Nokian Tyres SWOT and PESTLE Analysis

Strength

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Weakness

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Opportunity

1. Growing market for all-season tyres worldwide, led by USA: As per research by Technavio, the worldwide all-season tyre market is expected to grow at a CAGR of 5% during 2019-2023. The major growth driver is the superior performance and safe driving experience provided by these tyres in extreme climates. Also, companies are changing the tread patterns to lower the noise and increase traction on different kinds of surfaces. North America was the market leader in 2018, followed by Asia-Pacific, Europe, Middle East-Africa and South America. In North America, countries like US and Canada have high demand for these tyres due to a mix of different climates throughout the year. Overall, the US tyre market is expected to grow at 5.4% CAGR during 2019-2024 to reach $75.4 billion in 2024. Among the 3 types of tyres: winter, summer and all-season, it is the all-season type that held the largest share of the US market in 2018. The demand for all-season tyres is expected to continue the market domination due to the climate vagaries. After the introduction of all-season tyres, the demand for season-specific tyres has decreased significantly in USA. Nokian is taking advantage of the growing all-season tyre demand by opening a new factory in Tennessee to double North American sales within 5 years, especially by increasing the sales of all-season tyres in this region. This marks a shift from the company’s traditional focus on winter tyre sales in Russia and Europe to the larger all-season market in North America.

1. Opportunities for tire manufacturers in the ultra-high performance segment: The ultra-high performance tyre market worldwide is expected to grow at a CAGR of 9.8% during 2018-2023 and reach $43.4 billion by 2023. The growth driver is the rising demand for high performance vehicles. Nokian Powerproof summer tyre product is an attempt to cater to this segment. It has been awarded the TUV SUD performance mark which means this tyre is better than the competitors in quality and performance. This tyre has been rated as 100% in dry braking, dry handling, wet braking and wet handling. This rating is more than the industry average in these parameters. The Powerproof’s noise level is also 64.3 dB, slightly less than the industry average of 64.6 dB. The product has been rated superior to similar products of major competitors like Continental, Dunlop, Goodyear, Michelin and Pirelli.

Threat

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Political

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Economic

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Social

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Technological

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Legal

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Environmental

1. Concerns about global warming: The rising concerns about global warming have seen companies making efforts to reduce their impact on the environment in various ways. Nokian is attempting to reduce global warming in an indirect manner by reducing the rolling resistance of its tyres. This will reduce the fuel consumption and carbon dioxide emissions of vehicles. Rolling resistance is the loss of energy as the tires move, while driving. In 2015, Nokian had set a goal for 2020 of reducing rolling resistance in its tyres by 7% compared to 2013. The company was able to achieve 8% reduction by 2018. A decrease of 7% means decrease of 500 million kg of carbon dioxide emissions. More than 90% of Nokian tyres are classified in the best rolling resistance categories of A, B and C which leads to reduction of more than 100 million kg of carbon dioxide emissions per year.

2. Renewable substitutes for natural rubber: According to the European Union, natural rubber is a critical resource facing high shortage. This has necessitated efforts by the tyre industry of finding suitable renewable substitutes. Nokian has identified guayule as a possible substitute. The company aims to find bio-based raw materials to make eco-friendly tyres. Nokian launched winter tyres in 2017 that had a rubber compound having a bio-based softener which improved the tyre’s safety characteristics. For new products in 2018, Nokian made new grip particles from secondary flow in the bio-industry. The company is constructing a new testing centre in Spain. Nokian is also sponsoring a Spanish university and the local farmers to test the feasibility of using guayule as raw material.

3. Responsible sourcing of raw materials: Natural rubber is one of the basic raw materials for tyres. 70% of the natural rubber worldwide is consumed by the tyre industry. It is produced in countries which do not have fully developed legislations on working conditions. The company policy is to source rubber only from company approved processors. The company’s goal is to audit all the rubber processing partners by 2020 to ensure they are adhering to the Supplier Code of Conduct. For this purpose, Nokian has partnered with an external auditor in 2016. All suppliers must have ISO-9001 certified quality management system. Suppliers having ISO-14001 certified environmental management system are preferred. In 2018, 72% of the suppliers were ISO 14001 certified. In 2018, the company audited 4 supplier companies. Among the 4 companies, 3 have a health and safety system. 3 of them have legal working hours. The company that did not have this in place was in the process of implementing them. All 4 companies had an ethical policy and metal scrap management.