Toyo Tire ramps up Asia tire production to fuel growth

TOKYO (Nikkei) -- Toyo Tire & Rubber Co. (5105) is strengthening its production capacity in other parts of Asia as part of its overseas expansion drive. The major tire maker, which has lagged domestic rivals in shifting abroad, put its first Chinese plant into operation last week and plans to build a plant in Malaysia.

The company will introduce advanced production methods at these plants and revamp sales systems in foreign markets, with a view to making overseas operations a main engine of profit growth.

The Chinese plant was built in Zhangjiagang, Jiangsu Province, at a cost of 11 billion yen, 1 billion yen more than initially projected. It has 500 employees and turns out tires for passenger cars and light trucks.

The company aims to raise the factory's annual capacity to 2 million tires in 2013, equivalent to about 7% of its total capacity of 29 million in 2010. The plant is Toyo Tire's second-biggest overseas factory after its U.S. facility.

"Thanks to the cooperation of the local government, we were able to secure power supply and other infrastructure very smoothly," said the company's president, Kenji Nakakura, who attended the plant's opening ceremony on Dec. 8.

Aiming high

Nakakura has big expectations for the Chinese plant, as he believes that strong overseas operations are the key to driving growth at the company, which generated 51% of its group operating profit outside Japan in fiscal 2010.

In its medium-term business plan through fiscal 2015, the company set a high profit growth target backed by overseas expansion. In fiscal 2015, it aims to turn out 45 million tires, up 55% from fiscal 2010, generate group sales of 400 billion yen, up 36%, and log a group operating profit of 30 billion yen, up 150%.

Most of the expansion will take place in Asia. After producing exactly zero tires in Asia, excluding Japan, in fiscal 2010, the company plans to turn out 12.5 million in the region in fiscal 2015.

In Malaysia, the company purchased a local tire maker for 12.5 billion yen in late 2010, giving it a local production capacity of 3 million tires a year. Toyo Tire plans to invest an additional 20 billion yen to build a new plant in the Southeast Asian country capable of producing 6 million tires a year.

M&As are the way

To further boost Asian output, it plans to undertake local mergers and acquisitions, given that it is becoming harder to construct new plants in China. Beijing recently decided to require new tire plants to have an annual capacity of at least 6 million tires, in the case of tires for passenger cars.

"It is difficult to create a plant with a 6-million-tire capacity in one go," said President Nakakura.

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