Continental AG stands fourth in position globally as the supplier of Automotive spare parts. The company is the Europe’s second largest in the same industry. The manufactures and provide services over a wide range of automotive parts. Continental AG was started in HANOVER IN GERMANY in the year 1871. The company stands differently from its competitors and gives prior importance to the safety and comfort of the consumers. The company is also conscious about reducing the harm to the environment. Although the company faced many travails and hindrances in its path of growth, it efficiently faced and solved them and continues as one among the giants in the industry. In this BUISINESS PLAN I am focusing on the thorough study of the business of Continental AG.
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This industry provides employment to millions of people and provides a good source of income for many countries. The demand for rubber and other related products are increasing day by day. Many branded companies and firms are operating in this industry. The competition in this industry resulted in the evolution of the giants in this industry. The graph for this industry is showing positive signs in the beginning of this century and the experts predicted that this trend will go on. The increasing demand for the rubber related products can be considered in this regard.(http://en.wikipedia.org/wiki/Tire)
It is estimated that the demand for rubber and tube and other related products will exceed 31.3million metric tones and that of the tire cord industry will exceed 1.3 million metric tones by 2015. The recession caused for a depression in this industry but now this industry is again on its path of growth and growing at a rate of 4.3%. The prolonged recession in the developed countries caused distress in the automobile industry in those industries and developing countries like India and china emerged as promising market for this industry. The recession caused for the geographic change of the industry from the Europe to the Asia pacific. Availability of the material resources and human resources available in the area fastened the growth of the industry.
After the recession the healthy recovery of the motor vehicle industry in the leading producing countries like France, Canada and United States of America also fastened the growth of this industry. The increasing growth rate of china demands almost half of the new rubber in the industry and the country accounts for the consumption of almost one third of the production in the industry. As this industry is a growing and a highly competitive industry all the companies and corporate in this industry are seeking for better strategies to get achievement and sustained development in the industry.
The major holders of this industry are organizing researches to modify their strategy and to develop new to make their company adaptable to the changing demands and priorities of the auto mobile industry. The companies are adopting new theoretical models to improve the organizational performance and to improve marketing of the product. Good and competitive global corporate policy is essential for the proper coordination and function of the particular firm in this industry. They have to review their business objectives and organizational aim and to determine whether they are going with the international trends and demands.
PRODUCT SUMMARY OF CONTINENTAL AG
The company Continental AG focuses on the development, production and marketing of the automotive and vehicle parts which helps to improve the driving comfort, safety and dynamics of driving.
Continental AG stands for innovative technology and products world wide and they got a world wide network. The organization of the company is mainly divided in to two grouped and each group is further divided into three sections.
The two main groups include AUTOMOTIVE AND RUBBER
Automotive group include three sections namely Chassis and Safety, Powertrain, and Interior
The Rubber group includes three sections namely Passenger and light truck tires, Commercial vehicle tires, and Contitech tires.
Chassis and safety: focuses on the safety of the customer and provide various techniques and equipments which ensure the safety of the driver and passenger.
Powertrain: involves all the innovative techniques and system solutions which affect the powertrain of the vehicle. It also aims at increasing the comfort and pleasure of the driving.
Interior: This division is concerned with the information management that is display, and administration of the information in the vehicle.
Passenger and light truck tires: this division manufactures passenger and light truck tires for compact, medium and full sized cars.
Commercial vehicle tires: This division ensures economic stability in goods transport, passenger transit etc.
Contitech tires: This division s specialized in rubber and plastic technology
The Continental AG Is one among the giants of the au8tomnobile industry. The company holds the fourth place in the Worlds Leading produces in the tire and tube industry. The company manufactures a wide range of products. The products include tire, brake systems, chassis and its components, and various electronic products for the vehicles, list of products and the various services available from the company.
