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Volvo Trucks FDIs (and the strategic role of standardisation)

In the following section, we try to find arguments to support our thesis of the
strategic benefits of standards in the case of AB Volvos foreign direct
investments. We therefore investigate relevant studies regarding manufacturing
activities of Volvo affiliates in developing countries as well as interviews with AB
Volvos managers regarding this matter.
A recent study from Inge Ivarsson and Claes Gran Alvstam (2009), about localsupplier relationships established by Volvo affiliates regarding the assembly and
manufacturing plants for heavy trucks and buses in Brazil, China, India and
Mexico, finds arguments, which support our claims.
To illuminate AB Volvo's activity in the mentioned countries, the structure of those
FDIs are briefly outlined: "Volvo do Brasil" is a wholly-owned green-field
investment made by Volvo in 1979. "Volvo Bus de Mxico" a 100% acquisition of
"Mexicana de Autobuses SA de CV" was established in 1998. "Volvo Silverbus" is
a 50/50 joint venture with "Xi'an Aircraft Company" in 1998. In the same year,
"Volvo Truck India Ltd." was established through a wholly-owned green-field
investment. The mentioned affiliates are all producing exclusively for the
domestic market, except for "Volvo do Brasil", which exports trucks and buses,
mainly to South America (Ivarsson & Alvstam, 2009).
Furthermore, in July 2008, Volvo Group tied up with Eicher Motors in a fifty-fifty
joint venture, which took shape under the name of VE Commercial Vehicles
(VECV). Volvos 3P Business Unit played a key role in entering the small and
medium truck segment in India, by providing engineering design through
modularized vehicles with standardized interfaces (Ivarsson et al., 2011).
Ivarsson & Alvstam (2009), identified quality standards and performance
requirements as source of mainly two effects regarding the suppliers of Volvo's
affiliates, the upgrading of quality and technology.

On its way to standardization, Volvo screened interested suppliers applying strict

requirements and aiming the ones expressing an explicit intention of moving in
the long term to single sourcing. Coordinating purchasing operations brought to a
substantial decrease in the number of suppliers, from about 2500 to roughly
1500, translating into better purchasing conditions based on larger volumes and
systems responsibility (Ivarsson et al., 2011).
Volvos global integration of supplier networks policy resulted in a common
platform for new truck models beginning in 2004. An improvement of Volvo FH
and all new Renault Premium and Mack Granite

models, using common big

global suppliers, sharing the same standards, especially those delivering

component modules (e.g. brake, steering and pneumatic systems), has been
registered (Ivarsson et al., 2011).

Quality and efficiency (through standardization)

Volvo uses a Supplier Evaluation Manual (SEM) to assess potential and existing
suppliers (Ivarsson & Alvstam 2009). The SEM evaluates capabilities in areas









competence, which have to be on a certain level, in order for a supplier to be

included into the supply chain (Ivarsson & Alvstam 2009). We consider the SEM
as a conglomerate of different standards and argue that the SEM is a not only a
tool for Volvo to verify standards of their supplier but also as a strategic tool, to
encourage potential suppliers to upgrade and previous suppliers to retain certain
Ivarsson & Alvstam (2009) further detected that Volvo expects higher quality
standards on the delivered products and manufacturing processes from their
suppliers in the examined countries. This led to a further change in the attitudes
of the management and workers, which caused a systematic recognition of
quality-issues and an implementation of the matter in the long-term strategy.

Volvo's introduction of higher quality requirements, are considered as an

instrument to address quality issues in developing countries. We can argue that
Volvo's strategic use of standards helped to overcome quality related issues of
suppliers in the observed countries.
Furthermore, The Volvo Production System (VPS), initiated in 2004, sees its goal
in improving quality standards, reducing production costs, introducing and
disseminating Volvo Group principles and values and thus consolidating Volvos
corporate culture (Ivarsson et al., 2011).
The interviews with Volvo support the claim of the usage of standards to ensure
quality, but clearly point a related goal behind it: Cost-efficiency.

Manager F.: If you look at it from a company perspective, this developing of

standards is of course to secure quality and deliver safe products ... In order to
save money we cannot afford to have repetition of processes. We need to have
one or few solutions to a problem that many share.

Manager F.: I think it's more that you make the standards so that the company
can earn money. Because to be unique is not a good way to do business today. I
think standardization is the way, it becomes more and more important ... Today it
is more important to work in an efficient way. You do not save any money if you
have unique screws, unique process for steel, etc. everyone can buy this steel.

The last statement indicates that Volvo values efficiency more than protecting its
intellectual property. The study of Ivarsson & Alvstam (2009) supports the use of
an open policy of Volvo regarding their intellectual property to gain efficiency.

Volvo provides their supplier with drawings, specifications and samples of parts
and components, which pose more accurate information, than other customers

give their suppliers (Ivarsson & Alvstam, 2009). The unrestrained facilitation of
the supplier with accurate information and documents is a strategic decision at
Volvo. This strategic drive overshadows any intent to protect intellectual property
embedded in standards in the way other assemblers do. Such a very successful
routine, in this case, contributed according to Ivarsson & Alvstam (2009) to a
rapid, reliable and cost-efficient development of tools and samples.
Furthermore, the standardization process brought to an increase of the number of
shared components and interchangeable modules group-wide through a growing
number of development projects initiated by 3P, often in cooperation with a
relatively limited and selected group of suppliers (Ivarsson et al., 2011).
Three statements from the interviews support these findings and indicate that
the availability of Volvo standards to third parties does not seem to affect their

Manager F.: Every standard is available for use inside the company. 90% of them
are also available outside Volvo group.

Interviewer: The standards that are available to your suppliers, could also be
available to your competitors, right? All of them, or do you have standards that
are only available to suppliers?
Manager F.: No, all of them .

Interviewer: And the fact that you are willing to use the same standards with
your competitors on those specific parts, means that you actually do not relate
your competitive advantages to those specific standards?

Manager F.: No, I think it is this is a complicated situation, for example if you
take wheels on your car, they are all standardized. You do not have unique Volvo

or Mercedes wheels. Because that would be too expensive if every car company
was using special wheels. If you have also the same diesel, gas, you have to
have standards about thatevery computer can't have a special connector.

Technology upgrading
Volvo's standards respectively their demand for high quality and the related
controls, not only let to an increased quality of the supplied products. It also
caused many suppliers to invest in new equipment and technology in order to
manufacture for Volvo (Ivarsson & Alvstam, 2009). Suppliers thus were in many
cases able to upgrade their products and facilitate new quality and better
technology (Ivarsson & Alvstam, 2009). Ivarsson & Alvstam (2009) report that
suppliers take advantage of increased technological capability and use it to
service other customers, which leads to an expansion of their markets and enable
them to use their full capacity and gain economies of scale.
The standardization touched considerably the formal structure of activities and









sophisticated means of coordination, such as cross learning, culture building and

task forces (Ivarsson et al., 2011).
We can conclude that Volvo's use of standards and the related support enabled
suppliers to upgrade their skills. Ivarsson & Alvstam (2009) therefore assume that
the upgrade of the suppliers, through investments in technology and the
interaction with other customers, clearly has a positive effect on the relationship
of those suppliers with Volvo.