The strategic problem is that Volvo is not creating superior value (Appendix 1) for its customers in the US market by utilizing its existence from early 70’s and thus has the poor market share of 11% relative to the top 3 competitors within the industry. The strategic opportunity is to increase the market share from 11.6% to 20% by 2001 by creating a product differentiation advantage. Through the acquisition of a technologically advanced company, Volvo will be able to gain competitive advantage in the industry. Volvo has not been able to grow their market share above 12% since they entered the US market in 1975 and thus they find themselves ‘stuck in the middle--which …show more content…
This indicates that Volvo did not understand the US consumer's specific demands. Despite incurring this extreme loss, Volvo cannot exit the North American market in 2000, as it remains a highly profitable market since they hold a 10.6% market share. Also, total sales of heavy trucks in the US accounts for 45% of the total global sales (Appendix 6), implying that Volvo should remain in the North American market.
In the year 2000, Volvo should focus their sales strategy on after-sales activities like repair and maintenance of the trucks. Simultaneously, Volvo can further expand their distribution of engines only, rather than a combination of drive-train components--since the engine alone makes up for 25% of the total truck value. This helps to reduce the overall components from 40,000 to 1600 parts further reducing their cost of goods sold helping them to increase revenues.
Assessing Porter’s 5 (forces Appendix 7) we identified the intensity of competitive rivalry and the bargaining power of buyers as the highest risks. The rivalry among existing firms is considered to be high because the market is highly saturated so in order to survive in this market, high margins are required for each firm. Exit is also not an option for any competitors within the market as the costs are too high and they will lose the market share to