Volvo outlook 2 copy

Technology and growth

Interview by: Bhushan Mhapralkar

Q. How do you find the Indian commercial vehicle market?

A. The move from BS IV to BS VI. It is a very strong signal. Then, there’s the potential implementation of GST. There’s also the construction of infrastructure. If these three events are attained, I firmly believe, it will lead to a more robust transformation of the transport industry in India. One factor that is difficult for me to assess is the ‘Internet Of Things’. There’s a lot of investment; big players are coming. People are buying more and more through ecommerce. Its difficult to capture the potential. An impression is had that the ecosystem is on the verge of transformation. There’s a need for us to be pro-active; to bring solutions, and to see what the customer will require. I firmly believe that India is transforming. We need to look at the long-haul.

Q. What do you mean by long-haul?

A. Look at our mining approach, we have the most robust offer for the customer. We start from a very simple solution and go up to the most technologically advanced solutions including the I-Shift and Dynafleet telematics. We have a wide spectrum of solutions to offer. Supporting the solutions is a fantastic infrastructure. Even when operating in remote areas of India, we have made arrangements so that parts are available. Such an operation requires a lot of investment. We are ‘mining ready’ for India; we have been for years. We were present in the on-road business. For price point issue, and because of the currency exchange issue, we have not been able to capture that market. We will come back for sure. In Asia, we have had a breakthrough in China because of the eeconomy. We are looking at such a breakthrough in India too.

Q. What scenario do you foresee as you look at on road business?

A. India is a very buoyant country. Couple of years ago it was opening up to the world. Earlier it was not as connected with the world when it came to trade. Today, there’s a rising emphasis on investment, local manufacture, and more. There’s also a shift in terms of appetite for technology. The normal pattern of rise will not be followed. The country will carve out an immediate passage to the most modern. Look at Europe for instance, and it took time to change. In India, the platooning of trucks and connectivity have the potential of changing rapidly. Through our conversation with our customers we came to find out that their main concern is the driver. Not because of the cost, but because of the attrition rate. Shortage of driver is pushing our customers to opt for technology driven solutions. It is not the cost but the need to operate in an optimised environment. We expect that this will trigger technology, simplicity and an ability to get ride of the human factor.

Q. Medium and heavy truck segment has been growing. There’s a move to higher tonnage vehicles. Freight rates have risen. What does that indicate to you?

A. I see it as a sparkling signal for transformation. The one limitation is see is the customer’s ability to invest in modern, expensive and efficient solutions. The absence of an expensive and efficient solution is because to achieve optimal turnaround time, efficient utilisation level of a truck and derive a certain fuel economy has not been possible yet. The non implementation of GST means there’s stop and go between states. Lack of double lane or triple lane roads is a limiting factor. If such hindrances are dealt with, the customer will opt for a modern, expensive and efficient solution. We are very happy to see a change in the mindset in terms of engaging and contracting transport. It was short-term and assignment driven earlier. It is now starting to be ‘long’-contract driven, which ranges for over five years. This will give the customer more room to look at a sophisticated solution without impacting profitability. The life expectancy of the truck in Europe is 10 years and beyond. In India, I am given to understand that it is less. Transformation has started in India. There’s however a need to be careful and cautious.

Q. Does your premium positioning limit your ability to attract buyers?

A. When India will be able to afford expensive, elaborate and sophisticated solutions, it will make for an excellent choice. It will mean that the country is emerging at a level where the approach is more elaborate, intensive and profitable. Until now India has been compensating with cheaper local solutions. If things happen in the right way, a change will come about. It will not come at the European level. It is a mistake to take an European product, localise it a bit, and hope that it will work.

Q. For higher localisation, you would need volume. Does it not look difficult?

A. We have driven localisation and built volume viability in mining trucks. There’s a recipe; there are ways, and I think it is exactly the same (as in the mining segment). We are thus finding ways to make it work in the on road segment. Industry professionalism is rising. New players are coming in. Big retail chain stores are focusing upon India. Logistics companies are showing interest. I see it coming, but then, we need to be innovative.

