In Taiwan, industry people call tires "black donuts." Perhaps getting into the black donuts industry and making money is not too difficult, but becoming Taiwan's sixth richest family according to Forbes in less than half a century and going up against century-old pillars of the industry is impressive by any measure.

This is the story of Cheng Shin Rubber. Founded in the Changhua countryside in 1967 with just 178 employees, perhaps not even company founder Lo Chieh could have expected that over the decades the empire he built with his own hands would become the world's ninth biggest tire company with over 25,000 staff, a black donut giant whose products are marketed in 180 countries around the globe.

Just how big is Cheng Shin? In 2013 the company sold 40 million automobile tire casings, enough to outfit 10 million cars, or the entire output of Germany's auto industry over two years.

Behind the company's revenues lay impressive brand values. Since setting out in 1992 to develop a mid- to high-end tire brand, Maxxis, the company's value has continued on an upward trajectory. According to the Interbrand Taiwan international brand survey for 2013, Cheng Shin ranked eighth, with brand value estimated at US$370 million, outranking even cross-strait food industry giant Uni-President Enterprises.

Cheng Shin was named one of Forbes' best publicly traded Asian Pacific companies in 2013, the only tire company to make the list.

This past June 17, 90 year-old company founder and chairman Lo Chieh formally handed over the keys to the kingdom he built himself to his second son, Lo Tsai-jen, signaling the changing of the guard from one generation to the next.

Generational handover, passing on work ethic

Lo Tsai-jen, low key like his father and not one for publicity, has made Shanghai and Kunshan the base of his life and business ventures for years. How will he take up the mantle and move Cheng Shin ahead?

Like father like son, one step at a time.

The low key Lo Tsai-jen is a faithful adherent to his father's management philosophy. Lo Chieh once said, there is no know-how involved in Cheng Shin's operations, only "hard work," and that "executives should be harder working than staff members."

Mindfulness has kept Cheng Shin going.

Looking over Tire Business's survey, Cheng Shin took a full seven years to work its way from tenth to ninth worldwide in 2013. The global tire business is dominated by the industry's Big Three (Bridgestone of Japan, Michelin of France, and Goodyear of the US), which account for 40 percent of global turnover, whilst the top 10 account for nearly 65 percent of the pie.

Clearly, this is a highly concentrated market dominated by a select few. And not only must Cheng Shin squeeze its way into the lead pack, but it must keep moving up if it is to share a real piece of the pie and not crumbs.

Cheng Shin's secret weapon is its world-class tire testing ground. Not timid about investing, the company aims to meet the stringent demands of global automakers.

China's only tire proving ground

 "The world's famous tire makers all have their own testing grounds. If Cheng Shin didn't have their own, how could they convince customers they're doing any research and development?" explains Huang Lung-chou, president of the Automotive Research and Testing Center (ARTC).

Building China's only, and Asia's largest tire proving grounds, is the centerpiece of Cheng Shin's growth from small to large and large to establishing international status. Cheng Shin's own testing facility was completed in late 2012. To mark the occasion, Lo Tsai-jen invited representatives from major automakers from around the world to experience the only tire proving ground in all of China. Costing around NT$4.5 billion, it ate away nearly 30 percent of the company's net after tax profits for 2012.

 "Icy roads, snow-covered roads, and harsh roads. Our testing ground is a microcosm of road conditions around the world. To sell tires all around the world, you have to pass these tests," stresses Lo Tsai-jen.

The proving ground is a big gamble, but if Cheng Shin is to keep moving up after making it into the top 10 it will need to rely on the testing facility.

Further, quality and branding are vital assets in the tire industry. If it can stay firmly within the international automobile manufacturing supply chain it would be a big boost for Cheng Shin, and in particular enhancing Maxxis' mid- to high-end image, as automaker brands are invariably the best endorser of a tire brand's status.

Offering his analysis, a representative of a Taiwanese competitor to Cheng Shin relates that Japan, France, Germany and the USA sit at the head of the world's tire brands, with Maxxis and Korean brands in the second tier. On the strength of its own testing facility, Cheng Shin can accelerate R&D efforts and improve customer relations, helping it "nearly work its way to the back of the lead pack."

Based on income structure, tire sales can be divided into two markets, namely as standard equipment for automobile manufacturers (OE) and replacement tires sold through retail channels (RE). Purchases are made in large volume in the former market, however with lower profit margins, whilst the latter yields higher margins but is subject to greater price fluctuations.

