FORUM

200 CHAPTER 6 BUSINESS STRATEGY

ILLUSTRATION 6.2

Volvo’s different Indian buses

Volvo has a strategy to sell buses at nearly four times the prevailing

market price.

The Indian bus market has long been dominated by

two home players, subsidiaries of major Indian con-

glomerates: Tata Motors and Ashok Leyland. The two

companies made simple coaches on a design that

had hardly changed for decades. On top of a basic

truck chassis, the two companies bolted a rudi-

mentary coach body. Engines were a meagre 110–120

horse-power, and roared heartily as they hauled their

loads up the steep mountain roads of India. 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 old-fashioned, guaranteeing a shaky ride on

pot-holed 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 1.2 m

(b15,000; $21,000).

In 1997, Swedish bus company Volvo decided to

enter the market, with buses priced at Rs 4 m, nearly

four times as much as local products. Akash Passey,

Volvo’s first Indian employee, commissioned a con-

sultancy company to evaluate prospects. The consul-

tancy 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 strat-

egy. His basic product had superior features. Volvo’s

standard engines were 240–250 hp and mounted at

the back, ensuring a faster and quieter ride. Air con-

ditioning was standard of course. The positioning of

the engine and the specific bus design of the chassis

meant a more roomy interior, plus storage for bags

internally. But Passey 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 life expectancy of buses from three to ten

years, and allowing bus operating companies to dis-

pense with their own expensive maintenance work-

shops. 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. To kick-start the

market, Volvo supplied about 20 subsidised trial units

to selected operators. Volvo trainees rode these buses,

alerting the company immediately when something

went wrong so Volvo could immediately send its

engineers. Faster, smoother and more reliable travel

allowed the bus operators to increase their ticket

prices for the luxury 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 over-

night stays. Tata and Ashok Leyland both now pro-

duce their own luxury buses, with Mercedes and Isuzu

following Volvo into the market. None the less, 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.

In 2008, Volvo opened a new state-of-the-art bus

factory in Bangalore. It is Volvo’s most efficient

bus factory worldwide, producing a fully built bus in

20–25 days. Annual capacity is 1,000 buses per year.

Source : Adapted from J. Leahy, ‘Volvo takes a lead in India’,

Financial Times , 31 August 2009.

Questions 1 Rank the elements of Passey’s strategy for

Volvo in order of importance. Could any have

been dispensed with?

2 How sustainable is Volvo’s luxury bus

strategy?

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