Site visit: Volvo Trucks in Iraq
Oscar Wendel travels to Iraq to see what Volvo Trucks has achieved
Oscar Wendel travels to Baghdad and Basra to see what Volvo Trucks has achieved in Iraq. The company has just inaugurated two of the biggest and most advanced service centres in the Gulf, working to a tight timeframe and in changeable conditions
Since early 2012, when PMV was first introduced to Stefan Soenchen, business team director Iraq - Volvo Group Trucks Middle East, we have followed the progress of the service centres and truck-assembly plant being constructed from the ground up in Baghdad and Basra.
One of the sites is on land covered with palm trees and, in Basra, a 9,000m2 site had to be raised by 2m.
Anyone with insight into doing business in Iraq would be a little sceptical about the ambitious goal of building two of the biggest and most advanced service centres in the Gulf in little over a year under these conditions.
Each meeting in Baghdad requires two days’ advance planning, with a security detail that involves three armoured vehicles and numerous men with machine guns. And, not least, thousands of dollars in cost. Yet this only hints at the resolve and resources required.
PMV was invited, along with the management team of Volvo, to attend the inauguration and sit in during discussions with distributor ZamZam and its government partners.
Soenchen was first in Baghdad with the German army from 1991 to 1993 in a unit servicing Chinook helicopters for the UN mission there. He is a boxer and a long-distance runner, and it shows. Little time for small talk and an honest directness in his communication that leaves little unsaid or misunderstood.
PMV asked Soenchen what it takes to deliver where few others have in this high-risk, but potentially high-reward, market.
Oscar Wendel: Tell us how your journey to re-establish Volvo in Iraq started.
Stefan Soenchen: In January 2011 we decided that we had to enter the market with the strategy of a local partner with an exclusive import contract.
We then had to find the best candidate for this. The difficulty is finding one that can cover the whole country. There are three main, and very different, regions, with those centred around the cities of Baghdad, Basra and Erbil in Kurdistan.
With all the political circumstances in Iraq, it requires strong local partners that are able to navigate business in each of these. Which group you belong to influences business and needs to be considered when you choose business partners.
I made my first trip to Iraq in May 2011 to investigate the different distribution networks of applicants. After a couple of road trips across the country, I saw ZamZam’s full and excellent distribution network in cars, with dealerships for Renault, Peugot and Chevrolet.
In July 2011, we signed an exclusive distributor contract. The commitment for a service network was stipulated in the contract. This made it possible to start on the very first day to establish the service centres.
OW: What role did the Swedish Embassy play?
SS: From the start, the Swedish Business Council arranged meetings with several key customers, where it was agreed that Volvo was to deliver 1,000 trucks.
Local competence development is one of the biggest gaps. This was also central for the ministries, and it was agreed that Volvo establishes a technical training centre as well.
When the US military left in December 2011, it emphasized that this was the right decision when it became almost impossible to get visas to, for instance, Dubai, where we have a centre.
You need to be always available in the market. It is not enough to have a partner and support them with an office somewhere else in the region. We have to be available at all times in Iraq. The government also expressed that they wanted Volvo present in Iraq with an office.
So the solution was to set up an office inside the Swedish Embassy. This solved a lot of problems, as it immediately provided an excellent business platform, infrastructure and full security. They also recruited for a highly-competent, full-time local office manager to support me, who also worked closely with the trade council.
OW: How does negotiating differ between private companies and government officials?
SS: It can be difficult to reach a common understanding, as there is a major lag in the technical knowledge. This requires a lot of effort to explain what the reasonable demands are on the technical specifications and costs of modern trucks. Also, where the costs lie in terms of modern technology, and how it impacts the sales price.
Negotiations are not easy. Meetings are very big, and you have to be very careful about creating a precis, with detailed minutes for everything; otherwise you will end up with 15 different understandings on what was said and agreed upon. This is very time-consuming. And these need to be signed before leaving the room, and not on a later occasion.
OW: When you look back on the years, what would you have done differently if you had the chance?
SS: In this market, the value of being direct cannot be understated. I would have been less flexible and not listen to every interpretation of a situation.
