Nailed to the mast

The Swedish company Volvo group is reaping the benefits of owning an epic yacht race

For cynics, it may seem like nothing more than half a dozen outrageously expensive boats owned by a group of immensely rich people sailing their way across the Seven Seas in a mad dash to see who can thump their chests the hardest.

But for Olof Persson, the round-the-world Volvo Ocean Race is part of a sophisticated marketing strategy, one that aims not only to keep his company's name in the public eye, but that helps Volvo build a relationship with its customers.

Persson, president and CEO of the Swedish Volvo Group, says: "People don't often see when our trucks transport goods or when our construction equipment builds roads, because we work behind the scenes.

"In that light, the Volvo Ocean Race brings Volvo Group front and center and offers people another perspective, and allows them to see how our achievements are moving the world."

Persson was talking to China Daily from Galway, Ireland, where the latest edition of the triennial event finished about three weeks ago.

Galway was the last of 10 ports of call for the 2011-12 event, the fleet having set out from Alicante, Spain, nine months earlier.

The event included a series of inshore races in the ports of call, representing a marketing windfall for Volvo, because many of those venues happen to represent the most important markets for the company. It can thus push its products and positive brand association with the event, which the promoters bill as "the world's premier offshore race" and "an exceptional test of sailing prowess and human endeavor".

So the question after the latest event ended is: For Volvo Group, was it worth it all? It reckons its name was kept in the spotlight thanks to a level of media attention never given to any previous boat-racing event, helping it attract a global TV audience of 880 million as of Feb 19, an increase of 90 percent on the previous year. The number of followers of its Facebook homepage more than doubled when the race was on, the company says.

Those heady figures may explain why Volvo Group decided to buy the race lock, stock and barrel more than 20 years ago. Volvo will not say how much it paid, although 10 years ago the Baltimore Sun quoted Anders Lofgren, then commercial director of the race, as saying it had cost $8 million (6.6 million euros).

Whatever the price, when Volvo took over the race, previously known as the Whitbread Round the World Race and sponsored by a British international hotels and restaurants concern, there were many who said the costs of the race were too high and the yachts too small to attract attention.

"With the cost of sponsorship escalating every year, we found we made the right decision," Persson says.

"More importantly, if we owned the race, we could make it into a bigger and healthier event with massive exposure of our brand."

The huge audience number is also a result of the contribution from a Chinese stopover, Sanya on the southern island of Hainan, said to have attracted 12.5 million viewers on China Central Television.

Persson, who became president and CEO of Volvo Group last year, having been in the construction equipment division, says Sanya was chosen as a stopover because it would allow the company to get to meet and become acquainted with certain people there.

So about the time 12,000 Chinese customers were invited to Sanya to watch the race in February, more than 2,000 excavators were sold, in just two weeks.

"This has directly impacted the group's business," Persson says. "Since the global economic slowdown in 2008, the importance of the China market has become more evident than ever.

"Its against-the-trend growth stabilized the businesses of the Volvo Group and has together with other emerging markets served as the momentum for the strong rebound of the group during the past two years."

The CEO of Volvo Ocean Race, Knut Frostad, a Norwegian who has competed in the event, says China has become a hot spot and makes a perfect stopover for the event on many fronts.

"The number of guests coming illustrates just how important the country has become for our stakeholders. The chance for businesses to develop personal relationships with clients in an environment like this, out on the water, in a relaxed atmosphere over several hours, is very valuable."

Volvo's sporting activities are not limited to yachting. In China in 1995, it launched the Volvo China Open, after a history of sponsoring big golf tournaments in Europe, and its construction equipment brand Shandong Lingong has sponsored Chinese Super League soccer.

It has also sponsored the Boao Forum for Asia, an organization that hosts forums for leaders from government, business and academia in Asia, and whose permanent venue is Bo'ao, 180 kilometers from Sanya.

While the financial impact of such sponsorship is difficult to gauge, six years ago China accounted for a mere 1 percent of Volvo's global sales, and last year that had risen to 7.4 percent.

The group's construction equipment, which tops loader and excavator sales in China, has become a big earner for Volvo Group China, accounting for more than 80 percent of its revenue.

The company has concentrated on selling to China's high-end market for nearly a decade, but its construction-making business has soared as government stimulus plans in the sector have taken effect.

Construction machinery sales in China are expected to reach 900 billion yuan ($142 billion, 103 billion euros) by 2015, compared with 400 billion yuan in 2010.

Demand for construction equipment is expected to grow 17 percent every year between 2011 and 2015, according to estimates from the China Machinery Industry Federation.

The Swedish company racked up $45.8 billion in net sales worldwide last year, up 17 percent on the previous year.

Although China is already the third-largest independent market for Volvo, the CEO of the world's second-largest truck maker is aiming for a bigger slice of the Chinese market for heavy-duty trucks.

But for Persson there are many twists and turns in the road ahead, because domestic firms still dominate the medium to heavy-duty truck market.

While foreign-made trucks perform much better, they are also a lot more expensive than their local counterparts.

In an effort to fill the market gap, Volvo Group bought the Japanese truck maker Nissan Diesel in 2007. The deal, which included a joint venture business owned by Nissan Diesel and Dong Feng Motor Corporation of China, gives Volvo group access to domestic truck products for China.

"Flexibility is the key to the market," Persson says.

"Together with the joint venture factory, we will explore suitable truck products for China and will further develop in line with China's truck market."

Last year, Volvo sold a couple of thousand trucks in China - a drop in the ocean considering its global sales of nearly 250,000 trucks.

lvchang@chinadaily.com.cn

(China Daily 07/27/2012 page20)