In the latest tie-up in the automotive sector between global and Indian groups, Volvo yesterday unveiled investment worth $350m in a joint venture with Eicher Motors to boost production of heavy trucks in India.
At the core of the new joint venture is an attack on Tata Motors, which dominates the commercial vehicle sector in the world's fourth-largest market for heavy trucks.
More than 220,000 heavy trucks worth $7.5bn were sold in India last year and the market is expected to swell as India develops.
Leif Johansson, chief executive of Volvo, said the move was "strategically highly important".
The growth of retail, logistics and other new industries in India was fuelling demand for trucks, said Siddhartha Lal, chief executive of Eicher, the country's third-largest truck maker.
Volvo signed a letter of intent to contribute $275m in cash and transfer its $75m truck distribution group to the new entity. The Swedish group will own 45.6 per cent while Eicher will hold the remainder.
Volvo will also take a 8.1 per cent stake in Eicher for a sum that is under discussion.
Eicher will transfer its truck and bus operations, as well as its component business and engineering services, to the joint venture. However, Eicher's motorcycle brand Royal Enfield will remain separate.
Volvo opened a commercial vehicle factory in southern India near Bangalore in 1998 that last year produced 660
The new company will have about 2,300 employees with production based mainly at Eicher's current factory in Madhya Pradesh state in central India.
Nissan Motor and Indian truckmaker Ashok Leyland recently inked a $500m joint-venture to produce light trucks and engines in India. Mahindra & Mahindra has also formed a truck joint-venture with International Truck and Engine Corporation.
The latest agreement highlights Volvo's drive to develop in Asia's largest developing economies. It is in negotiations with Dongfeng Motor Group in China to form a joint venture and recently acquired control of Nissan Diesel, the Japanese truck maker.
Volvo had experience and technical expertise in the heavy duty segment that would help it develop heavy trucks that meet new emission standards to be introduced in India, it said.
Eicher makes mostly light and medium-weight vehicles but recently began ramping up production of heavy trucks. In India it claims just 1.8 per cent of the heavy-duty market compared with 27 per cent of the light truck market. Tata has amassed a 67.7 per cent share in heavy trucks in India and Ashok Leyland 30.2 per cent.