Michelin's Expansion into Germany: A Business Environment Analysis

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Business Organizations and Environments in a Global Context
Institutional Affiliation
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Table of Contents
1.0 Introduction...........................................................................................................................................2
2.0 Background Information on Michelin....................................................................................................3
3.0 Background Information on the Business environment in Germany.....................................................4
4.0 Analysis..................................................................................................................................................4
4.1 Porter Five Forces..............................................................................................................................4
4.1.1 Cost Leadership..........................................................................................................................6
4.1.2 Differentiation............................................................................................................................7
4.1.3 Focusing on the Cost and Differentiation....................................................................................7
4.2 PESTEL ANALYSIS...................................................................................................................................8
4.2.1 Political Factors...........................................................................................................................8
4.2.2 Economic Factors........................................................................................................................8
4.2.3 Social Factors..............................................................................................................................9
4.2.4 Technological Factors.................................................................................................................9
4.2.5 Environmental Factors................................................................................................................9
4.2.6 Legal Factors.............................................................................................................................10
Conclusion.................................................................................................................................................10
List of References......................................................................................................................................11

1.0 Introduction
Michelin is one of the leading manufacturer of tires globally whose headquarter is in
Clermont-Ferrand in Auvergne from France. Michelin Company is dedicated to sustainably
improve the mobility of goods and people as they manufacture and market every type of tires for
bicycles, airplanes, automobiles, and tracks (Michelin.com, 2019). Germany is the allocated
country for the final report. Michelin is the chosen organization which is one of the largest tire
manufacturers in the world. Michelin was established in France; however, it has established
foreign markets by expanding its production and growth in major parts of Europe. Germany is
one of the countries that has been spotted by Michelin in its production.
This report aims at the feasibility study of the expansion of Michelin in France to other
European countries such as Germany. The idea is researching the business organization and the
environments in a global context. The report will cover the background of the business
organization which in our case here is Michelin in Germany. Secondly is understanding the
background business environment of the chosen company in a particular nation. Lastly is
understanding the analysis of the business scenario by use of Porter’s five forces, SWOT and
PESTEL analysis.
2.0 Background Information on Michelin
The main aim of Michelin is to improve customer satisfaction, empowering teams,
streamlining the way they work and embracing the technology digitally by adapting the changes
of expectations to the customers and employees (Nedelcu, 2017). The new organization in the
developed countries is to bring closer all the customers and get all the employees by becoming
more engaged in the decision-making processes. There exist 14 business lines that prepare
solutions carefully defines the segments of the customers. The latest ten new regions were

responsible for increasing sales and managing the customer relationship. The eight directions of
operations are to provide expertise and much more support. The central corporate functions now
have some learned management structure with the newly made departments by bringing them
closer and focused on the strategic missions. The organization has unleashed the customer’s
energy by giving them free rein to collective intelligence while leaving them with a room to
maneuver volatile in the uncertain world.
Michelin has been present now in more than 172 countries and usually operates in 70
production plants in more than 18 different countries. Additionally, to Michelin Brand, the
company is known to own a strong brand portfolio that includes other partners such as
Kormoran, Tigar, Kleber, and Riken among others from America. A few decades ago, Michelin
decided to launch some of the sales of transformation and operations planning (S&OP) project in
response to several problems they may be facing (Gueissaz, 2011). Its supply has increased
substantially and thus becoming more difficult for management due to scarcity with regards to
capacity; this has led to the growth of types of tires portfolios and a significant increase in some
of the parts because of company’s innovation efforts. The market through which they operate has
become increasingly volatile and so competitive, it is because of seasonal demands that have
impacted the markets in many ways each financial years.
3.0 Background Information on the Business environment
in Germany.
Ideally, Michelin is a company that operates within more than 175 countries worldwide.
The company is said to have recorded about 27000 million dollars in the financial year of 2011
which was an increase of about 16 percentage over when compared to the year 2010.

