Michelin has had a plant in Britain since 1927. And the tyre maker says it intends to stay here—whatever the state of the market

It all began back in 1891, when a cyclist popped in to a small French rubber factory for help with a puncture. After three hours' work and a night of drying time, the company co-founder, Édouard Michelin, started dreaming of a tyre that was easy to repair. That same year, Michelin filed its first patents for a detachable bicycle tyre that could be repaired in 15 minutes. Just over a century later, the Michelin Group (whose headquarters remain in the same city, Clermont-Ferrand) produces 197 million tyres and 20 million copies of its maps and guides each year.

Innovation still plays a huge part in Michelin's success with €800m (£634m)—4.5 per cent of turnover—invested in research and development each year. "We're product driven—we've always operated at the premium end of the tyre market," says Jim Rickard, managing director of Michelin in the UK. The company's continuous innovation—the detachable steel wheel in 1913, prefiguring the spare wheel, the radial tyre in 1946 and in 1992 the low-resistance tyre—has helped Michelin remain one of three main players (with Goodyear and Bridgestone) in a global market that has tripled in 20 years to be worth an estimated $110bn (£59bn), according to US magazine Tire Business (August 2007).

The brand helps. In 2000 Bibendum—better known as the Michelin man—was chosen as the world's best logo by an international panel from the art and design world. "The Michelin name and Michelin man symbol, as well as the work that the maps and guides do, keep our profile alive,"explains Rickard. "Read the Sunday Times any Sunday and you'll find the word Michelin in there. Ninety per cent of the time it won't be to do with tyres—it will be a Michelin-starred chef or restaurant."

But tyres remain the core business. UK activities include a truck tyre factory in Ballymena, Northern Ireland, a car tyre factory in Dundee, and a truck retreading factory in Stoke-on-Trent—also home to the UK headquarters. Part of Rickard's role is to ensure the coherence of Michelin's activities in this country so that processes such as the appraisal system are standardised across sites.

He also has to put the country's case to the bosses. "When I go to HQ in Clermont-Ferrand, I bat for the UK. The group has a finite investment cake, investing around €1.4bn [£1.1bn] every year. We want to get as big a slice of that cake as we can." Because the factories are specialised, around 90 per cent of what they manufacture is exported. Conversely, many of the tyres sold in the UK are imported. "We don't make tractor tyres in the UK but we sell them," explains Rickard. But Michelin UK is still a net exporter, manufacturing more tyres than are sold. "This is unusual these days since manufacturing has declined substantially," says Rickard.

John Dorken, CEO of the British Tyre Manufacturers Association, agrees. "Tyre manufacturing in the UK has more than halved over the last 10 to 15 years," he says. He blames the rise in the pound, which hasn't helped in relation to competitor plants in Europe. And globalisation has also had an effect with more tyres are being made in eastern countries. "As the value of sterling rose in the UK, so did manufacturing costs," he explains. "It's a very competitive industry, but the operating arms in the UK are being fleet footed and looking at every opportunity to reduce costs and raise productivity." But Dorken has a "gut feeling" we are entering a period of stability for now. "I'm not aware of any hints of plant closures in the near future and the pound has fallen back against the euro, which also helps a bit," he says.

Rickard also believes that with the hikes in the price of raw materials (between 2006 and 2007 natural rubber increased by 10 per cent while synthetic rubber went up 18 per cent), along with oil and other commodities, the pendulum is swinging back in favour of manufacturing in western Europe. As the labour bill becomes a smaller percentage of manufacturing costs, so the benefits that a factory in the Far East over a western one decrease. 

"In the UK, our relatively high labour costs also become a smaller percentage of the total cost, so the notion of shipping tyres all the way from China to sell in the UK becomes a less lucrative one," he explains.
On a world scale, Michelin's strategy is to develop its activities in the BRIC countries—Brazil, Russia, India and China—since that's where the growth is. "The Russian tyre market is expected to double between 2003 and 2010," explains Rickard. "We're not going to see growth like that in western Europe."

But the company is continuing to invest in its activities in the west. One initiative it has launched in the last couple of years is the Michelin Manufacturing Way (MMW). "One of the tenets is to spread best practice. So, if one factory finds the optimum way to carry out a particular part of the process, then we make damn sure that we do it that way everywhere," explains Rickard.

Empowering people is another tenet, says Peter Marsh, production manager at the Stoke retreading factory. "One of the standard things we do is a simple visual display in each workshop of how we are doing—is the quality good enough? Is the cost on target? Is the safety performance on target? The hour-by-hour monitoring of how we are doing is all very important in employee engagement."