Q. How’s been the response to I-Shift automated manual transmission?

A. Some 18 months ago we had a 20 per cent penetration. Today, we are at 60 per cent. We have taken a strategic decision for India that next year we will stop manufacturing manual gearbox. Emphasis will be on the I-Shift because it is the most advanced technology. It enhances fuel efficiency and has the potential of addressing the driver challenge.

Q. You are banking on I-Shift technology for on-road segment penetration. What is the reason?

A. To understand why we are banking on I-Shift technology there is a need to reflect upon the strategic worldwide direction of Volvo Trucks. “Volvo Trucks will stop selling manual gearbox on a worldwide basis.” We are getting into a journey where the machine, the system, and the ECU is here to assist and deliver expected performance to our customer. If we don’t embrace the technology quickly someone else will do it. We will lose the competitive edge. Talking about countries like China and India, old fashioned technology was being offered some years ago. The need today is for the most up-to-date technology. Especially in markets like India. The need is for the most advanced technology to be offered at an affordable cost. We are looking at providing such solutions. I firmly believe that there will be a need for such solutions. Recently I had a discussion with one of our board members in India. He is very much into the retail business as well. He wants to pursue a retail experience of delivering at the buyer’s door step. Problem is, in India there are external logistics companies that do not know where exactly the location of delivery is, and that if the driver will deliver the goods safely, and in time. There’s a risk of the customer’s buying experience taking a hit. The need today is for a well perceived experience for the customer from the computer to home. Trucks will play a major role into this. We are not pursuing the last km because of the city profile. We feel that in the massive flow, we have a big role to play. We have the system, and we have the technology. If I am able to deploy a performance monitoring system at a frugal cost, I think we have a competitive edge in India. We did it in mining with the Dynafleet solution. We have had customers walk up to us and ask if we would be offering this feature or that feature. They are ready to buy should we offer them. India is the engineering country of the world, and people are highly receptive to new technology.

Q. You mentioned about frugal cost. Isn’t India a price sensitive market?

A. Every market has price sensitive customers. The price point in India is a bit lower. But then we sold 1,222 trucks that are expensive when compared to others in the market. We have proved that it works in mining, and it is therefore that people have bought from us. I believe there is a way to educate; to explain, and to prove that it works. It is a matter of confidence and understanding the needs of the customer. It is a matter of adjusting the business model accordingly. I do not believe in cutting costs. I think instead that it is about the ‘full-time’ value proposition and whether it meets the customer expectations. There will come a time when people will look at efficiency over time rather than cost. They will look at peace of mind.

Q. How do you look at driver shortage in India as you pursue the on-road segment?

A. I have been in India for one year, and I am a bit surprised, and sad as well, to see such a thing. There are countries where access to competence and to train people is even tougher. We have been successfully correct the trajectory. We have solutions; we have modules, it is just that they have to be deployed. I see it as a work to be done by three parties; by us, our partner and our customer. We have everything that is needed to fix the wheel. There’s CSR. Our trucks are operating in remote mining areas. We have a responsibility to the society. For on-road it is a different story. We have a role to play. What worries me is that over 300,000 people in India die in road accidents every year. It is an issue that is hardly discussed. We have the responsibility to offer solutions and systems. The need is for education. It is possible to make a progress. All the players should raise their voice.

Q. The changes that you have brought about in the last one year?

A. We believe in not challenging the customer, and instead in supporting him. To make sure that our trucks are on the road. Speed of execution and customer support are the changes I think I have brought about in India. My task has also been to raise the voice of India into the organisation for the people there to realise that something big is happening. To make them realise that a huge transformation is underway and there is a need to tackle it. In Asia, all the markets are shrinking except India. There are a lot of opportunities in India, not only linked to selling of our products but also about leveraging the competence. Out of the 100,000 people in the Volvo Group, some 4000 people are at Bangalore alone. There are not many companies who would have four per cent of their people in one location. India makes a sizeable engine in the Volvo Group; in engineering, in financing, and in IT. The need is to continue to capture the potential. India is quite likely to bring new business ideas and patterns. We believe that countries like India and China are disruptive. The forces at play given their size are too big. One is looking at a different approach, different costs, different way of thinking and different speed of execution. Our an organisation like ours, this is extremely challenging. The rules are different, approaches and different, and expectations are different. The challenge is in doing things differently. For me it is a challenge to tell at Sweden that in India this will not work that way. That a different approach is needed.

