Go to www.bridgestone.co.jp/english/ir (you may have to search for this item) and review information about Bridgestone Corporation’s tire and raw-material operations under the About Bridgestone and IR Library links. To what extent is the company vertically integrated? What segments of the vertical chain has the company chosen to enter? What are the benefits and liabilities of Bridgestone’s vertical integration strategy?
This post was part of TyroCity discussion forum
Question asked by hari_koirala
Top comments (4)
Established in 1931, Bridgestone Tire Co., Ltd. today has a business presence in 150 countries. In addition to that, they also have their production and development base in 26 countries with around 180 of such bases in those nations (Bridgestone Corporation, 2017). With the rise in the automobile sector and their development in Japan, the company grew with it as well. Today, it’s the largest tire manufacturer of Japan and one of the largest in the world as well. The company acquisition in the year 1988 of another tire company called The Firestone Tire & Rubber Company changed the shape of the business (Bridgestone Corporation, 2018). As it was a global corporation, it helped Bridgestone expand their presence beyond Asia and enter into the global market of tire and rubber sector.
Looking through their website details and the records available elsewhere, the company is certain vertically included. They include the development, manufacturing, marketing, and even the distribution of tires. The company operates in a variety of segments like tires and tubes for buses, cars and trucks, construction vehicles, aircraft, motorcycles, industrial machinery, and other automotive parts (Bridgestone Corporation, 2018). They’ve 180 production base split across 180 countries and they sell their products in 150 countries, making them the company with the largest sales network in the world (Bridgestone Corporation, 2017). The company provides direct sales which are personalized to individual and also provide technical service to customers around the world.
The segment of the vertical chain Bridgestone Group has chosen to enter starts from the activities they do ranging from upstream to downstream. They build a business that includes from sourcing the raw materials required for the products to selling the final developed product on a global scale. Efficient and effective management is what enables them to develop and supply the products and supply in a very competitive marketplace while also providing quality as expected to the customers.
Looking at the benefits of the vertical integration, it has helped the business reduce the cost of the transportation of goods from one country to another. They having a base in so many countries and producing goods in 26 countries and at 180 bases, they have got a huge selection from where to ship from. It also helps bring down the taxes as the import for raw materials is significantly cheaper than the finished product if required. It helps them keep the cost in check and balanced. Along with that, having such a huge coverage and base provides them with a significant market advantage. Local goods are often preferred by the people and with the company having their production base in a nation helps attract towards that population while also allowing the company to mass production to reduce the production cost by some margin.
Looking at the liabilities side of the equation, one of the significant issues is with total optimization. The company intends to do all the things and is doing as well to an extent. But they’ve to strengthen all the aspects of their supply chain starting from the planning for the product to distribution and after service. It includes equipment procurement and production as well. Another thing in the mix would be the need to use sustainable raw materials to manufacture their goods as the world is moving towards sustainable practices. People have already started questioning products not following such practices and thus harming business sales. Thus, the company also needs to look into this challenge.
About Bridgestone. (2018). Retrieved from bridgestone.com/corporate/index.ht...
Bridgestone Corporation. (2017). Bridgestone Corporation . Retrieved from bridgestone.com/corporate/library/...
Bridgestone Products. (2018). Retrieved from bridgestone.com/products/index.html
Bridgestone is renowned for its manufacturing of tires and hold 80% of the production line. They produce two wheeler, four wheeler, off road, air planes tyres and have moved into more than just tires. But the shift is still around the same area of expertise of tires. Now it has evolved into conveyer belt, pipe conveyer belt, readymade belt etc.
"Bridgestone’s key operational strength is its vertical integration. In the tire business, the company operates fully integrated development, production and sales facilities, which cover all stages of tire production, including natural rubber, synthetic rubber, carbon black and steel cord. In addition, Bridgestone also boasts of one of the world’s largest company-owned and franchised tire retail networks (Anonymous, March 2007).”
The company also is solidifying its captive retail distribution networks in North America, Europe and Japan. Bridgestone’s competitors in the market such as Goodyear and Groupe Michelin have not done what Bridgestone has in their vertical integration plan. This includes carbon black, steel and textile cord, and natural and synthetic rubber in addition to their production of tyres (Davis, 2012).
