Chief Executive Officer, Iveco Group N.V.
Interview with Olof Persson (CEO, Volvo Group)
About Olof Persson
In December 2013, Persson described the launch of the Eicher Pro series by VE Commercial Vehicles as a "breakthrough" and a "reincarnation of the Eicher brand." He stated that the new range of trucks and buses was "modern and cost efficient" and would support customers in achieving greater prosperity. Persson noted that the Volvo Group had been in India for 15 years and considered it a home market, adding that the joint venture with Ashok Leyland was key to accessing the mainstream Indian market. He said the partnership had been "very successful" and that substantial investments had been made in both the new product range and Indian production facilities. In a November 2012 interview, Persson stated that India was a home market for the Volvo Group and that the company had developed the Volvo brand in the premium truck and bus segments. He said the long-term fundamentals for India to continue growing were present, though he cautioned that development would not be linear. Persson expressed the ambition to become one of the top two commercial vehicle players in India for vehicles from five tonnes and upwards. He affirmed that the company would continue to invest in India on a long-term basis, despite short-term economic uncertainties.
Transcript (36 segments)
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Interviewer0:11
Welcome to a CNBC TV18 special. Despite the recent slump, the commercial vehicles market in India is said to double by 2020. One of the companies uniquely placed to garner a large share is the world's second-largest truck maker, Swedish giant Volvo. Today I am joined by the global CEO of Volvo, who was in India for his first visit. Mr. Persson, thank you so much for speaking with CNBC TV18. We are seeing that globally the commercial vehicle market has been going through rough weather, and you've stated in the past that you're trying to utilize your capacity and lower capacity in many markets, but in India it's a different story altogether. So is that a part of the group's strategy to increase focus more on the emerging markets as compared to the more established markets that you are present in?
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Olof Persson1:06
I think first of all I would like to say that India for the Volvo Group I consider these days as being a home market. We have been here for 15 years as a group and we have developed the Volvo brand over the years in what I believe in a very good way, addressing the premium segment both in trucks and buses and established ourselves in a very good way. Now we believe that long term, all the prerequisites and the fundamentals for India to continue to grow are absolutely there, and therefore we are continuing to invest. We also have created a very good platform with our cooperation with Eicher, where we have a 50/50 joint venture, meaning that we also get the history and the knowledge and the products available for us from the Eicher side, so that makes us in a very good position for the India market.
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Interviewer2:00
So Mr. Persson, along with services, trucks, buses, and of course construction equipment, what is the kind of investment do we expect Volvo is making in the Indian market going forward? Because along with your joint venture partner Eicher, you've already announced 18 billion rupees. So how much more will you invest as part of Volvo's investment plans?
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Olof Persson2:19
If we look at the Volvo investment plans, for the next coming years it is 20 billion rupees that we are looking at, and that comprises everything: product development, facilities, engineering capabilities, people development. So we are showing in a good way that we have been investing in India, we are investing in India, and we're going to continue also for the next year to invest in India.
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Interviewer2:46
Many, of course, see as you also mentioned, the Volvo brand is very premium, especially buses and Volvo trucks. But in India, the market is very price-sensitive. So obviously you've got big plans for the Indian market. Do you see yourself becoming a volume player? Do you see yourself entering the price war that some of the established Indian makers engage in? Do we see you entering the mass segment so to speak?
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Olof Persson3:16
I think there are two sides of this. One is of course with our joint venture with Eicher, we are already in that very competitive segment, the value segment. In addition to this, we have also decided that we will develop a value truck, which will be produced in India, addressing the customer segment below the Volvo segment that we have today. When we have that, we are actually covering the India market in a very good way: we have the Volvo premium, we have the value truck, and then we have Eicher covering their traditional base of customers. We're doing that by utilizing the knowledge between the Volvo Group and Eicher. The new value truck is designed in Asia, it is going to be produced in Asia, and it's made for the Asian markets here.
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Interviewer4:14
What sort of a value truck will this be and which are some of the other Asian markets where you'll be producing this truck?