BUISINESS STRATEGY OF CONTINENTAL AG
Every employee in the continental AG has the full responsibly of all his actions and he is ready to perform it all the time. Constructive criticism and suggestions are welcomed from the employees to increase their activities and role in the management process and to develop their own ideas. Another important characteristic of the leadership in the Continental AG is that they provide and encourage continuous education for all the employees. By this process their knowledge will be improved and they can contribute more significantly for the organization. It also help them to adapt to the quickly changing environments in the industry. The management and leadership is keen to make sure the exchange of knowledge between the external and internal environment of the organization.
By 1991 Continental AG become the world’s largest producer in rubber and tube industry. They had to face severe economic crisis during the early 1990s.
The company made some significant effort to extend their share in the automotive industry during this time. In the early 1990s the company faced severe competition in the market. The company achieved some recovery during the first half of 1992 but the condition of the company was miserable in the beginning of the 1993. During this time the company introduced cost reduction plans and widespread restructuring in the company. The company reduced labor cost as the preliminary step to bring down cost reduction in the organization. As the second step they laid down 20% of their total work force. In 1994 company announced a plan to trim another 2000 employees from their ranks. In order to increase the profit they changed the manufacturing centers from Germany to other countries. This is because of the high labor cost and other restrictions in the country. By 1998 Czech Republic become the center of the companies largest car tire manufacturing unit.(http://www.nytimes.com/keyword/continental-ag)
FINANCIAL SUMMARY
The continental AG achieved sale of 28,030,286,188 $ in the year 2009.The statement is according to the company reports in Dec 2009.The company raised I billion euro in January 2010 to repair the sagging balance sheet of the company. The total revenue of the company as per the financial data in dec2006 was 14887 million Euros’ and it is increased to 16620 million Euros in Dec 2007. The total revenue in dec31 of 2009 was 20096 million euro. The gross profit in Dec 31 2009 was4014 million Euros. The other operational expenses in 2009 was 3108 million euro IN DEC2009
CONTINENTAL AG STRATEGY
Here in this assignment we are studying the strategies and theories applicable to the global rubber and tube industry by taking the example of the Continental AG the leading company in the global rubber and tube industry. This German company is shortly known as Contl and it manufactures diverse products for the automobile and transport industries. This company is based in Hanover in Germany. It holds the fourth place in the leading tire manufacture of the world.
One of the important strategies followed by the technological and production wing of the company is fuel consumption reduction and this is achieved by the use of efficient fuel ejection systems, reduced rolling resistance of the tire and by the use of sophisticated propulsion systems.
The company produces tires for almost all type of vehicle and therefore got wide and good acceptance in the industry. As a part of the strategy to enlarge the company and business they purchased German automotive rubber and plastic company. This is also carried out some important takeovers. During the time of takeovers also the management tried to preserve the independence of the company. As a part of their strategy to expand the trade the entered the north American tire industry in the year 1987.(http://en.wikipedia.org/wiki/Continental_AG)
The Continental AG follows a clear cut corporate strategy in their company. They clarified that their strategy is to develop products and services according to the trends of the automotive industry. The company wants to maintain a leading position in the area where they are operating. The company’s strategy is to embed entrepreneurial action in all levels of their organization. One of the most important strategies which they are following is to generate 40% of their sale outside the automotive industry. This will reduce the total dependency in the automotive industry and the immediate fluctuation and trends in the automobile will not affect the company badly.(http://www.fundinguniverse.com/company-histories/Continental-AG-Company-History.html)
There are some important components for the strategy of this company. They are giving the prime importance to safety due to the law requirements and demand by the drivers. So the company is focusing on developing and manufacturing components and systems which ensure the safety of the customer. The safety division of the company is aimed at increasing the road security and adopted this as one of the important strategy of the company. Another strategy is to reduce the number of the fatal accidents by providing driving assistance systems, electronic braking systems etc.
