Volvo CEO: What I learned in Saudi
Volvo Construction Equipment’s CEO Pat Olney reveals what he has learned from his trip to KSA, talks about his outlook for the year and the truth behind Volvo’s role in the FAMCO/Al-Rehab deal
Olney visits Saudi civil contractor Al-Rosan on site in Thuwal, 100km north of Jeddah.
Volvo Construction Equipment’s CEO Pat Olney reveals what he has learned from his trip to KSA, talks about his outlook for the year and the truth behind Volvo’s role in the FAMCO/Al-Rehab deal
I owe this man an interview, I owe this one some comments and I owe you an image. Then I need to catch a ride,” directs Volvo Construction Equipment’s CEO. We’re at Bauma, he’s already late in leaving the event. If he’s flustered, he’s not showing it.
The interview with CMME that Pat Olney refers to is the culmination of a chase across two continents. The last time we met was on the outskirts of Thuwal, a quiet village 100km north of Jeddah which will be transformed once the massive new station for King Abdullah
Economic City along the Haramain High Speed Rail project is completed.
Having tracked Olney and a team of Volvo CE’s key executives for the region down to this remote location, we manage a very brief meeting and a hurried photo shoot.
Credit to Olney, who is there to meet a clearly impressed customer (it’s not often you bump into one of the most important men in the industry in the desert), he spares time to break for his photograph and patiently allows to be moved into position. He flew into Jeddah that morning as part of his whistle stop tour of the Gulf countries. If he’s tired or annoyed, he’s not showing it.
Barely 15 minutes afterwards, CMME leaves him to learn more about how the Volvo equipment is helping the project progess: there is a plane to catch and Jeddah Airport is an hour and a half away, and in one hour the check-in desk will close. Somehow we make it in time – just.
Even with the world’s biggest event in the background, the Volvo stand at Bauma provides a second and more relaxed chance to get his impressions of his visit and his view on Saudi Arabia, as well as the state of the global industry.
“That Saudi trip was crazy,” he recalls. “It’s been like that for some time but this year I’ve tried to prioritise some new markets that are not normally on my rotation. So we went to Nigeria, Ghana and the Democratic Republic of Congo. I’m going to Indonesia and Myanmar later this year. That’s on top of China and Brazil, and all the traditional places I would go to. I think it’s a sign of where we are seeing opportunities.”
Olney is a self-confessed admirer of the sailors that participated in last year’s Volvo Ocean Race. He wants his company to match their “absolute dedication” with customers. While it may come across as rhetoric for press releases, it is indicative of his approach that he is willing to rake up air miles to drive the point home. Although he says that Volvo CE can’t solely rely on him to drive sales.
“I can’t be enough places to be the deal closer but it can give the local guys a boost, particularly if it is a large customer or someone who is new to Volvo and wants to feel some comfort with us. There are many people in management who can do that, but if I can help then I will.”
He continues: “Ultimately I am the guy who is prioritising business and resource strategies. If I’m doing that with talking to a customer, then that’s a pretty dangerous situation.”
He says he has to use any information he gleans carefully: “I’m seeing customers that we have decided to see for various reasons. (For instance) I can’t extrapolate from meeting Al-Rosan that is what everyone wants or is facing in Saudi or whatever. But it does give me some energy and excitement for the market.
“When I have a discussion later on with our sales region, I can visualise a little bit of what they’re talking about: some of the opportunities, some of the challenges. You know the old adage of a picture is worth a thousand words? Well a visit like that is worth 10,000.”
His trip to Saudi has helped him to realise that there is a demand for more sophisticated equipment in the market.
“We tend to think of non-regulated markets as not being necessarily the place for premium products,” he says. “That’s not true at all. My trip to Saudi as well as Africa, [has shown me that] there are some very demanding environments and jobsites. You know, guys moving hundred metre high sand dunes in 45o temperatures. If that’s not a demanding application, I don’t know what is. There are certain applications that just need a basic product but there are many that are demanding and where our brand and support, products and features are well-suited. And that was a real reminder for me. I saw some pretty extreme applications.”
He’s lucky he didn’t visit during the summer to see some very extreme conditions: “I can only imagine how hot that will be! To hear from customers that your machine is the one machine that could do that job, I love to hear that.”
With Volvo CE technology viewed in the upper echelons of what is available in the market, you wonder wether it might be frustrating that much of its technology won’t the transfer to the region.
“I don’t agree with that idea at all,” he says. “It’s like being frustrated in the car business if the customer wants velor seats instead of leather. It’s not up to the manufacturer to say why don’t you want leather? It’s up to the customer to decide. So no I’m not frustrated. I am more frustrated if we can’t flex the product and fine tune it enough because anything more we put in than the customer wants is wasteful for everybody. In the worst case scenario you could have a piece of software they never use that goes on the fritz. Then it becomes an aggravation.”
