Harvard Case - Tariffs on Tires (A)
"Tariffs on Tires (A)" Harvard business case study is written by Peter Debaere, Joonhyung Lee. It deals with the challenges in the field of Economics. The case study is 11 page(s) long and it was first published on : Jul 31, 2018
At Fern Fort University, we recommend that Cooper Tire & Rubber Company (Cooper) adopt a multifaceted strategy to mitigate the impact of the tire tariffs. This strategy involves a combination of lobbying efforts, operational adjustments, and strategic partnerships to navigate the complex landscape of trade policy and global competition.
2. Background
This case study focuses on Cooper Tire & Rubber Company, a leading tire manufacturer facing the challenge of a 35% tariff imposed by the US government on imported tires from China. The tariff, implemented in 2009, was intended to protect American jobs and the domestic tire industry. However, it created significant challenges for Cooper, which relied heavily on imported tires from China for its manufacturing operations.
The main protagonists in this case are:
- Cooper Tire & Rubber Company: A major tire manufacturer facing the direct impact of the tariffs.
- The US Government: The entity responsible for imposing the tariffs and navigating the complex trade policy landscape.
- Chinese Tire Manufacturers: The suppliers of tires to Cooper, facing the consequences of the tariffs and seeking ways to remain competitive.
3. Analysis of the Case Study
This case study can be analyzed through the lens of strategic planning, international business, government policy and regulation, and supply and demand.
Strategic Planning: Cooper needs to develop a comprehensive strategy to address the tariff challenge. This strategy should consider both short-term and long-term implications, including cost optimization, market diversification, and potential partnerships.
International Business: The case highlights the complexities of international trade and the impact of government policies on global business operations. Cooper needs to understand the global tire market dynamics, including competition from other countries and the potential for alternative sourcing.
Government Policy and Regulation: The tariffs represent a significant government intervention in the tire industry. Cooper must engage with the government to understand the rationale behind the tariffs and explore potential policy changes.
Supply and Demand: The tariffs directly affect the supply and demand dynamics of the tire market. Cooper needs to analyze the impact of the tariffs on its own supply chain, pricing strategies, and customer demand.
4. Recommendations
Cooper should implement the following recommendations to mitigate the impact of the tariffs:
1. Lobbying and Advocacy:
- Engage with Government Officials: Cooper should actively engage with US government officials, including members of Congress and relevant agencies, to advocate for the removal or reduction of the tariffs. This could involve lobbying efforts, public relations campaigns, and building relationships with key policymakers.
- Highlight Economic Impact: Cooper should emphasize the negative economic consequences of the tariffs, including job losses, price increases for consumers, and potential damage to the US tire industry's competitiveness.
- Promote Fair Trade Practices: Cooper should advocate for fair trade practices and emphasize the importance of a level playing field for all tire manufacturers.
2. Operational Adjustments:
- Diversify Supply Chain: Cooper should explore alternative sourcing options for tires, including diversifying its supply chain to include manufacturers from other countries.
- Cost Optimization: Cooper should implement cost-saving measures to offset the impact of the tariffs, such as negotiating better terms with suppliers, streamlining manufacturing processes, and reducing waste.
- Innovation and Technology: Cooper should invest in research and development to improve tire manufacturing processes, reduce costs, and develop innovative products that can compete in the global market.
3. Strategic Partnerships:
- Joint Ventures: Cooper should consider forming joint ventures with other tire manufacturers, both domestically and internationally, to share resources, technology, and expertise.
- Strategic Alliances: Cooper should explore strategic alliances with companies in related industries, such as automotive manufacturers, to create synergies and leverage their combined strengths.
- Technology Partnerships: Cooper should partner with technology companies to develop innovative solutions for tire manufacturing and distribution, such as advanced analytics, automation, and predictive maintenance.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with Cooper's core competencies in tire manufacturing and its mission to provide high-quality tires to customers.
- External Customers and Internal Clients: The recommendations aim to protect Cooper's customers from price increases and ensure the company's long-term viability.
- Competitors: The recommendations consider the competitive landscape and aim to strengthen Cooper's position in the global tire market.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve Cooper's financial performance by reducing costs, increasing efficiency, and expanding market share.
6. Conclusion
By implementing these recommendations, Cooper can effectively mitigate the impact of the tariffs and position itself for long-term success in the global tire market. The company's ability to adapt to changing trade policies, diversify its supply chain, and invest in innovation will be crucial for its future success.
7. Discussion
Other Alternatives:
- Relocating Production: Cooper could consider relocating some of its manufacturing operations to countries with lower labor costs and fewer trade restrictions. However, this option could be costly and disruptive.
- Raising Prices: Cooper could raise prices to offset the impact of the tariffs. However, this could lead to a decrease in demand and market share.
Risks and Key Assumptions:
- Government Policy Changes: The tariffs could be changed or removed in the future, impacting Cooper's strategy.
- Global Economic Conditions: Economic downturns could affect demand for tires, impacting Cooper's sales and profitability.
- Competition: New entrants or existing competitors could increase competition in the tire market, making it more challenging for Cooper to maintain its market share.
8. Next Steps
- Develop a Comprehensive Strategy: Cooper should develop a detailed strategic plan outlining the specific actions to be taken, timelines, and resources required.
- Engage with Stakeholders: Cooper should communicate its strategy to its stakeholders, including employees, customers, investors, and government officials.
- Monitor Progress: Cooper should track the progress of its implementation and adjust its strategy as needed.
By taking these steps, Cooper can navigate the challenges posed by the tariffs and emerge as a stronger and more competitive player in the global tire market.
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Case Description
In September 2009, President Barack Obama announced a hefty tariff on low-cost automobile and light truck tires imported from China. Earlier that year, the United Steelworkers of America, which represented workers in many US tire production plants, had filed for protection under Section 421 (the "China safeguard") of the US Trade Act of 1974. Supporters of the decision saw the tariff on Chinese tires as an extension of the president's efforts to enhance the enforcement of trade laws, the position Obama had adopted time and again as a candidate in 2007. Could the tire safeguard provide a template for how policymakers could protect American workers?
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