Ecommerce And The Internet Infrastructure

Published Date: 02 Nov 2017

The tire industry is highly dependable on rubber costs and economic fluctuations. This is due to the high dependency on raw material, such as rubber, the main ingredient for producing tire. (Madehow, 2013) Rubber prices rose by more than 50% over May 2010 to April 2011 and this will thus affect the pricings of tires. (Stamford Tyres 2, 2013)

Current company situation

Currently Stamford Tyres is the only listed company in its trade in Singapore and has been in the business for over 70 years. Stamford Tyres expertise in distribution of several well known tire brands such as Falken and Continental tires that are mainly used for passenger cars, as well as Dunlop and Toyo tires that are mainly for trucks and heavy duty vehicles. They have also developed their own Sumo range tyres and SSW light alloy wheels selling them all over the world. Riding on the growth of the Asia Pacific region, Stamford Tyres are also expanding their retail operations and management services. (Stamford Tyres 1, 2013)

Current stock chart of Stamford Tyres as seen in the table below indicates a prominent growth for the past 6 months. (Stamford Tyres 2 2013) Stamford Tyres has been enjoying stable growth from its main markets in Southeast Asia. However, they are currently facing some challenges in the developing markets especially due to fluctuations in foreign currency and pricings. Chart

Past performance assessment

Stamford Tyres has been established since 1930s from a tire retailer cum petrol station to its current international tyre and wheel supply and service provider that distributes and sell to over 30 countries. Stamford Tyres first got listed on the Second Board of Singapore Stock Exchange in 1991, and then to the Main Board of the Singapore Exchange Securities Trading Limited in 2003. (Stamford Tyres 1,2013)

Stamford Tyres had a remarkable revenue increase of 6.7% in end of 2012 financial year. Stamford faced quite some challenges that affected the company’s sales and profitability despite the revenue increase. Some of the challenges include the increase in tires costs; the strengthening of Singapore currency against South African Rand; Thailand flood; and Europe crisis. (Stamford Tyres 2, 2013) Due to nature of its industry, Stamford Tyres' progress in its trade is highly dependent on the economy. The recent European crisis has greatly affected the automobile demand and what is most important to the organization now is to brave the strong waves of economic crisis and having a strategic plan that helps the company continue its growth in the long run.

ENVIRONMENTAL ANALYSIS

Pestel analysis – External Environment

The following PESTEL analysis will establish the factors that influence the business environment surrounding Stamford tyres.

Political / Legal

One of the several factors why firms have decided to choose Singapore to be its central hub of operations are due to the efforts the government has taken to set up organizations to reduce friction in trade.

In Singapore the Ministry of Trade and Industry (MTI) monitor regulations and it has been given the task to promote economic growth. An example of this can be seen in the Foreign Trade Agreements (FTA’s), where the MTI has collaborated with International Enterprise Singapore (IES). With the current FTA’s aimed to remove barriers for trade, firms are expected to utilise the reduced tax tariffs for import and export.

Social

Globally the social trends are changing, the sharp increase in nuclear families has had an affected correlation to the sales in tyres. These families belong to the middle and upper class and in general have a higher car density rate due to having higher disposable incomes.

Another generational factor is the spending/saving habits (Haleh, 2010) where the time of the boomers who were frugal in saving as opposed to the current generation who are comfortable with equated monthly installments and loans to fulfill their needs and wants.

Increase in levels of education and awareness of environmental issues has also had an impact and it is apparent that this sways the decisions made by young consumers to veer towards concern with the overall sustainability of the environment. Recent studies have shown that an increasing number of the Gen Y populi are influenced by a retailers environmental policies with figures at 47% that would be willing to pay more for "green brands" purely out of general concern for the environment (Environmental Leader, 2007).

Environmental

Due to the rising concerns of global warming and the evident deterioration of fossil fuel supply, a new trend is emerging in the tyre market known as "Green tyres".

These tyres are said to increase fuel efficiency by reducing rolling resistance and are currently in the works. CO2 emissions could be reduced by 350,000 Tonnes in Singapore alone if all drivers opted for the use of "green tyres" (Rachel, 2011).

Economical

The fluctuations in tyre costs is heavily reliant on the exchange rate, the 5% devaluation of the SGD v Baht over the last quarter has indeed applied slight pressure in the profit margins of tyre manufacturers and distributors alike as the costs of raw materials has also increased.(Fig.1) This is especially true in the case for Stamford as their main manufacturing plants are in Thailand.

