Michelin, the world's leading tyremaker, was in a buoyant mood in early 2003. In spite of a stagnant world market and jumps in raw material costs, it had almost doubled its net profits over the previous year. It had even broken into the Asian market - an area it had long considered its Achilles' heel - with two major acquisitions in China and a joint venture in India.
But major challenges remained. Revenue growth remained sluggish, and one of its main rivals seemed to be ahead of it in developing an integrated suite of tyre and braking systems. Despite having gone through yet another wave of global consolidations and entries in to new markets, the industry as a whole was still finding satisfactory returns on investment elusive.
BP Professor of European Competitiveness Karel Cool offers a thorough analysis of the global market of recent years, discussing the pressures on tyremakers, particularly with regard to reducing their own costs in response to the ongoing movement of carmakers' manufacturing to lower-cost countries and the difficulties in coping with fluctuating raw material and oil costs. Meanwhile, the industry's "Big Three" of Michelin, Bridgestone and Goodrich were taking measures to make their brands far better recognised globally.
Turning his focus to Michelin, Cool illustrates how the world's leading producer reamins a highly idiosyncratic operation. The firm is still able to bank heavily on the reputation it earned with its invention of the radial tyre in 1946. But it remains by far the least diversified of the Big Three, with 95% of its revenues coming from its core business.
François Michelin, head of the firm for 45 years until handing the reigns over to son Edouard in 1999, was often accused of parochialism. He insisted that his top managers live in Clermont-Ferrand in central France where the original factory had been established, far from the power centre of Paris. Until the early 90s, the firm had no organisational chart. Even formal professional titles were almost totally banned, and some managers felt it was "almost impolite" to even discuss marketing.
Family members also retain a remarkable degree of control for such a global manufacturer. More than 500 family members own a substantial, but legally undiscloseable share in the firm. Their control is exerted through Michelin's commandite legal status, which affords them extensive powers in exchange for unlimited liability for any losses. This has been widely criticised by outside investors, pointing out that most other major French family-owned businesses have long since opted for the limited liability (société anonyme) structure.
The case describes the leadership of Edouard Michelin, dubbed "the American" by the company's old guard employees after working in the USA. The 36-year-old Edouard inherited what one commentator described as a "powerful, but archaic empire". Deeply influenced by his years in the US, Edouard has often stressed the need to improve relations with investors, and to adopt new approaches to clients, the markets and France's powerful unions.
Edouard's time at the top has been characterised by strong profits, widespread lay-offs in Western Europe and major acquisitions and joint ventures in Germany, Eastern Europe and Asia. Long believing that its success was due far more to R&D and innovation than marketing, Michelin had long spent far more on R&D than any of its rivals, though it had paid dearly for being slow in releasing its new designs in the 70s and 80s.
The case concludes with an overview of Edouard's accomplishments in his first four years as head of Michelin, coming as he had, in the author's words "to usher into the 21st Century a firm that was coming, from many points of view, straight out of the 19th".