Bargaining power of suppliers can be segregated in two parts according to the demand of industry.
There are two reasons behind this being low first one is most of the tyre firms get150 days credit for buying the rubber from international market which is not the case if they buy it from domestic rubber growers. And the second reason is, this credit is being offered at LIBOR, which is the London Inter-bank Offered Rate. It is the rate of interest at which banks borrow funds from other banks.
Other Petro chemical based material (Carbon black, Nylon tyre cord etc.)
The power of suppliers is high in this category as India is limping back in case of Petro based raw materials like carbon black and chemicals which account low in quantity terms but are high cost generators. Also the price of NTC fluctuates in line with the prices of Caprolactam (a petroleum derivative)-it¡¦s main raw material. The prices of these materials are beyond control of tyre industry.
2) Bargaining power of buyers
This can be seggeregated into two parts as follows.
The OEMs are always in strong position when the bargaining power of buyers is concerned. The reason behind this is most of them are having contract with their relative tyre manufacturer under which the prices of tyre remains stable for this OEM irrespective of market price. The benefits are given to them as they are buying in bulk and the relation gives the tyre firms some thing called brand association.
The scene in replacement segment is quite reverse as the bargaining power for the replacement segment is moderate due to the fact that the buyers are not that strong as compared to OEMs. The demand in buses and truck segment is always high because of Indian poor road conditions apart from this the purchase is made in small units.
3) Threat of substitute
It is moderate or as the industry is facing opposition from retreading sector...