Strategy Management Case-2

Volvo Trucks: Penetrating the U.S.

Market

Volvo Trucks has entered into the United States in attempts to survive in the toughest
market in the world. After an unsuccessful alliance, Volvo turned to acquisition and
purchased two American truck companies. Although the company successfully utilized its
brand and position itself as a high quality and safe vehicle, their sales remained low.
Management does not seem to have a lot of information to make better judgments of
the market.

Presented by: Group 8

Alok Kumar -MP18002

Anurupa Samaiyar-MP18007

Manish Singh -MP18020

Md Azim Ashraf -MP18023

Sanjeet Kumar -MP18036

1|Page
 Strategy Management Case-2

1. PROBLEM ANALYSIS

A. Benefit of full integration is unseen and can be the cause of inefficiency.

B. Market share in the US is low.

2. DIAGNOSIS:

Benefit of full integration is unseen and can be the cause of inefficiency.

This is a problem for Volvo as the full integration has not provided for any significant

competitive advantages. On the other hand, the cost of investment on manufacturing

equipment and research and development of the various parts of the truck lead to the

firm having significantly lower operating margins. This strategy seems to be taking the

firm in the wrong direction, and if it is not considered as soon as possible, it will create

a considerate disadvantage for Volvo because of its inflexibility and lowered

profitability. It cannot be the best in producing everything, thus it should not be trying

to produce everything, because the inefficiency in some parts will drag down the

productiveness of other profitable parts. Another reason is that full integration has

stalled the ability of management in the establishing of good relationships with the

suppliers and dealers. With the full integration, the company purchases (or establishes)

their own suppliers and dealers, and these divisions have to follow the orders of the

mother company. Therefore, the management does not have to pay a lot of attention in

establishing a good relationship, and when the company deals with outside suppliers

and dealers in the United States, they will be less experienced and not be able to

establish a trustful relationship. This creates great threat to Volvo, because the most

successful companies in the United States have a well-established supplier and dealer

network that support the company.

2|Page
 Strategy Management Case-2

Market share in the US is low

There are two reasons for this. The first is that an achievement in the United States is

an indicator for the success of a company worldwide in the truck industry. The CEO of

Volvo Trucks commented that the US market is the most difficult one in the world, and

those that can succeed in the US can do it anywhere in the world; that is why Volvo

Trucks will not withdraw out of the US market and is determined to succeed in it. If the

market share remains low, it will show that the company is not capable of success and

lead to a lowered brand value. Another consideration is that market share for Volvo is

low and growth is low also (compared to major competitors). Thus, if the company

cannot overcome this problem, it means that they will not be as successful in their

ventures in other countries because they have to spend a large amount of capital to

maintain the US venture and the capital will be taken away from other more potentially

profitable markets. This market is like a question mark, meaning it will need a lot of

capital and resources to establish and at this point in time, the future is vague and the

chances to succeed are low.

3. Solutions:

1. Decentralize and give authority for the North American Division to manage.

This way, both the issues can be solved because the way the company functions

does not have to be the same as the other divisions. (Europe and Asia) The top

management of the US division can use their knowledge of the market and

decide whether or not to stay fully integrated (or outsource some functions), and

how to increase customer preference and purchase (and thus market share) in

the US market.

3|Page
 Strategy Management Case-2

2. Focus on the research and development of the engine and outsource minor parts.

This way it can solve the inefficiencies of the full integration and also adapt to

the market situation in the US because most US customers prefer to determine

the specs of the truck and the engine is the most profitable piece of the truck. In

order to attract customers to purchase the entire Volvo truck, we provide the

complete after-sales service so that customers can remain loyal. For customers

that only purchased the engine, repair service is also provided.

3. In the case that the firm still wants to remain fully integrated, the firm can

produce the parts for the assembly companies and achieve economies of scale

from selling and using their own parts. Thus, it will further lower their costs and

establish their brand presence.

Recommendation: With solution 2, the company can quickly change their operations and

concentrate production on the few parts that are more profitable, namely, the engine. The rest

of the manufacturing, of the unprofitable parts, should be divested. The parts can be outsourced

and purchased from other companies. With concentrating on engines, the level of profit is

expected to increase and the company can concentrate its funds on the research and

development of the engines. This way, the company’s financial status can be improved in the

short run and be able to establish loyal customers through their superior customer service.

4|Page