Since emission regulations started to be introduced mid-way through the last decade, demand in the emerging markets has outstripped other regions.

While CMME was at the Volvo Innovation Forum last month, the magazine spoke to Tommy Striepel about why the Swedish company is banking on modualised designs for Tier 2 markets

Manufacturers are taking a variety of different approaches to make sure their machines can cross the ever-widening divide between the low emission, regulated markets and the lesser regulated countries. New terms such as SRC and de-tiering have entered into the industry’s already jargon-heavy vocabulary in recent years adding cost and confusion to Middle East buyers that must stick with earlier iterations of engine technology.
Laid out at Tommy Striepel’s feet during Volvo’s Innovation Forum is a map of the world.

“We are here right now as Estilskuna, Sweden,” he points out with a toe. “I have painted Europe and North America green. And I’ve done that to explain that these two markets are the highest regulated in the world. We have the interim regulation right now and soon it will be final. The buying criteria and the buying needs are a bit different versus all the other countries in the world.”

Adjusting his right foot he continues: “To simplify things I have painted all the other countries Brazil, Africa, Russia, China and India (in red). We collectively call these emerging markets. They start at different levels of maturity when it comes to regulations. I have also separately painted Japan.
They include almost all the requirements of North America and Europe but it is not the same standards.”

Since the emission regulations started to be introduced mid-way through the last decade, demand in the emerging markets has outstripped other regions. The trend, he says, is set to continue: “These markets will grow a lot faster. Urbanisation has never been higher than it is now. In the new megacities, infrastructure is being built: roads, railroads, buildings, airports, and so forth.”

He pauses to ask himself a leading question. “Are Volvo prepared for this? I would say yes.”

He calculates that out of 192 countries, 150 require heavy machinery. Volvo is currently working with 211 dealers in those countries. If it is to service their dealers and their dealer customer requirements fully it needs to find much more than customised workarounds. It needs to provide fully adapted designs. That, he suggests, requires a manageable definition of the different types of heavy machinery customers.

He recalls a joint exercise a decade ago with a trade publication that still provides an invaluable methodology today.

“We divided the market into ‘feature lovers’, ‘service seekers’, ‘deal seekers’ and ‘economists’. It is four distinct customer buying behaviours and they are attracted by different features or offerings. We have used this to try to understand different customers around the world. Of course there is a feature lover in Europe as well as in China.

“They may have different buying behavioursbut we use that structure to try and understand that market. The trick is how can you really design your offerings and machine to suit all these customers.”

To illustrate the point he compares a so-called feature lover in Sweden (“because that’s where I’m from,” he asserts) and a deal seeker based in South Africa.

“Let’s say the Sweden guy runs a wheel loader all year round (and sometimes) in 1.5m of snow. This guy has completely different needs, working in winter time shovelling snow; summer moving gravel. The other guy works in the sand every single day. We need to tailor our offerings.”

Looking at his two examples, he explains that Volvo CE views its products as modules based around one common theme: the structure of
the machine.

“We can start building up two different machines: two different cabs (one plus and one plus plus). The plus plus cab has too many features for (the South African customer) his needs. Obviously if he wants the plus plus we can do that, even at the end of the machine’s life. Maybe he wants to ship it to Scandinavia.”

Having explained the potential of modualisation for Volvo’s base machines he moves on to engine emissions. This is a potentially tricky quandary for the Swedish company given its aspirations of presenting itself as a environmentally conscious company. You could argue that it conveniently sets this aside to sell to emerging market buyers. Striepel however does not think the company is contradicting itself.

“You can drop in a Tier 4 or Tier 2 engine. The South African buyer can put any dirty engine he wants. We made a strategic decision that we would never put in a machine that has less regulations than Tier 2. Why Tier 2 not Tier 3 you may say? The thing is that the Tier 2 has many other features. It is actually better in fuel efficient – it is equally important to save oil for the world as it is to save the environment. We will fit the engine that market needs.”

At Bauma, Volvo shared that it is currently looking at de-staging and detiering for the Middle East but there is still work to be done in terms of making the process cost-effective enough to be attractive to the region’s customers. For the moment modualisation is the best, cheapest and fastest way to get hold of new technology from the Swedish company.

The modualised pallet that Volvo has introduced is helping it optimise its own production as well as lowering the cost of machines in regions where the highest spec is neither necessary or required. Whether the machine is produce in China, Europe, or Brazil (which switches to Tier 3 in 2015), the base structure and production methods are the same.

“It means shorter lead times for customers and low costs for us. Our dealers are also happy because it means they can sell whatever their customers want.”