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  1. 1. MICROECONOMIC OF COMPETITIVENESS International Competition and Global StrategySubmission of AssignmentStudent: Mas Wigrantoro Roes SetiyadiNPM: 8605210299Program: S3 – Ilmu Manajemen – Pasca FEUIDate of Submission: September 27, 2005 Case: Volvo Trucks (A): Penetrating the U.S. MarketAssignments:1. How has Volvo configured its value chain for competing in the worldwide heavy truck industry? What is concentrated? Where? What is dispersed? Where? Explain the rationale?In configuring its value chain for competing in worldwide heavy truck industry, Volvo carriesout several notions: it starts with full integration of development and production all major drive-train components, such as engines and transmissions. Despite its capability to produce variouskinds of vehicles, Volvo focuses on producing heavy truck segment that accounted to more than90% of its total production. Volvo’s variance of product also can be pointed out as value tocustomers, let them have more choices. In addition, Volvo strategy to produce trucks with highreliability, state-of-the-art, high safety standard, and good comfort cabin, also deliver much valuefor its customers. Utilization of platform and modular concepts (customized products) results incost reduction of warehousing, purchasing, and shipping, while at the same time these enableVolvo to meet customer demand more easily.In marketing area as well as to lessen competition, Volvo built collaboration with local dealerpartners and acquired other truck manufacturers. Further more, the implementation ofstandardization of components led to efficiency, reducing the number of items in inventory.Other significant contributors for value generation is the policy to streamlining production units,let the assembly process more efficient. 1
  2. 2. The operation control is centralized from its Head Quarters in Sweden, while for R&D centersare located in Sweden, Belgium and Brazil. For supporting its global operations Volvo dispersesproduction facilities to 18 countries in the world. Reasons for putting marketing offices andproduction facilities in those countries among others are to make closer to its customers, buildstrong competitiveness through cost-efficient production, and seek for higher profitability.2. Why has Volvo been so committed to entering the U.S. market?The US market is very important for Volvo, since present in this country will support its visionto be a global player. The US geography and transportation business both offer very attractive forvehicle manufacturer like Volvo. The importance of the US market can be seen from its salesthat the highest (45%) compared to other regions, from total global sales in 2000. In term ofcompetition, leading in the US truck market will also prove European truck manufacturers overthe US competitors (Paccar, Navistar, Freightliner, Mack, GM, and Ford) as well as showing itsstrong position related to European competitors (Daimler-Benz, Renault-RVI, Scania, Iveco andMAN)).3. Why have European producers had difficulty achieving success in the United States? Why have U.S. producers had limited success in Europe?Some issues might be addressed as the reasons both European and the US producers when theyoperate business in opposite market. From customer perspective, both European and the USproducers have to deal with substantial different in driving characteristics. The US consumersdemand for conventional trucks, while European producers historically used to serving Europeanmarket, which prefer cab-over design. European truck makers suffer most in 1981 whenpopularity of cab-over design declined dramatically in the US. Regulatory difference can also bepointed out as reason for difficulty. In term of engine, both markets are also having differentpreference; the US market likes gasoline engines, while European producers offer diesel engines. 2
  3. 3. US drivers favor unsynchronized gearboxes, while on the other hand European producers offersynchronized gearboxes.4. What approach has Volvo taken to penetrating the United States? What has Volvo done right? Done wrong?Maintain dealership, acquisition, integration, and producing premium trucks were approachesthat Volvo had taken to penetrate the US market. At first, Volvo sold medium trucks bycontinues using the existing dealer network for car and focused only in 13 northern states. Thenext approach was teamed up with Freightliner, but this ended up, when Volvo refused to buyFreightliner. Finding itself without partner, Volvo decided to acquire the White MotorCorporation (WMC). Not enough with WMC, Volvo acquired GM’s heavy truck business in1988.In addition, Volvo also applied customer-focused strategy, which its objective to become thecustomer’s business partner, based on more cooperative relationship, including dialogue aboutproduct development. Volvo also expanded the Virginia plant to increase production capacity,while for strengthening its brand name Volvo integrate various brand name into one – Volvo. Tosupport customers, a financial entity was established under Volvo group. Besides selling trucksVolvo also sells diesel engines to other truck manufacturers. This is believed to increaseprofitability.Decision to team up with Freightliner, which considered as technological leader was a rightthing, however unwilling to acquired Freightliner and went away when it was in difficulty was awrong thing. Continued with car dealers for truck and focused only in 13 states resulted in slowand low sales figures. Acquiring WMC which was in weak conditions also might be consideredas wrong decision, but when Volvo integrate various brands carried from White and GM into oneVolvo brand showed right thing. 3
  4. 4. 5. What should Volvo senior management do in 2000?Senior management could do several approaches:a. In term of product, it is good time to introduce medium and small trucks for new markets like Asia, and Africa;b. Opening new operational offices and strengthening its global present in emerging market (South America, East European; Former Soviet Union, east Asian, and middle and southern Africa);c. Increase budget for R&D center and centralized it, while at the same time Volvo need to increase collaboration with local business partner in every country its presents. The collaboration ranging from local manufacturing, sourcing for local components, development of sales distributions, up to establishing financial services to let customer more easy to own Volvo trucks;d. Follows Porter thought (1998) that competitive advantage of a global strategy arises from location; others arise from the overall global network and the way it is managed, Volvo can do a combination of Concentrated versus Disperse and Coordinated versus Decentralized. Concentrated for common brand name, product development and human resources development program. Disperse for advertising and regionalization of processing and assembly facilities. Coordinated for consistency in building corporate image, service delivery and office design. And finally, decentralized for adaptation to local culture and business customs, as well as regulatory compliance. ***** 4