An indicator for potential tyre sales would be economical growth (Fig.2). Economic growth points to two sectors where the demand for tyres would increase, firstly the need for freight movement and the increase in logistics and the increase in spending power of the general public. In general the concept is that more vehicles will be purchased, wear and tear of tyres would increase and the demand for tyre replacement would increase as well.

Another indicator is the Gini coefficient in identifying the target audience, with the increase in the unequal distribution of spending power in several ASEAN countries such as Singapore with a coefficient of 0.478, looking at these statistics would also indicate the type of tyres that need to be supplied.

Technology

E-Commerce and the internet infrastructure

The internet infrastructure has created a business platform which has heavily attracted foreign investments and has enticed several MNC’s to set up its regional operations in Singapore. Over the past year the internet accessibility rate rose 5% to 75% further concreting the significance for firms to make their presence online.

Research and development

Continuous strides in technology are increasing in pace, intensive research into the production of tyres has continuously revamped the way they are produced leading to reduction in costs and increased lifespan.

An example of this is apparent in Cordenka’s Eco-Endurance rayon yarn. This new type of rayon has cut costs by reducing the amount of fabric required for tyre manufacturing, resulting in the reduced usage of rubber.

Implications

Based on the above pestel analysis, it can be deduced that the following implications may have an effect on Stamford Tyres.

Political

Examining the political and legal premises surrounding the automobile industry would prove to be useful in terms of distribution. Utilising existing free trade agreements to penetrate potential markets is also crucial in cost reduction.

Technology

The first implication that arises based on the technological environment is that customers no longer feel the need to physically be present during the selection or purchasing process. Information on tyre types and even obtaining quotations is easily obtainable through the web. It is vital for Stamford Tyres to grasp the online audience by providing value added services and to educate potential customers during the selection process.

The second implication would be based on the current situation where tyre manufacturers are deeply invested into research and development of producing "green tyres". Stamford Tyres may lose out on the first mover’s advantage if they decide to Jump on the band wagon at a later stage. LANXESS which is a development & manufacturing company specialising in plastics and rubbers has already invested into a second manufacturing plant to produce 140,000 metric tons of the specialised rubber yearly to cope with the forthcoming demands. Mr Sigler the Marketing Manager for the Indian and ASEAN regions said:"We did do a study of mobility habits and green habits of Singapore drivers and price reliability, fuel efficiency and safety came out on top...But I think the issue we have now is that this isn't so readily apparent when you are purchasing a tyre". Major firms are already directing efforts to make this knowledge available by labeling tyres to inform consumers of their choices.

Environmental

The environmental factors of Tyre production would be similar to those highlighted under research and development. The trend for conservation of energy and reducing carbon footprints is an issue that must be addressed.

Economical

Based on the analysis it would prove wise to penetrate markets with large potential growth.This growth leads to an increase in demand of tyres as mentioned in the analysis; India for example has cited a forecast in shortages for its future demand in Tyre replacements due to the increase in the need for transportation that tags along with economic growth.

Social

The social indicators imply the type of market that will form in the future and the type of tyres that will be needed to quench the demands. Stamford will need to thoroughly study the social indicators in its potential country to identify the niches that will come to light.

Internal Environment Analysis

Financial ratio analysis

Implications

From the financial data above, the quick ratio shows that Stamford Tyres do not hold much liquid assets such as cash, however their liquidity is being covered by sufficient current assets to back their existing liabilities. The gradual increase insales of 10% (2010-2011) and 6.60% (2011-2012) were greater than the increase in cost of sales of 7.43% (2010-2011) and 5.48% (2011-2012). This implies lower risk of liquidity problems.

Stamford Tyres with the average debtor collection period of 96 days is around 1 month more than the industry average; this indicates risk for Stamford in becoming less liquid. This is compensated by a longer creditor payment period as compared to the industry average. Being Singapore’s leading distributor for tyres, Stamford builds trust and robust relationships with their suppliers.

With a considerable low inventory turnover rate of 3 times per year, it is common for tyre industries as the lifespan of tyres could last three to five years.

Stamford Tyres have a safe and moderate gearing ratio of less than 50%, it is also apparent of reduced gearing over the years, this shows less reliance on borrowed funding for growth opportunities and increased profitability from the increase of ROCE. The reduced interest cost from lowered borrowings also leads to increased dividend payout, which delights the shareholders as well.

