Volvo and Geely

Volvo and Geely Analysis

2010 became an important turning point for the course of Volvo development as a car manufacturing company. The acquisition of Volvo by Geely became not only a crucial stage in corporate development, but also entailed a paradigm shift in terms of the company’s essence, its strategic development and further performance. This paper aims to conduct an in-depth insight and constructive analysis of the aforementioned decision. To be more precise, such important aspects of the acquisition are discussed as problematic issues, major causes which have led to this step, the systems that have been affected in the currently discussed process, alternative solutions that may be regarded under the presented circumstances, and recommendations.

As a matter of fact, at one time Volvo was at the constructive guidance of Ford. Inkpen and Moffett (2013) highlight the characteristic features of this ownership, such safety considerations and Nordic type of style. Nonetheless, the serious problems interfered with the potential success of the company. To be more precise, the lack of sufficient revenue stream provided no capacity for investments into further development and enhancement or creation of new models. Inkpen and Moffett underline that “Ford tried various approaches to reposition the brand, including a failed attempt to establish Volvo as a rival to German premium marques like BMW and Audi” (Grassbau, 2013). The acquisition of Volvo by Geely did not eliminate the aforementioned problems, but also revealed new challenges and problematic aspects which had to be solved. Nevertheless, problems were regarded as a transition to new opportunities as far as both corporations were determined to benefit from such a decision. To be more precise, “Geely Holding gained access to a global dealership network, sophisticated automotive technology, and management know-how” (Inkpen and Moffett in Grassbau, 2013). Moreover, the competitive position of Geely Holding was uncertain, and the acquisition of Volvo contributed to the process of creating a unique and profitable brand. The new managerial personnel of Volvo corporation proclaimed the major target of the company was to “more than double global the sales to 800,000 vehicles by 2020” (Inkpen and Moffett in Grassbau, 2013). Along with this, a crucial emphasis was put on the Chinese market. Furthermore, Volvo was determined to develop and present a new luxury automobile designed especially for the Chinese target market. Hence, the causes of the currently discussed acquisition were aligned with the common goals that were set by both companies. It is essential that the final aims were designed taking into consideration the strong aspects and potential of each partner. Such constructive cooperation reveals considerable dedication to the primary goals.

The problems that had to be solved at the initial stages of the cooperation between Volvo and Geely Holding included such important issues as identification of Volvo’s strategy, enhancement of the overall mission and principles of corporate performance, further improvement of the Volvo brand, the alignment of integrative course between the European and Chinese companies as well as provision of proper adjustments to the course of cooperation between the performance of Geely that was based on the Chinese market and technologies, and the global significance of Volvo company. In order to develop a unique and exquisite brand, the companies had to combine the efforts, and transform their peculiarities into advantages.

One of the most crucial problems on the macro level was the high level of rivalry in the automobile sector. It is relevant to emphasize that the gornment of China proclaimed the given industry to be “a pillar industry” (Inkpen and Moffett in Grassbau, 2013). Therefore, Volvo and Geely were at the beginning of a long and hard way targeted to establish a unique, strong, trendy, profitable and perspective corporation producing luxurious and competitive cars. Another serious problem on the macro level was the overwhelming dominance of the state-owned enterprises (SOE). This aspect impacted the goals of Volvo and Geely Holding significantly. Chinese private sector did not guarantee the absence of considerable state sway over its performance.

One of the micro-problems in the given context involved alignment of the strategies of both companies so as they created a unified constructive approach and did not interfere with each other. This problem required proper and thorough strategic planning, relevant agreements and compromises. Moreover, it was crucial for Geely Holding to learn from Volvo’s globally relevant experience. It could be difficult and challenging, since Geely was also a company that had considerable experience in the field. Along with such, it was difficult to monitor the actual automobile market and acquire proper and credible statistics in order to be oriented on the actual market share and potential contribution to it since there is no such information that can be revealed in China. For instance, the state secret is considered to be even the registration of every particular vehicle. Hence, the legislation of this country should be also considered to be a problem of the national level. Furthermore, Inkpen and Moffett (2013) underline that “the Chinese market was a also an unusual hybrid of major global companies and domestic firms…The distinction between manufacturer and brand made the Chinese market uniquely complete” (Grassbau, 2013). Finally, it is crucial to highlight that the market of this country was thought to be unpredictable and hard to operate in. Hence, Volvo and Geely Holding faced some significant challenges and problems. Nonetheless, the proper solutions promised to result in excellent outcomes.

