Volvo Group is one of the leading manufacturers of automobiles at the global level based in Sweden. The company also deals with heavy construction material but the major products of the company are related to transportation and consumer vehicle. Net sales of the company in 2019 were 432 billion SEK worldwide which speaks volumes of its success and size. The company has 104,000 total employees with its production facilities in 18 countries and offering its products to 190 different markets of the globe. The company was founded in 1927 and since then it became a huge success especially in the heavy truck and vehicles for transportation (Volvo Group, 2020).
To understand the industry dynamics, Porter’s five forces model for Volvo Group is conducted below:
Competition
The competition in the market is high as there are many manufacturers for heavy trucks and construction equipment along with passenger vehicles. For heavy trucks, the company is one of the leading companies with the presence of other manufactures like FAW, Dongfeng, Daimler, and Tata from India. From the perspective of consumer vehicles, the company is facing stiff competition from three major giants at the global level which are Audi, BMW, and Daimler. These three brands hold 80 percent of the global market share for the luxury automobiles for the passengers (PR Newswire, 2018). Volvo also has made good progress and gained 10 percent of the market share in consumer vehicles. It is expected to reach 15-20 percent within the next 3-4 years. The presence of multiple giants for the manufacturing of trucks and passenger vehicles shows the level of competition in the industry (Leggett, 2018). Therefore, the competitive rivalry in the industry for heavy trucks and passenger vehicles is intense due to the presence of such giant manufacturers.
Bargaining Power of Suppliers
The companies in this industry have brand loyalty and the customers would move to brand irrespective of the suppliers of the companies. This power for the company is the reason that the suppliers are dependent on the companies. For research and development to bring innovation, the companies rely on in house capabilities and order the suppliers for implementing the innovation. The specialty of suppliers is something that neutralizes the dominance of companies to some extent but it is still present and cannot be eliminated completely. Keeping in view the situation, it can be said that the bargaining power of suppliers is moderate in this industry.
Bargaining Power of Buyers
The bargaining power of buyers is moderate as there are a number of players in the market from which the buyers can buy from but the luxury and unique offerings of the manufacturers keep the buyers intact with the company. The presence of a number of players is not letting buyers completely dominate the industry because the offerings of the companies are luxurious and providing different features. The continuous innovation in the products especially for the heavy trucks is the reason that the buyers can not dominate completely when it comes to bargaining. It is not easy for a passenger vehicle as well as the heavy truck customer to shift from one brand to another. If a construction company has 100 Volvo trucks, it is extremely difficult for the company to move from Volvo to any other brand.
The Threat of New Entrants
The threat of new entrants is low in this industry because the car and heavy truck manufacturing require a massive amount of capital and expertise to implement the whole business plan. Along with it, the strong loyalty of the customers with the brands is difficult to shake for the new entrants (Thulasi & Raju, 2018). These hurdles make it difficult for the investors to enter this automobile industry unless there are some special capabilities with an extraordinarily huge amount of capital.
Threat of substitutes
Cars and heavy trucks have become a necessity and there is no close substitute for cars and trucks in the near future. There is continuous innovation within the cars but there is no substitute for the cars and trucks that have been introduced yet (Manoukian, 2017). The introduction of electric cars is not a substitute for cars and trucks but it is a substitute for the engine of cars and it is one of the great innovations in the industry.
References
Leggett, D. (2018). Global Automotive market report – Q2 2018. Available at: https://www.just-auto.com/analysis/global-automotive-market-report-q2-2018_id183996.aspx
Manoukian, J (2017). The Psychology Of Luxury Car Buyers: 7 Considerations. Limelight. Available at: https://www.limelightplatform.com/blog/psychology-luxury-car-buyers-considerations
PR Newswire. (2019). Global Luxury Car Market Assessment 2018: BMW, Audi and Mercedes-Benz Account for Approximately 80% Share of the Global Luxury Car Market. Available at: https://www.prnewswire.com/news-releases/global-luxury-car-market-assessment-2018–bmw-audi-and-mercedes-benz-account-for-approximately-80-share-of-the-global-luxury-car-market-300767403.html
Thulasi, P., & Raju, V. (2018). Factors Influencing Consumer Behavior for buying Luxury Cars. International Journal of Civil Engineering and Technology (IJCIET),9(4), 292–297,
Volvo Group. (2020). About us. Available at: https://www.volvogroup.com/en-en/about-us.html