The company recorded revenues of E20, 719 million (approximately $26,551 million)
during the financial year ended December 31, 2011 ( FY2011), an increase of 16% over 2010. This
was primarily due to a favorable price mix, and improved volumes. The company’s operating
profit was E1945 million (approximately $2,492 million) during FY2011, an increase of 15% over
2010. The net profit was E1462 million (approximately $1,874 million) in FY2011, an increase of
39% over 2010 (Michelin, 2012).
In 1889, the brothers André and Édouard Michelin took control of a struggling rubber products
business in Clermont-Ferrand, an industrial city in central France. According to the company's
official history, a bicyclist came to their workshop in 1889 with a flat tire. Pneumatic (inflatable)
tires had just been invented by John Boyd Dunlop the year before
4.0 Analysis
The analysis of the Scenario will be explained using the Porters Five Forces, SWOT and
PESTEL analysis.
4.1 Porter Five Forces
Porter five forces in this industry can be used in determining the structure of Michelin tire
industry. The five forces are such as;

Figure 1 Porter Five Forces
Many strategists can use porter five forces model in analyzing the competition faced by
the company in the industry of tires. By analyzing Michelin, this will help one to understand and
provide a solution to the nature and level of the competition and how such can help in coping
with such competitions. Even though as considered from the several industries externally it may
seem different, but this needs a close analysis on the five forces used for determining the drivers
with regards to how it can make profits in the industry. The strategist and all leaders of Michelin
are helping the organization in building a sustainable and competitive advantage and the thwart
competitive challenges from all the players in the industry of tires. Using the following steps in
Porter's five forces, one can be able to explain the competitive forces and the analysis of the
industry.
 The first step is to define the relevant industry for Michelin. Michelin usually focuses on
the tire industry.

 The second step is that one should identify Michelin competitors; Michelin should group
all its competitors based on segments within the cyclical industry of the customers.
 Third Step is an assessment with regards to the Tire Industry in its relation with Porter’s
five forces. This can be by assessing which forces may be strong and which are weak.
 Determination of the overall Cyclical industry of the customer and thus being able to test
the consistency.
 Analyze all the recent and changes in the future in every force in the industry of tires. It
may help one to predict the trends in the overall consumer cyclical sector.
 Identification of all the aspects of the structure of the industry based on the five forces of
Porter which might be influenced by the Competitors of Michelin and the new entrants
into the industry of tires.
Ideally, for Michelin to be able to achieve the expected or above profits when compared
to other existing players in the market industry, in the long run, Michelin will need to be able to
develop a sustainable competitive advantage (Kalafsky, 2015) The tire industry analysis by use
of the five forces of Porter will help Michelin to be able to map all the forces and thus
identifying all the spaces where it can be able to position itself. In doing this, Michelin in
Germany can apply such by the development of four strategies of competitive.
4.1.1 Cost Leadership
In understanding cost leadership, it is advisable for Michelin to set out in becoming the
lowest cost producer of the industry of iTires. In making it become a cost leader, this will vary
depending on the consumer cyclical industry structure and the associated forces. Notably, for
Michelin to be able to pursue the strategy of cost leadership, the company name can be able to

assess and do a pursuit of all the economies of scale, copyrighted tech, management option such
as the supply chain and supplier diversifying among other related factors.
4.1.2 Differentiation
The second strategy that can be applied by Michelin is Differentiation pursued as a
strategy based on the industry forces in tires. Michelin can be able to seek in all ways to become
and have tires which are unique as they try to offer provisions of proposition values which will
be cherished by all the customers under the differentiation strategy. In understanding all the
context well, Michelin should be able to select one or more attributes with relation to the services
and good that their customers in the industry of tires values most. The goal of a differentiation
strategy is seeking all the premium price due to the uniqueness and differentiation of what they
offer. The industry analysis of Tires by use of Porters five forces can help Michelin Company to
be able to avoid spaces that may have been overpopulated by the real competitors.
4.1.3 Focusing on the Cost and Differentiation
Ideally, a generic strategy will always rest on the ambitious scope it has chosen within the
industry. Michelin, in this case, can be able to select a group by tailoring its strategies to only
serving the customers. Most of the organizations will always follow a one variant focus strategy
in the real world. The focus strategy for Michelin will have only two variants. The first variant is
focusing on cost where Michelin could be seeking a cost advantage for choosing a segment in the
cyclical consumer sector. The second variant is through the differentiation strategy; this usually
rests on the differences between segment targeted by Michelin and the other existing segments in
the industry of tires.