Although Cheng Shin/Maxxis has achieved number two OE sales ranking in China, it accounts for only around 30 percent of the entire Cheng Shin Group's sales in terms of profit structure. This indicates that Cheng Shin still has a lot of room for effort in the OE market.

Lone warrior to venerable institution

Cheng Shin's story is one about fighting alone for survival. Taiwan does not enjoy favorable conditions for tire industry development, neither producing its own rubber nor enjoying the support of an international-grade auto industry like Japan's Bridgestone, France's Michelin, the USA's Goodyear, or Germany's Continental.

So how has Cheng Shin managed to stand on its own?

The right people must be in place before the right market emerges. The late 1980s were a period when the Taiwanese economy hit the wall, short of workers and land, and facing environmental protests, triggering the first wave of local businesses to move offshore.

This happened to coincide with China's moves toward opening and reform, and she began attracting foreign investment.

What caught Cheng Shin's attention was that "At the time China was the world's largest bicycle market." This in turn struck a chord with Cheng Shin, which was still concentrating on making small tires for bicycles and motorcycles.

Between 1987 and 2013, a span of just 27 years, the Cheng Shin Group saw sales grow 32 times over, like an incalculable magic number. China went from the world's biggest bicycle market to an automobile market, and Cheng Shin not only grew rapidly, it advanced from small tires to full-size tires, and geographic proximity helped make Cheng Shin the first Taiwanese or foreign tire brand Chinese consumers became familiar with.

Timing, geography shaped Cheng Shin's upgrading and transformation.

 "Still, you can't put the cart before the horse," reminds Lin Tsai-Ding, professor of International Business at Tunghai University. "Lo Chieh's focus and perseverance were the main keys."

Lin continues, noting that people find the tire industry dirty, smelly, and arduous. By 1983 Cheng Shin was already Taiwan's number one tire manufacturer, with annual sales of NT$2.7 billion. Yet Lo Chieh did not jump into "diversified" operations, nor did he fall for the temptations of making quick money.

Not only did Lo Chieh persist with the tire business, but he sought to do things even better, sending Lo Tsai-jen and other executives to Toyo Tires in Japan to learn how to make better steel belted radial tires. This was quite unlike many top conventional industry executives, who send their offspring to study finance. "The China market merely opened a window of opportunity for people dedicated to their core business, and Cheng Shin took advantage of it," says Professor Lin.

For Lo Chieh, the Chinese market is just a stepping stone to greater heights. This is why, in addition to the Chinese market, Cheng Shin has successively invested in facilities in Thailand and Vietnam, and will activate an Indonesian investment plan next year.

Post-handover map remains a cooperative triangle

Lo Tsai-jen took over company leadership in a seamless handover this past June 17. Prior to the second generation taking the reins, Lo Tsai-jen was in charge of the Kunshan facility, eldest son-in-law Chen Hsiu-hsiung ran the Xiamen facility, and second son-in-law Chen Jung-hua oversaw the Taiwan headquarters and overseas brand marketing and promotions. People are naturally curious to see whether big changes transpire at Cheng Shin amongst this triumvirate in the wake of Lo Chieh's departure.

 "I don't think so. If that were to happen, the generational changeover on the board wouldn't have been so smooth," offers an observer familiar with the company. More complementary than competitive, Cheng Shin owes its success to each of them in equal parts. Plus, they all know very well they need one another.

 "All three of them have big enough stage to perform on, and Cheng Shin is still growing and expanding. Aligning in a united front towards the outside can help each of them get a piece of an even larger pie," relates Professor Lin.

It is believed that it took Lo Tsai-jen and the two President Chens just six months to reach a conclusion on next year's Indonesian investment.

Compared to Lo Chieh, the modest, self-effacing Lo Tsai-jen could see himself in the additional role of facilitator after taking over at the top. "Cheng Shin is a team. The old Chairman's international goal is for me and the two Chens to form and operate as a team," responds Lo Tsai-jen.

Cheng Shin has traveled 47 years under Lo Chieh's leadership. Now piloted by Lo Tsai-jen, how will he step in behind the wheel and help make the car's tires faster and more stable?

The newly completed testing ground not only tests Cheng Shin's R&D capacity, but how Lo Tsai-jen will confront future challenges while taking the Cheng Shin Tire empire to the next level.

Translated from the Chinese by David Toman