Volvo has been a leading player in the automobile industry since many decades. The company has established a strong position in the market due to its portfolio of high performing vehicles. The application of BCG Matrix on the company further elaborates the leading products of Volvo and the underperforming business units of the company.
Cash Cows
The products that fall in the category of cash cow are a part of the industry that is nearing the maturity stage, with little prospects of any major expansion in the coming years. Despite the market maturity and low chances of further market development, the cash cows include high profit business units of an organization. The reason behind the strong financial performance is that the products have been in the market for a significant amount of time, providing the company a strong market presence. The product is an established one, therefore needing no major financial capital to regulate the production, marketing and other functions of the product management. Cash cows are regarded as a relatively stable source of earning which can provide the organization with financial security when some business units are underperforming.
Volvo trucks are a cash cow for the Volvo group because of their high demand in the international market. According to Gilroy (2018), the market demand for trucks has seen a positive trend in 2017, enabling Volvo to gain a higher profitability during the fiscal year, supported by the superior financial performance of trucks in Brazil. This segment can also be highlighted as a cash cow because of the gradual increase in the net sales. In 2016, the net sales were $ 200,650 million and in 2017 it increased to $ 216,480 million (The Volvo Group, 2017).
Stars
The second group of products being produced by a company are stars which have strong financial performance, along with a profitable outlook for the future. The positive performance of these products hints at the possibility of these items becoming a cash cow if they are able to maintain the stronghold on the market in future. Another important factor which helps the stars to maintain a good financial outlook is that the market is still evolving and developing. Therefore, these business units can take the leverage of these market dynamics and progress further in the industry. The range of vehicles in construction equipment (excavators, wheel loaders etc.) are the star for the Volvo group. The profit generated in the category was not as high as the revenue of Volvo trucks, nevertheless the continued profitably indicates a favorable future progress for this business unit. In 2016, the net sales in the domain of construction equipment was $ 50,731 million, but in 2017 the company recorded a net sales of $ 66,497 million (The Volvo Group, 2017). Behrmann (2017) has further mentioned that even though the construction domain isn’t central to the sales and revenue generation, its financial return is likely to improve in the coming years.
Question marks
The question mark includes those products which are not fulfilling the financial goals of the company in the presence situation. However, they have the chance of achieving noticeable growth in the industry if the market conditions remain favorable. The blend of risks and opportunities associated with these products makes them a question mark for the company. Volvo has sold out its Chinese business unit and was struggling to bring up the profitability in the other regions. The launch of electric cars is an example of a question mark, owing to the great deal of uncertainty associated with the market’s response towards the environment friendly vehicles of Volvo. There seems to be a rising trend towards environment friendly cars, however, the company will need to invest capital input in the electric car segment to develop a prototype, test it and launch a final version that will bring in the favorable return for the company. The company is aiming for 50% of its sales to be attributed to the electric car segment by 2025, while producing and selling 1 million electric vehicles by 2025 (Volvo Car Corporation, 2017). If the electric cars are able to create the expected demand, they can become a star for the company, bringing a steady flow of income for the organization. Since the company is among the leading producers of hybrid vehicles, there is a significant chance that its electric cars will generate the forecasted sales volume.
Dogs
The last category in BCG matrix is related to those products which do not bring in any significant return to the organization. Furthermore, these products are cash traps, which implies that the investment made to develop these products is not likely to have any profit in the future as well. Contrary to the question marks, dogs have low chances of market development and product market share is also unfavorable. As a result, the management is inclined to cease the operations of these business units and direct the financial capital towards a more profitable venture. The passenger vehicles being manufactured by Volvo were underperforming as compared to the trucks and construction equipment units, specifically in the Chinese market. Volvo cars have not been able to create a strong position in the industry, making it hard for the company to deal with the competitors. Eventually, the business unit in China was purchased by Geely (Ambler, 2018).
Another product included in the portfolio of Volvo is the diesel engine cars which seems to have become outdated. Due to this reason, they can be regarded as dog according to the BCG Matrix. According to the company officials, the diesel engine vehicles require substantial investment while the market demand for these cars has declined (Smith, 2018). Another reason why the production of these vehicles is not financially feasible for Volvo is that the market for diesel cars have reached the stage of maturity. As a result, the management has decided to cease further operations in the domain of diesel cars, initiating the move in the UK in 2018 (Smith, 2018).
References
Ambler, P. (2018, January 1) Volvo & Geely: The Unlikely Marriage Of Swedish Tech And Chinese Manufacturing Might That Earned Record Profits. Forbes. Retrieved from https://www.forbes.com/sites/pamelaambler/2018/01/23/volvo-geely-the-unlikely-marriage-of-swedish-tech-and-chinese-manufacturing-might-that-earned-record-profits/#4167ac3c4ecc
Behrmann, E. (2017, April 25). Volvo AB Shares Hit 10-Year High on Construction-Equipment Sales. Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2017-04-25/volvo-ab-earnings-surge-58-on-cost-cuts-construction-equipment
Gilroy, R. (2018, February 1). AB Volvo Ends 2017 with Record Revenue. Transport Topics. Retrieved from http://www.ttnews.com/articles/volvo-ab-ends-2017-record-revenue
Smith, J. L. (2018, May 16). Volvo to DITCH diesel cars: Carmaker to stop selling new diesel engined cars in the UK. Express. Retrieved from https://www.express.co.uk/life-style/cars/960467/Volvo-diesel-cars-UK-scrappage-new-engine-emissions-s60
The Volvo Group. (2017). Annual Report. Retrieved from https://www.volvogroup.com/content/dam/volvo/volvo-group/markets/global/en-en/investors/reports-and-presentations/annual-reports/annual-and-sustainability-report-2017.pdf
Volvo Car Corporation, (2017). The Future is Electric. Retrieved from https://group.volvocars.com/company/innovation/electrification
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