VOLVO Buses India A Case Study

Presented by:
Simran Ahluwalia (A-04) Nikita Khanna (A-10) Nikita Khurana (A-23) Nitish Singhal (A-32) Neeraj Naman (A-37)

Source:- Article:- What lessons can be drawn from Volvos success? Business Today, July 8, 2012 issue & www.volvobuses.com

Introduction
The company changed the way Indians travel
Volvo entered into the Indian market in 2001, selling around 20 buses
By 2011, 5000 of them were running on Indian roads

Volvo did not tone down its buses to suit the Indian market or cut the prices as most companies do

It developed the heavy vehicles market and waited for it to mature The case study discusses various strategic tools like PEST Analysis, SWOT analysis, PLC, Porters 5 forces model, BCG Matrix etc.

framework of macro-environmental factors used in the environmental scanning component of strategic management

PEST Analysis

Political Factors
Boosting the infrastructure sector and restarting stalled infrastructure projectsThis will have an effect on development of transport facilities as well JNNURM (Jawaharlal Nehru national urban renewal mission)- Investment of $20 billion dollars over seven years. Development of transport facilities in India with a sanction of purchase of 14695 buses by the government Increased spending on rural and urban transport- introduced subsidies on environmental friendly transport. Disinvestment policy of government likely to attract FDI- Help in negating the affect of increasing interest rates due to inflation.

Economic Factors
Slow Growth- The economy of India is showing low growth which might help in increasing the sales of the company as people are likely to switch to public

transport.

Easy Funding- Increased participation in commercial vehicles funding by

public-sector banks has increased ease in finance availability

Helping new entrants to come into the industry.

Unemployment- People from the lower income group likely to switch to public
transport like buses which would indirectly increase the sales of the company.

Social Factors
There is large demand for environmental friendly and low fuel consuming means of public transport because of rising environmental awareness and rising fuel prices. Due to rising population and increasing age group of people, preference is now given to buses with air condition and air cushioned seats.

High disposable income, more expectations (comfort etc.) {Current Red Coaches}

Technological Advancements & Innovations

Comfort- New Volvo buses to be launched by state transport departments whose seats can be reclined to 130 degrees which is higher than the current 110 degrees. These buses would be launched on long routes to make the long journeys more comfortable for the passengers.

More Room- With increasing competition from companies like Tata motors and Ashok Leyland, the company also brought a 14.5-m multi-axle city bus which is being pitched as a solution for urban traffic congestion.

Usage of Alternative Fuel- Volvo launched the CNG versions of its 8400 city buses to garner better share of the city bus segment in the country.

Contd
Volvo is also expected to launch buses that run on hybrid technology platform. The platform involves a blend of electric and diesel technology, which could ensure 40 per cent cost efficiency but would cost 50 per cent more.

Stronger & Environment friendly- New BS3 and BS4 engines having modular capacity of 4.7 litres to 8 litres with euro 3 and euro 4 compliances are being developed. These engines would be protected for euro 5 compliance and would be stronger and reliable by design and have better fuel efficiency.

Such technological innovations have and will further make Volvo more competitive which is evident from its 76% market share in luxury buses market and 46% overall market share

After doing PEST analysis for the company we can come to a conclusion that the sales of the company are expected to

increase and the company would be able to grow in tandem

with the industry despite of economic slowdown prevailing in the country.

BCG Matrix

BCG Box

When Volvo buses India was a QUESTION MARK

Volvo in its initial stages can be categorized in 1st quadrant that is in QUESTION MARK as it was having low market share and high scope for market growth.

Volvo entered in India in 2001 with a world-class air-conditioned intercity coach based on a true bus chassis and rear engine and within a year of demonstrating the inter-city coach - Volvo sold 20 of them in Indian market.

 Volvo did not enter the city bus market which is the huge market because of the following reasons: a) The entry barrier created by established players b) Volume constraints c) The purchases for city buses are done by state transport corporations. The market is not fully privatized.

But Volvo had a clear strategy when it entered the truck/bus market in India. It was to have a clear differentiation over the existing players. Hence the company opted to focus on niches rather than go in for mass markets

When Volvo gradually shifted to STAR

Further in 2006 it gradually started moving from question mark to star that is market share started increasing and the figure reached to 1,100 .This was the growth stage which Volvo auto India faced. In 2008 it finally reached star quadrant and Volvo focused on following things:

CHANGE STRATEGY Volvo brought in its inter-city bus when it saw the market was not ready for a

city bus
SELL THE CONCEPT, NOT JUST THE PRODUCT Volvo engaged with all stakeholders - from operators to passengers to drivers - to

sell its buses

USED MACRO CHANGES FOR THEIR ADVANTAGE

When Volvo saw that increasing congestion and growing environmental awareness were making public transport attractive, it

brought back the city bus

CHANGE THE GAME

When the competition started to close on Volvo, it introduced

products that would increase the number of passengers

When Volvo became a STAR

By December 2011, 5,000 of them were running on Indian roads. Volvo now has 76 per cent of the Indian luxury bus market. The company changed the way Indians travel.

