The global tire industry continues to consolidate. Michelin buys Goodrich and Uniroyal and builds plants throughout the world. Bridgestone buys Firestone, expands its research budget, and focuses on world markets. Goodyear spends almost 4% of its sales revenue on research. These three aggressive firms have come to dominate the world tire market, with total market share approaching 60%. And the German tire maker Continental AG has strengthened its position as fourth in the world, with a dominant presence in Germany and a research budget of 6%. Against this formidable array, the old-line Italian tire company Pirelli SpA is challenged to respond effectively. Although Pirelli still has almost 5% of the market, it is a relatively small player in a tough, competitive business.

And although the business is reliable even in recessions, as motorists still need replacement tires, the competition is getting stronger. The business rewards companies that have large market shares and long production runs. Pirelli, with its small market share and 1,200 specialty tires, has neither. However, Pirelli has some strengths: an outstanding reputation for tire research and excellent high-performance tires, including supplying specially engineered tires for performance automobiles, Ducati motorcycles, and Formula 1 racing teams. In addition, Pirelli’s operations managers complement the creative engineering with world-class innovative manufacturing processes that allow rapid changeover to different models and sizes of tires.

Use a SWOT analysis to establish a feasible strategy for Pirelli.