Volvo SWOT AND PESTLE Analysis

Strength

1. Renowned name with strong brand equity: Volvo since its inception has been at the forefront of designing their vehicles in such a manner that in the case of an accident or any unforeseen circumstances the passengers riding in the vehicle stay safe. Taking the safety concerns a step further the company has developed a system wherein Volvo trucks, bus and cars will be sharing real time data through their cloud-based service “Connected Safety”, the system intends to work in such a manner that it will alert the driver of the vehicle about potentially hazardous road conditions or slowdowns. As the technology undergoes further more refinement and more vehicles are linked with such system in the future it has the potential to increase the road safety of the passengers. This technology is already at work in Volvo’s traditional markets such as Sweden, the Netherlands and Norway, so as to implement it on a bigger scale the company is in talks with other government agencies to introduce this feature in other countries as well. Such systems as developed by Volvo are also being currently tested by other rival companies such as Volkswagen and Toyota.

2. Global market leader in luxury bus segment: Volvo buses have crafted a path for themselves in the marker by being synonymous and closely associated to providing a luxurious experience for the commuters, Volvo buses in many areas have revolutionized road travel for commuters. Volvo manufactures two types of buses that are meant for city travel and those meant for long distance coaches and both the segments have been vastly successful in countries like India which are highly price sensitive markets but the passengers are willing to pay more because of superior service and quality of commute and safety offered than compared to its competitors. In India, more than a million passengers commute daily in a Volvo bus and operate in more than 35 Indian cities and through their Indian subsidiary Volvo Eicher Commercial Vehicles, Volvo group have been highly successful as the company have secured orders for supplying new buses to several state transport departments.

3. Diverse brands and product and services portfolio: Volvo group consists a total of 8 brands namely Volvo, Volvo Penta, UD Trucks, Terex Trucks, Renault Trucks, Prevost, Nova Bus and Mack Trucks, the operations of the Volvo group range from manufacturing vehicles meant for commute, logistics, construction, mining, quarrying, urban distribution services for providing long haul transportation. Of the total revenue of $39.75 Billion earned by the Volvo group in 2017 more than 66% of the revenue was from the truck business followed by the construction equipment and buses contributing 20% and 8% to the total revenue respectively. Also, Volvo is the second largest truck maker all over the world coming second only to their German rivals Daimler-AG. Services also contribute majorly to Volvos’ revenues accounting for 21% of Group net sales in 2017. The service portfolio comprises of insurance, rental services, spare parts, preventive maintenance, service agreements, assistance services and IT services.

4. Joint venture with companies in high growth economies: Volvo trucks have been able to capture a large percentage of market share in heavy-duty vehicle industry in high growth countries like China and India because of their joint venture with Dongfeng Motor Corporation of China and Eicher Motors of India. Volvo trucks are not operated and marketed in these two countries as a standalone brand but with their partner companies, Volvo has seen best results coming from the Light and Medium Duty Commercial Vehicles where the company was able to gather 33.5% and likewise the growth in bus segment grew from 6% in 2008 to 17.5% in 2017. Because of high growth in market share of light and medium commercial segments the company is targeting to capture more than 15% market share in heavy-duty commercial vehicle segment where it takes a distant third spot as Mahindra & Mahindra and Tata Motors occupy 85% of the Indian heavy-duty commercial vehicle market.

5. Investments in R&D and technology driving innovation: Volvo-group has significantly invested in R&D and technology in emerging automobile areas such as automation, connectivity and electro-mobility. The group has also developed a framework, common product architecture and shared technology (CAST) which helps to free resources and capacity for developing new technologies. The more than 700,000 connected Volvo Group vehicles also serves the group an excellent platform for the future. Volvo has also entered into an agreement with Nanyang Technological University (NTU) in Singapore in 2017 for R&D of for autonomous electric 12-metre buses. The group’s investments in R&D amounted to SEK 16.1 billion for FY 2017 which comes to 4.8% of its net sales.

Weakness

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Opportunity

1. Electric and Hybrid segment in trucks and buses: Volvo holds a distinction for introducing the world’s first fully electrically powered trucks meant for commercial use and are slated to be made available in the European market by the end of 2019. As of now the Volvo FL trucks are meant for intra city delivery of goods and garbage collection which offer a range of more than 200 kilometers or 124 miles on a single charge, the company is also working and planning to increase the range of such trucks to a significant level so that they can be used for inter-city operations. Besides this the Volvo have also started to test their electric buses in Scandinavia (mostly Denmark, Sweden and Norway) in a bid to replace the old and conventional diesel buses, currently Volvo is setting up its charging infrastructure to enhance the mobility of their vehicles which is due to be fully employed by March 2019, beside this the Volvo is trying to capture the other key European markets such as the UK, Germany, France and Poland.

2. Demand boom in heavy duty truck and hybrid buses: Sweden’s Volvo group outperformed the operating profit forecast which was $930 Million set by market experts but due to demand boom in the bus, heavy-duty truck and commercial vehicle segment both in North America and the European markets which are a stronghold of the Volvo group. The group earned an operating profit of $976 Million, besides this operating margin of the group rose from 8.9% in 2016 to 9.3% last year. The order intake of the group rose 29% last year which was expected to be around 21%, the company mostly saw increase in its heavy-duty truck segment and hybrid technology buses. The company has identified certain high growth markets such as India where they plan to ramp up the manufacturing of their hybrid buses because of the largely untapped and underutilized public transport and Volvo is setting a target to double their revenue in the next 4 to 5 years with a growth rate of 10 to 15% CAGR.

