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Custom Volvo Case Study essay paper
Volvo, one of the best car manufacturers, was considered as one of the leading global competitors within the heavy truck industry in 2000 (Orjan, 2006). It is worth noting that competition within the heavy trucks industry intensified during the 1990s. However, market analysts postulate that success within this global industry calls for a significant presence within all the main market, as well as the United States market (Bedeian, 1993). From 1975, Volvo Trucks had been trying to make its presence in the heavy truck market of the United States. Its efforts seemed futile and through alliance it managed to acquire the White Motor Corporation, a bankrupt truck manufacturer in the United States in 1981, and in 1988 it acquired the heavy truck branch of the General Motors (Orjan, 2006). However, regardless of these considerable efforts, market statistics indicate that Volvo Trucks has never attained more than 12 per cent market share. This report seeks to address various issues with regard to Volvo Trucks’ penetration to the United States market. The report will first provide a brief description of the company detailing the type of products it deals in. It will then address the challenges and opportunities in the United States market for Volvo. The report will then examine the company’s ability to tackle the identified challenges, along with the strategy applied by Volvo to enter this market. Finally, the report will provide some of the measures that Volvo should implement to make its presence in the United States market viable.
Description of the Company
Volvo Trucks is a global manufacturer of trucks and is based in Sweden. The company manufactures and assembles its products in over 15 countries, and is estimated to produce and market more than 100 000 units on annual basis. Having been established in 1925 as a car manufacturing company, the company’s first passenger car made an entry into the market in 1927 (Orjan, 2006). The company made a tremendous achievement in 1928 after adding trucks to its product range, producing a 28 hp delivery truck derived from the passenger car design. From then Volvo Trucks developed into a more diversified company, dealing in a wide variety of products ranging from jet and marine engines to trucks, buses and cars. The company attained a further diversification in the 1980s after making an entry into the disparate industries such as the pharmaceuticals, financial services, matches and the processed foods like beer and sea food. It reversed this conglomerate strategy in the 1990s and refocused on heavy equipment and vehicles. It is worth noting that the company’s sales in 1998 had reached about $27 billion (Orjan, 2006).
Nevertheless, the sale of cars constituted a significant proportion of this sale, accounting for about 48 percent of the total sale, while the sale of trucks accounted for 28 per cent. However, after Ford acquired the global car market in 1999, Volvo turned into manufacturing transport solutions, specifically for commercial purposes, for instance, construction equipment, aerospace engines, industrial and marine power engines, buses and trucks. This led to the recognition of Volvo as one of the top heavy trucks manufacturers in the world, serving more than 180 markets in different countries in 2000. The company delivered about 81 000 heavy and medium trucks to these markets (Orjan, 2006).
It is worth noting that Volvo managed to acquire a market share of about 14.9 percent in the European market while its share of the North American market was about 10.6 percent. However a significant proportion of the company’s trucks were categorized under the heavy segment, totaling to more than 90 percent of the company’s total production. Basically, the key reason as to why the Volvo concentrated on the medium-heavy truck segment was to provide its dealers with a full product line. This product line included the European conventional trucks; basically the NH series; the European cab-over trucks, the FL series distribution and construction use and the FH series purposed for long-haul; and the American conventional trucks, the 770 and VN series. In all these markets, Volvo’s trucks were often associated with good comfort, modern features as well as high reliability (Orjan, 2006).
The challenges and opportunities in the United States market for Volvo
As market analysts highlight, to be competitive in the global markets, it is important that a company penetrates into some of the world’s major markets, such as the United States. Thus, in its effort to become a competitive global company, Volvo has made several attempts to make its entry into the United States market. Its initial presence can be dated back in 1955, when the company first exported its passenger car there. However, after coming up with a decision of becoming a global player in the early 1970s, Volvo penetrated into the U.S. market in 1975. The company applied the existing network it used to distribute its passenger cars to sell its trucks within this market. At first, dealt in only medium trucks that were basically sourced from the European product range, while the sales were directed to the 13 northeastern states, considering the fact that these states were deemed to be densely populated, thus would allow the company to establish a sufficient service network. However, the growth was slow, and the company recorded low annual sales, amounting to less than one thousand units. Volvo’s ability to attract an adequate amount of dealers was low, and as statistics indicate, the company managed to attract as low as 45 truck dealers only in 1978 (Orjan, 2006). However, this report basically seeks to analyze the challenges and opportunities present for Volvo within the US market.
