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Hankook tire's four-wheel drive

This company is not the world's best in terms of sales volume. But when it comes to growth potential, it is. Sales volume expect to grow in H2 when Hungarian unit start operation.

Hankook Tire posted the highest operating profit rate in the global tire industry, gathering attention around the world. Its Q1 sales this year were 530 billion won ($595 million), with an operating profit of 70.5 billion won, ordinary profit of 69 billion won, and net profit of 48.9 billion won, according to a company announcement made on May 8. Hankook's operating margin had especially high growth rate of 41.0% year-on-year, and 92.3% quarter-on-quarter. The Q1 operating profit rate of the company was 13.3%, two times higher than that of Bridgestone and Michelin, which were between 5% and 6.5%. Currently, other tire manufacturers in the world are struggling from a supply glut and hike in natural rubber prices. Unlike them, Hankook is turning the challenge into an opportunity for rapid growth. What are the secrets of its success?

According to Modern Tire Dealer, a renowned tire magazine in America, Hankook has grown to become the world's seventh largest tire manufacturer based on 2006 sales, up 4 steps from the eleventh in 2001. By this year, or at least by next year, the company expects to move one step higher to number 6. Korea's top tire-maker surpassed 1 trillion won in sales for the first time in 1996 and 2 trillion won in 2003. The company plans to record 3.26 trillion won ($3.66 billion) in sales by this year. In the latest series of tire tests published in Germany, AutoBild SportsCars, the specialized tuning magazine, ranked Hankook's ultra high performance Ventus S1 evo first out of ten other high-performing tire products from leading brands such as Michelin, Goodyear, and Pirelli. From 2005, Hankook products received high ratings in various tests conducted by American and European consumer rating agencies and professional magazines. Based on their reputation and quality, Hankook tires are supplied to world renowned automakers such as Volkswagen, Volvo, GM, and Ford. The company plans to produce tires for Audi's luxury sedans A6L and A4 starting this June. „When our first European production facility in Hungary becomes operational in the second half of this year, our sales volume and global market share will increase,” said Lee Su-il, marketing director of Hankook Tire.

The rise in operating profit rate and company's rating was possible because of the company's passion for R&D with talented researchers, a stable labor-management relationship, efficient structure management, and its efforts to globalize. Since its inception in 1941, the company has never had a strike. Investment in R&D was 3.1% of sales in 2001, but the figure went up to 5.3% last year. This year, the company plans to invest more, while rivals like Bridgestone, Michelin and Goodyear invest only 3% to 4% of revenue in R&D on average.

Solid performance allows the company to aggressively invest in domestic and foreign markets. Hankook set up two production facilities in China in 1999, and is expanding its Geumsan facility in South Chungcheong Province by spending 235 billion won. Partial operation of its Hungary facility will help the company have a production capability of 10 million tires by 2010. Moreover, the firm's debt ratio shrunk from 163% in 1998 to 42%, making Hankook a financially sound company as well. Its stock prices, which reflect company’s performance and value, are setting new records one after another. „Our brand value is rising because of the successful globalization of the company, its sound financial structure, stable labor relationship, and superior product quality. Continuous management innovation and aggressive marketing will give us 3 trillion won in sales,” said Hankook CEO Seo Seung-hwa. (donga.com)