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A Case Study of the Acquisition ofSwedish Volvo by Chinese Geely
Abstract
• Lot of media attention esp. China and Sweden• Largest overseas acquisition ever by any
Chinese company• Marks that fast growing China is now a
superpower• Very little similarity and huge difference in
product segment, technology and brand, inter-culture, language etc.
Abstract
• No immediate cost saving through integration -> Risk of acquisition failure huge
• However, opportunities lie ahead• Possible rapid expansion in China – Volvo’s second
home market• Volvo must address key issues for expansion
– Quickly establish local production in China– Develop supply chain in China (Cost reduction)– Get into govt. procurement list
• Geely has good experience and can give Volvo a lift
Finally
• road to a successful acquisition of Volvo by Geely is not smooth
• it is a bumpy road where there are a lot of challenges ahead
• the acquisition of Volvo by Geely does not sound very rational from the
• conventional wisdom, due to the huge big difference in brand, product specification, custom base, inter-culture and company culture, language, etc.
ACQUISITION INTRODUCTION,
TIMELINE
Introduction – Acquisition of Volvo
• 2008 recession badly hit branches in Auto industry – 2 of big 3 (GM, Chrysler) were forced to go pre-prepared bankruptcy
• As a result, Swedish luxury car maker Volvo owned by Ford sold to Geely (low cost cars)
Timeline
• Oct 28, 2009 – Geely named preferred buyer• Dec 23, 2009 - substantive commercial terms
were finalized for the sale• Mar 28, 2010 - definitive agreement was signed
in Volvo Cars’s headquarter Gothenburg. The sale figure is about $1.8 billion USD.
• Aug 2, 2010 - deal was completed after the approval of relevant authorities.
WHAT IT MEANS FOR CHINA AND SWEDEN
Pride for China
• unknown small Chinese company bought such a famous automobile manufacturer in the west
• marks a beginning of a new era that the fastest growing China has become a superpower
• proud because it is the evidence that their economical development has reached a new stage
• But, this a big test for them, because the failure of this acquisition will damage the reputation of the Chinese acquisition
• want to set a benchmark for the future.
Symbolic brand for Sweden
• Volvo Cars is a symbolic brand for Sweden that makes the Swedes extremely proud of it
• Swedes are sour because their national pride is leaving for the communist country
• Swedes are concerned because they are worried about the future fate of Volvo Cars and their jobs in Sweden
THEORY BEHIND ACQUISITION
It just doesn’t make sense
• Geely is unknown low-quality and low-price automobile player with a small size located in China
• Volvo is a well-known luxury car producer with much bigger size in Sweden
• no obvious synergy in this acquisition due to huge difference in product segment, brand, technology and also corporate culture
Why it makes sense• Geely got the access to advanced technology of Volvo– Volvo has one of the most advanced technologies in the
automobile industry– Volvo is most well-known in the safety design, but also in
the environment technology– Volvo is regarded as the safest car in the world by many– Volvo has a complete and advanced product development
process, world-wide customer management• Shorten the time for Geely to develop such by its own
Why it makes sense
• Brand enhancement of Geely– Geely has strengthened its brand both in China and
abroad– gives a lift for the image of Geely in China (Pride in China)– Geely has got a lot of attention in the world media
because of the acquisition business– people in the west countries already know the brand of
Geely– helps Geely’s overseas expansion in the future– Without this acquisition, it would take many years for
Geely to bring its brand to such a level
Why it makes sense
• High possibility of a profitable Volvo– the darkest time is often the best buying opportunity while
most people do not dare to do so• Geely’s chairman Li Shufu believes that he can turn
around Volvo very soon– the worst economic recession can be over soon– Volvo has several new products coming– Geely can help Volvo succeed in the growing Chinese market– Immediately after the acquisition, Volvo retuned to profit!
• With just paying a sum of 1.5 billion dollars, it is absolutely a worthy business just from the price point of view
Why it makes sense
• High growing possibility for Volvo in the Chinese market– Geely’s chairman Li Shufu sees this as the turning point of
Volvo– He can help Volvo understand the Chinese market deeper and
better.– He can help Volvo establish new plants in China in an efficient
way.– He can help Volvo reduce the cost by establishing its Chinese
local supply chain.– He even believes that he can bring Volvo into the government
procurement list.