Positive aspect of vertical integration for the company are that it gives more control over the business with their own manufacturing and outlets as well. Another aspect is that there are positive differentiation as they have more varieties to offer as compared to their counter parts. It also reduces cost and increases quality of the products.
Disadvantages are also present in vertical integration. With more requirement of capital it costly and with more varieties of production, marketing and sales may also sometimes cause confusion. The same variety may be being produced by another company and so people may not trust new produces as compared to old brands that have strong roots in the market.
These are how Bridgestone Tires has been able to vertically integrate its products and some of the advantages and disadvantage that it has to overcome. Looking at its vertical integration Bridgestone has however been able to do well in the market and hold competitive advantage over its rivals in the market.
Anonymous. (March 2007). Michelin 2007 company profile edition 1: Competitor Analysis. Bromsgrove: Aroq Limited.
Davis, B. (2012, November 15). Bridgestone sees opportunities abounding. Retrieved from Rubber and Plastic News : rubbernews.com/article/20050906/NE...
Bridgestone Corporation is one of the biggest auto and trucks parts manufacturing company which is situated in Tokyo, Japan. It was first established in 1931 by the late Shojiro Ishibash, the company is not only popular in auto parts only, it is also popular in yen, Tires manufacturing units. They are global manufacturer of tires for big vehicles like trucks and other automobiles. The current Chairman and CEO of this company is Masaaki Tasva. From its annual report 2017, we found that the total revenue was 3.8 trillion yen, operating income is 463 billion yen and net income was 288.55 billion yen and had a total assert of 4.126 trillion yen. The company has 15 thousand plus employees (bridgestone, 2017). They are well known brand in market.
As per my observation and analysis. Bridgestone corporation is vertically integrated when an industry consolidates and become matures, most of firms in that industry would have reached the limits of growth using vertical and horizontal integration growth strategy (Zhang, 2013). Under the vertical growth strategy, two firms producing complementary product and one acquire or merge and form a big firm or form a complete firm, such as acquire between lather producing firm and shoe manufacturing company (Grant, 2016). These two companies have equal value and importance and the most important things is no any competition among these. So why the business apply vertical integration strategy because the major area of operation of this company is tire, tubes and auto parts. And Auto parts and Tires or Tires and tubes are complementary product for vehicle, bus, trucks, and airplanes and motorbikes (Board, 2018). So that they have one of the biggest sales network chain in all over the worlds. They have thousands of dealers and they have direct sales strategy that means they sales their product through their authorize dealers. And they are well for their service. They provide best service (Technical service) to their customer on time, they have strong technical team and they always ready for delivering the quality service so they are rich in all types of resources. In vertical integration business firm, specific strategy help firm to greatly reduce costs and increase effectiveness by lowering the transportation cost (Tracey, 2005).
The benefits and liabilities of Bridgestone’s vertical strategy are
Transportation cost are reduced
Overcoming entry barrier
Barriers to entry are the difficulties new firms encounter when trying to enter the particular market. The established firms may have economics of scale. In Addition, good relationship with customers often create product loyalty that also makes the new entrants difficult. In such a situation, new entrants may acquire an established company to be more effective than entering the market as a competitors offering a product that is unfamiliar to current buyers. The acquiring firm gains immediate access to the market.
Increase market Power
Achieving greater market power is a primary reason for acquisitions. Market power increases when a firm is able to sell its goods or services above competitive levels or when the costs of its primary or supporting activities are lower than those of its competitors. Market power is determined by the size of firm and its resources and capabilities to complete in the marketplace. In this business has really good market power because it is one of the world largest manufacturing units of Auto parts and Tires.
Acquisition are also used to diversify firms. It is difficult for companies to develop products that differ from their current lines for markets in which they lack experience. Thus, it is relatively uncommon for a firm to develop new products internally to diversify its product lines. Acquisition strategies can be used to support both the unrelated and related diversification Strategies.
They achieved Sustainable competitive market strategies
Developing a new products internally and successfully introducing them into the marketplace often requires significant investment and other resources. Hence, internal product development may be a high - risk activity. Acquisition provide more predictable returns as well as faster market entry.