Another strategy of the company is the environment friendly operations which is relevant and important in this century. The environmentally friendly technologies which the company is following are aimed at reducing the fuel consumption and thereby reducing carbon dioxide emission which will subsequently reduce global warming. This is also because of the strict standards and regulation followed in the industrialized countries like US, France, EU, and Japan. They are providing consumers which helps in reducing fuel consumption.
Another important strategy is that the company is enabling the exchange of information between the drivers and the external environment. This will help in reducing traffic and to increase safety during driving. The information is exchanged in a concise manner. This facility is aimed at providing the necessary information to the passengers and drivers during driving.
The company’s strategy is to remain among the top three in the area where they are operating. They are also aiming at maintaining a balance between the sales between the automotive and other sectors. 67% of the total sale is from the automotive industry and the rest from outside industries such as replacement market. Their strategy is t increase the share of the outside sector to about 40%.
Another strategy which they are planning for the future growth is the mutual cooperation with Schaffler group. The mutual cooperation between the two companies is aimed at forming a new company with a wide range of diverse products and thereafter to acquire a leading role in the automotive industry.
MODEL FOR STRATEGY
Porters Value Chain
Porters Value Chain is invented by porter. It is a chain which is showing the relations between inputs and outputs in an organization. The idea of the Porters Value Chain is based and clarified on the process view of the organization. Cost, labor, input output, major systems in the organization, subsystems in the organization, transformations equipments,, building, administration and management of the organization. The way we carry out the value chain determines the cost and profit of the organization.
Most of the company’s particularly large companies engage in thousands of activities in transforming inputs to outputs. Out of these some are primary activities and the rest are support activities. According to porter in 1985 the primary activities are listed below.
Primary activities
1. Inbound logistics: It involves relation with the suppliers who provide with the necessary inputs for the organizational
2. Operations: It includes all the activities involved in the transformation of inputs to outputs.
3. Output Logistics: It includes all the activities required for the storage and distribution of products or outputs.
4. Marketing and Sales: It helps to improve the sale of the products and the various steps taken to improve the sale of the products.
5. Service: These are the steps taken the company to keep the product or service working effectively after the product is sold.(Porter, Michael E., Competitive Advantage. 1985, Ch. 1, pp 11-15. The Free Press. New York.)
Secondary activities:
1. Procurement: It involves the acquisition of the inputs and other resources for the firm
2. Human Resource Management: It includes all the activities which is aimed at the proper utilization of the human resources available for the organization
3. Technological development: It includes the development of the technological aspects which is required for the transformation f inputs to outputs.
4. Infrastructure: It includes the various departments which is required for the smooth functioning of the organization. The infrastructure include departments such as finance, planning, public relations, legal affairs, general management etc.(http://www.ifm.eng.cam.ac.uk/dstools/paradigm/valuch.html)
Technical innovation is one of the methods achieved by company to bring down the total cost of the company. To facilitate the globalization of the tire products the company developed a technique known as modular manufacturing process which means manufacturing of the parts in low cost areas and assembling these parts in the main factory after shipping them to the sites. As a result of these reforms the company achieved 67% increase in the income in the year 1997. So we can conclude that the company was successful in applying the Poters value chain in their company which advocates the principle of cost reduction and increase in the profit through the proper management and control of the various processes in the organization.
Corporate leadership in Continental AG
The company is focusing on corporate spirit. The leadership and entrepreneurship of the company aims at achieving this. They are conscious to maintain a culture of high performance in their company. The leadership’s emphasis on high performance inspires each and every employee at various levels of the company worldwide. They are following then practice of striving for the best in their business practices. The leadership plays the most important role in this. The make the employees aware about the ambitious aim of the company and insist the employees to hope and work for the best.
