Goodyear SWOT Analysis Essay Example

Admired List. Leadership categories included quality, innovativeness, employee talent, social responsibility, financial soundness, and long-term investment. Of these, quality is probably the most important in creating and keeping brand loyalty.

Its P/E ratio is 15.95, a very conservative number when compared to Internet stocks, which frequently have P/E ratios of 50 or more. The industry (rubber/plastics) P/E ratio is 13.65 while the broad market (8,000 stocks traded on the NYSE, AMEX, and NASDAQ, has a P/E of 39.46.

Another strength is its intangibles, which include a 100,000-person workforce, patents and trademarks. Goodyear owns 2,903 patents and five trademarks (Goodyear, Hi-Miler, Viper, Vintner, and Allegra).

As indicated previously, size matters. Size can be a weakness, though, as well as a strength. In 1999, Goodyears sales were down from 1998 in the Eastern Europe, Africa Middle East market, Latin America market, Engineered Products market, and Chemical Products market. The stock price dropped from a 52 week high of $66.75 to a February 15 close of $24.25. Its EPS (earnings per share) growth dropped 64.7% over the last 12 months. This is a company in trouble. The question is will its size inhibit its recover? Large companies like Goodyear are often compared to aircraft carriers. They need a great deal of time to turn around.

The Internet can be a weakness to many companies, not only Goodyear. Is Goodyear preparing to compete with the on-line sale of tires? Customers are no longer obligated to drive to the nearest tire outlet. A customer may go on-line and order a tire at the best competitive price, have it shipped to his home, and pay considerably less than he would at his neighborhood

tire store. While Goodyear may see the weakness (and opportunity) here, it may be prohibited from using this tool because of its contracts with local dealers.

Because of a poor showing in 1999, Goodyears financial ratios have become a weakness. Following are some examples as culled from Hoovers On-line, The Business Network:

Goodyear Industry*Market**

Price Sales 0.29 0.59 2.03

Days Sales Outstanding73.7754.3357.93

Inventory turnover 4.25.1 6.7

Days COGS in Inventory 85 71 54

Asset Turnover1.1 1.2 0.4

Net Receivable Turnover 5.4 6.7 6.3

In order to attract the capital necessary to grow, Goodyear must reverse its poor showing. In 1998, it announced a 3% reduction in its workforce (2,800 jobs).

Four areas present themselves for opportunities: new territories, Internet sales, innovations, and acquisitions.

New territories included China, India, and Russia. For the past several years, China has been encouraging capitalism in a somewhat of a hurry up/go slow fashion. With the spread of instant communication around the world, it has become increasingly difficult for totalitarian leaders to keep their subjugated populations from learning about the freedom and prosperity of the West. With the fall of communism in the former USSR and in Eastern Europe, Chinese leaders have begun to recognize more and more that granting economic freedom to more and more citizens may be the only way for the leaders to remain in power. As a result, China has been encouraging Western investment, and Western capitalism has responded in an effort to acquire a portion of a market that contains an estimated 1.4 billion people.

India also presents a large market in that it, too, contains a large population estimated at 1.2 billion. While Russias population is considerably smaller, it nonetheless, represents an open market

with little in the way of competition.

While these markets present great opportunities for growth, they are represent danger. These countries do not have the reputation of Western democracies for enforcing private property rights. In Russia and China, the concept of permitting the four tools of production (land, labor, captial, and entrepreneurship) to be placed in private hands is new. These have been traditionally command economies, not demand economies.

As discussed previously, Goodyears lack of a presence on the Internet presents a weakness. It also presents an opportunity. Consumers are becoming comfortable with ordering an increasing number of items via the Internet. Goodyear is missing an opportunity by remaining off-line.

Goodyear continues to invest more than $300,000,000 per year in an effort to improve its present product line and create new products. One of its more recent popular inventions was the Aqua Tread tire, a tire that purportedly reduces the dangers of hydroplaning, the propensity that (light weight) cars have to slide uncontrollably over standing water.

Finally, Goodyear has grasped opportunities in foreign markets by either forming alliances with or acquiring its competition. Its most recent move in this area was the formation of a broad alliance with Tokyo-based Sumitomo Rubber Industries. The alliance created four geographical joint ventures (one in the U.S., one in Europe, and two in Japan), one joint venture for purchasing and one for sharing research.

Every human endeavor faces two threats: internal and external. This paper reported previously that Goodyear ranked No. 1 in six of eight categories in its industry as Most Admired according to Fortune Magazine. It appears, then, that it is avoiding internal threats. Based on its recent performance,

though, an internal re-organization may be coming.

Externally, the company faces enormous competition:

Wholesale club stores (BJs, Wal-Mart, Sams Club)

Goodyear must continue to be effective (doing the right things) and efficient (doing things right) to maintain its leadership role and to survive in this extremely competitive market. Based on its 1999 performance, it may have let its guard down, but its long-term prospects continue to appear to be good.

Bibliography:

Sources:

Hoovers On-line Business Network

Goodyear press releases

Goodyear Annual Report (1998)

Strategic Management, Third Edition, Alex Miller,

Irwin/McGraw Hill, Boston, MA, 1998