Volvo Trucks

Penetrating the US Market

Group 6:
Anureem (306) | Manik (316) | Vishwas (342) | Shubham (346) | Suraj (350)

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VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

ory of US Market and its differences with European Market

First Volvo car
exported to the US

Teamed up with
Freightliner for
distribution
1975

1955

Volvo acquired the

White Motor
Corporation

1979
1978

Volvo Truck
entered the US
market using
existing car
dealership

Volvo White
market share at 89%
1988

1983
1980
Volvo introduced
the slash on
Volvo White truck
fronts

Freightliner
acquired by
Daimler-Benz

Volvo invested
$500 Mn for the
launch of the VN
series

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Lower
maximum
allowed
weights

Conventional
Unsynchronis
truck
ed gearboxes
preferred

1997

1987

1995

2000
Introduced a new
VN model, the 770

Volvo acquired
GMs heavy truck
business

European

American
Length of
tractor not
included in
truck length

Volvo aims to
break the 12%
market share
barrier

Length of
tractor
included in
truck length

VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

Higher
maximum
allowed
weights

Synchronised
gearboxes

Cab over
trucks
preferred

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Cultural Distance

Administrative Distance

Geographic Distance

Economic Distance

VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

Porters Five Forces

Analysis
Bargaining power of
Mediu
suppliers
Moderately differentiated m
+
offerings
High switching costs for + +
buyers (like Volvo)
Relevance of product in
+ +
final assembly
+
Established supplier
networks
- No real threat of forward
integration
Threat of new
entrants
Distribution companies
carry multiple brands
Low control on raw
materials by incumbent
companies
High economies of scale
High product
differentiation
(customization)
High brand loyalty
High capital
requirements
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Low

Industry Rivalry

+ +

High concentration of
competitors
High switching costs and
exit barriers
Cyclical nature of heavy
truck industry in the US

High
++

Bargaining power of
Buyers
Volume purchased by a
single buyer is high
High switching cost
Low ability to backward
integrate
Ideal substitute products
not available
High product
differentiation of
suppliers

Low
+
-

++
+

+
- - -

Threat of substitutes

Low

Direct substitutes not

available

- +

Factor increases the

force

VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

Factor decreases the

force
4

Why is the heavy truck industry

globalizing slowly?

Technolo
gy
Factors

Industryglobalization: Yipsdrivers
Market
Market drivers
drivers

Cost drivers
Low GDP of majority
country
Low per capita income
of developing and under
developed nations
Cost depends on
economies of scale
which depend on market
size

Economi
c Factors
7/2/16

Non-uniform
Non-uniform customer
customer
demands
demands

Preference
Preference to
to local
local
brands
brands

Distribution
Distribution system
system
varies
varies form
form country
country to
to
country
country

Growth
Growth rate
rate varies
varies form
form
country
country to
to country
country

Globalization
Globalization
Strategy
Strategy
Competitive
Competitive drivers
drivers

Players
Players focusing
focusing on
on
consolidation
consolidation

Import
Import and
and export
export of
of
components
components are
are low
low

Less
Less no.
no. of
of players
players looking
looking
to
to globalize
globalize

Competition
Competition is
is less
less
interdependent
interdependent

VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

Social
Factors

Government
Government
drivers
drivers

Difference
Difference in
in technical
technical
specifications
specifications

Legal
Legal barriers
barriers to
to entry
entry

Tariffs
Tariffs and
and duties
duties for
for
import
import

Local
Local labor
labor regulations
regulations

Political
Factors
5

Why is the heavy truck industry

globalizing slowly?
Heavy truck market is highly customer dependent which
varies from country to country
Countries have different regulations and trade barriers
to suit the local requirements
Truck industry is looking towards consolidation to
achieve economies of scale and optimize cost
The cost of trucks in a country is dependent on its
market size and GDP
Technical specifications and distribution model differences
are high between countries

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VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

Is US entry part of global

strategy ? (1/2)
In order to be successful in this global industry, a manufacturer must have a major
presence in all the major markets, including the US market. CEO, Volvo Truck
Corporation, 1988
Volvo entered the US with its passenger car business in 1955
In early 70s, Volvo truck declared its mission of becoming a global player and this led to
entry in the US in 1975

Vertical Growth Strategy

Volvo manufactured most of the drive-train components
Backward Integration

Achieve full integration in the US market

Established assemblies in different locations in the US

Forward Integration

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Relied on dealers for distribution of trucks

No exclusive distributors

VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

s US entry part of global strategy ? (2/2)

Horizontal Growth
Strategy
Volvo acquired WMC for $70 million in 1981
Focus on improving dealer and customer relations
White Motor
Corporation

Whites new family program, as customers geared

towards fleet sales
VWTC focus on premium end of market
Volvo made minor changes in exterior of the trucks, though
introduction of Volvo Slash was a subtle way of indicating

GM Heavy Truck
Corporation

change
Acquired by Volvo in 1988; Volvo dropped its highest
volume model
Consolidated the dealer network in areas of overlap of GM
and WMC

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VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

was most critical period? Should Volvo have exited US then? Why or wh
1996
15% DECLINE IN INDUSTRY
VOLUME

1981
DEREGULATION OF US
TRUCKING INDUSTRY

SITUATION:

REASONS OF WHETHER
TO EXIT OR NOT:

Entry opened for different players

Pricing restrictions abolished
Fall in the profitability
Consolidation of trucking companies
Emergence of Leasing Companies

Acquisition of White Motor

Corporation for $70 mn.
Added advanced product line
Standardisation of parts and
components
Step to improve dealer and
customer relations

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VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

Drop in sales by 38% from

23410 to 16800 units
Decrease in the operating
margin
Record loss of $240 mn.
$500 mn. Investment program
in 1995 for the launch of new
VN series to meet customer
demands
Formation of Volvo Truck
Finance
Opportunity to further increase
the market share of engines
9

at should Volvo do for North America as of 2000?

Volvo is facing the following major issues
as of 2000
Inefficient operations as
compared to competitors
and benefits of vertical
integration are unseen
Integration has not
provided any significant
competitive advantages
Absence of an established
supplier network as a
consequence of full
integration
High cost of
manufacturing of some
parts tends to decrease
the profitability of the firm

7/2/16

Market share of Volvo (11%

in 2000) has not increased
over the years
Low market share prevents
Volvo from achieving
economies of scale
High investment in North
America without significant
market share will prevent
its entry into other
potential markets
Brand value reduces if the
company fails to compete
in a competitive
environment

VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

Operating Margin
Navistar

Paccar

Scania

Daimler Chrysler

Renault V.I.

Volvo

Market share
Freightliner

Paccar

Navistar

Mack (RVI)

Volvo

Ford

GM

Others

10

Recommended Solutions
Volvo should move
towards adopting
transnational
strategy which
Daimler-Benz has
successfully adopted
Transnatio
nal

Low

Cost Reduction
Pressure

Hig
h

Global

International
Low

Multidomesti
c
Hig
h

Move away from vertical

integration and develop
supplier network
Decentralize and give
authority to the local
management to outsource
functions not providing
competitive advantage
Develop strong ties with
the local suppliers so that
it is able to provide
customized products to its
customers

Local
Responsiveness

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VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

Further invest in the engine

manufacturing division to
make it their core
competence
Focus on being the sole
supplier of the engines in
the North American market
by investing more in the
R&D of engines
Engine being one of the
most profitable part of the
truck can contribute to the
bottom line growth of the
firm
Provide complete after
sales service for the
engines to gain market
share

11

Thank You
7/2/16

VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET

12