The 1980s was the decade when the tyre industry went global in response to technological advances and market changes. When it came to technological innovation, French tyre maker Michelin, based in Clermont-Ferrand in central France, led the way. To Onkar Singh Kanwar, they were the gold standard, the Rolls-Royce of tyres.
Back in the late 1960s, Michelin had introduced radial tyres to the American market. The major US manufacturers had not responded well and it lost a significant market share. So much so that Firestone, once judged the best managed and most innovative of the US companies, which also operated plants in Spain, France, Italy, Portugal, Argentina, Brazil and Venezuela, had been swallowed up by Japanese company Bridgestone on 17 March 1988. Tokyo-based Bridgestone was by now the world’s third largest tyre company after Goodyear and Michelin.
As reported by the New York Times-Business Day: “In a stunning move intended to shut out the unsolicited intentions of Pirelli SPA, [then the world’s seventh biggest player] the Firestone Tire and Rubber Company agreed last night to be acquired by the Bridgestone Corporation of Japan for $80 a share, or $2.6 billion. The new agreement was expanded to also give Bridgestone control of Firestone’s domestic network of 1,500 automobile service centres, where its tires are sold.”
That Bridgestone had agreed to pay 38 per cent more than Pirelli for Firestone emphasised just how eager the two rivals were to win a significant presence in the United States, which accounted for 45 per cent of the world tyre market. Now, only Goodyear of the five biggest American tyre companies remained independent.
In a research paper, Professor Donald N Sull of the Harvard Business School summed up this major tremor in the tyre industry. “Firestone’s historical excellence and disastrous response to global competition and technological innovation posed a paradox for industry observers: Why had the industry’s best managed company turned in the worst performance in a weak field? Close analysis reveals that Firestone failed not despite, but because of its historical success. Firestone’s reliance on managers’ existing strategic frames and values and the company’s processes proved counterproductive in a changing competitive environment.” Firestone had become mired in “business as usual” and paid the price of standing still.
The demise of Firestone as a proud independent company had shown how easy it was to slip from innovation to inertia. It was a lesson not lost on Onkar Singh Kanwar.
Apollo felt the force of change in October 1987, when Germany’s Hanover-based Continental AG, the second largest European tyre producer, acquired General Tire. Explaining Continental’s strategy, its then Chairman Helmut Werner said, “The acquisition will provide us with a sound and strong presence in the world’s largest tyre market. This step is of vital strategic importance to us and will provide Continental with an opportunity to expand worldwide.”
Onkar was not so sure and had already sounded out alternative collaborators to General Tire prior to Continental’s acquisition. “I had become very interested in Cooper Tire in America.”
The Cooper Tire & Rubber Company, founded in Akron in 1914, and now headquartered in Findlay, Ohio, was among the top ten tyre companies of the world. In 1983, it had joined the Fortune 500 as one of America’s largest industrial companies. Producing replacement tyres for most markets, Cooper had been listed on the New York Stock Exchange since 1960.
“It had an excellent technical design department and a very healthy balance sheet,” Kanwar says. “We were just Rs 3 billion but I sought an appointment with the Cooper Chairman. He agreed to see me. I told him, ‘I want to buy your collaboration because I am not happy with General.’
“I explained my vision for Apollo. He looked at me and said, ‘Who are you?’
“’Onkar Kanwar – Apollo Tyres.’
“’Apollo Tyres? Big company! Never heard of it,’ he said. ‘That was the end of that.’”
In India, Apollo was making strides. By 1986, Hercules had replaced the Modi N416 as market leader. It was refined, improved and relaunched as the Hercules Loadstar in 1991.
In 1986, Raunaq Singh had moved out of the old grey house in Friends Colony, where his first wife remained, and moved himself and his second wife into a superior house in the grounds, which Onkar had built for him. Gleaming white and Lutyensesque, its front door opened on to a big lobby on the ground floor with an impressive central spiral staircase going up to the first floor. On one side of the lobby was a drawing room and on the other a waiting area and Raunaq Singh’s office, where he would greet his many visitors.
Baljeet Ravinder Singh remembers having a meeting in Raunaq Singh’s office when he was the Divisional Sales Manager of Premier Tyres. “His office was very nicely done. Raunaq Singh was a man of taste.” It was the first time that Baljeet met Onkar Kanwar, who was to become his boss one day. “Mr Kanwar came out with a tray of cold drinks.”
However, Onkar was showing increasing independence from his father. He had opened an office for Apollo at Nehru Place, a large new commercial, financial and business hub in south Delhi next to the Outer Ring Road, which had been developed in the early 1980s to rival Connaught Place. It comprised high-rise towers, four-storey blocks, large pedestrian courtyards and underground parking.
But as always with Apollo in those days, it was a case of two steps forward and one back. The Perambra plant was once again plagued by strikes. In 1985, a third lockout lasting two months from 14 October to 10 December was imposed following an illegal strike. Minimum production levels had not been achieved and so Kanwar had cut salaries.
The unions had gheraoed and assaulted senior management. In December 1989, there was a further lockout following low productivity, indiscipline and wilful damage to machinery. It lasted until 15 January 1990.
Onkar Singh Kanwar refused to see Apollo hobbled by strikes and lockouts. “I decided that I would open a second factory in another state. Being able to manufacture in a second plant would give me the scope to carry on production and might concentrate minds in Perambra. Apollo could not be held to ransom by unions.”
Prevented from building a new plant in Kerala by the MRTP Act, he went looking for possibilities in Bengal, Maharashtra, Rajasthan, Haryana and UP.
However, every state in India already had a tyre factory operated by Apollo’s rivals. Except one! That state was Gujarat.
“There was already a licence issued fourteen years previously by the Government of India to the Government of Gujarat to set up a factory in a joint sector (state-private) venture. This licence had been given to Nirlon, which had become sick in 1988. They were making tyre cord, which had always been in short supply. Nirlon was now under the Board for Industrial and Financial Reconstruction [BIFR], which was responsible for trying to rehabilitate sick companies. So I went and met some of its bureaucrats.
“I suggested to them that if I paid Nirlon’s outstanding income tax, could I take over the licence?” BIFR agreed but Kanwar would have to strike a deal with the Income Tax Department. “I sent my Chief Financial Officer [CFO] to talk to the tax department and not to come back until he had done a deal. I told him to pay the money and get the licence transferred into our name. No under-the-table payments, only a straight cheque.
“He called me and said that the outstanding tax was Rs 40 million, but the tax department wanted fifty. I said, ‘Pay it.’ It was a major decision.”
Although Kanwar thought the way ahead was now clear, another problem reared its head. “The Government of Gujarat told me they didn’t have the money to create a joint venture with Apollo and that I must create another company through which I would build a factory and that they would reimburse by way of dividends. I told them that this was nonsense, not economically viable. On top of that my technology agreement with General Tire and now Continental allowed me to put up as many factories as I liked for a 3 per cent royalty. If I set up a new company I would have to pay a higher royalty for a whole new set of technology agreements.”
Kanwar went back to Delhi and lobbied the Joint Secretary for industrial development at the industry department. “Madam, this licence has been issued and has been languishing for the last fourteen years,” he told her. “All I want is the licence, nothing else. I want no government money. I just want to build a factory.”
Excerpted with permission from The Man Behind the Wheel: How Onkar S Kanwar Created a Global Giant, Tim Bouquet, Rupa Publications.