Capacity building issue
They are best technical service provider and those things only insure that when they have a motivated and skillful human resource so they should provide different workshop training and other activities to increase the capacity of their human resource.
Responsibility over Environment
It is a tires and auto parts manufacturing company and the raw material of tires is plastics, rubber and carbon so at the time of production we should be aware that we handle it very carefully and responsibly without affecting our nature.
There is managing and coordination difficulty in value chain layers.
There may arise more legal complication
(n.d.). Retrieved from bridgestone: bridgestone.co.jp/corporate/histor...
Board, T. W. C. A. (2018). Jacobs, Thomas Wayne v. Bridgestone Americas Tire Operations, LLC.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Tracey, M. (2005). The impact of supply‐chain management capabilities on business performance. Supply Chain Management: An International Journal, 10 (6).
Zhang, D. (2013). The Revival of Vertical Integration: Strategic Choice and Performance. Journal of Management and Strategy, 4 (1), 1-14
Bridgestone Tire Company Limited is the producer of tire and rubber that was established in 1931 by Shojiro Ishibashi with the aim of making it a global enterprise and establishing Bridgestone as the most superior brand in both name and substance (Bridgestone , 2018). As of now, the company has about 180 production and development bases across 26 countries to ensure business presence in more than 150 countries (Bridgestone, 2018). The total sales of the company in 2017 was 3,031.9 billion yen out of which about 80% was from sales of tires for while remaining 20% was from its diversified products (Bridgestone, 2018).
Vertical integration involves expanding the firm’s range of value chain activities backward into sources of supply of forward towards end users (Gamble, Petaraf, & Thompson, 2015). If we look at Bridgestone’s website, we can see that the company’s operation includes production of tires and tubes for passenger cars, trucks and buses, construction and mining, vehicles, industrial machinery, agricultural machinery, aircrafts, motorcycles and scooters and other manufacturing parts, retreading materials and services, automotive repair and maintenance services and acquisition of materials for tires and other products. This shows that the company is involved in development, manufacturing, marketing and distribution of tires (Bridgestone, 2018). Thus, the company is vertically integrated.
The acquisition of The Firestone Tire and Rubber Company, establishment of progressive system in research and development and establishment of technical centers for chemical and industrial products show that it has chosen to enter in multiple segments of vertical chain. The company is building a business that looks from sourcing of raw materials to sale of final products by deploying its extensive resources globally. The company is dedicated on creating systems that will be capable of supplying customers with high quality products and services as efficiently as possible. The company is working on strengthening the supply chain by making sure that the every step from product planning and business development to acquisition of raw materials to procurement of equipment are done following the company policies. So, the company is paying detail attention on each aspect of value chain.
The 180 bases located in 26 countries has helped it reduce the transportation cost and taxes associated with transportation of raw materials and finished goods. The in house production of raw materials has helped in better supply of those materials at competitive price resulting in enhanced production. These serves as the benefits of vertical integration for Bridgestone. The vertical integration also has some liabilities to the organization as well that includes maintaining the quality of raw materials used in production, maintaining safety in the production process and ensuring the quality of finished goods are as per the set standard.
Vertical integration can be crucial to survival and growth of business while extensive integration may sometimes lead to business failure (Buzzell, 1983). Bridgestone’s vertical integration is working well for the organization but it needs to pay attention to ensuring quality, meet the set standards and adapting sustainable practices.
Bridgestone . (2018). A Global Dream . Retrieved from Corporate History.
Bridgestone. (2018). About Bridgestone . Retrieved from bridgestone.com/
Bridgestone. (2018). We do much more than tyres . Retrieved from Products: bridgestone.com/products/index.html
Buzzell, R. D. (1983, January). Is Vertical Integration Profitable? Harvard Business Review . Retrieved from hbr.org/1983/01/is-vertical-integr...
Gamble, J. E., Petaraf, M. A., & Thompson, A. A. (2015). Essentials of Strategic Management: The Quest for Competitive Advantage (Fourth ed.). New York: McGraw Hill Education.