A relative newcomer to the segment, Volvo Construction Equipment Latin America (Volvo CE) reported record turnover for 2008 in excess of $500 million. As part of the global Volvo brand, the company is revving up the market with new models and providing powerful solutions for a range of clients. Reuben Ford speaks to President of Volvo CE, Yoshio Kawakami, about the driving force behind the company’s success.
Recognized worldwide for its reliable and robust motor vehicles, the brand Volvo is a strong name in the industry, and one which also lends itself to other market sectors. Volvo Construction Equipment (Volvo CE) has based its Latin American division in Brazil. In fact, the group is responsible for the creation of the articulated truck and the front loader in Europe, now common pieces of equipment used in construction all over the world. “The articulated truck and front loader are still regarded as the best in the market,” confirms Volvo CE LA’s president, Yoshio Kawakami. The best selling products in Latin America, however, are the hydraulic excavator and backhoes, and the company now also manufactures a variety of loaders, graders, backhoes and compacting machinery in Brazil and Mexico.
Acting independently in the market for nearly 10 years, Volvo is a much more recent addition to the industry than many of its competitors. In spite of this, Volvo CE averages between second and third positions in terms of sales for each of the equipment models in most of the countries in Latin America.
BUYING INTO THE MARKET
The history of the company’s success is punctuated by important acquisitions. In 1986 Volvo began its involvement with Clark Equipment, a company that had been in the construction equipment industry since 1971. In 1996, 10 years after the first agreements had been made the company became Volvo Construction Equipment, of the Volvo Group, marking the start of construction machinery under the Volvo brand in Brazil.
It was only in 2000, however that the product range became exclusively Volvo: there were no longer developments of former Clark Equipment models; instead the lines were designed and developed by Volvo. The company set about simultaneously broadening its range, by creating new products and acquiring existing companies in the sector. One example was the purchase of the Chinese company Lingong, which manufactured loaders. Incorporated into the Volvo CE global structure, these products are now available in South America. The most recent acquisition occurred in 2007, when the Volvo CE purchased Ingersoll Rand for $2.3 billion. The bold step included a complete range of road machinery to Volvo CE’s portfolio, including compactors.
The acquisitions and developments were responsible for Volvo CE’s transition from specialized equipment manufacturer to solution provider and also for what is now one of the three most complete product ranges in the world in the construction equipment sector.
“We have no reservations about growing our business. Improving existing models, buying new companies and increasing our overall production capacity is the focus of our investment,” says Kawakami. In 2008, Volvo CE LA grew by 34 percent and annual revenue reached $520 million. The record year is evidence of the company’s huge success in the Latin American market region: In 1999, when Volvo CE was new to the industry the turnover was $57 million, almost 10 times less than today.
Operations for the Latin American Market region are organized from administrative headquarters in Curitiba, Paraná, and production takes place in the 410,000-square-meter factory in Pederneiras, São Paulo state. Volvo CE also has a 7,000-squaremeter facility in Mexico City, which is used exclusively for the manufacture of backhoes.
Being an international brand, Volvo applies quality standards across the board. All of the equipment manufactured in Brazil is fully compatible with that produced in other market regions. The divisions can interact and exchange on a global scale, and the whole group adheres to the principles of prioritizing quality, safety and environmental care. “These points are observed not only in production, but also in corporate and staff behavior and processes,” emphasizes Kawakami.
The technology that Volvo CE uses in Latin America is aimed at small-to-medium production volumes. Some of the parts are produced locally, but others (vital to the uniformity of the equipment across the markets) are imported. The factory has state-of-the-art technology that is at the forefront of the industry. “Our methods target premium performance of our equipment, high productivity and low fuel consumption,” Kawakami explains. Volvo CE also has electronic management systems in place, which diagnose and maintain technical problems, as well as include interactive programs for client support. The IT software used by the group is applied in all market regions.
The structure of the Volvo Group means that research and development of its construction equipment falls into two areas. The first is that of technological development, which is managed centrally from the group’s main offices in Sweden. Here, performance enhancing operations and moderate updates are engineered and rolled out to the international divisions. The products are also improved on a local scale, with regional offices adapting specific machines to clients’ needs and their uses in the market. “Engineers in Brazil and Latin America are continually simulating and developing projects on the applications of existing equipment, within the confines of the plans issued by the headquarters in Sweden,” continues Kawakami. “That is how Volvo achieves truly global products.”
BETTER IN BRAZIL
In Brazil, the growth of Volvo CE can be explained by a number of factors. The extensive product line and continual new editions have been important to sustain sales in a dangerously declining international market. Sales in the construction equipment industry have fallen 28 percent. Volvo CE however, has maintained its product turnover, and the company president explains how, despite decreased predicted revenue for 2009, Volvo CE has “maintained sales volume throughout the crisis in Brazil, and actually increased its market share in Latin America.” The mix of products has changed, with sales of smaller and more inexpensive equipment increasing.
The figures in Brazil are more positive than most of the places around the globe. Worldwide construction equipment sales have fallen by around 50 percent, almost double the decline in Brazil, and the rest of Latin America has seen an average 35 percent drop in turnover. For Volvo CE LA, Brazil represents around 53 percent of sales, with the other Latin American countries such as Chile, Mexico and Argentina accounting for the remaining 47 percent, based on 2008 figures.
“The mining, civil construction and heavy construction industries were the main reasons for the expansion of our business,” says Kawakami. As growing industries in Brazil, these have been instrumental in sustaining the company’s success. The largest sector for Volvo CE LA is heavy construction; however, the products are also used in the agricultural (sugar cane and ethanol) industry and forestation services.
In a short time, Volvo has occupied a leading position in the Latin American construction equipment market. Emulating the core values of the global Volvo group, the company has successfully expanded its product range to steer the business through tumultuous times. With sustained sales and proven success in its field, Volvo CE remains firmly on track for the future.