Why it makes sense
• Development of the Chinese automobile industry– For the automobile industry, the entire supply chain has been
constantly upgrading and improving– The government really wants to see the direction of overseas
expansion.– This acquistion has great strategic significance in enhancing the
nation’s brand, to bring China's automobile industry to a new level on the world stage.
• Without the support of the government, Geely could not finance this acquisition. Therefore, the Chinese government has been supporting this acquisition actively.
GLOBAL PERSPECTIVE
Globalization
• Acquisition represents intensified globalization and the rising China
• Globalization not new for China - The famous example is Silk Road across central Asia that connected China and Europe during the middle ages
• China is probably the biggest benefit of the globalization in the past thirty years. China was one of the poorest countries in the world in 1980s. By using its cheap labor and the vast domestic market, China has attracted a huge foreign direct investment from multi-international companies
Globalization
• First, it is an international merge which is the result of globalization.
• lot of challenges are needed to solve, e.g., culture difference, different management styles, cost reallocation, etc.
• Second, this business is the biggest overseas acquisition by a local Chinese company. It marks the rising power of China in the world economy. It also reflects the big wish of the Chinese to expand in the world market.
Globalization
• successful acquisition will lead to explosive follow-ups soon. This means world needs to be prepared for doing business with China.
GEELY(Products, Market,
Financials, Brand, Tech, Overseas presence)
GEELY IS SMALL
• Geely is one the four largest independent private automobile manufactures in China
• When the stated-owned or partly owned manufactures (like Shanghai Automobile, Chang’an Motors, etc.) are included, Geely is approximately the tenth largest in China.
• Hence, Geely is small
GEELY INTO AUTO
• In 1997, Geely launched its auto manufacturing business. At that time, Geely was the first independent and the largest private automobile manufacturer in China.
• it operates eight car assembly and power-train manufacturing plants in China that are located in different parts of China
• These facilities enable a total annual production capacity of approximately 460,000 cars per year by the end of 2009.
GEELY’S PRODUCTS
• The early models of Geely were generally copies from others
• Geely has spent great effort in upgrading its technology and self-developed original products
• Geely produces and markets five brands with more than 30 models
• Most cars are marketed under 100000 RMB (Remnibi) (1 RMB = 8.84 INR currently, 6.82 in 2010)
GEELY’S MARKET
• Geely sold approximately 200 cars in 1998, but reached an amazing annual sales volume of 326710 in 2009 (96% Growth)
• average annular growth is 20% approximately in past 5 years
• Although this achievement comes from the favorable and explosive development of the domestic Chinese automobile market
GEELY’s MARKET
• Geely achieved approximately 4.3% in the domestic Chinese automobile market in 2009, ranked 10th in China
• foreign players are not allowed to have their own manufacturing capacities in China
• they must form a joint venture with a domestic Chinese players in order to produce
• The imported automobiles are subjected to a significant amount of import tax, which makes them not competitive in China
GEELY’S GROWTH GOALS
GEELY’S FINANCES
• While its turn-over has increased year by year, its finance result of profit has also increased year by yeas
• In 2009, Geely’s net profit reaches 1.3 billion RMB, which is about 188 million USD - not a great number for those big international manufacturers
• sufficient for Geely to continue its operation expansion domestically and internationally
GEELY’S BRAND AND TECHNOLOGY
• Geely is regarded as a low-cost brand with relatively no good quality, both in and outside China
• Geely is competing mainly in the low-end segment of the Chinese automobile market
• However, Geely has a corporate culture of entrepreneurship
• Although its innovations in technology are not so great if one compares them to those achieved by international giants, they do reflect Geely’s entrepreneurial determination in developing its own technology
GEELY’S BRAND AND TECHNOLOGY
• Geely produced the first Chinese-designed automatic transmission in March 2005
• Geely’s 4G18 engine, Geely’s self-developed automatic transmission, and the Geely EPS intelligent steering booster
• Geely participated at the North American International Auto Show in Detroit, winning the Special Contribution Grand Prize for Invention and Creation for its Blow-out Monitoring and Brake System (“BMBS”),
• Geely claims that it is the only Chinese car manufacturer to have developed its own range of engines
GEELY’S OVERSEAS EXPANSION
• In 2003, Geely started exporting cars overseas. In 2009, about 5% of its sales was from overseas, however, mostly the developing countries,