4.2 PESTEL ANALYSIS
PESTEL ANALYSIS is one of the strategic management tools that most of the Michelin
strategy usually use in making better decisions. PESTEL is an abbreviation of Political, Social,
Economic, Technological and all the Legal factors that usually have an impact on the external
environment of the organization that it operates in. Michelin is a company that usually operates
in a dynamic environment, and thus is influenced by the environmental frameworks such as the
decisions made by the government, the spending behavior of the consumers, changes in
technology, regulatory frameworks among others.
4.2.1 Political Factors
There exists an armed conflict which shows that there are no imminent threats to France
as a country and Germany as there are no disruptions in the business due to military policies and
threats from terrorists and other political instability. Secondly is that Germany as a manufacturer
of Michelin tires has come under increasing pressure globally in adhering to the WTO
regulations with regards to tires. Another impact is that Michelin has managed all the various
regulations in the various markets that it is presented.
4.2.2 Economic Factors
Ideally, some of the economic factors include the rate of interest, country name
performance, labor market conditions, the rate of the inflation, disposable income of the
consumer, rate of taxation, country name economy stage, etc. Notably, through the increase of
liberalization in the policies of trade in Germany as the Countryname, this will make Michelin
invest further into more regions which may off-limits to the firm. Secondly is that there
sometimes exist the downward pressure when it comes to spending by the consumer.

4.2.3 Social Factors
Social factors are usually influenced by the media outlets which usually play a significant
role when it comes to influencing the opinion of the public in Germany. All media may it be
traditional and social are significantly advancing in Germany and France respectively.
4.2.4 Technological Factors
Technology is one of the factors that usually disrupts the company or industry as it
grows. Each day innovations launched and technology advances with minutes to the world we
are living. There are many ways through technology has affected Michelin such as the product
offerings innovations, big data analysis, technology accessed by a large population, technology
rate driving change and access to the mobile phones that have driven empowerment. Also,
through technology, the cost of production has lowered as the structure of Michelin has
restructured its supply chain by bringing in more flexibility to be able to meet all the needs of the
customers and the cost structures. Technology in the sector tires has not yet reached its maturity,
and thus most of the players are vying for all the innovations that can help them to be able to
garner in the higher market shares such as in Germany and France.
4.2.5 Environmental Factors
Notably, for some decades, sustainability and environmental factors have become so
critical for many businesses. Government and pressure groups have become a fast group in
asking many organizations to adhere to all the environmental standards. Norms of the
environment have been altering the product priorities and its innovation. The standards of the
environment used in designing a product, and thus sometimes they may hinder on expectation as
they care for the traditional value propositions. Other factors are such as activism of customers,
scrutinized by the government regularly; extreme weather is also adding the operation cost of
Michelin as it usually invests in making the chain of supply to be more flexible.

4.2.6 Legal Factors
Ideally, much time is consumed for business with cases in court. Most of the countries
usually follow the global norms, and thus the resolution of such a case can often run in more than
ten years. In this case, Michelin has to consider the average time of cases carefully before they
enter into the international markets. The other factor is that the law of employment in France and
how they may impact a business model of tires have been replicated or maybe bettered in
markets at an international level. The other one is the legal market protection of all the
intellectual property, the copyrights, and patents in France.
Conclusion
Understanding the business organization and its environment in the global context is not
an easy task. Michelin is a multinational company that supplies tires at an international level.
Ideally, for Michelin to increase its number of sales, it has extended its manufacturing plants into
other countries like Germany so that it can be able to meet its needs. Notably by use of the Pestel
and Porters five forces, it is easy for one to give recommendations with regards to the way the
firm needs to operate so that it can rival with its immediate competitors. In conclusion, the
response to all the limitations mentioned above, the weighted PESTEL Analysis should be
conducted to Michelin that will involve assigning of the weight in each of the mentioned
strengths and the weaknesses as mentioned in the SWOT analysis.

List of References
Bisson, C. and Dou, H., 2017. Une intelligence économique et stratégique pour les PME, PMI et
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Córdova, F., Durán, C., Sepúlveda, J., Fernández, A. and Rojas, M., 2012. A proposal of logistic
services innovation strategy for a mining company. Journal of technology management &
innovation, 7(1), pp.175-185.
Dumke, J., Soehnen, D., Stark, A., Struebel, C. and Weinreich, H., Continental AG,
2011. Rubber mixture and tires. U.S. Patent 7,902,285.
Ferguson, M., Souza, G.C. and Toktay, L.B., 2016. Examples of Existing Portable Practices in
Product Take-Back and Recovery. In Closed-Loop Supply Chains (pp. 162-177). Auerbach
Publications.