3. Capturing growth in Asia and emerging markets: Asia currently ranks third after North America and Europe in terms of market size and net sales for the Volvo group, Europe and North America contribute $17 Billion and $10 Billion to the global net sales of Volvo group but growth in these markets is low, whereas Asia which is still largely untapped by the company contributed $8 Billion to its net sales, keeping this in mind the Volvo group is focusing on China which is the fastest growing market for Heavy machinery equipment and vehicles. The Volvo group through its joint venture with Eicher motors in India is eyeing to tap the high growth Automobile industry in India in the commercial vehicle segment. The Volvo-Eicher Commercial Vehicle (VECV) saw its sales zoomed up by almost 50% in December 2018 as compared to December 2017 during which VECV sold 6087 and 4071 units respectively in India.

Threat

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Political

1. Increase in infrastructure spending in emerging markets will help boost commercial vehicle sales: Developing and emerging markets such as China and India are seeing a surge in government spending in infrastructure. With the massive urbanization, China will face huge transport pressure in the future and the government is willing to spend on new automobile technologies. China has become the second largest market for Volvo as of 2018 and also the first foreign market which has a presence of all the Volvo’s business segments. In India, Commercial vehicle manufacturers such as Volvo-Eicher Commercial Vehicles Ltd, Tata Motors and Ashok Leyland are set to witness a surge in demand because of a slew of infrastructure projects that the Government of India has decided to build as a part of its infrastructure revamp process for which the Government of India is willing to shell out more than Rs 5.97 trillion ($87 Billion) in 2018-19 which is a sharp growth of 21% than what the Government spent in 2017-18. Because of such high spending the truck makers are predicting a sharp rise in the demand for their products used for mining, transportation and road construction purposes. To cope up with the sudden surge in demand many truck makers such as Volvo are opting to go for capacity expansion by setting up new manufacturing facilities.

">2. Government authorities promoting use of public transportation: In several developed and developing countries the occupancy rates for ridership has been very low since they were introduced to the public mostly because of the rise in income level the general public until now were in the favor of owning a personal vehicle but this trend has started to change as more people are now opting to commute through public transport as governments around the world are incentivizing commuters to use public transportation by providing subsidy resulting in cost friendly commute. To add up to this government of many countries such as India are in discussion to levy higher tax on petrol and diesel so as to discourage the usage of the conventional fuel and to opt for public transportation or personal electric vehicle. Also, government bodies have started to give targets to state road authorities to introduce electric buses in their fleet and improving the ridership. This bodes well for Volvo, which has a strong presence in electric vehicle segment.

Economical

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Social

">1. High significance given to safety standards and low maintenance cost: Volvo’s name has always been synonymous with safety. And the top management at the company believes and firmly standby their motto “safety first”. To remain ahead of competition in this field Volvo trucks have Adaptive Cruise control, Lane keeping support, Driver alert support, Lane change support and Electronic stability control in their models which drastically reduces the fatality rate of passengers in their vehicles involved in accidents. Also as AB Volvo is trying to expand its market share and now focusing more on its non-traditional markets such as the emerging economies in Asia and South America the company is trying to keep the maintenance cost for their vehicles as low as possible to be highly competitive in price sensitive markets.

">2. Decline in car ownership and inclination towards using public transport: The car market growth has slowed down as more individuals are ditching personal vehicles and opting to commute through public transport. Many key markets such as China showed a slowing trend for the car industry with just 3.5% growth rate expected in 2018 which is a drastic drop from a growth rate of 13.7% in 2017. Similarly, in the US this can be seen over the last decade where more than 13 million cars per year are being taken of the roads each year and the number of cars replacing them have been less than the figure mentioned in the last 5 years and with this the boom in the car industry in the US came to a halt after 7 years of mega boom in the car industry. This reason can be attributed to the fact that there is a lack of driving space on the city roads and the urban traveler is more in favor of public transportation than owning a personal vehicle giving an opportunity to the Volvo to make their presence felt in the bus segment.

">3. Awareness among the population to shift towards sustainable alternatives: Car sales in some of the metro cities of throughout the world have seen a sharp dip when compared to previous year’s figures, the reason attributed to this change is largely because of rising pollution levels, congested roads, better metro connectivity through bus feeder services and change in the mindset of the urban and young working personnel opting to ditch car and instead commute through public transportation. Car sales in some of the major cities have declined by as low as 11%. According to a Guardian report high urban population density tends to improve service delivery efficiency and helps in facilitating a sustainable and thriving public transportation system. Public transport in Asian and some European cities accounts for up to 51% of trips taken by the total population for their daily commute whereas in cities like Tokyo and Hongkong, public transport accounts for more than 85% of the trips. For many developing countries such as India where the majority population is less than years old will help in increasing the ridership of public transportation as according to some reports the millennials are highly likely to be using public city transit systems as their daily preference than compared to older generations such as Generation X and Baby Boomers

Technological

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Legal

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Environmental

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