The leadership in the Continental AG plays a key role in encouraging team work and cooperation in the company. The spirit of cooperation controls and drives all the levels and divisions in the cooperation. This will in turn helps to maintain good relationship with top level management, employees at the various levels and the representatives of the company. The leadership in the cooperation encourages both external and internal cooperation in the corporation. They took some revolutionary steps to encourage cooperation and team work in their company that is they abolished bureaucracy and hierarchy in the company. They promote and follows a culture of delegation and rewards entrepreneurship.(http://onlinelibrary.wiley.com/doi/10.1002/smj.4250150703/abstract)
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MARKETTING STRATEGY OF CONTINENTAL AG
The marketing strategy of the company is innovative and stands different in the content and method. Continental AG continues marketing strategy for light truck and passenger tires. The Continental AG was the official tire partner for the 2010 FIFA world cup held in South Africa. They have the option to extend their sponsorship to 2014 football world cup in Brazil
MARKET TRENDS
Market trends can be defined as the tendency of the market to move in a particular direction over a period of time. Market trends can be considered as the driving forces in a particular market or industry. The Global financial crisis created scars on the Growth of the Continental AG. But the situation has changed. Now the market trends are favoring the growth of the industry as there is increase in the sale of automobiles increased worldwide and is showing signs of growth in the coming future. The trends in the rubber industry do not affect the company much because the major income of the company is coming from the automotive sector.
MARKET RESEARCH OF CONTINENTAL AG
The market research done by the Continental AG identified India as a promising market for future. The company wishes to launch products in the country which focuses on safety, information, and environment and at an affordable rate. The importance of the automotive industry in the Global arena is increasing day by day. With this aim the company participated in the Auto Expo 2010. By market research the company means a thorough analysis of the organizational factors, the business segments of the company and the competitors in the market. By carrying out the market research the company can identify the trends prevailing in the particular market and the scope for the development in the particular market. A thorough market research is a necessity for the expansion of the business in to particular area.
MANAGEMENT OF CONTINENTAL AG
The success of the Continental AG in the highly competitive industry is attributed to the efficient management of the company. Visionary leadership and innovative ideas of the management team also contribute to the success and growth of the company. The project team of the company is constituted with experts in the respective fields and constituted separately for the interior and tire division of the company. The company management is conscious of implementing quality systems in the organization and carry out continuous monitoring of the overall activities of the organization. The management of the organization is giving prior importance to the proper and complete utilization of the human resources of the organization.
BUISINESS LOCATIONS AND DESTINATIONS OF CONTINENTAL AG
The company considers India as a key market in the future. The country is emerging as one of the key Asian market for the company. The development of the automobile industry in the country makes the country a promising market for the Continental AG. The Company is planning to expand its operation in the country in the next few years.
The company is planning to start new tire manufacturing unit with the aim of acquiring prominent place in the world’s second largest automotive industry. Despite of the market saturation in the automobile industry in certain parts of the world such as North America, Western Europe, and Japan, The worldwide production of cars is increasing at a drastic rate. It was predicted that the sale of the cars will be 74 million by 2013. Countries like India, China, Russia and Brazil are predicted as the emerging markets for the automotive industry. There share in the car production will increased firm 14% to 20% by 2013.( http://www.autospectator.com/cars/topics/continental-automotive)
Budget allocation of a company is very essential for the proper management of the organization.
OPERATIONS OF CONTINENTAL AG
The company mainly operates in Europe. The headquarters of the company is in Hannover in Germany. The company holds employee strength of almost 140000. The company suffered a severe fall in its revenue and income due to the economic crisis of 2008. The company suffered a loss of 17% in the year 2009 when compared to 2008. The net loss of the company in the year 2009 is $2300 million which is less compared to the loss in2008 which is almost $1653 million.
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CONTINENTAL AG
Continental AG is the leading tire and tube producer in Germany and ranks fourth in the world market. It acquired prominence in the international market through a series of major acquisitions in the Europe and in UNITED STATES OF AMERICA. It started acquisitions in the year 1979. The company faced severe economic crisis in the 1990s.Yet the company management faced the challenges with courage. The most important and large acquisition is made by the company in the year 2001 when it bought TEMIC auto electronic systems from Daimler Chrysler.
