Prices of raw materials including iron ore, coal and natural rubber have risen across the board since the beginning of 2017.
SMEs in dilemma
Companies are the first to bear the brunt of raw material price hike.
When cost increases, profit margin is squeezed. Under such circumstance, if a company raises the price, it may lose the price advantage; but if it keeps the original price, higher cost will squeeze the profit.
Accordingly, some small- and medium-sized tire companies found themselves in a dilemma.
Some business owners said they were in a nice hobble and no one knows who will be weeded out by the market.
Some small- and medium-sized enterprises have been living on bank loans and lacking cash flow, and it is difficult to get the loans because of low credibility.
As raw material price grows, capital scarcity becomes a key element resulting in close down of enterprises.
Higher raw material price will inevitably lead to product price hike, hence narrowing the price gap between low-end product and mid- and high-end product.
Consumers will naturally give up products without price advantage and reputation, which makes it harder for SMEs to survive in the market.
Being forced to innovate and upgrade
Continuous growth of raw material price and product cost aggravated the situation of struggling manufacturers.
Some analysts said the price hike might be a two-edged sword.
On the one hand, rising cost squeezes producers’ profit margin, which will force them to better control the cost and may use low quality or even bad raw materials.
Of course, such enterprises are playing with fire and will be eliminated by the market.
On the other hand, pressure could be transformed into motivation. Some SMEs may be forced to innovate and strengthen themselves, and develop into industrial leaders.
Therefore, price hike will reshuffle the tire industry, wash away the SMEs good at price war, and keep the competitive ones to boost healthy development of the industry.
