Man who put Pirelli back on the road

Marco Tronchetti Provera, the CEO of Pirelli, has fine-tuned the company's marketing focus. [Zhang Chunyan / China Daily]

The Italian tire maker is in fine fettle and is ramping up its operations in China

Tires, it seems, are not just big black round things that you put on car wheels. For Marco Tronchetti Provera they are an amazing amalgam of ideas that create opportunities and miracles.

That kind of outlook has, apparently helped Provera, 63, CEO of Pirelli & C SpA, develop the Italian company into the world's fifth largest tire maker, and to make great inroads in China in recent years.

This year Pirelli is geared up to open its second plant in the industrial city of Yanzhou, Shandong province. The first opened in 2005.

The new plant is set to double the company's current passenger car tire production of 5 million a year in China and establish a new motorcycle tire production line making 1 million tires a year.

"We are not just in China to manufacture tires for other markets, but more so to service its domestic demand," Provera says.

Pirelli can be considered a late-comer in China's automotive market as other tire-industry giants like Michelin and Bridgestone Corp expanded into China in the 1980s and 1990s when the country's automotive industry first emerged.

Admitting that he too considered the same strategy, Provera says that he decided against it because there was no market for premium car tires then.

But in 2004 Provera met an entrepreneur from China's largest conveyor belt manufacturer, Yanhe Group. The friendship grew, and the two groups entered into a 60-40 joint venture, Yanhe being the minority shareholder in Pirelli's China factory.

"It was an easy partnership," Provera says, adding that although he spoke no Chinese and his partner no Italian, they felt well connected through "the common language of business".

Just as Provera had predicted, surging demand for luxury cars in China has prompted many car makers to bring production to China, meaning that demand for locally made premium tires in China has also grown.

For example, BMW sold more than 120,000 units in China in the first half of last year, surpassing the company's US sales for the first time. The company is now building a factory in Shenyang, capital of Liaoning province, which will ultimately be able to produce 400,000 cars a year.

Last year China became the biggest market for another German carmaker, Audi, the sales leader in China for luxury cars. Audi plans to double manufacturing capacity in the country by 2015.

According to a Morgan Stanley estimate, sales of luxury cars in China will grow from less than 600,000 units last year to more than 1.4 million in 2015, Audi, Daimler, BMW, JLR, Lexus and Volvo being the most prominent brands.

As Pirelli is keen to make its China factory its largest over the next few years, the company has placed strong emphasis on taking care of its local workers to make the expansion sustainable.

More than 90 percent of 2,000 workers in the Yanzhou plant are Chinese, which is a boon to the local economy.

Moreover, not only are all workers taught about Pirelli's values, but the company set up a training program in 2008 aimed at reducing safety risks in the production process.

Despite the hefty outlay involved, Provera says he believes that leading "the process of sustainability" in the local community will help his business integrate into local life.

"Integration means not having differences and speaking the same language, and to protect the safety of our people is the beginning of our common language." Although the company has more than 20 manufacturing sites worldwide, Provera travels frequently among the sites to help himself "understand the evolution of different countries".

He finds China "an amazing country" that changes every time he is here.

For example, the Yanzhou that he saw little more than six years ago was "a place in the middle of nowhere" but his Chinese partner told him that a high-speed train would change that.

"After five years we saw a high-speed train coming from Beijing and back to Shanghai, just 15 kilometers away from our factory."

Provera is also proud of and impressed by his Chinese employees.

"Chinese workers are eager for anything that is new. They are very much open, young, willing to understand and improve."

But Pirelli's road to success in China has not been without bumps, one being to set up a comprehensive and efficient distribution channel.

It took time for the company to appreciate the importance of the concentration of demand for luxury cars in China and to foster business relationships with sales partners. Its hard work was rewarded, 1,000 sales points having been established by last year, and that is forecast to triple over the next three years.

Just as Pirelli is hitting its straps in China, the same process is playing out in many other emerging countries to which it outsources such as Argentina, Brazil, India, Russia and South Africa. This spreading of the wings has significantly minimized the impact of the financial crisis on Pirelli.

The same foresight and management skills that Provera showed have allowed him to reverse Pirelli's fate after the business was badly hit by the recession of the early 1980s.

Back then, Leopoldo Pirelli, grandson of the founder, Giovanni Pirelli, sought to pursue a strategy of acquisitions to build the company. This cost the company dearly through its dealings with the Japanese rubber conglomerate Bridgestone in 1988 and Pirelli's German rival tire manufacturer Continental in 1989.

That unhappy experience saw the forced removal of Leopoldo Pirelli as CEO in 1992, and he was replaced by Provera. The appointment raised eyebrows, because Provera was the former CEO's son-in-law, and there were suggestions of nepotism.

But Provera soon proved that he had more than just the family name. When he took over Pirelli many regarded it as a basket case. Apart from the effects of the recession, the failed acquisitions had left it with debts of nearly $2.5 billion (1.95 billion euros).

Provera decided to turn the business inside out, jettisoning non-core assets it had acquired over two years, including the conveyor belt division, apparel-making, and a lot of its property in Milan.

Pirelli's fortunes gradually improved throughout the 1990s, one key to that being Provera's appreciation that Pirelli could not hope to compete with Asia's low-price production model. Instead he switched the company's emphasis to high-performance tires.

Many say that Provera's management style resembles that of US managers who are decisive and aggressive in their business dealings, but he dismisses such suggestions.

"I think any manager has to be decisive, but aggressiveness is not a part of my soul. There is no need to be aggressive, although there is a need to stick to your points."

With Provera's ability to flexibly respond to changes demanded by the times, Pirelli often delivers its customers pleasant surprises.

Pirelli's reputation was enhanced last year when it won the exclusive contract for Formula One for three years from 2011, in addition to the group's presence in other motor-sports, which includes being sole supplier for Superbike.

Pirelli has been the main sponsor of Inter Milan Football Club since 1995 and became an official sponsor of the Russia Football Cup 2011-2012.

In September the company revived its fashion business, opening a shop in Milan.

The shop's rubber-themed collection includes bags, suitcases, rain hats, and bicycles, trekking boots and wetsuits and snorkeling masks.

Provera exudes confidence in the company, which celebrates its 140th anniversary this year. Ask him what makes a Pirelli tire special and he answers: "Drive a Pirelli tire and you'll find out," showing the same passion and faith that has shaped the Pirelli story.