Everything has many interpretations in this market. While you need a clear plan, it is difficult to stick to it exactly, but you have to be very careful in how flexible you are going to be in order to be able to adjust to it. You need to be strict and not entertain every possible option, otherwise you get caught up and stuck in endless discussions, and nothing gets done.
If you leave a meeting, you have not lost the focus, and you have not left anything unsaid or misunderstood. I learned my lesson when I was told, after solving a longstanding problem, that I had been too patient and open to finding other solutions. I should have been more direct and made my case clear immediately.
OW: Tell me about the two service centres in Baghdad and Basra. You claim that they are two of the biggest and most advanced in the Middle East?
SS: First, the Baghdad centre is the second-largest in the Middle East. What I am most proud of is that they have been specified to operate to European standards. All the equipment is from Europe. But now comes the big task of building the platform to be able to deliver to what it is equipped to do.
That requires continuous development, with retail competence, implementing the right interfaces with the requisite computer programs, and establishing the processes for handling customers and having constant support from Volvo. This will take a few months, with the right recruitment and training, to reach these standards. About 50 people will be employed for these two service centres.
OW: What special competencies are needed for this market?
SS: The environment, with the weather, heat and the dust, is challenging even for Volvo trucks. The first step is to have an excellent service for breakdowns, with technical teams being able to reach trucks that have broken down, either to tow the truck or to fix it on-site. With the vast and spread out areas, along with the difficult access, requires a very high competency level in terms of mechanics and good equipment.
It will become an issue to increase the uptime and productivity of trucks to become competitive. That requires a sophisticated organisation, and they will learn how to reduce the number of trucks and operating costs by, say, 25%, by adopting better logistics and planning.
This goes throughout the value chain, from the distributor and his service network to the education of customers on how to optimise the entire supply chain.
Until now, we talk only about profitability of the transport sector in general. At the moment, it is not the central focus. But with our approach, where there will be a lightning-fast response to getting the trucks back on the road, the customers will see how they can create value.
OW: How was it possible to build something of this quality, this fast, in Iraq?
SS: It was not easy, but consider how both these centres were built in 14 months. I have been involved in projects in Europe and around the world, and I do not know of a case where something similar was built faster.
In Europe, the processes for approvals are so long. Not that it is easy in Iraq, and most materials need to be imported. The cooperation with Iran and the UAE was very good and efficient in terms of suppliers of the steel structures and panels, etc. We saw how everything finds a way. The distributor started its own construction division to manage the overall project and all design and contractors.
This could not have been done faster anywhere else. This will set a new standard for the industry on what is possible and what can be expected. This is both from our customers point of view, as well as raising the bar for competing truck manufacturers.
OW: You are now also putting an entirely new assembly line into operation, which is another new facility under construction ... tell us more.
SS: The assembly plant is built for a capacity of 5,000 trucks. And when it is up and running, it will be one of the most modern truck plants operating in the Middle East.
Our business partner, ZamZam, has funded, and owns, the new facilities, which will be built and operated by SCAI, an organisation that falls under the Ministry of Industry. This arrangement better enables sales of trucks to the government, which represents the vast majority of new truck sales in the Iraq market.
OW: Lastly, give us a few comments on working here, considering the security situation?
SS: As you have seen yourself in the last few days, if I am here in my environment at the Embassy, I feel completely safe. When moving around outside, with the security set-up, the risk is optimally minimised to a completely acceptable level.
No higher than in other countries. Of course, we need, and insist on, a high standard of security for ourselves and all who work with us. It is more about the right competence to give the right advice and do pre-planning of all movements. Security is something I feel personally responsible for. High-level security does not mean always having guards around you.
As foreign businessmen, we are not targets. The conflicts are between internal groups. This makes it easy for us. This is unlike other dangerous countries where the foreigners are the targets. When you compare the situation in 2005, it has improved significantly.
Over two years of working in Iraq, I have never felt my security threatened in any way. But I always remind myself to always keep a high level of risk awareness. When you stand on the balcony here outside my office and you listen carefully, you often hear shooting and bombs going off 24 hours a day.