The Company has its origin in the year 1871 as a rubber good manufacturing company. The Company was established in Hanover in Germany and still this place is continuing as the centre of the company’s business operations. The Continental AG was promoted by a group of financiers and industrialists having interests in the rubber industry. The initial capital of the company was 900000 MARKS. The companies initial products include water proof fabrics, footwear’s, and tires but soon they expanded their business to sundry consumer items such as balls toys, medial products and industrial rubber goods.( http://www.referenceforbusiness.com/history2/24/Continental-AG.html)
The increasing demand of the automobiles in the 1890 and 1990 favored the growth of the industry. The prominence and efficiency of the German engineers created additional market for the company.
SWOT ANALYSIS OF CONTINENTAL AG
SWOT Analysis of the Continental AG is very important. Because it is an important source for the getting the top level management data and information regarding the top level organization of the company. In SWOT analysis there is a thorough analysis involving the key business areas of the company, the history of the company, and the product and operational strategy of the company and analysis of the financial lines of the company. The SWOT Analysis of the company analyses the various products of the company such as tire and tube, braking systems, electronic systems for the vehicle and identified the markets and share of the products. The SWOT Analysis carried out a significant research in the fiscal matters of the company and Analyzed the loss and reduction in the total revenue of the company which the suffered in the years 2008 and 2009. The SWOT Analysis identified that this is p[primarily due to the financial crisis which the world economy and market faced during these years.
The SWOT Analysis of the company provides the necessary information to plan future business strategy of the company and to face the competition in the market. The SWOT Analysis of the company helps in the easy understanding and study of the various internal and external factors affecting the company. The studies are supported and evidenced by the various elements used in the SWOT Analysis such as key executives, business strategies, and structure of the company. SWOT Analysis of the company helps in increasing the sales of products because of the increased knowledge of the customer’s interests. The SWOT Analysis helps to maintain quality through out the operations of the company. This analysis helps to gain a better understanding of the competitors business, strategy and prospects. The analysis keeps a record of the performance of the company during the previous years.
COMPETITORS OF CONTINENTAL AG
Continental AG is ranked as the one of the giants in the suppliers of automotive parts and is facing severe competition fro the industry. The important ant competitors for Continental AG in the industry are Good year, Michelin etc. Both the companies hold major shares in the industry and providing quality service to the consumers and got a widely accepted brand image. Yet the Continental AG has been successful in maintaining the key position in the industry and got the scope and strategy for future growth and development in the industry.
CUSTOMER SEGMENTS
The Continental AG introduced innovative Tire Finder technology for commercial vehicles. This technology provides the consumers with clear recommendations for truck tires. This technology is highly beneficial to the consumers. The importance3 is that the technology is available online and the service can be used and ailed easily. This technology recommends the right tire for the users after collecting the necessary information from the consumers. The Consumer segment, the transport category and the type of assignment are decisive here. They technology efficiently categories the various transport categories and suggest the tire size and vehicle for the consumer by analyzing the various factors. They are the only company which provides this technology and recommendation regarding the use of the most appropriate vehicle parts after considering the various influential factors.
PRICE STRATEGY OF CONTINENTAL AG
The company’s strategy is to achieve profitable growth through the marketing of the innovative and quality products and my maintaining competitive price. Continuous profitable growth is the main motto of the company. The Company knew that the lowest possible cost is essential to maintain its ability to compete in the market. The cost awareness is so important for the company because the automotive manufactures expect price reduction at the rate of 3 to 5% every year as the suppliers of the auto motive parts. This demand not only affects the technological aspect of the company but also the procurement of essential raw materials and components for the industry. The overall coordination of then activities of the company is relevant in determining the pricing strategy of the company.
