Question

Volvo's Indian buses

The Indian bus market has long been dominated by two subsidiaries of major Indian conglomerates: Tata Motors and Ashok Leyland. They made simple coaches on a design that had hardly changed for decades. On top of a basic truck chassis, the two companies bolted a rudimentary coach body. Engines were a meagre 110-120 horsepower (hp), and roared heartily as they hauled their loads up the steep roads. Mounted at the front, the heat from the over-strained engines would pervade the whole bus. Air conditioning was a matter of open windows, through which the dust and noise of the Indian roads would pour. Suspension was oldfashioned, guaranteeing a shaky ride on potholed roads. Bags were typically slung on the top of the bus, where they were easily soiled and at high risk of theft. But at least the buses were cheap, selling to local bus companies at around Rs 1.2m (€15,000, £12,000, $19,500). In 1997, Swedish bus company Volvo entered, with buses priced at Rs 4m, nearly four times as much as local products. Akash Passey, Volvo’s first Indian employee, commissioned a consultancy company to evaluate prospects. The consultancy company recommended that Volvo should not even try. Passey told the Financial Times: ‘My response was simple – I took the report and went to the nearest dustbin and threw it in.’ Passey entered the market in 2001 with the high-priced luxury buses. Passey used the time to develop a distinctive strategy. His product had superior features. Volvo’s standard engines were 240-250 hp and mounted at the back, ensuring a faster and quieter ride. Air conditioning was standard of course. The positioning of the engine and the specific bus design of the chassis meant a roomier interior, plus storage for bags internally. But Plassey realised this would not be enough. He commented to the Financial Times: ‘You had to do a lot of things to break the way business is done normally.’ Volvo offered post-sale maintenance services, increasing the life expectancy of buses from three to ten years, and allowing bus operating companies to dispense with their own expensive maintenance workshops. Free training was given to drivers, so they drove more safely and took more care of their buses. The company advertised the benefits of the buses direct to customers in cinemas, rather than simply promoting them to the bus operators. Faster, smoother and more reliable travel allowed the bus operators to increase their ticket prices for the Volvo buses by 35 per cent. Business people and the middle classes were delighted with the new Volvo services. Speedier, more comfortable journeys allowed them to arrive fresh for meetings and potentially to save the costs of overnight stays. Tata and Ashok Leyland both now produce their own luxury buses, with Mercedes and Isuzu following Volvo into the market. Nonetheless, the phrase ‘taking a Volvo’ has become synonymous with choosing a luxury bus service in India, rather as ‘hoover’ came to refer to any kind of vacuum cleaner. A new state-of-the-art bus factory was opened in Bangalore in 2008 and after further investments in 2012 it doubled the annual capacity to 1,500 buses per year. As Volvo’s most efficient bus factory worldwide it started to export buses to Europe three years later. In 2016, Volvo continued its distinctive strategy and became the first bus company in India to manufacture and sell hybrid buses running on an electric motor and battery as well as diesel

QUESTION

Discuss the resources and competences on which the business level strategy is based using the VRIO framwork,

Answer 1

Ans:-

(1):- Volvo followed a focused cost and differentiation strategy. The company targeted the niche bus market. They started by first analyzing the existing competitors i.e. Tata and Ashok Leyland who were offering busses with 110-120 hp built on a chassis. Their bus design was not improvised over the years, the buses were slow and prone to regular breakdowns.

The technology used was obsolete and the features of the bus had not improvised over decades, the air-conditioning was nonexistent and the suspension was obsolete. The customers had limited choice as all buses came with similar horsepower and features.

The operators were paying Rs. 1.2 million for a bus built on chassis. The customers were used to a shaky, slow ride and luggage, which was, hung on hooks with no safety features

Volvo understood the dynamics of the market and set out to produce a bus that was never seen or sold in the Indian market.

The resources and competencies on which their Indian market entry was based are as follows:

· Exceptional features: Volvo created its niche by offering a bus at four times the price but which exuded comfort and luxury. They offered a bus with features never heard or seen on the Indian market.

From the bus operators' point of view, the bus tickets could be sold at higher prices with fewer breakdowns and faster turnaround. The bus was associated with luxury travel.

· Better Technology: In terms of technology they started by giving a unique product with good suspension, better hp, great air-conditioning and addressed safety concerns.

· Customer profiling: The identified gap in the bus industry where Volvo could cater to middle-class customers who were willing to pay extra to get more comfort for a bus journey.

This directly addressed the problem of the middle-class customer who was looking for more comfort, better features at a little higher cost.

· Luxury Branding: They created a luxury line of buses and branded it as a high-end product with exceptional quality. They sold the but for Rs. 4 million against existing bus products available starting at Rs. 1.2 million onwards. They introduced buses, which had higher horsepower 240-250 hp.

They had better features, comfort and ensured a safer and quieter ride. The interiors were designed to ensure the safety of the baggage and gave a roomier feel.

· Good after-sales service: They provided after-sales service across the country so the operators could easily dispense with their expensive workshops.

· Training for drivers: They trained the drivers to drive safely and to take care of the buses.

· Advertising: The company promoted its buses directly to the and users through cinema hall advertising and other forms of promotions.

They understood the current product line was obsolete and could be improvised. They saw a gap in the market which they filled with a high-end product.

It was comfortable for speedier journeys and the route shrank to a day journey where it was an overnight journey earlier.