So now Volvo enjoys high market growth and high market share and now Volvo India focus on achieving a billion dollars and 100,000 units out in India by 2015"

Product Life Cycle

Why Luxury Bus??? In the year 2000, luxury bus segment was completely an untapped segment in India. But there were reasons for this.

Firstly, the luxury bus concept in India was completely new & there were
unanswered questions like would Indian roads & travelers be able to accept rear engine coaches. Secondly, Volvo buses cost about 8-10 times than domestic buses. So there was a big concern about the profitability of the project.

Introduction Stage
Strategies followed by Volvo:

Volvo showcased its products in the 1998 Auto expo which drew much interest
in the whole country.

Selling to state run companies was becoming difficult so Volvo changed the
strategy & brought in intercity buses. The mainstream idea was to bring in air conditioned intercity travel in the country. There was hardly any reason why an AC coach would not be accepted in a tropical country like India.

Before launching the B7R in 2001, it sought driver and passenger feedback.

Target market
Now the primary target for Volvo was tour operators.

The Volvo sales team drew up a lifetime cost plan to convince the operators. Operators were concerned whether Volvo would be able to provide maintenance centers every 25 kms.

Volvo convinced them that they dont need any & as the B7R
coaches are low maintenance buses, centers would be provided every 400 kms.

 The B7R coaches reduced maintenance hassles & offered more distance coverage in less time. This was a new opportunity for the operators as they could rope in more passengers on different timings. For example Mumbai based neeta tours & travels which had 20 Volvos in 2004, was able to expand & serve destinations. With Volvo they were able to cater to three cities (Ahmadabad, Mumbai & Pune) in just 24 hrs. As Volvo offered a luxury bus, which was a completely new product idea for the Indian travelers, tour operators spruced up service with hot towels & entertainment. This was a great opportunity as operators could raise prices by as much as Rs 100 on some routes.

Growth stage
SALES : In 2001(within a year of demonstrating)- 20 Till 2004 had a country wide presence In 2006 1100 By 2011 5000

Volvo expanded gradually, starting with South and West India.

After successfully launching the product, there was a great scope of growth as the competition was negligible & with increase in Indias population the market offered an exponential growth rate.

Strategies implemented
The Volvo phenomenon coincided with higher per capita income, more awareness about luxury, and increasing migration to cities from Tier-II and Tier-III towns. Volvo reached out to not only operators, but also to other stakeholders. It ran commercials in film theatres. The Volvo team realized it wouldn't sell much if it sold merely the product. It had to sell the concept of luxury bus travel.

After a successful phase of intercity coaches, Volvo in 2006 planned to reach out to city bus travelers. Under the Jawaharlal Nehru National Urban Renewal Mission, Volvos now ply in 13 cities.

Volvo now focused more on distribution & service. It extensively covered almost all areas across the length and breadth of India, in terms of providing after market support to

the customers.

Maturity Stage
The luxury bus builder now governs 76% of the luxury bus market.

The Swedish company has changed the way India travels. But things may get a little tougher with Mercedes-Benz &

Tata Motors entering into the segment.

Plan of action
With increasing competition, the company is looking to change the market.

Volvo started manufacturing buses near Bangalore. It makes 1,100 buses a year, and hopes to raise production to 2,500 by 2013/14.

The fact that Volvo manufactures its own buses works to its advantage as Mercedes still depends on its body maker, Sutlej.

It brought 14.5-m inter-city bus, which is the longest in India. This provides room for more passengers & hence an opportunity to retain the market share.

 It also brought a 14.5-m multi-axle city bus a solution for urban traffic congestion. Increasing Indian population needs big air-conditioned buses

so as to cater to the urban population.

It also brought in the Volvo 9,100 medium-haul bus (for distances of 300 to 400 km), & hopes to make second-tier city connections viable, as traffic is set to grow in this segment.

Also, Volvo very recently started trial of Volvo 8400 low floor CNG city bus in Mumbai. This would be an entry in a new segment which has

great potential.