In 2006, the Michelin Group announced that it wanted to see a 30 per cent improvement in performance by 2010. "At the time everybody said, 'You'll never do that,' but we're halfway through and we're on track," says Rickard.

Training is key—and the company has benefited from the UK government's Train to Gain programme. Despite this, it still struggles to recruit and retain skilled maintenance craftsmen. "The UK system no longer produces these people in the way it used to. We don't seem to be as good on technical and vocational training and education as some of our competitor countries," says Rickard. He acknowledges that some of the onus is on the manufacturing industry but also believes employers need encouragement from the government to work with young people and teachers.

"One thing we have to struggle with is the popular image of a tyre factory as something dirty, old-fashioned and boring. We need to show people it's not like that, that there are good prospects for progress, lifelong learning, and that the salary isn't bad either." He would like to see the government providing the right infrastructure to encourage young people into science, technology, engineering and maths subjects (STEM).

"When you go to France, Germany or Poland, there seems to be more respect for people with a technical discipline," says Rickard. "Whether it's cause or effect, there are therefore more of them."

Another challenge in the UK is that the selling market for tyres is very competitive—particularly at a time like the present when, according to Rickard, demand is tending to drop in mature countries. "People are driving less," he explains. "A survey by [driving services company] Trafficmaster shows there was three per cent less traffic in June this year than in June 2007—people are reacting to high fuel prices by using their cars less."

So Michelin has to first of all persuade people to buy its tyres. But one of the challenges in the UK tyre market is that it's very price driven. "In caricature, the Latin countries tend to buy a brand name. Germany, Switzerland and Austria tend to be quite technical, well-informed purchasers and they'll buy on performance. The British consumer says, 'If that one's £28.99, I'll have that one.' So a challenge for us is to educate consumers."

This means teaching people about the impact of good tyres on safety and fuel consumption. "Every time the wheel rolls into contact with the road and rolls away again, it absorbs energy. For a passenger vehicle, that accounts for around 20 per cent of the fuel consumption. So if we can reduce the rolling resistance of the tyre by 25 per cent, we reduce your fuel consumption by five per cent."

A reduction in fuel consumption has a huge effect on a tyre's overall environmental impact—far more so than its production phase or end-of-life collection and processing. Environmental issues loom large in the industry—since the Landfill Directive became law in 1999, old tyres are used as fuel in cement kilns or ground into crumbs to be used in road surfaces, sports surfaces and playgrounds. Michelin also wants to lessen the environmental impact of its sites. The target is that by 2011 it will have pared its footprint by 20 per cent compared to 2005. Two wind turbines in Dundee produce a third of the energy used by the factory. In Stoke, a combined heat and power plant produces electricity and steam for the factory.

"We are working to reduce our consumption, because energy is going to be a big hit," says Rickard. "Our energy bill in 2008 compared to 2007 is around 20 per cent higher and 2009 compared to 2008 will be much higher again."

Another strategy to cut costs and improve competitiveness has been to improve production, which has meant shedding jobs. The main losses in the UK have been the closure of the Burnley factory in 2002 with the loss of 450 jobs and 900 jobs shed in Stoke in 2001. "We have been getting people to take on responsibility themselves rather than have lots of layers of management," says Peter Snelling, head of communications in the UK.

When these jobs were lost, Michelin made a pledge to help small and medium-sized enterprises (SMEs) create the same number of new jobs, by granting cheap loans and free advice. "To date we have helped create 370 new jobs," he says. Despite the earlier job losses, Michelin continues to invest in its UK plants. In April this year it announced a £14m investment programme in Ballymena, which employs 1,000 people, and Rickard is hopeful of securing a big project to modernise the Stoke plant.
And there's no question of the company walking away from its sales base in the UK, either. "This is one of the largest economies on the planet," says Rickard, "and people tend to drive relatively upmarket cars that have big wheels, high speed ratings and therefore push the UK into the premium end of the tyre market."

The company also wants to increase its activities in the Republic of Ireland, which has been overlooked. "Nowadays it's a rich market and we are aware we need to do things there."

If the UK is to keep its hand in manufacturing, Rickard believes it's all about continuous investment in the right equipment and the right people, getting as much productivity per person as is possible. "I don't mean by slave labour, but by people working smarter and having smart equipment to work with. The goalposts keep on shifting," he says. "As Tony Blair would say: it's about productivity, productivity, productivity."