Continental, Metro set to sign deal - Views on News from Equitymaster

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Continental, Metro set to sign deal

Oct 29, 1999

Newspaper reports reveal that Continental AG plans to enter into technology assistance and offtake agreements with Metro Tyres for the manufacture of scooter and motorcycle tyres. At a later stage, Continental would also consider entering into licensing agreement with Metro, whereby the latter would manufacture and market two-wheeler tyres under the Continental brand name.

Initially, Continental AG, will buy cycle tyres and tubes from Metro and will sell it in the international market under the ‘Continental’ brand name. This will beef up Continental’s presence in the international cycle tyre market.

If the Continental-Metro venture is successful, there could be more international tyre manufacturers outsourcing their requirements from India. This is so, because Indian labour is relatively cheap, and unit cost of tyre is low in the country. International majors could import cheaper tyres from India, and sell them in the overseas market to establish a presence in newer areas like cycle tyres.

The upside for the Indian partner will be a spurt in forex earnings. Moreover, it could enter into a licensing agreement with the international company to sell tyres in the Indian market under the foreign partner’s brand name. This will see an appreciation in domestic sales.

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