Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
361
– 361 –
TEACHING NOTE
CASE 8
Cooper Tire & Rubber Company in 2014
Overview
In 2014, Cooper Tire and Rubber Company (Cooper Tire) celebrated its 70th year. Cooper Tire marketed
automotive tires in over 100 countries, and was ranked 11th globally and 4th in the U.S. replacement
automotive tire industry. Cooper Tire provided independent dealers with the industry’s highest profit margins.
The company employed 13,280, of whom many were also shareholders, and operated nine manufacturing
facilities: four plants in the U.S., two in China (one a joint venture), two in the U.K., one in Serbia, and a joint
venture affiliate in Mexico, as well as 38 distribution centers worldwide. Under CEO Roy Armes, Cooper Tire
had enjoyed an unbroken path of growth and high returns to shareholders for nearly a decade, attaining a record
$4.2 billion in sales in 2012. Yet, fiscal 2013 turned out to be a generally lackluster year for Cooper Tire and many
other top 12 global tire manufacturers. On June 12, 2013, a much smaller India-based tire manufacturer, Apollo
Tyres, made a surprise merger bid for Cooper Tire. Analysts and union organizers disparaged the deal, which was
thought to be overpriced and punitive of labor. The bid price kept dropping due to the Indian acquirer’s inability
to secure financing as well as to labor action at the Chengshan plant in China, and was terminated at the end
of December 2013. Fiscal 2013 revenues declined by nearly $800 million (down 18 percent), and net income
dropped by over 50 percent, reflecting the costs of the failed merger.
Cooper Tire operated in a highly competitive global market for automotive tires, forecast to grow at 4.4 percent
and reach $187 billion in sales by 2017. Competition was heightened by industry consolidation among the
top-tier producers as well as a proliferation of lower cost entrants from emerging nations in Asia and Latin
America. Innovations in tire design and manufacturing reduced new product development time and improved
tire quality. Rivals engaged in occasional price wars, as the tire aftermarket was mature. Raw materials prices,
primarily rubber, as well as new vehicle sale, remained volatile after the 2008–9 global recession. Product
and marketing innovations such as longer-lived tire treads and lengthier manufacturer’s warranties for tires
curtailed replacement tire sales. Government tariffs and trade barriers aimed to protect U.S. tire manufacturers
from low cost Chinese imports, but China nevertheless remained the world’s largest exporter of automotive
tires to the U.S.
Entering the 2014 fiscal year, CEO Roy Armes and his team at Cooper Tire assessed how to move past the
turmoil of 2013. The company needed to recover from losses owning to the failed merger with Apollo Tyres,
manage lingering discontent from U.S. labor unions and labor organizers at the company’s Chinese joint venture,
and reverse a sharp reduction in sales volume. Whereas Cooper Tire had become accustomed to running at full
capacity on a 24/7 basis, capacity was now at a suboptimal 80 percent, primarily due to curtailed output at the
Chengshan plant.
*
* This teaching note reflects the thinking and analysis of Professor Armand Gilinksy, Sonoma State University. We are most
grateful for his insight, analysis and contributions to how the case can be taught successfully.
Case 8 Teaching Note Cooper Tire & Rubber Company in 2014
362
Suggestions for Using the Case
This case pairs well with material covered in Chapters 3–5. It is particularly useful for illustrating the following
concepts:
n How to evaluate the macro- and competitive environment in which a company operates (covered in
Chapter 3)
n How to determine whether an industry’s outlook presents a company with sufficiently attractive opportunities
for growth and profitability (also covered in Chapter 3)
n Identifying those competitive factors or key success factors (KSF) that most affect industry members’ ability
to survive and prosper in the marketplace: (also covered in Chapter 3)
• Strategy elements
• Product attributes
• Operational approaches
• Resources and competitive capabilities—that spell the difference between being a strong and a weak
competitor—and between profit and loss.
n Improving the effectiveness of the company’s customer value proposition and enhancing differentiation:
(covered in Chapter 4)
• Best practices for quality, marketing, and customer service.
• Reallocating resources to activities that address buyers’ most important purchase criteria, which will
have the biggest impact on the value delivered to the customer
• Adopting new technologies that spur innovation, improve design, and enhance creativity.
n How to assess a company’s internal resources and capabilities, including its value chain (also covered in
Chapter 4)
n Improving a company’s competitive position based on its generic strategy (covered in Chapter 5)
• Why some generic strategies work better in certain kinds of competitive conditions than in others.
As it illustrates competitive strategies in a global industry context, the Cooper Tire case can also aid instructors
with the coverage of strategies for strengthening a company’s competitive position (in Chapter 6) and/or strategies
for competing in international markets (Chapter 7).