• Geely has had a very high ambition to enter the European and American market, and has prepared for that for quite long time
• However, it failed the U.S. crash and emission tests so that it has to postpone its plan to enter the North American market
• It is the same story for the European market, and it is currently working hard to re-engineering its products to meet the Euro IV emission and Euro NCAP crash-test regulations
GEELY’S OVERSEAS EXPANSION
• vision that two-thirds of the company's output should be sold overseas
• Geely has been looking for the overseas acqusition– 2009 - Geely paid AUS$58 million for purchasing
Drivetrain Systems International (DSI), an Australian transmission company
– This successful acquisition enriched Geely’s ambition in the international market
VOLVO(Products, Market,
Financials, Brand, Tech, Overseas presence)
VOLVO INTRO
• Volvo Cars was owned by AB Volvo until 1999, when it was acquired by the Ford Motor Company
• Volvo Car Corporation [31], or Volvo Personvagnar AB in Swedish, is a Swedish car manufacturer with its headquarter in Gothenburg of Sweden
VOLVO’S PRODUCTS
• With a total number of 11 models, Volvo operates in the premium-segment of cars with four Versions– Sedans– Versatile estates– Cross country– Coupes and convertibles
• In addition, Volvo produces a special long-wheelbase version exclusively for the 0Chinese market.
• As expected, the sales price of Volvo’s products is relatively high
1 SEK = 0.15 USD Currently, 0.14 in 2010
VOLVO’S MARKET
• With approximately 2,300 local dealers from around 100 national sales companies worldwide, US > Sweden> Great Britain> Germany > China
• In 2009 Volvo recorded global sales of 334,808 cars
• In 2009, the sales in most countries are either lower than 2008, or the increase is very little.
• The exception is China, where the total number of sold cars is increased by 77.3%.
VOLVO’S MARKET GROWTH
• Market share in US/EU constant over last few years, even during 2008 crisis
• It reflects two things: – Volvo is a relatively small player in the global automobile
market– Volvo did not have good growth in the market share
• Volvo is ranked number one in Sweden market share, around 20-25% for the past years
• This shows that the – domestic Swedish market is rather small– there is no much space for volume growth for Volvo
VOLVO’S FINANCES
• during the finance crisis 2008 and 2009, when Volvo sold only around 350000 cars (Normal figure is 4,20,000 cars
VOLVO’S DECLINING FINANCIAL HEALTH
• Because of the reduced sales figure, Volvo has run into trouble in its finance performance
• Volvo has been losing money for a continuous period of 4 years
• In 2008, Volvo experienced the biggest loss in its history, nearly 1.5 billion USD in a single year. This triggered Ford to sell Volvo.
• Due to the reduced sales and the big finance loss during the last years, Volvo has taken action in reducing the cost. One of the actions is of course the layoff of the working force (30% cut in 2009)
VOLVO’s BRAND AND TECHNOLOGY
• Volvo is often regarded a highly prestigious automobile brand, with a high reputation of technology advance in safety.
• operates in the premium segment, and mainly competes against the luxury brands of Mercedes, BMW and Audi
• For a long time, Volvo enjoyed a strong reputation in its safety, solidity and reliability
SALE PROCESS
FORD ACQUIRES VOLVO
• Ford : The buyout of Volvo Cars was announced on January 28, 1998, and in the following year the acquisition was completed at a price of $6.45 billion USD
• Volvo Car Corporation was part of Ford’s Premier Automotive Group (PAG), which includes the brands Jaguar, Aston Martin and land Rover
• Volvo had a great performance in the early years with Ford: profit was very good until 2006, share advanced technologies with Ford, etc
SIMILARITIES – GEELY, VOLVOBusiness area Automobile industry
Growth in China High growth in the Chinese market. In 2009, Geely andVolvo achieved approximately 60% and 77.3%, respectively
Total number of annual salesVolume
Approximately 3500000 units in 2009
DIFFERENCES – GEELY, VOLVOGEELY VOLVO
Country China (communist) Sweden (democratic)
Culture Chinese culture Swedish culture, westernculture
Market 95% in China, and the restfor export
Truly international
Number of models 7 10
Price range 40000-112000 183000 – 583000
Segment Low cost and low qualitySegment
Premium segment
Customer base Chinese customers forquality products withcompetitive price
World-wide customers fordriving experience and safety
DIFFERENCES – GEELY, VOLVOGEELY VOLVO
Brand Only known in China, lowcost and low quality
Luxury or nearly luxurybrand over the whole world,famous for its safety record
Innovation Very limited innovation dueto the short history
Very innovative, particularlyin safety technology
Technology Low High
Organization Mainly in China Truly international
Growth High growth, thanks to theexplosive domestic market ofChina. A growth of 59%during 2009.