Olney uses the example of the L105 manufactured and designed in China, a wheel loader that he says has less technology than the equivalent model in Sweden but is designed to suit the market.
“We have to make sure in these markets that you get the right level of technology and technology is how we differentiate ourselves.
You expect your Toyota Corolla to work just as well as your Lexus. Of course you don’t get all the nicest features, but the analogy is that’s how we see Volvo branded products working in these markets.”
Providing servicing and aftersales is the major battleground for OEMs in the developing markets of the region. With dealer Al-Rehab
now owned by Famco, the UAE-based dealer that recently achieved the notoriously hard to achieve silver certification, Volvo is arguably now better placed to take on its entrenched rivals in Saudi.
“As much as we focus on what to do with the products in emerging markets, it is equally important that dealers are making the infrastructure investments, as in people.”
He continues: “Any time a dealer chooses to acquire another dealer, that’s a business decision that they make and Volvo isn’t party to. On other hand if Al-Futtaim came to us and said, ‘would you object?’ and we said yes for x, y and z reasons then they would give it pause. So you can say that we are often involved in advance to give moral support, a blessing, or whatever you want to call it. In this case, we clearly supported it because we have had a good experience with Al-Futtaim and they have good plans to make investments and go that next step in Saudi.”
Taking on Caterpillar in Saudi
Taking on the established number ones and twos in Saudi Arabia is the next step for Volvo. To do that Olney has identified that it needs to establish coverage in the market.
“We have the product range that puts us in the top tier globally and customers I’ve spoken to say they favourably stand out in that difficult environment. The issue, or rather opportunity, is coverage. If you’re not a dealer that’s within four hours of a job, how can you help? That’s the exciting thing about Famco and their plans.”
While he is not prepared to quote figures for growth he says his recent travels have confirmed his confidence for Volvo in Saudi Arabia: “I feel quite optimistic after my visit. It’s clear the government is commited to infrastructure and development. You can see the need there.”
Beyond the Gulf, Olney sums up the difficulty of trying to tackle the disparate African markets.
“I got asked at the press conference (held at Bauma the day before the CMME interview) what my view on Africa is. I said I have 55 views on Africa,” he remarks. “Many of them can be grouped and we can deal with them in clusters. One is if it is a project market. There you need flexibility and mobility. Setting up five branches is not going to pay.”
He adds: “Then you have mature African markets where you have a fairly stable volume and a stable political and ecomomic situation. You can have a more conventional set-up model. Then you have other commodity driven markets and you have to look how you follow those.“
One model that has worked in mature markets has been the rent to rent model, which has proven a success for Volvo, particularly in the US. Olney sees that replicating the model in the mature markets of the Middle East is not a straight-forward process.
“Daily rental is for the small guy that needs a machine today. The kind of rental we see in these project markets is a three or six month rental. But yes that kind of rental can be a path to the customer. We’ve been talking about how different the market is really. You’ve still got to watch the operating costs and monitor the use. The modelling is not too different, it’s just how you put to work.”
Amidst the chest thumping at Bauma, Olney managed to present one of the more honest assessments of the global market. It typifies his management philosophy.
“That’s our approach in Volvo. There are some things I can’t tell you and I’ll tell you I can’t tell you. And the things I can tell you like our market outlook, well that hasn’t changed since Q4.”
Olney pauses and then outlines his expectations on the year ahead for the major markets.
“China will be flat with a weaker first half,” he begins. “The US, [there will be] sideways movement a little bit up and little bit down. Europe, well, that’s downwards minus 5% to 15%.”
Olney realises that this may be contrary to the message heard elsewhere in Messe Munich.
“It belies what’s going on at the show when you see the enthusiasm. Hopefully we’re at the cautious end of the spectrum but it’s clear that things are slowing from the south to north.”
Turning his attention to further afield he sees further trouble in the Far East as the Chinese continues to splutter and commodity demand falls.
“Asia will be down 10% probably and that’s on the back of a mining slowdown in India and Indonesia. Brazil GDP is down and we see zero to 10% positive there.”
The 10% swing demonstrates the difficulty of making any solid predictions.
“Normally we try to use 5% spreads, but there is a lot of uncertainty in the market. What if China decides decides to do more stimulus or not? It’s a policy driven market, right? The new leadership has come in and they said they want to move to a consumer-driven economy. The US has debt ceiling issues. You have a congress that is a majority of one party and the president from the other. And in the EU 27, you pick up the newspaper and we seem to stumble from one crisis to another. That doesn’t help. There is so much uncertainty that the 10% swings are the best level of accuracy we can do.
“The truth is the days of the nice up and down cycles are gone. The world dynamics have changed. Instead of trying to get 1-2% levels of accuracy we’re trying to build flexibility in the business.”
