Cooper Tire’s Strategy

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?

The tire industry consists of two distinct markets i.e the original-equipment (OE) market and the replacement-tire market. Cooper Tire confines itself only to the replacement-tire market and not competing in the low-profit margin OE.  Even in the replacement-tire market, Cooper Tire is facing competitions from both segments i.e the big established companies (Bridgestone, Goodyear, and Michelin) and low-cost producers coming from Asia and South America. To remain competitive, there are three key elements in the Cooper Tire’s strategy:

• Driving cost down and increasing productivity
• Delivering innovative and high quality products
• Good relationships with customers and dealers

Driving cost down and increasing productivity

In driving the cost down and increasing productivity, Cooper Tire emphasizes on a competitive cost structure which includes the whole supply chain inclusive of raw materials, production efficiency and delivery to customers.

Over 200 raw materials are used in manufacturing tires and any supply and price volatility of these raw materials can affect the Cooper Tire cost structure. To improve consistency of raw materials quality, delivery, cost and transaction, Cooper Tire adopts an efficient inventory control policies and procedures – buying ahead of occasion to get the best deals (but not hedging on raw materials). To address the raw material price volatility, Cooper Tire pursues alternative material sources that require innovative technology. One of the alternatives is the use of U.S grown guayule plants to replace natural rubber.  

Tire manufacturing are relatively capital intensive. However, over the year Cooper Tire continues to invest in setting up new production facilities spanning over 11 countries. To ensure a competitive cost structure, Cooper Tire invests its facilities in lower cost countries, low-cost regions or small town locations.

• Investing in lower cost countries, helps positioning the company for a competitive operating cost, providing greater geographic flexibility and ability for Cooper Tire to penetrate market outside the United States.
• Having its plants in low-cost regions or small town locations permits Cooper Tire to pay lower salaries and to reap other savings over companies in urban locations. Although tire manufacturing are relatively capital intensive, the labor costs still make up about 15 – 40% of the total costs (depending on the wage rates and labor productivity). Hence, any optimization in term of labor cost will improve the total cost of Cooper Tire cost structure.  

When the company wants to add capacity, it buys and retrofits old plants by utilizing its own capabilities in the engineering team. The engineering team also constantly monitors advances in the new technology for possible incorporation into Cooper Tire’s manufacturing processes, and hence improving the operational efficiency of the production. In general, Cooper Tires monitors the spending and capital expenditure very tightly.