BRIDGE STONE CORPORATION VERTICAL INTEGRATION STRATEGY
“Bridgestone Corporation is a tire and related rubber products manufacturer based in Japan. The company is engaged in developing, manufacturing, and selling tires and tubes for passenger vehicles such as cars and buses, trucks, industrial vehicles, agricultural machinery, aircraft, and motorcycles in 150 countries worldwide. Bridgestone also manufactures and sells tire-related products, along with providing automotive maintenance and repair services. Further, the company is also involved in providing chemical and industrial products worldwide. The company conducts its business in two reportable business segments, namely, the Tire segment and the Diversified Products segment”. (From: Bridgestone Corporation Financial strategic analysis review)
As part of its vertical integration strategies, Bridgestone Corporation is support and strengthens its retail networks in Europe, China and other major markets. In the United States, the company-owned retail channel is well established, and the focus will be expansion into additional demographically desirable areas. In Japan, they have already taken steps to strengthen the retail channel, and in conjunction with the recent changes in the market environment, they are proceeding with channel development tailored to current needs. Furthermore, Bridgestone opened the first Green Pit tire can store in 2008 offering a channel as a response to the major changes in the external market environment. This initiation of the Bridgestone particularly addresses some the changes in the environment such as customer composition (increase in the number of senior citizens who are driving), changes in the customer awareness regarding environmental issues etc. Beside this as part of their vertical integration strategy, Bridgestone Corporation bought an Indonesian rubber plantation in 2005. Furthermore, company is signing extremely long term agreements to secure supply of constrained commodities – reducing supply risk, but potentially at higher cost or reduced flexibility as market conditions change.
“In August 2005, Bridgestone announced its purchase of 95% of Goodyear's stake in Goodyear Sumatra Plantations, for an estimated $62USm. Bridgestone announced that the estate would be renamed as PT Bridgestone Sumatra Rubber Estate. This purchase initiative, which is a part of the company's backward integration strategy, would ensure a steady supply of natural rubber for Bridgestone. In May 2006, Bridgestone announced its plans to set up a new production plant in Mexico for the manufacture of carbon black. This plant, to be established with an investment of $81USm, is scheduled to commence production in June 2008, with an annual capacity of around 35,000 tons. This initiative was a part of the company's strategic programmed to expand its in-house production capacities of raw materials for tires and diversified products. With the establishment of this new plant, the company expects to strengthen its ability to provide stable supplies of raw materials”. (Source: All business)
Though the Bridgestone Corporation is working to strengthen vertical; integration, with an emphasis on the integrated and effective use of resources from upstream to downstream and it has taken clear initiative to supply its final products manufacturing through an efficient high quality production process that is integrated from raw materials to finished goods. But the major industry value chain segment the company chosen to perform is forwarding integration strategy where the company is establishing intensive retail outlet in 150 countries including North America, Europe and Asia.
Major benefits of the vertical integration strategy for Bridgestone Corporation is that they are able to reduce the transportation cost because of improve supply chain coordination and because of the opportunities Bridgestone is enjoying to differentiate by means of increased control over its inputs resources. Beside this, it is better able to increase entry barriers to potential competitors, because of it sole access to a scarce resources. Furthermore, they gain access to downstream distribution channels which is inaccessible to the Bridgestone Corporation. Another key benefit of the vertical integration strategy is that it allows mass production. Furthermore, the price of the raw materials is going up rapidly. In this critical situation in-house upstream raw materials operations helps them to manage and maintain competitive price which helps them to gain sustainable competitive advantages.
One of the major drawbacks or the limitations that the manufacturing giant is facing is the capacity balancing issues because they need to build excess upstream capacity to ensure that its downstream operations have sufficient supply under all demand conditions. Beside this due to the vertical integration strategy they are now more responsible for the environmental issues. Bridgestone Corporation is now additionally responsible for the tire defects and imperfections in attire and malfunctions as they now owns almost all the layers of industry value chains. Because of the backward vertical strategy Bridgestone Corporation is now liable for defects of raw materials, manufacturing defects, design defects and other defects related with that of raw materials used to produce the final products and its safety. Furthermore, now it is difficult to Bridgestone to manage and coordinate their all value chain layers effectively and efficiently. They are now even more responsible towards their customers and employees to provide best product and good working environment. Furthermore, they are also responsible for following the rules, regulations and the laws of the different countries as their manufacturing locations are distributed globally.