What to Tell Students in Preparing the Cooper Tire Case for Class. To give students guidance in what
to do and think about in preparing the Cooper Tire case for class discussion, we strongly recommend they master
and then apply many of the concepts and analytical methods in Chapters 3–5. Be sure to:
n Provide class members with assignment questions and insist that they prepare good notes/answers to
these questions before coming to class. Our recommended assignment questions for the Cooper Tire case
To facilitate your use of assignment questions and making them available to students, we have posted a file of
the Assignment Questions contained in this teaching note on the instructor resources section of the Connect
Library. In all instances, these assignment questions correspond to the assignment questions in the teaching
note for the case.
Case 8 Teaching Note Cooper Tire & Rubber Company in 2014
363
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
expect students to bring their notes to the study questions to use/refer to in responding to the questions that
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. We
believe that, as cars are quite popular with students and they are familiar with the industry, the Cooper Tire case
is quite well-suited for written assignments and oral team presentations. Our suggested assignment questions are
as follows:
n Roy Armes, CEO of Cooper Tire, has employed you as a consultant to assess the company’s overall situation
and recommend a set of actions to improve its future prospects. Please prepare a report to Cooper Tire
management that includes: (1) an evaluation of Cooper Tire’s current strategy, (2) an assessment of Cooper
Tire’s strengths, weaknesses, opportunities and threats, (3) an assessment of the primary components
n Prepare a brief 1–2 page report to Cooper Tire CEO Roy Armes, outlining the 3–4 top priority issues that
Cooper Tire management needs to address. Make explicit the actions you think management should initiate
to address these issues and sustain Cooper Tire’s future growth and profitability. Your report should contain
Assignment Questions
1. How strong are the competitive forces confronting Cooper Tire in the global automotive tire industry? Do a
five-forces analysis to support your answer.
2. What do you see as the key success factors in the global automotive tire industry?
3. What does a SWOT analysis reveal about the overall attractiveness of Cooper Tire’s situation?
4. What are the primary components of Cooper Tire’s value chain?
5. What are the key elements of Cooper Tire’s strategy? Which one of the five generic competitive strategies
discussed in Chapter 5 most closely approximates the competitive approach that Cooper Tire is employing?
6. What do the data in case Exhibit 1 reveal about Cooper Tire’s financial and operating performance?
7. What 3–4 top priority issues do CEO Roy Armes and Cooper Tire management need to address?
8. What recommendations would you make to Cooper Tire CEO Roy Armes? At a minimum, your
recommendations should cover what to do about each of the top priority issues identified in question 7.
Case 8 Teaching Note Cooper Tire & Rubber Company in 2014
364
9. [Optional question for adopters wishing to pair this case with materials in Chapter 6] How have Cooper
Tire’s business strategy choices strengthened or weakened its competitive position in the automotive tire
industry? That is, what are the benefits and drawbacks of the approaches taken to increasing Cooper Tire’s
global scope?
10. [Optional question for adopters wishing to pair this case with materials in Chapter 7] Is Cooper Tire’s
international strategy best characterized as a multi-domestic strategy, global strategy, or transnational
strategy? What are the pros and cons of each approach?
Teaching Outline and Analysis
1. How strong are the competitive forces confronting Cooper Tire in the global automotive
tire industry? Do a five-forces analysis to support your answer.
Below is a representative five-forces model of competition for the global automotive tire industry.
Suppliers to
Rivalry
Among
Competing
Tire
Manufacturers
market position
and competitive
advantage
Competitive pressures coming from the
Competitive pressures coming
Substitutes for
Automotive Tires
Threat of New
Entry into
Automotive Tires
Consumers
of
Competitive
pressures
stemming
Competitive
pressures
stemming
n Rivalry among competing manufacturers of automotive tires—a strong competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.4 in Chapter 3
(and the related text discussion).
Case 8 Teaching Note Cooper Tire & Rubber Company in 2014
365
Rivalry is influenced by five main or key driving forces:
• Industry maturation and consolidation
• Capacity utilization
Other key drivers that students might mention include: product lifecycle, innovation, global sourcing, and
market position (focus on OEM vs. replacement tire markets).
