Volvo has configured its value chain to focus on producing heavy trucks, accounting for over 90% of production. It integrates development and production of major components in-house. Volvo produces trucks with high reliability, safety standards, and comfort. It centralizes operations from headquarters in Sweden but disperses 18 production facilities worldwide to be closer to customers. The US market is very important for Volvo's global ambitions, representing 45% of sales in 2000. Success there proves Volvo's strength against US and European competitors. European and US producers have struggled in each other's markets due to differences in design preferences, regulations, and components like engines and transmissions. Volvo initially sold through car dealers

1. MICROECONOMIC OF COMPETITIVENESS
International Competition and Global Strategy
Submission of Assignment
Student: Mas Wigrantoro Roes Setiyadi
NPM: 8605210299
Program: S3 – Ilmu Manajemen – Pasca FEUI
Date of Submission: September 27, 2005
Case: Volvo Trucks (A): Penetrating the U.S. Market
Assignments:
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 carries
out 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 various
kinds of vehicles, Volvo focuses on producing heavy truck segment that accounted to more than
90% of its total production. Volvo’s variance of product also can be pointed out as value to
customers, let them have more choices. In addition, Volvo strategy to produce trucks with high
reliability, state-of-the-art, high safety standard, and good comfort cabin, also deliver much value
for its customers. Utilization of platform and modular concepts (customized products) results in
cost reduction of warehousing, purchasing, and shipping, while at the same time these enable
Volvo to meet customer demand more easily.
In marketing area as well as to lessen competition, Volvo built collaboration with local dealer
partners and acquired other truck manufacturers. Further more, the implementation of
standardization 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.
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2. The operation control is centralized from its Head Quarters in Sweden, while for R&D centers
are located in Sweden, Belgium and Brazil. For supporting its global operations Volvo disperses
production facilities to 18 countries in the world. Reasons for putting marketing offices and
production facilities in those countries among others are to make closer to its customers, build
strong 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 vision
to be a global player. The US geography and transportation business both offer very attractive for
vehicle manufacturer like Volvo. The importance of the US market can be seen from its sales
that the highest (45%) compared to other regions, from total global sales in 2000. In term of
competition, leading in the US truck market will also prove European truck manufacturers over
the US competitors (Paccar, Navistar, Freightliner, Mack, GM, and Ford) as well as showing its
strong position related to European competitors (Daimler-Benz, Renault-RVI, Scania, Iveco and
MAN)).
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 they
operate business in opposite market. From customer perspective, both European and the US
producers have to deal with substantial different in driving characteristics. The US consumers
demand for conventional trucks, while European producers historically used to serving European
market, which prefer cab-over design. European truck makers suffer most in 1981 when
popularity of cab-over design declined dramatically in the US. Regulatory difference can also be
pointed out as reason for difficulty. In term of engine, both markets are also having different
preference; the US market likes gasoline engines, while European producers offer diesel engines.
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3. US drivers favor unsynchronized gearboxes, while on the other hand European producers offer
synchronized 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 approaches
that Volvo had taken to penetrate the US market. At first, Volvo sold medium trucks by
continues using the existing dealer network for car and focused only in 13 northern states. The
next approach was teamed up with Freightliner, but this ended up, when Volvo refused to buy
Freightliner. Finding itself without partner, Volvo decided to acquire the White Motor
Corporation (WMC). Not enough with WMC, Volvo acquired GM’s heavy truck business in
1988.
In addition, Volvo also applied customer-focused strategy, which its objective to become the
customer’s business partner, based on more cooperative relationship, including dialogue about
product 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. To
support customers, a financial entity was established under Volvo group. Besides selling trucks
Volvo also sells diesel engines to other truck manufacturers. This is believed to increase
profitability.
Decision to team up with Freightliner, which considered as technological leader was a right
thing, however unwilling to acquired Freightliner and went away when it was in difficulty was a
wrong thing. Continued with car dealers for truck and focused only in 13 states resulted in slow
and low sales figures. Acquiring WMC which was in weak conditions also might be considered
as wrong decision, but when Volvo integrate various brands carried from White and GM into one
Volvo brand showed right thing.
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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.
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