Volvo Launches Aggressive Chinese Expansion
This morning, Swedish construction equipment manufacturer Volvo announced that it will invest more than $100 million in the expansion of products and production capacity in emerging markets. As the company's president Olof Persson explained, most of the investment will be channeled toward new and developing projects in China. During the press briefing, Volvo's president noted that, "Volvo is committed to supporting our capacity and product offerings in China and throughout Asia. We will achieve this by a comprehensive program of investments in our Asian industrial operations, a strengthening of our dealer network, and an expansion of our products that are more closely tailored to the specific needs of customers in this region." The announcements were made following Volvo's presentation at Bauma China, the biennial Asian construction equipment exhibition held in Shanghai. According to the initial press release, Volvo plans to set up a $30 million Volvo Technology Center in Jinan, Shandong province, while also investing $50 million into expanding its joint venture production facilities in Linyi, Shandong province. Construction of new facilities and equipment is expected to be completed by the end of 2012. In total, this new investment adds to the already $30 million that Volvo has invested in its Shanghai Volvo excavator manufacturing facility. Moreover, while the proposed investment is certain to improve Volvo's performance within China, it is important to recognize that Volvo has already achieved significant success within the Chinese marketplace. Recent financial reports indicate that Volvo's business in Asia has doubled since the beginning of 2010, with China being a economic driver. In particular, Volvo's excavator business, which builds and designs heavy equipment for large mining enterprises, has increased by more than 135 percent this year.
Overall, it is important that investors and economic stakeholders continue to recognize the growth potential that emerging markets - including China - contain. Across the world, demand for reliable competitively priced equipment that supports excavating, construction, and infrastructure development continues to remain high. In fact, in late 2008, the Chinese government announced its intent to investment nearly US$602 billion in China's domestic economy, with 83 percent going to infrastructure construction. Since the money initially started flowing, booming demand has led to a boost in the production of construction equipment in China, with more than 234,000 units produced in 2010 alone (a figure that accounts for more than half of the world's total). With persistent short and long term market potential, as well as predictions that Chinese public infrastructure spending will grow by nearly 160 percent in the next five years (from the current 2.6 trillion yuan a year to 6.7 trillion yuan in 2015), Volvo appears to be well positioned. Moreover, while the new investment will primarily support Volvo's commercial units, Volvo's commitment to support the local premium customer segment with Volvo branded products promises to boost the company's performance and market value. On the whole, Volvo appears well positioned to capitalize on market growth and and around China. Volvo's dual brand approach offers a unique advantage which will enable them to meet the needs of a much wider customer base than competitors. Additionally, it is arguable that short term market share gains will be maintainable, particularly because Volvo is customizing many of its products specifically for Asian consumers - using local Chinese knowledge which enhances consumer buy-in while also leveraging an expanded Asian manufacturing footprint.