• Cost competitiveness rampant in a mature industry primarily driven by capacity utilization
• Four giant tire companies = 50 percent of worldwide tire sales, only one U.S. company—Goodyear—
left among the top tier
• Industry leadership being contested:
• China emerging as the world’s #2 source manufacturer of tires and currently the lowest-cost producer,
• Despite fairly high capital requirements—low barriers to entry, particularly for companies wishing
• Global light-vehicle tire demand by volume of units sold forecast to grow a modest 3.3 percent
through 2013
• Negative sales revenue growth rates between 2012 and 2013 for all but three of the top 12 firms
• Moderate to high capital investments—required to keep pace with innovations in tire and tread
design, as well as process innovations to reduce product development cycles
— Goodyear, considered the “research leader” in the automotive tire industry, used computer
Case 8 Teaching Note Cooper Tire & Rubber Company in 2014
366
• Comparatively higher investments and capacity utilization rates—required for tire manufacturers
wishing to locate in the U.S., rather than elsewhere. Students should carefully inspect case
Exhibit 2 for ranges in plant capacity among North American Tire manufacturers in 2013-14.
— Capacity requirements for the U.S-based firms average about 17,000 tires per day (= 677,800
tires per day/40 plants) in 2014
• Rising levels of corporate R&D expenditures—for innovations in product quality and performance
as well as manufacturing process efficiencies
TABLE 1. Cooper Tire & Rubber Co. R & D Spending as a % of Revenues,
2009–2011
2011 2010 2009
Revenues ($ million) 3,907.8 3,342.7 2,778.9
R & D Spend ($ million) 44.6 39.7 35.7
R & D spend % of revenues 1.1% 1.2% 1.3%
Factors that are acting to moderate industry rivalry:
• Global tire market sales in dollars forecast to grow at a 4 percent CAGR through 2017—to $187
billion
Competitive rivalry is increasingly becoming more intense, but is not yet fierce, as most incumbents appear
to be profitable.
n Competitive pressures associated with the threat of new entry into the specialty retailer market—a
strong competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.5 in Chapter 3
(and the related text discussion).
Factors that are acting to intensify the threat of entry:
• Moderately low barriers for upstarts, particularly for firms seeking to emulate Cooper Tire by
Case 8 Teaching Note Cooper Tire & Rubber Company in 2014
367
Factors that are acting to moderate or weaken the threat of entry:
• Moderately high barriers to mobility—large capital investments required on a global scale for
• Industry moderately unattractive, beset by slow growth, saturation, volatile rubber prices, and
• Increasing consolidation via merger and acquisition activity, as foreign companies purchase most
• Government-erected trade barriers to protect U.S. incumbent firms, however, resulting in some
unintended consequences:
n Competitive pressures associated with substitutes for specialty retailer operators—a weak to possibly
non-existent competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.6 in Chapter
3 (and the related text discussion).
The sole substitutes for either OEM or replacement light vehicle tires are retreads or refurbished and
recapped tires, primarily sold to tire buyers who were very price-conscious. In 2014, the retread-tire
n Competitive pressures associated with the bargaining power of suppliers to manufacturers of
automotive tires—a moderate competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.7 in Chapter
Factors that are acting to intensify competitive pressures due to the bargaining power of suppliers to
manufacturers of automotive tires:
• Malaysia, a major supplier of rubber, gradually switching to palm oil production, curtailing
• Volatile prices for rubber and other raw materials—may stabilize or even rise as the world’s
economy slowly emerges from the 2008–09 recession
Case 8 Teaching Note Cooper Tire & Rubber Company in 2014
368
Factors that are acting to moderate or weaken competitive pressures due to the bargaining power of
suppliers to manufacturers of automotive tires:
• Natural rubber used in tire manufacturing a commodity product, and according to case Exhibit 4,
• Some tire manufacturers integrate backward into rubber manufacturing and tire fabric supply, but
no evidence that these moves provide cost or differentiation advantages
Therefore, the bargaining power of suppliers of raw materials remains a moderate force, mitigated
by the fact that there are new substitutes and synthetic materials under development (e.g. the U.S.-
grown guayule plant) and other major components that comprise 35–60 percent of the costs of tire
• Competitive pressures associated with the bargaining power of buyers from manufacturers of
automotive tires—a strong competitive force, depending on the location of buyer
Factors that are acting to intensify competitive pressures due to the bargaining power of specialty retail
customers:
• A proliferation of brand choices for OEM manufacturers (automakers) that exerts pressure on tire
manufacturers to make large capital outlays for differentiating product features
— The automotive tire replacement market, 4X larger than the OEM market, provides even more
• For replacement tires in the U.S., buyers concentrated in the independent tire dealers segment
(60–61 percent of sales) and mass merchandisers and warehouse clubs (combined, about 22.5
— Cooper Tire tried to mitigate brand switching by providing the industry’s highest profit margins
• Producer-owned stores comprise only 7.5 percent of U.S. reseller channels (see case Exhibit 8), so
• Surveys showed that dealers were able to influence a car owner’s choice of replacement tires,
