Case Study Volvo

case study Volvo

www.businesstoday.in/volvo

Executive Summary: In 2001, Volvo Buses India sold 20 coaches. By December 2011, 5,000 of them were running on Indian roads. Volvo did not achieve this by toning down its products or cutting prices as multinational companies often do. It developed the market and waited for it to mature. Volvo now has 76 per cent of the Indian luxury bus market. The company changed the way Indians travel. Now, as the competition closes in, it is preparing to launch products that could transform the market – again.
By Geetanjali Shukla

Going Places

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case study Volvo

Think Beyond Buses the usual practice. Passey says: “We told them you don’t need that with a Volvo. We’ll give you one every 400 km.” Volvo also departed from the norm by offering service support for the entire bus, and not just individual parts. With maintenance hassles reduced, operators could focus on routes. For example, Mumbai-based neeta tours and travels, which had 20 Volvos in 2004, figured it could serve seven destinations. a bus could leave ahmedabad at 10 p.m., reach Mumbai at 6 a.m., then go to Pune and back, and then head back to ahmedabad at 10 p.m. operators could also focus on sprucing up service with hot towels and entertainment. this also meant they could raise ticket prices by as much as `100 on some routes. Phanindra sama, founder and CEO of redBus, a portal that sells bus tickets, says, “the Volvo phenom-

The road To success decade ago, buses were more or less a by-product of trucks. they were built on truck chassis. Body builders bought chassis primarily from telco (now tata Motors) and ashok Leyland. the difference between city and inter-city buses, or regular and ‘deluxe’ ones, was reclining seats and a stylish paint job. that is how things were when Volvo Buses entered india. the swedish company bid for a tender by the delhi transport Corporation (DTC) in 1998 while showcasing its B10LE low-entry city bus in several cities. the bus drew much interest. akash Passey, senior Vice Presidentregion international, Volvo Bus Corporation, who headed india operations then, says many people came to see it at the 1998 delhi auto expo. He laughs, recalling an animated discussion between two youngsters he overheard. “the older of the two, in an attempt to explain how the bus loses height, said: ‘When it halts, the driver jumps out and deflates the tyres’,” he says. the coach prompted more weighty concerns too: were india’s roads and travellers ready for rearengine buses? What about prices? Volvo city buses cost up to 10 times more than those used by state trans-

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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 use MaCro CHanGes to your 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 in on Volvo, it introduced products that would increase the number of passengers

port corporations. Meanwhile, the
DTC tender was shelved.

selling to state companies was proving tough, so in 2000, Passey changed tack. He imported two Volvo B7R inter-city buses from Hong Kong and singapore, and sent them out on a six-month demonstration drive. the B7R cost five times more than a

‘deluxe’ bus. But he persevered. “i felt there was little reason why an airconditioned bus would not work in a tropical country like india,” he says. the changing economic landscape strengthened his resolve. the company approached private operators who ran inter-city ‘deluxe’ buses and could price tickets higher. Volvo refused to compromise on product specifications. Passey points out that inter-city buses are 12 metres long everywhere in the world. But in india, bus length was capped at 11 metres. “We got the regulation changed,” says Passey. it was a good thing Volvo had a wide range of products. “all i had to do was choose the one best suited for india,” he adds. “i did not choose the most sophisticated, because operators were used to frontengine buses, very little suspension and ordinary brakes.” to persuade operators that Volvos were profitable, the sales team drew up a lifecycle cost comparison. Volvos had a few more seats than others – a disadvantage in the early 2000s, when states taxed operators per seat. But the biggest advantage was that they could run for 22 hours without maintenance. operators were concerned whether Volvo would provide maintenance centres every 25 km, as was

Volvo departed from the industry norm by offering service support for the entire bus, and not just parts enon coincided with higher per capita income, more awareness about luxury, and increasing migration to cities from tier-II and tier-III towns.” as Volvos could run farther than buses used till then, routes such as the 1,000-km Bangalore-Mumbai run became popular. Being faster, they could depart later than a deluxe coach, yet arrive at the same time. in 2001 – within a year of demonstrating the inter-city coach – Volvo sold 20 of them in india. that figure reached 1,100 in 2006, and 5,000 by december 2011. Volvo

ocal manufacturers did not upgrade bus technology almost until 2004, because there was no demand for a better product. Given this environment, Volvo’s strategy of bringing state-of-the-art products and creating a market for long-distance luxury travel has been commendable. Higher disposable incomes and other changes in the economic landscape have certainly contributed to the success of inter-city travel driven by Volvo. But it was also because local manufacturers could not create this market successfully. urban public transport remains a challenge because it requires not just state-of-the-art buses, but also state-ofthe-art roads designed for public transport. this means creating central lanes for buses, stops for level boarding, passenger information systems, and making streets safe for pedestrians (because every public transport user is a pedestrian at the beginning and end of the journey). also, money cannot be recovered from fares alone. there is need for thought on financing public transport systems. to fare better in the urban transport market, Volvo should offer a systemic solution, not just buses. it could form a consortium of planners, operators, and it service providers and offer comprehensive solutions supported by local or state governments. as the urban population is going to double in 25 years – about 600 million people by 2040 – the urban transport market will grow and could attract more investment. Growing environmental concerns and easy availability of information technology will fuel this growth. so demand for good quality buses will grow. Most indian cities will not be able to meet mobility demand without state-of-theart bus transport. the country requires about 5,000 more buses a year. it is up to the government and the mobility service providers, and not just vehicle manufacturers, to create a financially viable market.

