Case study: VE(volvo & eicher) commercial vehicle

Case of VECV:

Eicher Motors has an evolved business model with over 50 years of experience in automotive
space in India. It has in-depth customer insights and market understanding along with frugal
engineering practices, extensive knowledge of suppliers, operational excellence with Global
Quality Standards. While Volvo, on the other hand has Global expertise and leadership in
product technology and brand image and customer relationships. Eicher Trucks and buses had
a growth rate of 45.5 per cent in 2004 which continuously dropped and in 2008 their growth rate
in this segment was -21 per cent. Eicher was in immediate need to curtail this decelerating
growth rate of its business Commemorating their successful partnership of 5 years (2008-
2012), Volvo Group and Eicher Motors, VECV announced the start of production from the
technologically most advanced engine manufacturing plant in India. The plant will initiate with
an initial capacity of 25000 units in Phase-I and later increase to 100,000 units with 30 per cent
of the engines exported to Europe, maintaining the Euro-VI emission standards.

United we stand; divided… we might as well say our Goodbyes!

Decelerating growth in the commercial vehicles sector bothered both the companies. Growth of
Eicher Motors commercial vehicles business witnessed a downfall from 45 per cent to -21
percent and for Volvo Group also witnessed a similar pattern. It was realized that the demand
for technologically advanced vehicles was growing and Eicher Motors though having a strong
distribution system did not possess the required products, and Volvo Group possessed the
technology but not market penetration. Hence, here were two players who desired a similar goal
and possessed skills and systems that if combined would garner profitable investments to both.

Power of Two

With the requirement of funds, technology and strong and efficient systems, the joint venture
VECV was formed. Volvo pumped in Rs. 1,082 crore and added its heavy truck distribution
business to buy a 50 per cent stake. Eicher transferred its CV, components and engineering
solutions business into VECV. The partners set up a component distribution centre, which ties
into the after-sales service, to monitor inventory at retail outlets and Eicher's warehouses Volvo
despite having a well set platform knew that it if had to completely overhaul Eicher the costs
would escalate. It had to selectively inject techn
ology to make the products better. Eicher’s

low cost manufacturing base offered Volvo that opportunity. Vinod Aggarwal, CEO of VECV,
says a global truck maker would have had to spend three to four times the amount Eicher did in
developing a new truck or setting up a new factory. Aggarwal says VECV has invested Rs 1,300
crore to expand manufacturing and distribution capacity, improve processes and set up an
engine factory at Pithampur in Madhya Pradesh. In the next two years, VECV plans to invest Rs
1,200 crore to develop products, set up a bus body plant and expand capacity, he adds.
Conclusion: A joint venture's initial success is often linked to the '4Cs of Partner Fit':
Convergence, Complementarities, Commitment and Compatibility. The Volvo-Eicher joint
venture demonstrates that the partners have 'convergent objectives' in terms of wanting to
crack into India's large commercial vehicle market against established incumbents like Tata
Motors and new global rivals like Daimler. The investments have started showing results. The
market share of Eicher-branded light and medium trucks grew to more than 31 per cent in 2012
from 27 per cent in 2008. In the heavy vehicles segment, VECV's share has risen by a
percentage point every year to five per cent. In buses, the market share has tripled to 14 per
cent. Eicher's revenue from the trucks and bus business has more than doubled since forming
the joint venture to Rs 5,443 crore in 2012. VECV has a cash surplus of Rs 700 crore and posted
a net profit of Rs 336.66 crore in 2012. Exports to neighboring countries such as Sri Lanka,
Nepal and Bangladesh contribute four per cent to VECV's total sales. In the next few years the
target is to take this to 12 per cent by exporting vehicles to Southeast Asia, West Asia and
Africa. "They (Eicher) decided to break into the Asian market but could not do so without a joint
venture model," says Jeffrey W. Wilmot, India country manager at PTC Inc, which offers services
such as product and supply chain management

While things currently look fine, some tricky issues might arise in the future. Volvo has gradually
learnt what it takes to compete effectively in India. It has invested more into the joint venture
over time as compared to Eicher. Will the mutual dependence and bargaining power between
the partners become more asymmetric? Volvo may want more control and a bigger say in
decision making and it may not value Eicher's contribution to the same extent as before. Many
prior ventures between multinational companies and Indian players have faced these issues,
and consequently ended fractiously. Hopefully, Eicher and Volvo would anticipate these evolving
issues and have effective ways to address them.