No growth during the last tenyears, and negative growthduring the finance crisis. Anegative growth of 10.6%during 2009.
DIFFERENCES – GEELY, VOLVOGEELY VOLVO
Finance, 2009 Profit of 188 million USD Loss of 653 million USD
Sales, 2009 1.86 billion USD 12.44 billion USD
Production plants 8 in China One in Sweden and one inBelgium, one jointproduction plant in China
Number of total employees 12000 19650
Snake eats elephant• there are very few areas where two
companies have similarity. Instead, the two companies have huge difference in many aspects
• In the Chinese media, this acquisition has been called ‘Snake eats elephant’
• No one could image this could happen from the beginning
QUESTIONS AHEAD
• Because it is hard to find the overlap between Volvo’s premium position and Geely’s low cost product position, there will be a lot of challenges ahead
• Is a partnership between them possible, or two companies must be operated separately?
• What are the difficulties they will face?• If no partnership will be created, what is the benefit
of this acquisition, and what are the opportunities?
CHALLENGES
COMPARISON WITH DAIMLER CHRYSLER MERGER
• In 1998, the German Daimler-Benz AG merged with the American auto maker Chrysler.
• At that time, the merger was described as the perfect match in industry with a forecast of billions of dollars
• However, the integration of the two business units never worked, and the promised synergies were not realized.
COMPARISON WITH DAIMLER CHRYSLER MERGER
• After a long period of mounting finance loss of Chrysler, Daimler paid $650 million USD to Cerlerus to take Chrysler and associated liabilities off its hands in 2007.
• However, Daimler paid $36 billion USD to acquire Chrysler in 1998! What a miss of fortunes!
• Huge similarity between Daimler-Chrysler and Geely-Volvo merger – Infact bigger differences
WHY DAIMLER CHRYSLER FAILED
• Difference in the general German and American culture including the languages
• Different products– Daimler: luxury brand with quality of ‘no cost consideration’– Chrysler: attractive design with competitive price
• Daimler attempted to run Chrysler USA operations in the same way as it would run its German operations
• Daimler has a corporate culture of hierarchy and centralized decision making while Chrysler is more equal empowerment
GEELY-VOLVO vs. DAIMLER CHRYSLER
GEELY-VOLVO DAIMLER-CHRYSLER
Geely and Volvo have no any common customer base
Daimler and Chrysler dohave some common ground
China (Geely) and Sweden(Volvo) have different social systems, and do not share the same value in principle
Germany (Daimler) and USA (Chrysler) are nevertheless the so-called westernCountries and same democratic values
most Chinese do not understand English (not to say Swedish), and very rareSwedish can speak Chinese
Germans do not speak perfect English, they do manage English pretty well
no common process in Geely and Volvo Daimler and Chrysler could find something similar in management (democratic decision making process)
Most people in western countries do not accept the merge of Geely and Volvo, simply because Chinese products are still regarded as the low-quality products
most people worldwide accepted the merge of Daimler and Chrysler
CULTURE DIFFERENCE
• CONCEPTION OF SELF– Chinese culture places the country, society and
family above the own self (Collectivist) whereas Swedish culture is western i.e. individualist
– Geely people will have difficulty in understanding why the Volvo colleagues priority themselves above the working schedule
– Volvo people do not understand why the Geely people can work so flexibly
CULTURE DIFFERENCE
• SOCIAL STRUCTURE– In China the social relationship is formal and
hierarchical (Most ppl comfortable with this)– Swedish social structure is very informal. People
do believe that everyone is socially equal– Importance of social rankings minimized in
western countries– In China, people can not separate the working life
from the social life
CULTURE DIFFERENCE
• KEEPING TIME SCHEDULE– Sweden is a nation famous for keeping time
schedule– Chinese do not view the time schedule as the
strict point– It is not known how good Geely is in keeping the
time schedule
CULTURE DIFFERENCE
• TIME CONSCIOUSNESS– The Chinese pay a lot attention to the past. They
remember what happened in the past– make decision on what happened before and pay
less attention to the long-term future– Swedish people pay less attention to the past, and
pay more attention to near-term future
CULTURE DIFFERENCE
• RESPECT AND CONSIDERATION FOR OTHERS– people might regard that the Chinese pay little
