ChemChina's bold maneuver pushes Pirelli up the rankings

Iconic Italian tire maker Pirelli is making big inroads into China thanks to its acquisition by Chinese conglomerate ChemChina last year in a 7.1 billion euro ($7.7 billion) deal.

Together with Aeolus Tyre Co Ltd, a subsidiary of ChemChina specializing in industrial tires, Pirelli is developing more advanced technology and increasing its scale of production.

"We want to develop technology with Aeolus that will create great savings for industrial fleets and have a better environmental impact," said Marco Tronchetti Provera, chairman and CEO of Pirelli.

Pirelli was already the 10th largest industrial tire producer globally. The new capacity from Aeolus means the combined production is now the fifth-largest in the world.

The collaboration between Pirelli and ChemChina is a good example of Chinese outbound acquisitions creating synergies, combining Western technical knowhow with China's production capabilities.

Michael Wenderoth, an associate professor in marketing at IE Business School in Spain, said the "bold move" means ChemChina gets global leading technology, along with brand and marketing expertise, and Pirelli gets better sales and distribution access, particularly in the truck tire market in China.

"ChemChina will learn how a Western company utilizes branding and savvy marketing to understand end customers and sell value, which they can apply to the truck tire market; while Pirelli will gain from a much vaster network and entry into the truck tire market," he said.

Pirelli expanded into China initially in 2005 by establishing a joint venture with the Chinese conveyor belt manufacturer, Yanhe Group.

Today, the China plant has become a significant part of Pirelli's business. The company employs about 4,000 workers in Asia, with most in China.

Over the years, Pirelli's position in China has significantly strengthened, thanks to its partnerships with premium car brands such as BMW Mini, Mercedes, Volvo, Audi, Jaguar and Land Rover.

These partnerships have a very high pull-through effect on replacement, which means people who buy cars already fitted with Pirelli tend to buy the same brand when replacing the first set.

According to Pirelli, its tires in China already have a percentage share of the premium car tire replacement market that is in the "high teens", and the market share is even higher in the super-premium market, defined as tires 18 inches and above. The company also has more than 3,000 points of sale in China.

Pirelli has a production capacity globally of more than 6 million industrial tires, and ChemChina has 10 million in China.

A factory worker checks a tire at the Pirelli & C. SpA factory in Jining, Shandong province. Keith Bedford / Bloomberg