Expansion coming via investment, acquisition and upgrade
Things are tough in China, but not every company is going under. While some are struggling others are expanding quickly. During the course of the recent Reifen China exhibition in Shanghai, Tyres & Accessories spoke with Qingdao Doublestar representatives and found our more about the company’s ambitious plans for rapid change despite the turbulent market conditions.
Talk of consolidation is rife in China the moment. And, as another market commentator recently said, the fact that the characteristically reserved Chinese are speaking openly about rumours that many factories are not operating at full capacity and others are close to the brink (one source said a couple have failed in the last few months alone), suggests the situation is at least as serious as it sounds. Much of this turmoil is blamed on US import tariffs, but it is also to do with the wider Chinese economic environment, raw material costs and the lack of professional export strategy with some Chinese tyre manufacturing businesses.
However, while these features and especially the import tariffs have garnered most attention; and while some companies are now building factories in Thailand and even the US to work around the tariffs, there are other anti-dumping investigations underway around the world. Another notable example is in the customs union of Belarus, Kazakhstan and Russia where similar anti-Chinese produced tyre measures are expected – an example that is pertinent to the subject of this article (see ‘Double Star to locate first non-Chinese factory in Kazakhstan’ sub-heaing).
Double Star bailed out Deruibao earlier this year
The point of this long introduction is to explain why the latest news from Qingdao Double Star Co., Ltd. bucks the trend on virtually every front. First of all – far from being on the edge – Double Star has actually rescued at least one failing business. Following various meetings in Shanghai in November, T&A has now heard confirmation of what we all throught from two separate Double Star executives and a third-party consultant – Double Star took on Deruibao after the company got into difficulties earlier this year. While reports differ about just how active the merged Deruibao’s factory actually is, there is no question that the Deruibao business is a significant addition to Double Star’s operation in volume capacity at least.
For information, Shandong Deruibao Tire Co., Ltd. was established in December 2009. By 2010 the company was already boasting investment sufficient for an annual output of 24 million sets of semi-steel radial car tyres. Prior to its reorganisation, at the end of 2014 the firm was exporting significant numbers of tyres to companies in the US and Europe (including the UK). Some of these had invested in moulds for production at the factory.
With an annual turnover of close to a billion US dollars a year at the end of 2013, Deruibao was ranked 35th in the world and was actually bigger than its new owner Double Star, which prior to the purchase reported annual sales equating to $878 million in full year 2013 results (the last full year available to compare with Deruibao) and therefore resided a couple of places below Deruibao in 37th. Therefore, if you combine the two firms’ turnover minus some synergy deductions, the result is a firm knocking on 20th position. To put this in perspective this position has historically been held by the likes of Double Coin and Nexen, which report sales of just under $2 billion. You may think this is something of a turnaround, but there’s quite a lot more to the ongoing Double Star story…
Double Star to locate first non-Chinese factory in Kazakhstan
Following the Deruibao merger, at the end of August, Double Star’s board of directors reported that they had “reviewed and approved” an investment in the construction of a tyre production facility in Kazakhstan. While the final details are not yet clear, it appears that the deal will be structured as a joint venture with Double Star investing the equivalent of $30,250,000 for a 27.5 per cent stake in the factory alongside local company Kazakhstan TOO. T&A understands that Double Star is in the process of purchasing of securing the land for the site now, but this is expected to be finalised in time for construction to take place in 2016, before a 2017 initiation of tyre production. The new Kazakhstan factory is expected to produce both car radials and truck and bus tyres, which will be primarily aimed at the Russian and CIS state markets.
Manufacturing 4.0 truck tyre plant planned in Qingdao
As if these developments weren’t enough, Double Star is investing 4.5 billion yuan (£450 million) in a tyre industry 4.0 plant in Qingdao as well. The new site is being described as a relocation project, with the company – like many tyre businesses in fast-growing China – moving to a new expansive site at the behest of regional planners for geographical reasons. However, such a move brings with it the opportunity to upgrade the firm’s manufacturing technology in favour of 4.0 know-how (the Chinese buzzword for highly automated tyre manufacturing). German technology is explicitly mentioned in a bid to communicate the kind of equipment that is being installed, but again this is shorthand for the latest and most automated technology you can think of.
Tyres & Accessories understand that the fabric of the new factory’s production halls is basically finished, with attention now focusing on the installation of new machinery. Double Star representatives told T&A that initial production will be around 1 million truck and bus tyres and 150,000 car radials. However, local news reports suggest capacity could reach 15.1 million units, of which, 5 million would be all-steel radials, 10 million semi-steel radials and 100,000 large tyres. The industry 4.0 approach is expected to be matched with a “service 4.0″ offering and also “the integration of global R&D” all on the same site.
Put the news of merger, investment and relocation together and you have a company that squarely aiming at the global top 20 and may have even already got there. Beyond this, Qingdao Double Star is not only aiming to climb the global rankings in terms of sales, but increasingly on the basis of tyre products manufactured using very modern production techniques.