To begin with, Freightliner’s decision to conclude its sales corporation with the White Motor Corporation in 1978 provided an opportunity for Volvo to make an alliance with this company in order to expand its operations within the U.S. market (Orjan, 2006). Freightliner, a manufacturer of heavy trucks wanted to widen its product range in its aim to become more attractive to its dealers. However, considering the fact that Volvo Trucks had not yet introduced its full product line to the U.S. market, this provided an opportunity to the company to team up with Freightliner, which took the responsibility of distributing Volvo’s trucks in the U.S. This enabled the company improve its sales significantly and the company is said to have attained a sale of 1 998 in 1979 (Orjan, 2006). However, the sharp decline of the U.S. market proved challenging to Freightliner and was thus put on the market. Daimler-Benz purchased Freightliner as Volvo was not willing to provide the asking price.
Nevertheless, market analysts postulate that one of the strategies that could be adopted to increase a company’s market share is through acquisitions. However, this has to be done through a careful analysis, with regard to the company’s previous performance and general reputation. For Volvo Trucks, having left with no partner, decided to form an alliance with White Motor Corporation, without considering its previous its performance. The White Motor Corporation was one of the oldest truck manufacturers in the United States and held a market share of about 20 per cent in the 1950s (Orjan, 2006).
However, the 1973 energy crisis concurred with the company’s huge investment in capacity and products leading to a drop in the profits. In addition, White Motor Corporation’s market share shriveled to 8.6 percent in 1974 from 15.9 percent registered in 1970. Basically, the late 1970s economic downturn led to White’s bankruptcy as recorded in 1981 (Orjan, 2006). This therefore posed a huge responsibility to Volvo as it was required to improve and restore customer and dealer relations, assuring them that significant changes had taken place. Besides, the introduction of a new design, the Volvo slash, which was placed at front side of the trucks in 1983, aimed at ensuring the dealers, customers, significant stakeholders, along with the employees that a significant change in the ownership of White Motor Corporation had taken place.
However, despite acquiring White Motor Corporation, Volvo’s sales improved slowly, it managed to attain a market share of only 9 percent in 1987. Furthermore, Volvo White’s inability to meet the high demand of trucks in 1978 and 1988, greatly affected its share in the market. In 1988, Volvo entered into another alliance with the GM Corporation which only held about 3 percent of the U.S. market share (Orjan, 2006). Basically, it is apparent that Volvo used acquisition to penetrate into the U.S. market. However, the company did not take careful analysis of the performance of the companies into which it was forming alliances with. In addition, the economic downturns within the U.S. market have posed significant challenges to Volvo Trucks. Furthermore, the deregulation of the U.S. truck market in 1981 affected the profitability of the truck companies significantly. This led to a considerable decrease in the amount of owner-operated trucks. Most of the truck buyers became more concerned with the quality of the trucks, fuel economy, and the general cost of performance. Most of the buyers in the United States favored the products that were built by the U.S. manufacturers, and often requested for the customization of these products and characteristics.
The Company’s Ability to Tackle These Challenges
Volvo Trucks is in a position to tackle the identified challenges. First, it is worth noting that the Volvo brand name is rated as the second largest heavy truck brand name in the world. This brand name is often associated with state of the art, high quality and standard products. This therefore means that the company’s brand name is well established within the global markets. However, one of the challenges within the U.S. market is the economic downturns that impact almost all of the global companies. Nevertheless, Volvo is in a position to deal with such challenges considering the fact that the company’s performance is impressive. In addition, the company has diversified its operations among many other countries, and thus is able to acquire enough capital to deal with such challenges. For instance, the company has made significant efforts to penetrate other markets such as Germany, France, Great Britain and Brazil, which are able to generate enough income to enable the company thrive in the U.S. market regardless of the economic downturns.
Furthermore, penetration into a new market requires that the company comes up with an effective strategy that will ensure success (Baumeister and Vohs, 2004). Nevertheless, Volvo Trucks is in a position to come up with the correct strategy that the company could employ to penetrate into the U.S. market. Furthermore, the company has already penetrated into other countries successfully, and thus, suggesting that it can also penetrate the U.S. market successfully, only if it adopts the right market entry strategy. With regard to the deregulation of the U.S. trucking market that affected most of the companies’ profitability, Volvo could well overcome this considering the fact that this is a company whose brand name is well established globally (Higgins, 1994).
