The Hindu Business Line : Volvo Construction Equipment aims to be a niche player

VOLVO Construction Equipment, the Brussels headquartered $3.89-billion division of Volvo A.B., sees India as a promising but challenging market for construction equipment.

Volvo's strategy is to be a niche player in the Indian market competing on value terms rather than on price.

In a chat with a group of visiting journalists from India, China, South Korea and Japan, Mr Anthony C. Helsham, President and CEO, Volvo Construction Equipment, said: "We don't play a price-based competitive game in India. We would never be able to do that; we are playing a value-based strategy."

Quoting the success of Volvo in selling its equipment to the iron ore mining industry in the country, he said: "We are supplying machinery that are not the cheapest but are most productive".

The construction equipment industry in India is dominated by multinationals such as Caterpillar, JCB and Hitachi. These companies are well entrenched in the market and also have their own production facilities unlike Volvo which imports the equipment it sells in India as completely built units (CBUs) from its facilities abroad.

"To break into the Indian market, we need to do minimum assembly if not more than that. It is extremely tough to find the right business model to do that in a profitable way. We have a number of competitors there who are well entrenched," Mr Helsham said.

The company has not yet framed up any investment plans to either manufacture or assemble its machines in India though Mr Helsham did not rule out the possibility in the future. "We have a factory in Bangalore where we have a lot of space. So if we are able to find the right product at the right price, we can use that space," he said.

Mr Helsham also ruled out the chances of any acquisitions in India saying that Volvo did not find any target that made commercial sense from an acquisition point of view.

According to him, Volvo needed to find a way of "economically" entering the backhoe loader market, by far the biggest product market amongst construction equipment in the country. "The one area where we need to find a solution is backhoe loader which is dominated by JCB... that's a price based market at the moment and we cannot compete on price. The question is: how can we produce a backhoe loader in India that can compete with the market leader, JCB? We haven't found an economic solution that question yet," he said.

The most important market for Volvo Construction Equipment though is China which accounts for 3 per cent of the division's sales. "We believe that for the next 20-30 years there's going to be tremendous construction growth in China and therefore demand for construction equipment. Our plans consist of continuing to manufacture excavators in China but more and more to localise the components. The second part is to establish a strong dealer network and the third part is to develop suppliers in China who can become suppliers to our other plants worldwide. We would also like to study the possibility of introducing other products in China, especially wheel loaders," he said.

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