Q.Do you plan to expand the dealer network?

A. Our trucks are distributed through our joint venture (Volvo Eicher Commercial Vehicles). The capability of the Eicher network is fantastic. We would use the opportunity to leverage this capability for our on-road thrust. We have great synergies for our mining operations – both in terms of Eicher as well as Volvo. We have hubs at five major locations. In cities, to support the buses, we already have a network. Distribution network, given the size of India, is not a concern for us.

Q. A big change is underway at your joint venture. How do you look at at it?

A. The joint venture has been successful. We will be celebrating eight years of it. Except Maruti Suzuki, it is the only joint venture that has lasted so long. Look at the engines produced in a Volvo environment (at Volvo Eicher Powerstrain), and I think the joint venture is extremely successful. They are also bringing in a lot of ideas; conveying customer level changes, which in-turn also translate into partner-level changes. Both these are helping us to adapt to changes. Volvo Eicher Commercial Vehicle is helping us to understand (the market) better, to grow better, and to work closely.

Q. Along with the joint venture what developments do you foresee in terms of sourcing?

A. The technology (between Eicher and Volvo platforms) is different; there are very few commonalities, and it is difficult to leverage an opportunity. The grade of the supplier industry in India is such that we are sourcing more and more components from India to Europe, USA and other parts of Asia. We continue to grow on that count. The fact that a component is used in a Volvo truck means the quality, performance and price is at the expected level.

Q. How do you look at your journey in India?

A. India is the third largest heavy-duty truck market in the world. It is already showing the potential to be the number two. There are strong local players. The profile is similar to that of China. There’s potential for the market to modernise and grow. There is a lot of dynanism. We are a part of this market for the last 15 years. The prospects for us are extremely positive. As a Group with the inclusion of Volvo Eicher Commercial Vehicles, we are selling close to 50000 trucks in India. Last year it was 46000 trucks. India is a huge market that we are participating in. It is a strategic market. Profitability is going in the right direction. It is necessary that we become more robust. Dynamic growth pattern is not the case in Asia. The case in Asia is patience. Plant the seed; put some water, let it out in the Sun; develop relations and stabilise, and it will happen. Countries like India are subject to forces that are extremely strong, and can create a huge swing.

Q. By forces, are you in some way hinting at the ability to engineer frugally, locally?

A. After a point in time, frugal has to become innovative. It can be low cost, but has to bring under it new territories. India is capable of sending a space shuttle and developing an atomic bomb. Considering such capabilities, the need is to bring in different levels to make the ‘Make in India’ proposal successful. The need is to engineer the India way, at a competitive performance set, frugally, and innovative in a way that it brings more value and more innovation to the world.

Q. Has ‘make in India’ touched you?

A. It is difficult to say if it has touched us, and how. We entered India 15 years ago. We could claim that we had the vision of ‘make in India’ then. Things are at another dimension today. The need is to put India at the right position in the global organisation. For many, ‘make in India’ seems to be about leveraging exports and seeking profitability outside India. We are in India, and we need to look at the market in India, for India and outside India. And, not from the customer perspective, but from the product perspective, from the solutions perspective, and for the development done here.

Q. Has the entry of Volvo Financial Services been successful?

A. It has been successful in easing the financing difficulties. In March, our penetration level was at 38 per cent. The presence of Volvo Financial Services gives the customer a reason to trust. It takes care of the overall profitability, which has everyone happy. Its been seven months after Volvo Financial Services entered India. The need would be to be innovative, smart and propose different products; different scenarios and different setups to help our customer. Attention would be need to be given to bring added value, and not just a cheaper interest rate. So to be attractive, it is the engineering, duration and bits like the service agreement that will make a difference. What looks like a robust and attractive finance solution today may not hold water tomorrow.

Q. What you do think about commercial vehicle regulations?

A. More clarity about regulations, about the ease of doing business will come over time. The implementation of GST will be very good. It will simplify business. GST will send a very strong signal that transformation is possible. It will be a good enabler; it will be a step towards transformation.

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