The slight decrease for return on sales in 2012 (-1.34%) may be due to the announcement of expanding operations into India. Stamford Tyres may form a joint venture with Sumitomo Rubber Asia to tap onto India’s replacement tyre market; this joint venture may dilute Stamford’s profits for year 2012.

With a stable gross profit to sales figure, it is conclusive that Stamford Tyres are able to maintain profitability despite increasing cost of sales. However as Stamford Tyres enters into the India market in the near future, gross profit might diminish due to start up costs, distribution and marketing costs.

Value Chain Analysis

The Value Chain Analysis is a chain of activities that businesses aim to create more value by performing these activities more efficiently than their competitors.

Value Chain Activity

Strategy

Value Created

Inbound Logistics

Purchase of goods with lower cost from affiliated company, Stamford wheels

Cost saving for the company

Operations

One stop service concept such as workshops catering for tires, rims and value-added car services

Position itself as an one-stop brand where customers can go for both sales and post-sales activity

Outbound Logistics

Various retailer stores all over Singapore with a central warehouse.

Various storage location for finished products and retailer stores are able to retrieve from other retailer stores when low on supply thus creating better control over supply chain

Marketing and Sales

Frequent promotions and salesperson are well-trained

Customers are attracted to the promotions and have confidence in the products they are purchasing

Service

Servicing workshops are located not only in their stores but also in petroleum stations

Easily accessible for customers as vehicles need to visit petroleum stations frequently

Procurement

Purchase raw materials like rubber from various suppliers and purchases are made in bulks

Build relations with different companies and increases potential for future business ventures

Technological development

Develops technologies for better products like self-inflating tires

Increase product value through development of unique and creative products

Human resource management

Frequent training programs for staff to constantly upgrade themselves

Keep staff motivated and innovative with constant learning

Firm infrastructure

Distribution of tires in various countries with a manufacturing plant in Thailand

Global diversity

Implications

Stamford tyres have executed excellent strategy in the primary activities. With their well-trained salesperson and excellent services and a one-stop brand image, it has helped position Stamford tyres as the market leader and made them into the leading tire distributor in Singapore.

Stamford should continue to source for more suppliers and research on new technologies to come up with new manufacturing processes. With the rising prices of rubber (Antich 2012), most companies are experiencing a drop in profits and it would benefit Stamford greatly if they were to come up with a new manufacturing process that can reduce costs.

As Stamford is slowly branching out overseas where they have set up retail stores in most of South East Asia, they will need to work on localizing manufacturing to cut down on shipping costs and also reduce the risk of entry barriers.

Stamford tyres TOWS Matrix

 

 

 

External Opportunities (O)

 

External Threats (T)

 

1.

Fast growing car manufacturing industries of South Africa and India

1.

Natural disasters

 

2.

Global emphasis on corporate social responsibilities

2.

Strengthening of SGD

 

 

 

3.

Rising prices of raw materials

 

 

 

4.

New regulations in Singapore affecting automobiles demand

 

Internal Strength (S)

 

SO Recommendations

 

ST Recommendations

1.

Leading distributor in Singapore

1.

Take up more debt to expand in emerging economies

1.

Explore new location to set up manufacturing base

2.

Established track records in distributing comprehensive range of tyres

2.

Spend more on R&D on tyres and wheels production that pose minimal threat to the environment and human health

2.

Reduce the impact of foreign currency fluctuation by increased borrowings from foreign banks or by hedging

3.

Cutting edge technology in tyres and wheels manufacturing

 

 

 

 

 

Internal Weakness (W)

 

WO Recommendations

 

WT Recommendations

1.

Small market capitalization

1.

Focusing on promoting proprietary tyres in South Africa and India

1.

Increase capital by issuing more shares or get listed in another country

2.

Unable to sell proprietary brands tyres in Singapore

 

 

 

 

3.

Disadvantage of Japanese brands targeting China markets

 

 

 

 

INDustry analysis

Factors

Description

Close relationship with tyre suppliers

As Singapore’s leading tyre distributor, Stamford Tyres need to build rapport and close relationships with suppliers such as Continental Tyres and Falken Tyres so as to retain or re-contract business.

Customers’ affordability on Quality Tyres

As brands such as Continental and Falken are considered premium quality tyres, prices are therefore more expensive than mediocre tyres. To ensure success, their target market must be able and willing to spend on such quality. With rewarding economic developments on going, it is apparent that Stamford Tyres’ target market has such affordability.

Industry Infrastructure

Good mechanical and technical education infrastructure (such as Polytechnic and ITE) to train workers up to professional mechanical skill for required job purposes.