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Olof Persson4:18
It is a range of different products that we're going to launch over time. It's going to be produced in Thailand, for instance, and here in India. We're going to address the different markets here in Asia, both in East Asia and Southeast Asia. We're really excited about this.
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Interviewer4:41
What's the kind of price point are you looking at, Mr. Persson, for a value truck like this? Given your superior technology, what's the price bracket you would want to introduce the product in?
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Olof Persson4:55
We will introduce those products over the years to come, and when we introduce them, we will also announce the price and features. That is a little bit in the doing, and I will rather wait to announce that kind of information until we come up with the products.
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Interviewer5:13
Give us a sense of the joint venture you have with Eicher Motors in India. It's been a little over four years now, and you mentioned in your presentation that you've learned something called frugal engineering. Can you talk us through that? Is that something you've learned from your joint venture with Eicher, and will you also be using frugal engineering for your global products for Volvo?
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Olof Persson5:39
I'm really pleased with the way the joint venture has developed. It's a little bit of the best of both worlds that comes together, and it's done in a very open atmosphere. We have learned a lot from Eicher, and Eicher has also learned a lot from the Volvo Group. In that process, new ideas have come up. For instance, when it comes to suppliers, design features, how you really look at a product from a fundamental point of view – that is something we have learned from Eicher and their way of doing engineering. We are taking that into the Volvo Group to see where we can apply it. That is what we call frugal engineering. It's a very good thing when you can get those worlds together.
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Interviewer6:37
So are you already applying that in some of your other global manufacturing processes, or is that a continuing process we will see more of going forward?
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Olof Persson6:43
We are looking into it, and this is a journey. You have to make sure you know what you're doing, taking it stepwise so you don't do any errors. The worst thing is bringing wrong processes into your products because then you can fail. Since we are in India for the long term, we will take the time to make sure it's the right thing. It's very promising, I'm really excited about it.
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Interviewer7:19
Do you feel you have a unique opportunity to increase your numbers given that many feel the Indian commercial vehicle market has been dominated by just two players for far too long, throwing open a natural opportunity for big global brands like yourself?
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Olof Persson7:46
I don't look at it from that point of view. What I see is that if you add together the Volvo commercial vehicle and Eicher commercial vehicle numbers, we are number three in India. What we try to do now is work on that to improve it. Our ambition is definitely to become one of the top two in India on the commercial side vehicles from five tonnes and upwards.
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Interviewer8:19
By when do you hope to achieve that target? That is a very ambitious target given the two manufacturers dominating the market for years. What timeline would you be happy with?
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Olof Persson8:38
That's a very difficult thing to choose a date or timeframe. I have my ideas, but those ideas I keep to myself for the time being. Over time, we will continue to develop by making sure we do the right things, get the customers, have the products. Step by step, we have a clear ambition to grow faster than the market and thereby take more market share.
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Interviewer9:06
Across the globe and even in Asia, in your recent address following Q3 numbers, you mentioned that even in Japan, numbers are stabilizing. Given the dynamics you've seen globally, how important do you see the emerging markets playing, especially India and Brazil, going forward?
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Olof Persson9:29
The emerging markets have the opportunity to grow at a faster pace given the fundamentals. But we have seen that you cannot expect a straight linear development; there will be swings up and down. In general, if you have the belief that the fundamentals are there, then the long-term view is what's going to drive both the market and our own position in that market.
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Interviewer10:09
Given the growth rates of the Indian market versus other markets, how important does it become? Is it among your top growth markets for Volvo globally?
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Olof Persson10:27
It's going to be one of the fast-growing markets over the years. If you take construction equipment activity, it has grown very much over the last ten years. The same on the truck and bus side. Looking forward, markets like India or Brazil will have higher growth rates given the fundamentals. The importance of those markets to the group will, over time, become greater.
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Interviewer11:08
Give us a rough idea of the market share that emerging markets presently constitute to overall Volvo's global sales.
