Volvo CE Refocuses Strategy By Selling 70% Of SDLG

Volvo Construction Equipment (Volvo CE) is selling its 70% share in Shandong Lingong (SDLG), a Chinese manufacturer of earthmoving equipment. The sale, which is valued at approximately 8 billion Swedish krona (approximately US$837 million), concludes a 19-year collaboration that gave Volvo access to a value-based line of construction equipment. 

Volvo dealerships had been selling SDLG products (road rollers, wheel loaders, and excavators) as a long-lasting, less expensive value brand addition to Volvo’s premium line. 

In this agreement, Volvo will sell its shares in SDLG to a fund that is primarily owned by Lingong Group, SDLG’s minority owner.

Due to this sale, Volvo CE is altering its approach. In a news statement, the company outlined several important steps:

• Sell all 70% of SDLG to the fund held by the Lingong Group.
• Concentrate on premium Volvo-branded goods and services for specific Chinese market niches.
• Make use of its activities in China as a hub for production for both export and domestic markets.
• Establish the Jinan Technology Center (JTC) to promote innovation and product development worldwide.

Context and Strategic Rationale

According to Volvo CE, the change was brought about by “increasing competition” in China’s mid-market and the necessity of switching to new technologies. Although SDLG “has served us well since 2006,” Melker Jernberg, head of Volvo CE, stated that “we need to re-focus” in light of growing market competition. He confirmed that Volvo will instead focus on sustainable solutions for specific market segments, with China “remaining an important market.” Volvo plans to provide customized, high-end equipment, including wheel loaders, backhoe loaders, and wheel excavators for sale and service packages to these target markets, which include mining, quarrying/aggregates, and heavy infrastructure.

Volvo CE first purchased SDLG in 2006 in order to gain access to China’s rapidly expanding construction industry. Under Volvo’s “value” brand, SDLG machines offered dependable, basic equipment for jobs that didn’t require all the luxuries. In 2017, Volvo CE director Alan Quinn explained that these “value-brand” machines have been popular for light-duty or seasonal applications where cost is an important consideration. With the divestment, Volvo will increase its focus on its own-branded, premium products, while SDLG will effectively become a Chinese-owned company.

Implications and Plans for the Future

In spite of the divestment, Volvo will keep using its manufacturing base in China. China will continue to be a “crucial component” of the company’s global supply chain. Since 2002, Volvo CE has run a sizable excavator plant in Shanghai and is expanding its production lines; China will continue to be a competitive hub catering to both domestic and international markets. Volvo is increasing production near important markets at the same time. For instance, it recently increased capacity at its facility in Shippensburg, Pennsylvania, so that more than half of the wheel loaders and excavators manufactured by Volvo in North America will originate from the U.S. plant.

In the future, Volvo CE plans to provide targeted clients in China and around the world with high-end, environmentally friendly solutions. It is expected that the 8 billion SEK proceeds from the sale of SDLG will boost Volvo CE’s profits and finance further investments. 

To put it briefly, Volvo CE is ending its role as a mid-market value player in China and shifting its attention to a more efficient range of high-end equipment and services for infrastructure developers, miners, and other important industries.

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