MARKET DEVELOPMENT
The company is conscious about converting the positive developments in the automotive industry to increase their sale. The globalization of the automotive industry and emerging industry like Brazil, China, and India provide them with the scope of achieving future growth in the industry. The company is looking for new markets in Eastern Europe, Latin America and Asia. The automobile manufactures are setting up new factories in these countries and this demands the supply of vehicle parts. So the company has to set up new production units in this countries and this requires huge capital investment which is driving the consolidation process in the industry. This is beneficial for a large vehicle parts supplier like Continental AG.
ADVERTISING OF CONTINENTAL AG
They are focusing on soccer as a strategic platform for advertising their premium tire brand. They are following different and diverse methods for advertising. TYRE TV spots are one of the most important methods of advertising of the company. Print campaigns are also successfully applied by the company as an advertising tool. Internet advertising is an innovative method adopted by the company for advertising their products. Boarding thee stadium during soccer games and other games is also adopted by the company as tool of advertisement. Special advertising formats are also used by the company to improve the sale and brand image of the company
OBJECTIVES AND PLANS OF CONTINENTAL AG
The Continental AG Corporation has got clear cut objectives and plans to achieve further growth and development in the future and to remain competitive in the industry. The global automotive industry is showing signs of growth and this favors the growth of the Continental AG which is the global leader in thee supply of automotive parts. Te Company is looking forwarding in the emerging markets of China, India, Brazil and Russia. The company started tire manufacturing unit in China as a part of their strategy to expand their trade to the global level. The company aims at providing quality and innovative services to the consumers such as tire finder technology. The company’s objectives is not only limited to selling of the products and making profit but also aimed at providing security, comfort and safety to the consumers. The company also plans to implement excellent engineering technology in the organization to improve the quality of the products and to expand their business to the global scenario.
RESOURCE ALLOCATION OF CONTINENTAL AG
One of the important problems faced by the Continental G is the fluctuating price of the raw materials and other resources of the company. The rubber division of the company will be adversely affected by the rising prices of oil and natural rubber. The automotive sector of the company will be affected by the rising prices of the steel and other ele3ctronic components. The source for the natural rubber for the company is Malaysia and India.
BUDJET ALLOCATION OF CONTINENTAL AG
As per the records of the economic times the company has plan s to invest$216 million in China to build a tire manufacturing unit there. The company’s strategy is to boost the sales in the world’s second largest auto market. This is a good example for the intelligent budget allocation of the company with a future perspective to boost the sales. The company is planning to start a production plant in Hefei, in Anuhi province by the beginning of the 2010. The company is planning to manufacture 4 million tires annually from this plant. The company is planning to implement an increase in the pay for 25000 employees in the German metal and electrical industry by feb2011.( http://www.just-auto.com/companies/continental-ag_id174)
START UP BUDJET OF THE COMPANY
The company was started in the year 1871 with an investment of 200000 marks in Hanover in Germany. The company was greatly supported by the industrialists and other investors interested in the rubber and allied industries. So the company got favorable conditions for the initial growth of the company.
CHART SHOWING THE SALE OF CONTINENTAL AG
Snapshot of CONTINENTAL AG (CON)
OPEN
€57.41
PREVIOUS CLOSE
€57.35
DAY HIGH
€57.98
DAY LOW
€56.64
52 WEEK HIGH
12/7/10 – €68.53
52 WEEK LOW
02/25/10 – €31.86
MARKET CAP
11.5B
AVERAGE VOLUME 10 D
574.9K
EPS TTM
€0.93
SHARES OUTSTANDING
200.0M
EX-DATE
04/29/10
P/E TTM
61.6x
DIVIDEND
—
DIVIDEND YIELD
—
K = Thousands M = Millions B = Billions
Current Stock Chart Performance for CONTINENTAL AG (CON)
CON:GR Historical Stock Quote
CON:GR Advanced Stock Chart
(http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=CON:GR
FORECASTING THE FUTURE GROWTH OF CONTINENTAL AG
Continental
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