respect to the others– Chinese people do expect to receive the respect
from others. The Chinese people usually try to avoid direct confrontation and open criticism
– Swedish people are willing to express their personal views, and even directly criticize the others
CULTURE DIFFERENCE
• TASK-OR-RELATIONSHIP ORIENTED, FRIENDSHIP, HARMONY– highest priority for the Chinese people to keep the
harmonious relationship even above task– Swedish people are more task-oriented, while
keeping the relationship is less important– Chinese, the friendship is life long, and people are
deeply obligated– Swedish people have only limited commitment to
their friends
CULTURE DIFFERENCE
• RESPECT OF RULES AND WRITTEN PROCEDURES– Swedish people who stick to the agreed rules and
procedures– Chinese put more faith in personal relationship than
in written rules and procedure– In China, decisions are made with no respect of rules– Do not expect a contract before the social network is
established. This is totally different in Sweden
LANGUAGE
• In order for people to forge friendship, cultural and economic relationship, language plays a vital role
• Language difference can create barriers to good communication
• Chinese v. Swedish• Not expected for Geely people to know Swedish• Chinese is a signed language and very difficult for
those who language is based on alphabet
LANGUAGE
• Only common language is English• Swedish people in workshops can’t manage English• Chinese not good at English in general – Only
young and well educated• Communication between Volvo and Geely can be a
big challenge• Chairman Shifu doesn’t speak English and will not
participate in board meetings. It will be difficult to express opinions and wishes through proxy
BRAND ISSUES
• to keep the high value of the Volvo brand is a very challenging work
• the Geely brand is very weak, and Geely is unknown to the people in industrial nations
• Geely is regarded as a low-cost and low-quality product
WHY CUSTOMERS WORRY
• customers in North America and Europe value democracy. China considered dictatorship
• Production in China does not represent a good quality, particularly for the luxury brand
• Design moved to China - strongly damage the origin of Volvo: the Scandinavian design of elegance
• Volvo might possibly try to reduce the cost by sharing the cheap components from Geely – SAFETY COMPROMISED
• Volvo might lose the moral value either by accepting the dictator leadership
COST STRUCTURE
• Huge price difference of Volvo and Geely, difficult to share cheap components
• Different working force cost structures• Engineers in China and Sweden can have huge salary
differences (Upto 1/10th)• Chinese workers can work overtime. Layoffs are easier
too• Swedish workers enjoy long holidays and strict
working schedule• Geely might not understand management of Volvo
FINANCE MANAGEMENT
• manage the currency exchange rate• Different tax systems• multinational capital budgeting• multinational transfer pricing• Exchange rate hedging• GEELY DOESN’T HAVE ALL THIS COMPETENCE
MULTINATIONAL CAPITAL BUDGETING
• How should Geely finance Volvo’s operating losses?
• International fund flows – Potential Volvo profits – Volvo takes or Geely?
• Capital budgeting should consider varying inflation rates in two countries
• Exchange rate issues (Long term hedges)• Tax differences• Cost of capital different in two countries
FINANCE INVESTMENT
• If Volvo continues losses, Geely does not have ability to finance it. Earlier Ford cud’ve done so
• Geely’s record profit of 1.5 BB RMB is smaller than Volvo’s 2009 loss (4.38 BB RMB)
• Geely borrowed huge sums from Chinese banks to fund acquisition – Huge debt. This reduces investment in Volvo
• Volvo cannot secure investments now due to association with Geely
CHALLENGES CONCLUSION
SOME BIG CHALLENGES
NOT CORRECT STRATEGICALLY
NOT TOO MUCH SYNERGY
OPPORTUNITIES
NISSAN RENAULT WORKED
• Partnership gave Nissan cash injection and gave Renault access to Asia-Pacific market
• Nissan achieved a remarkable financial turnaround
• Renault accelerated its international development
• As a result, they are now 3rd largest automaker, global share of 9% and significant presence globally
GEELY-VOLVO vs. RENAULT NISSAN
GEELY-VOLVO RENAULT NISSAN
One is low quality while other is premium segment
Operate in same segment of quality cars with competitive prices
Geely not very strong in China whereas Volvo is global name
Similar values – Renault is strong in Europe, Nissan strong in Japan/USAHence, technology share, operations are easy
SIMILARITIES• Culture differences – Japan/France v. China/Sweden• Language barriers – Japanese/French vs.
