5 reasons which make International Tyre Brands struggle in the Indian market.
International tyre brands in India have always found themselves struggling for business & brand recognition in the Indian tyre market. If we leave out a couple of big names, almost all overseas entrants in the Indian tyre market have found it difficult to find their feet in one of the biggest & fastest growing tyre market in India.
Read on, as we try to figure the “Top Five” big reasons which make “International Tyre Brands” struggle in the Indian market.
BIS certification: Mandatory BIS (Bureau of Indian Standards) certification for tyres especially in PCR has turned out to be an effective non – tariff barrier for the international tyre brands wanting to enter into the Indian market. BIS certification for tyres mandates not only testing of tyres at accredited Indian labs but also regular annual plant audits by Indian BIS inspectors. International tyre companies baulk at the whole idea of allowing outside agencies coming and auditing their plant and hence tend to stop short of India whenever they are planning their Asian strategy. It’s a different story that tyre brands who have engaged with BIS found it to be much easier than what they had anticipated. They have also been helped by growth of number of companies who now act as consultants and coordinators for getting BIS certification. Companies like Pirelli and Michelin have shown the way. Pirelli has been very prolific on this front and now have more than 250 sizes with BIS certification. Tyre companies have now finally realized that if these companies, who so fiercely guard their technology, have found it easy with BIS then it must not be so daunting a task.
No nationwide distributor: Unlike in other countries which have nationwide distributors for tyres, India simply does not have them. Not even one, if you leave aside “ChangemytyrePitstop? which is more of a nationwide tyre retail chain rather than a distributor. This is rather surprising as in other categories like IT hardware products there are nationwide distributors and they have thrived. Absence of nationwide distributors mean that tyre brands have to go to regional levels to scout for local distributors which again are not so easy to find.
Absence of a Single, nationwide tax: Anyone who is following Indian politics and economy would have heard of attempts being made to pass legislation on GST (Goods and services tax) – a single nationwide tax which will replace all other trade related taxes. Till the time it is passed, it is complicated to move tyres from one state to another. This also partly explains the absence of enthusiasm among entrepreneurs to become nationwide distributors as this requires registration of the firm at each and every state where one wants to sell.
MRP: MRP implies Maximum Retail price. Indian law mandates that each tyre entering Indian borders has to have an MRP declared and mentioned through a sticker stuck on the tyre. If that was not enough, customs also calculate its customs duty based on the declared MRP. Hence tyre brands who wants to give better margins to the tyre retailer by keeping higher MRP’s end up shelling more customs duty. Hence there is strong disincentive to declare higher MRP’s. If one does not do it, which leaves with little margins for the tyre retailers and they are not interested to sell that brand.
Smaller sized stores: Indian tyre stores are small in size. Many a times the tyre fitments are done outside the store itself as there is not enough space to display the tyres. Moreover these stores are run by individual proprietors who do not have too much of a capital to invest. If we take an example of a PCR tyre retailer, he will typically carry an inventory of not more than 600 tyres (average is around 300). This translates to about 75-150 SKUs if we assume that he carries 4 tyres of each SKU only. However the number of SKUs existing in the Indian market in PCR category is close to about 2500. These 2500 SKUs then jostle to join this elite band of 75-100 SKUs to get on to a tyre retailer’s shelf. Under such a situation, one can now imagine how difficult it becomes for another newbie tyre brand to get on to a tyre retailer’s shelf. The inability of a tyre brand to make it to the shelves means that the customer never gets to discover that brand in the market.