Robert Anderson in Prague -

Matador, the Slovak tyre maker, has defied expectations since a management buy-out 12 years ago by not only remaining independent, but by being successful enough to expand abroad and diversify into other businesses.

This marks it out as exceptional both in Slovakia - where it is the largest remaining local privately-owned company with net income of €16.4m on sales of €414m - and in the tyre business, which is consolidating around a handful of global players.

Matador remains at heart a family business. Stefan Rosina, Matador's direct and forceful chairman and chief executive, was technical director when his father bought the company from the state. He has spent his entire working life at the company, led its expansion into Russia and masterminded its strategic shift into Slovakia’s automotive sector.

But today Rosina is poised to make his boldest and most difficult decision yet: to sell a majority stake in the profitable but cyclical car tyre business, where his family built its fortune and reputation, and focus on becoming an automotive supplier.

Matador has confirmed it's in talks with Continental of Germany – with whom it already has a joint venture producing truck tyres – and it is understood that a contract should be signed by the end of this year.

This move would be just the latest in a series of strategic challenges Matador has faced and overcome.

Retreading the business

The first challenge, at the time of privatisation in 1994, was that Matador could neither finance the research and development necessary to keep up to speed in the tyre business, nor invest enough in marketing and sales to compete with its global rivals. The solution was to dispose of non-core or unprofitable business lines and to specialise in higher margin tyres for the Central and Eastern European market.

The most important decision was to spin off truck tyres, then 40% of its tyre output, into a joint venture with Continental in 1998. Continental provided the investment and the know-how, while Matador contributed the workforce and the factory space for its 24% stake.

The fast growing joint venture is now well on the way to becoming the largest truck tyre producer in Europe, with an output of 2.2m tyres planned for next year.

Matador also forged off-take agreements with Nokian of Finland and Marangoni of Italy to produce tyres, which helped it improve quality. Rosina points out that, after eight years of trying, Volkswagen – Central Europe's leading carmaker – has finally become a tyre client.

Matador's second and more fundamental challenge was to reduce its dependence on the Central European tyre market, which had become increasingly competitive as global players started to enter.

The solution was to expand abroad and Russia was the obvious target, given the close ties built under communism. Rosina negotiated a 50-50 joint venture with Sibur, a division of Gazprom, in 1995 to produce car tyres in Omsk. Matador Omskina, which remains the only foreign joint venture in tyres in Russia, has since grown rapidly and should produce 4m tyres this year.

It is now looking to find a suitable partner in China and India, growing markets with low-cost production that could be exported back to Central Europe. "In the next 10 years it will be necessary to move production outside Slovakia," Rosina admits.

Matador took another bold step in 2004 when it decided to diversify into automotive parts, an even more competitive sector with lower margins than tyres.

Management had considered going into sweets, mineral water and even balloons before fixing on the automotive sector. By moving into metal parts, Matador hoped to benefit more directly from the decision by PSA Peugeot Citroen and Kia to establish car plants in Slovakia. Matador also hoped to achieve synergies in R&D, especially between tyres and axle parts. "It is essential to get good information about the nearest parts connected to tyres," Rosina says.

Matador entered the industry by acquiring 51% of Pal-Inalfa’s components business in Slovakia. The joint venture supplies pressed and welded metal parts mainly to VW's assembly plant in Bratislava, as well as Skoda Auto, Suzuki and Audi.

"For us it was a completely new business," says Rosina. "We had to buy a business first."

Last year, Matador also formed a separate joint venture with DongWon Metal to produce door frames for the new Kia plant and potentially for the Hyundai plant being built in neighbouring Czech Republic. Matador, which owns 65% of the joint venture, is the only locally owned tier-one supplier of Kia in Slovakia.

By 2010, Matador aims to double its automotive industry sales and keep tyre sales stable so that they end up equal. Currently, automotive sales represent 25% of group sales compared with around two-thirds for tyres, but this has grown from 5% in 2004.

Matador realises the car assembly boom in Slovakia won't last forever, so it wants to move into R&D. "Our main idea is to get development work in the future," says Rosina. "We don’t just want to be a producer of parts but also offer development work: this is the only way to be an auto supplier."

Like in tyre making, it also wants to start producing car parts in Russia and even India, where Skoda Auto has recently started production. Yet to seize such opportunities in the automotive sector, Matador needs to invest heavily, which has forced the family-owned company to think about its priorities.

Matador was negotiating last year with Nokian and Cooper about selling its tyre business, but a deal with the US tyre maker was blocked by Rosina’s brother Miroslav who felt a sentimental attachment to the old business and to the power it brings as one of the biggest employers in northern Slovakia.

This highlights Matador's third and most difficult challenge, to make the transformation from a family-owned company into an international group.

Unlike many other managers who acquired privatised state assets cheaply in the 1990s, Matador’s owners neither ruined the company nor sold out to foreign investors. Instead, they made way successfully for the next generation in 2000.

Rosina and his brother Miroslav, who overlook the automotive and tyre operations respectively, restructured the company last year by creating a financial holding where they sit with the other shareholders, and brought in managers to run the operations themselves. Now Rosina wants to bring managers into the holding itself and take the shareholders out.

However, Matador still finds it difficult to recruit managers from outside the group and so remains desperately short of managerial expertise, putting immense pressure on Rosina and his brother.

Without more investment in management and less meddling by shareholders it will be impossible for Matador to realise its potential.

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