27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 1

Volvo TrucksPenetrating the US Market

Group 6:

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

27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 2

History of US Market and its differences with European Market

First Volvo car exported to the US

1955

Volvo Truck entered the US market using

existing car dealership

1975

Teamed up with Freightliner for

distribution

1978

Freightliner acquired by Daimler-Benz

1979

Volvo acquired the White Motor Corporation

1980

Volvo introduced the ‘slash’ on Volvo White

truck fronts

1983

Volvo White market share at 8-9 %

1987

Volvo acquired GM’s heavy truck business

1988

Volvo invested $500 Mn for the launch of

the VN series

1995

Introduced a new VN model, the 770

1997

Volvo aims to break the 12% market share

barrier

2000

American

Length of tractor not included in truck length

Lower maximum

allowed weights

Unsynchronised gearboxes

Conventional truck preferred

European

Length of tractor included in truck length

Higher maximum

allowed weights

Synchronised gearboxes

Cab over trucks preferred

27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 3

Cultural Distance Administrative Distance

Geographic Distance Economic Distance

27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 4

Bargaining power of suppliers

• Moderately differentiated offerings

• High switching costs for buyers (like Volvo)

• Relevance of product in final assembly

• Established supplier networks• No real threat of forward

integration

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

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

Threat of substitutes

• Direct substitutes not available

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- -

--

- -

+ +

+

-

- -

-

- -

- -

Porter’s Five Forces Analysis

+ Factor increases the force - Factor decreases the force

+

-

+ +

+ +

-

+

Medium

Low

Industry Rivalry

• High concentration of competitors

• High switching costs and exit barriers

• Cyclical nature of heavy truck industry in the US

+ +

+ +

+

High

Low

Low-

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Why is the heavy truck industry globalizing slowly?

Market drivers Non-uniform customer

demands Preference to local brands Distribution system varies

form country to country Growth rate varies form

country to country

Competitive drivers Players focusing on consolidation Import and export of

components are low Less no. of players looking to

globalize Competition is less

interdependent

Government drivers Difference in technical

specifications Legal barrier’s to entry Tariffs and duties for import Local labor regulations

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

Globalization Strategy

Industry globalization: Yip’s drivers

Social Factors

Political Factors

Economic Factors

Technology Factors

Market drivers Non-uniform customer

demands Preference to local brands Distribution system varies

form country to country Growth rate varies form

country to country

Competitive drivers Players focusing on consolidation Import and export of

components are low Less no. of players looking to

globalize Competition is less

interdependent

Government drivers Difference in technical

specifications Legal barrier’s to entry Tariffs and duties for import Local labor regulations

Globalization Strategy

27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 6

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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Is US entry part of global strategy ? (1/2)

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

Backward Integration

Volvo manufactured most of the drive-train components

Achieve full integration in the US market

Established assemblies in different locations in the US

Forward Integration Relied on dealers for distribution of trucks

No exclusive distributors

Vertical Growth Strategy

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

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White Motor Corporation

Volvo acquired WMC for $70 million in 1981

Focus on improving dealer and customer relations

White’s “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 change

GM Heavy Truck Corporation

Acquired by Volvo in 1988; Volvo dropped its highest volume model

Consolidated the dealer network in areas of overlap of GM and WMC

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

Horizontal Growth Strategy

27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 9

DEREGULATION OF US TRUCKING INDUSTRY

15% DECLINE IN INDUSTRY VOLUME1981

1996

SITUATION: • Entry opened for different players• Pricing restrictions abolished• Fall in the profitability• Consolidation of trucking companies• Emergence of Leasing Companies

• Drop in sales by 38% from 23410 to 16800 units

• Decrease in the operating margin• Record loss of $240 mn.

REASONS OF WHETHER TO EXIT OR NOT:

• Acquisition of White Motor Corporation for $70 mn.

• Added advanced product line• Standardisation of parts and components• Step to improve dealer and customer

relations

• $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

Which was most critical period? Should Volvo have exited US then? Why or why not?

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What should Volvo do for North America as of 2000?

Inefficient operations as compared to competitors and benefits of vertical integration are unseen

Volvo is facing the following major issues as of 2000

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

1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0-1.00%1.00%3.00%5.00%7.00%9.00%

11.00%13.00%15.00%

Operating MarginNavistar Paccar ScaniaDaimler Chrysler Renault V.I. Volvo

Ope

ratin

g M

argi

n

Market share of Volvo (11% in 2000) has not increased over the

years

1 9 8 7 1 9 9 6 2 0 0 00%

5%

10%

15%

20%

25%

30%

35%

Market shareFreightliner Paccar Navistar Mack (RVI)Volvo Ford GM Others

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

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Recommended SolutionsCo

st R

educ

tion

Pres

sure

Local Responsiveness

International

Global Transnational

Multidomestic

Low High

Low

High

Volvo should move towards adopting

transnational strategy which Daimler-Benz has

successfully adopted

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

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

Further invest in the engine manufacturing division to make it

their core competence

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Thank You