SWOT Analysis

STRENGTHS
Volvo known for luxury buses i.e. high comfort level With maintenance hassles reduced, operators could focus on routes. Offers service support for the entire bus, and not just individual parts. More awareness about luxury, and increasing migration to cities from tier-ii and tier-iii towns Volvos could run farther than buses used till then Volvo manufactures its own buses Volvo buses meet its customers' exact demands in terms of passenger comfort, driving safety and total economy. Volvo provides with a 24-hour vehicle repair support, it's available round the

clock

WEAKNESSES
The company lacks an aggressive marketing as there is a lack of awareness of the brand.

Volvo city buses cost up to 10 times more than those used by state transport corporations.

Luxury bus-maker Volvo buses India has only one manufacturing plant currently in India.

The company operates only in the top-end bus segment.

OPPORTUNITIES
It could form a consortium of planners, operators, and IT service

providers and offer comprehensive solutions supported by local or

state governments Volvo should provide consultancy services, activities pertaining to managing customers' fleet and help create a more efficient system Volvo should develop its business in Indian infrastructure.

Volvo expects to roll out CNG buses by third quarter in Mumbai

and Delhi. Volvo planning its entry into the city bus segment.

THREATS
At present, the other firms which operate in the medium- segment buses include Tata Motors and Ashok Leyland. Price is also a threat as Volvo is known for luxury and expensive services and the customers are price sensitive.

Its main competition is with Tata Motors which consists of 62%

market share in bus market. Other competitors are Mercedes, BMW, Audi, Toyota, and Hyundai Trains can also be a threat as the price of one seat in a train with

similar comfort level is less as compared to Volvo bus seats.

Porters 5 Forces Model

 Business to Business Marketing

PPP Model- Public Private Participation

Sharing money in State Transport Corporation Buyers - State Transport Corporation Royal Cruisers- Public Private Corporation Sellers Tatas Volvo Ashok Leyland

Strategy to enter Indian Market

Current mode of Operations:

Wholly Owned Subsidiaries and Joint Ventures

Alliances and Partnership

Market Segmentation Large Commercial Vehicles Emerging Economy India and China

Companies expanding sales activities in emerging markets need access to deeper knowledge of local customers, support networks, distribution and

advertising.

Volvo formed a joint venture with Eicher Motors, a local commercial

vehicle manufacturer in India to sell heavy vehicles and leverage its

network of over 200 service centers across the country.

Volvo plans to use Eichers sale and service infrastructure and manufacturing prowess to increase its sales from 5000 vehicles to

100000 by 2015. Volvo plans to gain a 15% market share of heavy

commercial vehicle.

As they build complete product lines and develop new products,

companies require a significant level of control over strategic

business activities.

For example, Swedens Volvo group, the worlds second largest truck manufacturer, owns a subsidiary in India that builds trucks to sell in India, Myanmar, Indonesia, Vietnam and China. Volvo India has also establishes a product development center in Bangalore.

Volvos Strategy
Niche market of Inter-City Travel Clear differentiation over existing players Volvo trucks were differentiated on the basis of: Productivity Transport Economy Customer Education

Porters Five Forces for Volvo

BARGAINING POWER OF CUSTOMERS LOW

High comfort level

Luxury segment is brand conscious and willing to pay

a premium for great experience, service quality and

safety

BARGAIANING POWER OF SUPPLIERS HIGH

JNNURM
Jawaharlal Nehru National Urban Renewal Mission is a

massive city-modernisation scheme launched by the

Government of India. It aims at creating economically productive, efficient, equitable and responsive cities.

THREAT OF NEW ENTRANTS MODERATE

Toyota, Hyundai etc. Economies of scale

Distribution Network
Equity of established players like Tata being market

leader in Indian bus market.

THREAT OF SUBSTITUTE PRODUCTS LOW

Volvo is a substitute to Shatabdi trains. Uncertainty of regional airlines (incubation stage by Capt. Gopinath)

COMPETITIVE RIVALRY WITHIN AN INDUSTRY HIGH

Tatas, Ashok Leyland, Mercedes Benz

Conclusion- Factors of Success

Volvos slow and steady growth in India has been due to a combination of factors
A clear strategy that was meticulously executed, focus on customer training and education, a range of top of the line HCVs that aim at offering customers greater productivity levels and transport economy. This has been backed up by a service and parts strategy that has grown in tandem with its sales growth and coverage.
Since the time Volvo entered India, the fuel costs have escalated steeply. This has favored these fuel efficient products in offering greater opportunities in improving the transport economy. The Indian governments focus on highways development can help make prospects even better.