Exclusive sole distribution rights for Continental and Falken Tyres

Being one of the few top selling and premium quality tyres, sole distribution rights for these two brands could deny competitors from entering the industry for competition and splitting of profits.

Global increase in vehicle usage

As the global demand for vehicle use increases, it brings about demand in essential accessories such as wheels and tyres, such increase in demands results in Stamford Tyres’ success.

Key Success Factors for Stamford Tyres

Porter’s Five Forces

Threat of New Entrants – High

Automobile companies generally use similar technologies. Therefore this opens up opportunities for emergence of new tyre companies. Major tyre brands can be found in Singapore and dealership and franchising can be obtained through the tyre brands distributors. The ease of franchise increases the threat of new entrants as barriers of entry to the industry is low. Companies are able to easily gain access to the tyre distribution channels.

Threat of Substitutes – Low

Substitute products refer to the products in other industries. In the automobile tyre industry, tyre retread is a substitute. Tyre retread is where old tyres are remolded and reused by consumers. (TRIB 2011) However, new tyres are inexpensive these days, thus the threat of tyre retreading is considered generally low.

Bargaining Power of Customers - Low

The bargaining power of customers refers to the impact that the customers have on the industry. (QuickMBA 2010) In the automobile tyre industry, buyers can be large automobile manufacturers as well as individual car owners. These larger automobile manufacturers hold high bargaining power as they possess a credible backward integration threat. They can be a threat to the tyre company by switching to buy tyres from other rivals in the industry. However, if we look at individual car owners, the bargaining power of customers becomes relatively low. This is due to the automobile tyres distribution market in Singapore, where Falken and Continental tyres are distributed by Stamford Tyres hence buyers will only be able to easily get these brands of tyres from the company or its dealers.

Bargaining Power of Suppliers - High

In the tyre industry, raw materials are such as Butyl rubber, Styrene Butadiene rubber, Nylon tyre cord fabric, Polybutadiene rubber, rubber chemicals, Steal tyre cord, Polyester tyre cord. (Pareek 2010) Tyre manufacturing plants are mostly in Thailand and Indonesia. These countries are abundant with tyre raw material suppliers. Therefore, it is easy to switch between suppliers and tyre manufacturers do not have to solely depend on one supplier. However, the demand for most of these raw materials, especially rubber is very high; while these supply is restricted, rubber prices is bound to increase and thus affecting cost of tyres.

Existing level of Competition - High

According to Porter, if the number of players in an industry is large, then attractiveness of that industry goes down. (QuickMBA 2010) The tyre industry in Singapore is dominated by major companies such as Stamford Tyres, Bridgestone tyre sales Singapore PTE.LTD, YHI, Binter & Co and TyrePac; not forgetting smaller dealers and automobile workshops in the country. These make the tyre industry quite competitive. Tyre is almost a necessary product but not quite frequently bought. Such an industry being in a small country like Singapore, five major companies is considered quite a big number of players; as such making the industry seem unattractive.

IMPLications

Based on the Michael Porter’s five forces, the tire industry is an attractive industry despite the high threat of new entrants, bargaining power of suppliers and the high level of competition. As discussed above, although bargaining power of suppliers is high, there is not lack of new suppliers for raw materials and the only down side of the high bargaining power of suppliers is the increase of tire cost. Although this may affect the prices of tires, threat of substitute is extremely low for the tire industry. It is almost impossible to get replacement for tires as they are of necessity to car owners. The low bargaining power of customers in turn also adds on to the attractiveness of the tire industry. Porter’s model concludes an attractive tire industry and it can be highly supported by the significant revenue rise of Stamford Tyres.

COMPETITOR ANALYSIS

Current Situation

Currently in Singapore, some of the major competitors of Stamford Tyres are YHI International Limited, Binter & Coand Bridgestone Singapore that provides similar goods and services. By knowing the competitors’ strength and weakness is one of the criteria in determining the future strategy of the company.

Brand Competition Analysis

Strategic Group analysis

Implications on competition

In a strategic group analysis, competition is usually between companies in the same group but there could be competition between groups as well and this is even more so for Stamford Tyres. As Stamford is now focusing on regional areas with subsidiaries in Malaysia, Thailand and Indonesia, they will have to take note of the companies in both the international and the national group as they will also be their direct competitors in the region.