The Market Entry Strategy Used By Volvo to Penetrate the U.S. Market
Basically, Volvo Trucks did not apply the right market entry strategy to penetrate the U.S. market. This is probably one of the reasons as to why the company has not been successful within this market. Since 1975, Volvo Trucks has been making significant efforts to penetrate into the U.S. market. However, the company had first introduced its passenger car to the U.S. market in 1955, but after specializing in trucking industry the company applied the existing dealer network to distribute its trucks within this market. However, after unsuccessful efforts, the company decided to form alliances and acquisitions as its strategy to penetrate into this market. Nonetheless, Volvo Trucks was not keen in choosing its partners as it basically targeted the weak trucking companies in the United States.
However, its first partnership with Freightliner seemed a success after Freightliner took the full responsibility of distributing Volvo’s products in the U.S., but this was short lived as the company was later acquired by another company. Volvo went forward and acquired the White Motor Corporation, a bankrupt truck manufacturer in the United States. It also acquired General Motor’s heavy truck division, which apparently was also performing poorly in the U.S. market as it only held about 3 percent of the total market share. Despite the fact that forming alliances and acquisitions is one of the major strategies that could be used to penetrate into newer markets, its success is only dependant on the correct choice of partners and companies to acquire (Michael, 2000). This can be measured in terms of performance and reputation. For the case of Volvo, it acquired the poor performing and bankrupt companies and thus affected its general performance. Probably, Volvo trucks could have considered forming alliances with the well established companies in the United States as a strategy. In all of the acquisitions Volvo made, a significant amount of investment was required to ensure considerable changes are made on the products designs to portray that changes that had taken place with regard to the affected companies’ ownership.
Furthermore, it was difficult for Volvo to rise up and control a significant proportion of this market considering the fact that the companies it acquired held only a small proportion of the overall market share. Basically, Volvo Trucks is an established global company which has all the capacity to successfully penetrate into the US market. It has made successful entries into other markets and thus, what the company is required to do is to come up with an appropriate market entry strategy that could be implemented to make a successful entry into the Us market.
What Volvo Trucks Should Do in 2000 to Make Its Presence in the U.S. Market Viable?
To make its presence in the U.S. market viable, Volvo trucks should first come up with an appropriate entry strategy that the company should implement in order to make a significant presence within the U.S. market. While mergers and acquisitions is one of the successful strategies that a company could adopt to penetrate into a newer market, market analysts recommend that should be done carefully while taking keen consideration of the performance and general reputation of the prospective partners (Michael, 2000). What Volvo Trucks should therefore do is to form partnerships with the already established companies within this market in order to assist it grow. In addition, the company should consider conducting a market research identify the right market for its products. After identifying the market, Volvo should then come up with the appropriate targeting strategies to ensure the market is well targeted before penetrating. Further research should be directed at establishing the most appropriate promotional strategies to ensure the company’s products are well known in the market. Product promotion aids in the product marketing process as it helps in targeting potential buyers in the market as well as informing the buyers of the range of products available in that market (Baumeister and Vohs, 2004).
Therefore, Volvo should make some investment in the promotion of its products within the U.S .market to ensure the potential buyers are targeted. Apparently, the U.S. market, just like any other market around the globe is prone to economic downturns. Thus, Volvo should ensure it employs adequate strategies that will ensure the company thrives during these economic hard times, for instance, diversifying its operations across several industries to ensure the risks are also diversified. Furthermore, the company could make appropriate use of its already established barn name to increase its sales. It can use its brand name to market its products within this market considering the fact that this brand is often associated with standard, high quality and state of the art products.
Volvo Trucks, headquartered in Sweden, is a global manufacturer of heavy trucks. The company has diversified its operations across different countries. However, to be a competitive global company, market analysts postulate that it is significant that a company makes an entry into the major markets. Volvo in its attempts to be a competitive global company has made several attempts to enter the U.S. market, though its efforts have proved futile. This is probably due to various challenges, for instance, the wrong choice of the market entry strategy and the economic downturns within this market. Nonetheless, this company is in a position to deal with these challenges in order to make its entry presence in the U.S. market viable.
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