retread tire market segment serves a similar consumer need as the replacement tire manufacturing industry but is no longer considered a threat. Starting in 1996, retread tire sales began to decline as buyers could purchase new, more reliable tires for a slightly higher price.
According to Hill & Hones, a distinctive competency refers to a special strength that enables a company to achieve superiority in efficiency, quality, innovation, or customer responsiveness. This ultimately leads to the creation of superior value and the attainment of a competitive advantage.
Cooper is able to achieve significant cost advantages compared to its competitors due to its unique competencies, key resources, and capabilities.
Key resources and competences Intangible Resources and Competences
Cooper's successful distribution strategy involves building strong relationships with its wholesalers. The company sells half of its production as a private label to store-chains, mass merchants, and discounters, and the other half under the Cooper brand through independent tire dealers. This enables Cooper to maintain a high level of customer responsiveness. The key to their success lies in valuing their distributors instead of viewing them as competitors.
Cooper's inventory system has been crucial in reducing costs by taking advantage of the ability to purchase previous to obtain more affordable deals.
Cooper effectively delivers their products to the market by providing exceptional service to the distribution channel through an efficient automated material handling system.
Cooper acknowledges the futility of competing with industry giants like Michelin and Bridgestone in terms of research and development (R&D). Instead, they opt to mimic and replicate the strategies of these leading players. The company tends to wait and observe the success of existing designs rather than pioneering their own. Furthermore, Cooper leverages their advanced technological manufacturing equipment to produce products that meet customers' high standards and specific requirements.
Cooper emphasizes the implementation of new ideas and the development of innovation through manufacturing new production lines. This straightforward approach to manufacturing, coupled with product innovation, results in decreased costs. Compared to their competitors, Cooper has a minimal marketing expenditure. They prioritize their marketing and promotional strategy towards their key customers, namely dealers and distributors.
Gorr, the CEO of Cooper, is a strong advocate of the TQM concept. According to him, the company's corporate philosophy is centered around meeting customer-defined expectations of value and quality. They believe that top-quality management is an intangible asset that enables them to outperform their competitors in terms of product superiority. Moreover, this approach helps them establish efficient production methods and provide exceptional service through their distribution channels. This strategic approach is embodied in their "Cooper 21" plan. Additionally, Cooper has implemented cross-functional teams to facilitate seamless skill and knowledge transfer between departments.
The decision-making process, although led by management, includes input from all company members, as employees have the expertise to implement ideas effectively. As a result, Cooper is able to develop and manufacture tires at a lower cost compared to competitors. Moreover, Cooper's innovative compensation system, which adjusts wages based on individual performance, further enhances motivation and overall productivity. A reliable indicator of efficiency is employee productivity, and Cooper outperforms its competitors in this aspect (see Appendix 1). Additionally, Cooper's recruitment process, along with its screening test, aims to identify "team players" who possess the appropriate attitude for the job.
This increased quality that Cooper is able to uphold results in reduced costs due to less rework, fewer errors, fewer delays, and more efficient utilization of time and resources. As a result, productivity is enhanced because "enhanced quality leads to a larger market share" (Hill and Jones, Strategic Management, 2001).
Cooper's plants, situated in small towns and Mexico, represent a crucial tangible asset for the company. These plants have offered Cooper more affordable resources, such as plants and labor. When Cooper aims to increase its capacity, purchasing and renovating old plants proves to be cost-effective. This tangible resource has greatly contributed to Cooper's ability to enhance resource efficiency, resulting in significant savings for the company.
Cooper possesses valuable tangible resources for the company in the form of self-designed equipment. This equipment is specifically tailored to meet the company's needs and specifications, outperforming commercially available options. By utilizing their custom machines, Cooper has achieved enhanced efficiency and productivity in their production process, allowing for increased capacity within shorter timeframes. Moreover, the implementation of their computer technology has not only enabled Cooper to stay competitive but has also resulted in cost reduction.
To gain an edge over its rivals, Cooper Tire concentrates on utilizing its key resources and capabilities to achieve a competitive advantage. The main objective is to maximize and focus on the strengths of the various primary and support activities of the organization, as illustrated in the value chain diagram.
Cooper Tire has a strong advantage in producing high-quality tires at a low cost. This is achieved through a combination of key resources, such as technological machinery, and key capabilities, such as expertise in low-cost production and efficient product distribution. Cooper Tire's value chain is built upon efficient and consistent production, marketing, and sales activities, as well as a well-organized company infrastructure.
Cooper Tire pursues a cost-leadership competitive/business strategy in order to maximize profit and expand. According to Hill & Jones, a strategy is an action taken by a company to achieve its goals, such as superior performance. In the case of Cooper Tire, the goals are to produce high-quality products at the lowest possible costs and expand the company. Therefore, the strategy will involve taking actions to accomplish these goals.
Cooper's low-cost strategy is largely fueled by the company's inexpensive plants and labor.
Cooper focuses primarily on the replacement tire market, where pioneering in product innovation and design is not essential. Instead, their competitive strategy centers around offering products with a low level of differentiation. They invest very little in product research and development, instead adapting their tire designs and features based on other successful products in the industry. However, they place a significant amount of attention and investment in developing their distinctive expertise in efficient manufacturing and materials management. This includes utilizing advanced computer technology for various aspects of the production process such as product design, machine design, and mold design. This technology enables Cooper to produce high-quality products faster than many of their competitors, thereby providing added value to their offerings.
Cooper has a distinct organizational culture that is characterized by its shared norms and values. These are achieved through the implementation of Total Quality Management (TQM) and through employee recruitment tests for individuals who are "team players and communicators." This emphasis on employee quality and innovation is reflected in Cooper's competitive advantage, as it is challenging for competitors to replicate the efficiency and effectiveness of its staff operations and decision-making processes. This commitment to quality has also earned Cooper the Source Award for its outstanding performance.
Company Number of Employees
Estimated Capacity (units per day)
Output per Employee
Goodyear 22830 366900 16.07
Michelin 17505 216000 12.34
Bridgestone 9145 129900 14.20
The HTML tags and their contents in the given text are:
Cooper 4300 126000 29.30
Paraphrased and unified text while keeping the HTML tags and their contents:
The Cooper 4300 has a mileage of 126,000 and consumes fuel at a rate of 29.30.
Continental/General 4509 87600 19.42
Cooper Tire & Rubber: Analyzing the External Environment. (2016, Jul 18). Retrieved from https://studymoose.com/case-study-cooper-tire-and-rubber-company-essay
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