As most customers do not see much differentiation in tire products, it is important that Stamford aim to create uniqueness in both products and services. For example, Bridgestone has based their tires on technologies like Run-Flat Technology and Retread Technology (Bridgestone 2013). Another good example would be TyrePac. They have used a system similar to budget airlines where customers will go online to choose their desired tire; choose a fitting location where they can try out the tire; payment will then be made online; tires will be delivered to choice location and lastly tires will be change on appointed date and time (TyrePac 2013). These are products and services that help differentiate companies from one another and Stamford will need to work on that. Stamford tyres will also need to look out for companies in the national group like MRF Tyres if they were to explore into regions they have never go to before like India.

Objectives for Stamford Tyres

Short Term Objectives

To maintain stable growth in terms of market share through increasing the number of Stamford Tyres outlets in Singapore. Stamford Tyres needs to gain at least 30% of the market share within the next 3 years.

Achieve profit growth by 25% within the next 3 years by product development. Stamford Tyres will not be restricted to tires but develop into markets of car customization products like sports steering wheel, gear lever, bucket seats etc.

To penetrate into new geographical markets such as India, Japan and Korea through collaborations with local players. To set up at least 2 outlets in each country within the next 5 years.

Long Term Objectives

To reach the top position in tire industry in Singapore. Stamford Tyres need to hold and maintain at least 40% of the market share in the country.

To maintain a stable growth in newly developed product sectors of the car customization products and to become top 3 in the customization products market.

To gain market share of at least 20% in the newly developed countries like India, Japan and Korea to achieve a sustainable growth.

To be able to be differentiated against its competitors in consumers’ mindset and to be the preferred retailer and distributor for consumers. Stamford Tyres needs to achieve top rated corporate image and reputation.

Development of Strategies

Ansoff Product Matrix

Market Penetration Strategy

By advertising more via conventional or social media, Stamford Tyres could gain more attention from potential customers and further entice them with sales promotions. Stamford Tyres could also hold more garage sales promotions on festive seasons to increase their brand awareness. For competitive pricing, it would be a last resort as it damages brand image and reduces profit margin.

Market Development Strategy

Currently, Stamford Tyres’ operations spreads mostly in the Southeast Asia, however there are various large markets that are untapped. India being an emerging economy offers large opportunities for high growth investments, this will be further discussed in the following strategy via the GE Model.Other developed countries such as Japan and Korea provide developed infrastructure networks that supports Stamford Tyres’ distribution operations.

Product Development Strategy

With the changes in demographic factors, the average age for car owners are falling, which implies more teenage drivers on the road. Statistics shown that younger drivers prefer to customize their cars so as to be different from others, with such information, Stamford Tyres could develop new car related products such as customized body kits, sports steering wheel, bucket seats and car interior designs to target the existing market.

Diversification Strategy

By diversification, Stamford Tyres could set up a recycling company to recycle all worn out tyres and use them for base materials for carpets (Forward Integration).

Stamford Tyres can also consider a joint venture with local automotive giants such as Jardine Cycle & Carriage (Mercedes Benz, Mitsubishi Motors, Kia Motors and Citroen) or Performance Motors Limited (BMW, Mini) to provide tyres and wheels. With one being the leading tyre and wheel distributor in Singapore and another being a local automotive giant, this JV will increase both synergy and operating profits for both corporations.

Intended Strategy – Product Development Strategy

Staging: Stamford Tyres would have to adopt a moderate speed in introducing new car-related products to its existing market, if new products are launched too quickly and not handled properly, this might lead to confused positioning in Stamford Tyres’ branding. Local market will be targeted, followed by overseas market.

Arena: Starting with the local retail workshops in Singapore, new products would be launched monthly. On the second year when customer base and brand image should be stabilized, the products would then be launched in its overseas subsidiaries such as Malaysia and Indonesia.

Vehicle: Stamford Tyres can leverage on the annual motor show to help promote the launch of new products, such big scale auto shows usually attract motor enthusiast from around Southeast Asia, thus increasing regional awareness of the corporation’s product development strategy.

Economic Logic: Singapore’s booming economy has led to more wealthy teenagers and young adults who own cars. As much as such target market demand premium tyres like Continental tyres, they also demand car grooming and uniqueness. Stamford Tyres’ product development and customization can meet the demand of such customers and in return, be rewarded with encouraging sales revenue.

Differentiators: By being the first tyre manufacturer and distributor that incorporates car customization services, Stamford Tyres distinguishes itself from competitors by gaining first-mover advantage, thereby increasing its competitive advantage. Customers are likely to remember and patronize Stamford Tyres over competitors who try to imitate such service.

GE Model

Reference