Dive Brief:

• Volvo Construction Equipment is selling its 70% stake in China’s Shandong Lingong Construction Machinery Co as part of a strategic revamp to reduce its exposure to the country.
• The multinational company said Tuesday that its shares, valued at 8 billion Swedish krona (nearly $839 million), will be sold to a fund largely owned by the Lingong Group, a minority owner of SDLG.
• The deal would allow Volvo CE, a subsidiary of Volvo Group, to refocus its business strategy and to have a more targeted approach to serving China’s construction equipment market with premium products. The sale is expected to close later this year if approved by regulators.

Dive Insight:

Since 2006, Volvo CE has held a majority stake in SDLG as a way to gain access to China’s domestic construction equipment market.

The company said its investment and collaboration with LGG has been successful over the years, but with changing market dynamics, the two have agreed to part ways and pursue business strategies that would be “mutually beneficial.”

“[W]ith increasing competition, and the need to transform to new technologies as well as strengthen interaction with customers, we need to re-focus,” Malker Jernberg, head of Volvo CE, said in a statement.

Selling Volvo CE’s majority stake would make SDLG, previously a joint venture, a primarily Chinese-owned company. SDLG is one of China’s largest construction equipment makers known for producing excavators, wheel loaders and road rollers. The size of the country’s market is valued at $223.7 billion as of last year, and has grown at an average rate of 12.5% over the past five years, according to IBISWorld.

The decision to sell Volvo CE’s ownership comes as many U.S. companies move their supply chains out of China to nearby countries, in part because of rising labor costs and recent tariff pressures.

Last year, roughly 20% of U.S. businesses in China said they would cut investments over concerns regarding the country’s slowing growth, according to a survey conducted by the American Chamber of Commerce in Shanghai. Meanwhile, 40% of respondents said they were redirecting investments, with Southeast Asia and India as popular choices.

“China remains an important market for us, and we aim to capitalize on our opportunities by focusing on sustainable solutions in targeted segments,” Jernberg added.

Volvo CE has operated its excavator factory in Shanghai since 2002, and recently announced plans to upgrade the facility with new production lines. The company is also moving forward with plans to transform a research and development center in Jinan, China, into the Global Technology System of Volvo CE, for expanded innovation and collaboration around the world.

As Volvo CE retools its presence in China, the company is also expanding across other countries. It recently agreed to acquire European retail business Swecon from Lantmännen to bolster operations in Germany, Sweden, Estonia, Latvia and Lithuania. Volvo CE also said it will begin producing crawler excavators and large wheel loaders at its Shippensburg, Pennsylvania, facility as part of a $261 million global investment aimed at mitigating supply chain risks related to tariffs.

Volvo CE has 16 manufacturing sites across the U.S., Canada and Mexico, according to its website. The subsidiary’s North American headquarters is in Shippensburg.