Chinese/Swedish• Financial difficulty – Nissan had financial problems in
1999
STRATEGY OF RENAULT NISSAN
• Two companies linked by cross-shareholdings• But still kept as separate brands and corporate entities –
Customers just care abt quality• Managing team who sits on board of each other – Strategy
implementation is easy and helps in understand other’s position
• Combined technology and expertise sharing• New HR Policy – Foreign language skills training, Official
language made English, At Nissan all recruits need to pass English test, same for Renault. Also culture training programs
EXPANSION IN CHINA
• Explosive growth in Chinese auto market• China overtook USA as largest auto market
(2009)• But local production important otherwise 25%
import tax – Difficult to compete against locals• Expensive luxury cars – Rare exclusive
customers in China• Volvo’s main growth in China is from local cars
LOCAL MANUFACTURING• Cost reduction using local cheap components• Cost reduction due to cheap labour• Avoid high transportation cost to China• Import tax of 25% not applicable on local pdn.• In China, Volvo’s top two models (S40 and S80) are the ones which are locally
produced• However, foreign manufacturers cannot produce locally – Must do JV with
domestic firm• JV – Technology protection, Cross company mgmt• Volvo doesn’t need to worry with Geely ownership• Geely has expertise in local production – Volve benefits
– Help in selecting production plant, local purchase network, dealing with authorities• This accelerates local production of Volvo - Volvo can keep the profit and
finance its technology and product development in Sweden
GOVT. PROCUREMENT CAR LIST
• Chinese govt. procures lot of automobiles every year– Due to sheer size, no. of such cars is huge (8% of total
market)– People think govt. uses decent and prestigious products and
try to replicate that• Mandate to purchase 50% domestic cars – To gain
competitive advantage – So only limited foreign players (Volkswagen, GM)
• Volvo never been in list• With Geely ownership, now a local brand – natural to
get into govt. procurement list
FINANCE INVESTMENT
• Funding source never disclosed but speculations of huge Chinese bank loans
• This means that Geely has access to much needed funds for Volvo
• China has enormous wealth due to its huge growth in past few years
• Largest forex reserve – biggest owner of US obligations
• Local governments, enterprises, pvt ppl have lot of money that they want to invest
HOME MARKET ADVANTAGES
• Patriotism is high in China – People are proud of their products and tend to buy those
• Volvo can create an image that it is a Chinese owned product, but its quality and value are purely Swedish
• Geely knows home market better than foreign competitors
• Allows sales expansion in China
MUTUAL LEARNINGS
• Geely learns about – Safety technology– engine technology– product development process– product and brand management– international organization management
• Volvo learns– Entrepreneurial leadership– cost control– emerging market experience – competence particularly in China
ENTREPRENEURIAL LEADERSHIP
• Volvo lacks entrepreneurial spirit in management or company culture
• Not growing during past 20 years – Does not take risk in product and emerging markets
• Geely’s owner is very entrepreneurial• Volvo can take bold decisions in critical points
MARKETING POSITION
• Volvo gets better access to world’s largest auto market
• Geely’s knows local market better than Volvo – Geely’s competence
• Geely trying to expand overseas – Volvo’s competence
MARKETING POSITION
• Volvo– Chinese people like big cars with big engines –
Pride, luxury products that they can afford, Showoff culture
– Huge customer base for luxury cars (BMW, Mercedes, Audi)
– Enter into up-end segment– But adapt according to local needs – Usually
chauffer driven cars – need for big back-seats
MARKETING POSITION
• Geely’s position abroad– Safety and quality concerns– Not have competence in managing its brand
overseas– Geely gained publicity and brand uplift with Volvo
acquisition– Do serious brand management – Quality/safety of
products, After-sales service, company culture, social responsibility, environment obligations
COST CONTROL FOR VOLVO
• Volvo has low profit margins (High product cost)• Geely helps reduce cost– Local cheap component purchase. Competitive local