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Olof Persson11:18
From a revenue perspective, our traditional market of Europe and North America is roughly 50%, then Eastern Europe, Asia, South America make up the other 50%. That shows we are very much a global company now, having half of our turnover from what you call traditional markets and the rest from emerging markets. I believe it's a very healthy balance.
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Interviewer12:07
Let's talk a little about the synergies. You mentioned setting up a new engine plant, which should be up and running by 2013. What are the specific plans for that? We understand you'll also be sourcing a lot of engines for your global processes. Can you expand on that?
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Olof Persson12:28
This is a very interesting project. It's the first time we put such an investment in an emerging market and also such a core part of development like the medium-duty engine we are looking at here. We are building up the capacity of this engine. Since it is becoming a center for the Volvo engine, we will also export that into European and other markets. It's a state-of-the-art engine manufacturing plant. This shows we are really long-term in India and have confidence that Indian engineering and technology, not only from a product point of view but also from a production point of view, is going right.
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Interviewer13:57
Mr. Persson, we've seen many global brands come to India and one area where many have been found wanting is setting up service centers. Given the commercial vehicle space and the need to penetrate rural areas, can you throw some light on dealership and service centers? Many feel that will be absolutely critical for any manufacturer aspiring to be among the top two.
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Olof Persson14:24
You're absolutely right. When we talk about investments, we also talk about investments in dealerships and service points. Eicher has built up a very strong dealer network and service points around India, and Volvo has done that focusing on premium products. We cannot come out with new products and investments without making sure we follow with investments in service points. We will see more focus on service capabilities, skills, uptime, service agreements. That is definitely within our investment scope.
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Interviewer15:26
Also, a point on your construction equipment. In the recent past, mining was a big chunk for you, but we saw some big mining states like Karnataka impose a ban. Do we see you entering other areas where you can use your construction equipment technology?
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Olof Persson15:52
We have been and will continue to be very strong in the mining business, which goes up and down. But we are number one or two in almost all products for road construction, paving, compaction. We have excavators focusing on construction work in infrastructure projects. We will make sure we cover as broad a portfolio as possible in the Indian market for construction equipment going forward.
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Interviewer16:30
Given you have your entire gamut of services and products in India, do we also see you expanding by introducing other brands like Renault or UD? Globally, those brands' sales have been impacted. Do you feel the Indian market is ready for another brand from the Volvo family?
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Olof Persson16:58
The Volvo Group has a unique asset in our five brands. Since I took over, we have started going market by market, brand by brand to see if there are opportunities to have more brands to cover a larger part of the market. That activity is ongoing. I've been clear with the organization to put everything on the table. Some things will happen, some will not. That work will continue for the rest of the year before we draw conclusions.
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Interviewer17:44
Many feel the commercial vehicle segment, especially medium and heavy, has been hammered, partly because of the mining ban. Short-term prospects look challenging. Even SIAM has lowered growth forecasts. In that environment, Volvo is making big announcements. Talk us through it. Do you agree there could be short-term bumps, but long-term prospects still look healthy and promising?
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Olof Persson18:31
When you do investments of this magnitude, you're not looking just up to the next quarter; you look many years ahead. The fundamentals of the Indian market and the movements we have seen over the last years make us confident that all these investments will serve us well to capture more market share, serve the Indian society with our products, develop new production techniques, and help bring new ways of looking at things. Our cooperation with Eicher provides a very good range. We are here in India for the long term; it is a home market for us.
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Interviewer19:26
One last question. Many foreign manufacturers have voiced concerns over the way the Indian economy has unfolded. Many have cited lack of clarity on policy, because of which investments have not come in. Your word on that? Do you see the Indian economy turning around and the cobwebs going away?
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Olof Persson20:03
Long term, we definitely see the overall prospects and positive development. We are active in over 150 different countries and you have ups and downs in any country for many different reasons. But if you truly commit to a market, stay for the long term, see the prospects and opportunities, and have the self-confidence to take a big place in that market, you will continue to invest on a long-term basis, not a short-term one.