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“to fare better in the transport market, Volvo should offer a systemic solution”
Ministry of Urban Development Chair Professor of Transport Planning, IIT Delhi

geetam tiwari,

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case study Volvo

filling in The QualiTy Void

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he bus industry in india started with a focus on public transport, especially to cater to the common man. there were quality issues, but no one really cared. things began to change with liberalisation, as more people began to move from the middle class to the upper middle class and above. they sought better quality travel. you needed to book months in advance for trains, and air travel did not suit them. they were willing to pay a premium for bus transport, but no such service was available barring a few air-conditioned buses. Volvo was first to spot this opportunity. it firmly believed there was a market for luxury bus transport in india, for which commuters would pay a premium. Volvo’s success lies in converting this belief into a value proposition. its buses were many times costlier, and the operators needed to charge higher fares to make money. a comfortable journey that reduces travel time by a few hours was what Volvo bus operators offered to justify the premium fares, and people bought into it. the rest is history. What Volvo has demonstrated is that though indians are traditionally cost conscious, there is a growing crop of customers who demand quality. as road infrastructure improves and people get richer, the luxury bus segment, especially for inter-city travel, will grow faster and larger. We are far away from a bullet train era, and the poor state of the railways would only catalyse this shift. Volvo’s success has triggered the entry of more players into the luxury segment. the swedish company is best placed to take advantage of this transformation, as luxury bus travel in the country has become synonymous with Volvo.

now has 76 per cent of the luxury bus market. the market itself, according to industry estimates, is growing at around 10 per cent a year. Volvo expanded gradually, starting with south and West india. it was not until 2004 that it had a countrywide presence. “it was of utmost importance to us to have service leading sales and not the other way round,” says Passey. Volvo also reached out to not only operators, but also other stakeholders. it ran commercials in film theatres. Before launching the B7R in 2001, it sought driver and passenger feedback. “We realised we wouldn’t sell much if we sold merely

Volvo stuck to its product specifications. it got india to change a regulation that capped bus length at 11 metres the product,” says Passey. “We had to sell the concept of luxury bus travel.” eventually, state bus companies not only bought Volvos but also built brands around them: Garuda in andhra Pradesh, shivneri in Maharashtra, airawat in Karnataka. the development of expressways such as the Mumbai-Pune one helped things along. Volvo became a ticket brand – something no other commercial vehicle has achieved anywhere in the world – as passengers asked for Volvo tickets, rather than an operator or a route. as with the inter-city coach, the success of the city bus was gradual.

in january 2006, Volvo sold its first city bus to the Bangalore Metropolitan transport Corporation. under the jawaharlal nehru national urban renewal Mission, Volvos now ply in 13 cities. the company is again looking to change the market, especially with rivals such as Mercedes-Benz and tata Motors tail-gating it. its 14.5-m inter-city bus is the longest in india, with more space for passengers and luggage. its 14.5-m multi-axle city bus is being pitched as a solution for urban traffic congestion. With the 9,100 medium-haul bus (for distances of 300 to 400 km), Volvo hopes to make second-tier city connections viable, as traffic is set to grow in this segment. this move – changing the market when the competition closes in

Volvo hopes to make second-tier city connections viable, as traffic is set to grow in this segment
– is possible because of a previous strategic step. in 2008, Volvo started manufacturing buses near Bangalore. it makes 1,100 buses a year, and hopes to raise production to 2,500 by 2013/14. sama of redBus says: “the fact that Volvo manufactures its own buses works to its advantage. Mercedes still depends on its body maker, sutlej.” Would any other bus company, had it entered india in 2001, have done as well as Volvo? Perhaps, if its product range was comparable, and if it were patient enough to develop the market. after all, one of the crucial factors in Volvo’s success in india is that it has invested in changing the circumstances. ~ What lessons can be drawn from Volvo’s success? Write to us at [e-mail]. Your views will be published in our online edition, and the best comment will win a Harvard Business School Press pocket mentor. Previous case studies are at www.businesstoday.in/casestudy

BesT of The loT

Bt receives scores of responses to its case studies. Below is the best one on Bacardi india (april 29, 2012)

n 2007, Bacardi india was struggling in india, when its new CEO Mahesh Madhavan joined the organisation. in less than five years, he transformed the company. its turnover has tripled and it is growing 40 per cent annually. the case study examined how Madhavan brought in the change.

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Rakesh Ranjan ([e-mail]) wrote:
Bacardi India was losing market share and the confidence level of its investors in India was dipping before 2007. No evidence of leadership and firmness in improving the business was seen during this period. In such a situation, good resources tend to leave the organisation and incompetent people continue to stick around. As a result, attrition of top performers was high and the organisation was left with uncertainty. Mahesh Madhavan joining the company was a perfect example of a business head taking ownership of the HR agenda. The success story of any organisation depends on how HR becomes your SPOC (single point of contact). Calibration of performance and potential of the leadership team is essential to drive the culture of performance in an organisation. Mapping of the existing leadership team against the desirable per-

“Volvo’s success lies in converting its belief that there was a market for luxury travel in india into a value proposition”
Partner and Leader — Automotive, PwC

aBdul majeed,

formance and potential parameters and hiring of a new team on the basis of required competencies were the important steps in curing the organisation and also making it ‘future fit’. Organisational support to the existing team was ensured by holding coaching sessions and thereby gaining the trust of the people. Reconstructing the organisation was the need of the hour to make it effective. The new structure was future driven. Infusing new talent has given the organisation a new perspective. After making these efforts, Bacardi India started becoming a grooming ground for global talent and gradually regained investors’ trust. Some leaders moved overseas to handle bigger responsibilities. Marrying the business agenda to the people agenda was the key to success for Bacardi India.
Rakesh Ranjan wins a harvard Business School Press pocket mentor for his views

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