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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
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Medium
Low
Industry Rivalry
• High concentration of competitors
• High switching costs and exit barriers
• Cyclical nature of heavy truck industry in the US
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High
Low
Low-
27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 5
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
27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 7
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
27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 8
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?
27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 10
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
27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 11
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
27/04/2023 VOLVO TRUCKS: ENTRY AND PENETRATION IN THE US MARKET 12
Thank You