suppliers known by Geely. Choose ones with good quality– Knowledge of setting up production in China – Low labor
cost– R&D in China – Low cost engineers in China who are very
intelligent. Volvo can provide efficient processes• In short, sourcing and R&D help but don’t
compromise quality
GEELY’S DEVELOPMENT
• Safety technology – Geely failed safety tests in US, Europe. Volvo most famous for safety
• Product development process – Experience of Volvo in this. Geely can modify Volvo processes and apply to own
• Distribution channel in industrial nations – Volvo has good understanding
• International organization – Geely is a local Chinese company. Management of international organization can be helped by Volvo
SUCCESS STRATEGIES
Fully Independent Volvo
• Geely and Volvo should operate as two brands to defend Volvo brand
• Biggest market for Volvo is still Europe/US – Cannot damage their image of safety, respect, culture by association with China and low-end Geely
• Give Volvo freedom to operate individually with some people from Geely board sitting
Special Chinese strategy
• Special strategy for growing market in China• Find good brand position for Volvo – Elegant design
from Scandinavia and also proud ownerhsip of domestic product – BALANCE
• Expand local production– Help in govt. procurement list
• Set up a supply chain in China – Local cheap components reduce cost – Increase competitiveness even in Europe
• Special China team – Direct control of Volvo CEO
Cost reduction
• Cost reduction through China operations where Geely has competence
• Set up manufacturing plants – material and labor is cheap – Take help of Geely
• Geely can negotiate with govt. – Reduced land costs, local tax benefits
• Local supply chain – Helps globally in cost reduction
Inter-Cultural learnings / Language
• Exchange management people between two companies
• International training programs to understand diverse cultures
• Recruitment at Geely – Mandate English knowledge and conduct regular trainings
• Try to recruit people who know Chinese – Can’t mandate Chinese though
WHAT HAS BEEN DONE SO
FAR?
Strategies so far
• Independent Volvo – Good directing / management teams: Geely is Geely and Volvo is Volvo. They are brothers, not ownership
• New organization in China – Volvo China operations headed by a new top manager
• Local production in China• Cost reduction through purchasing in China –
Volvo is looking to use Geely’s supply chain in China
Strategies so far
• Inter-culture / language strategies – Chairman will not sit in board meetings. Hence board discussion in English (more efficient)
• Head of Volvo China operations is Chinese with two degrees from US and workex in US
• Acceptance of Volvo’s board decision
WHAT HAS NOT BEEN DONE SO
FAR?
Strategies not agreed so far
• Geely chairman wants Volvo to develop bigger luxury cars whereas Volvo mgmt wants current-size efficient cars
• He also wants Volvo to extend product range to low ends – Not accepted by Volvo board
• No concrete publicized strategy for dealing with inter-cultural differences
• Strategy must be developed to deal with language problems
CONCLUSION
CHINESE SUPREMACY
• Direct result of worst recessions trigged by the finance crisis
• Result of the new world economy balance between China and the western industrial countries
• Acquisition is just a beginning of the Chinese economy expansion overseas
REASONS FOR ACQUISITION
• Direct access to the absolute world-class technologies in automobiles
• Possibility of rapid expansion in the Chinese automobile market for Volvo
• Increase the value of the Geely brand significantly domestically and overseas
• Low price of acquisition
CHALLENGES
• To defend the brand and customer loyalty of Volvo
• To overcome the culture difference • To manage the multi-national organization• No immediate cost saving or synergy available
in the near future.
OPPORTUNITIES
• Rapid expansion in Chinese market – Volvo gets access to China
• Government procurement list• Local production in China for Volvo• Set up local supply chain – Price
competitiveness• Local competence of Geely
STRATEGIES
• Running of two separate companies to maintain brands
• Helps in keeping customers in US / Europe• Good strategy in China – Local production,
local supply chain• Bypass inter-culture conflict and establish
trust at top management level• HR Strategies for language, culture