The changes and adjustments were introduced to all the systems and subsystems of the corporate performance process. The merging process required gradual, and at the same time rapid, alignment of the major strategies, principles and techniques in order to become a considerable partner within the global scale of the automobile industry (Yang, 2010). One of the first things Volvo and Geely had to do included paradigm shift in the target audience since it was an important aspect of the whole further activity of the company. The European-oriented approach that had been previously incorporated by Volvo was more sophisticated, whereas Geely Holding presented a more rational one. As a matter of fact, the mission, values and basic principles had to be reconsidered. Moreover, one more crucial aspect of the issue in question was related to the actual perception of the fact of acquisition. Theattotude of the Geely Holding’s chairman, Li-Shufu, underlined that “Geely is Geely, and Volvo is Volvo. They are brothers, not ownership” (Wang, 2011). These words demonstrate a constructive and wise approach. Hence, the actual alterations in design and technological aspects of further production line should be regarded as a direct result of a mutually beneficial cooperation. For instance, the acquisition of Volvo by Geely did not establish an actual dominance of the European professionals by their Chinese counterparts. Wang (2011) stated that “In the Volvo’s directing board, there are a total of 8 members, where only 2 of them are Chinese”, whereas “the managing team consists of people from the western countries, and no any Chinese are promoted in the team of top managers.” Such factual data confirms that Volvo preserved its independent status that is considered to be crucial for the brand of Volvo, its uniqueness and exclusivity of Volvo production. Moreover, it is a part of what Volvo is as a car manufacturing company. The opposite, more pressing changes could have a destructive effect both on the reputation of Volvo and its further efficiency as well as quality of its products.

The new organization of the Volvo department in China began with new appointments, new challenges that combined cultural and professional difficulties, and new perspectives for further cooperation. The local production course in China is a particular sign that Volvo is not only oriented on Europe as it traditional market, but that China will be promoted as a key target audience of customers as well.

Wang (2011) also focused on such an intention demonstrated by Volvo as “Volvo wants to use Geely’s supply chain as a platform to increase its purchasing in China and thus reduce the product cost.” Hence, it is apparent that the companies are targeted to be interwoven in terms of manufacturing and development as much as possible.

The structural system was also modified in accordance to the acquisition process. Nonetheless, the Geely’s logo was altered, not Volvo’s. Moreover, Shi and Zheng highlight the necessity to reconsider some major statements as well as the acquiring company’s brand strategy and they concluded that some significant reconsideration had to be done.

Furthermore, it is also important to take into consideration such crucial aspects as:

1. Significant preparation demonstrated by Geely. Such an approach is important as far as it predetermines a further efficiency.
2. Geely Holding has considerable experience in the diverse mergers and acquisitions, for instance, the corporation “bought DSI Pty Ltd, a global transmission developer in 2009 which provided Geely precious examples of business negotiation and capital operation” (Huihui, 2012). Nonetheless, the lack of actual success on the global scale is a reason for more in-depth insight in the issue in question.
3. The advantage and serious change for Volvo in terms of technical and managerial performance was provided by Geely Holding as far as the aforementioned corporation has a low cost advantage for exports. To be more precise, “The China’s luxury car market is booming, Geely will assemble Volvo cars in China using cheaper manufacturing to play with other automobile manufacturers in the market” (Huihui, 2012). This is an important contribution as far as the investment was a problem previously when Volvo was under the guidance of Ford, and now every dollar should be involved in development and qualitative enhancement of the product line, brand image and overall reputation of the company.
4. Nonetheless, there is a serious disparity between the companies, namely, the global scale of corporate performance and the brand name that was known worldwide, whereas Geely Holding is hardly know on the international scale of the automobile market. Even the issue of experience should be compared and contrasted, since Volvo had 80 years of history of operations at that time, while Geely functioned only for a period of 13 years. Hence, it is evident that the paradigm shift had to be conducted in terms of a psychosocial system. According to Lin (2010), “Swedish trade union are known as “the world’s toughest workers”, whether Geely can lay down reasonable regulation according to the legal and culture difference will be the key to success after the early period of acquisition.”
5. Furthermore, considerable differences in terms of management system were remarked, namely, there appeared a necessity to align the top brand with the low-end company. The managerial principles, priorities and techniques are often opposite in such cases, and mutually beneficial cooperation may become a serious challenge for both companies.
6. Finally, the financial risks were reported to be at a high rate. To be more precise, Huihui (2013) revealed the following statistics: “According to the financial report of Geely in 2009, its total liabilities and assets are 7.0 billion RMB and 12, 67 RMB, the debt ratio was 51.2%; the liquid capital was 1.88 billion RMB.”

Goals and values of the both companies were expected to be also aligned, properly modified and adjusted in accordance with their major purpose. For instance, the chairman of Geely stated that his Holding was “determined to preserved the distinct identity of the Volvo brand… Volvo is premium, tasteful, and low-profile, whereas Geely is a volume brand. We will geive Volvo independence and autonomy. By setting it free, we will help Volvo return to its glories in the 1960s and 1970s.” (Inkpen and Moffett in Grassbau, 2013).

The presented part of Geely Holding chairman’s speech demonstrated vividly that the Geely was focused on the renewal of the company that was under acquisition, but not only his company’s income. Moreover, the authorities of Geely were ready to provide all the necessary conditions and aspects of the corporate performance in order to help Volvo succeed. Hence, the paradigm shift concerned not only Volvo, but also Geely Holding.

Furthermore, it is appropriate to cite the words of the new president of Volvo, Jacoby, that the company is “focusing on a driver-centric approach and we will stand out from the crowd by delivering a distinct individual car experience. Not by coping our main competitors. Instead, we will do it by carving out our own, unique Scandinavian profile.”

Huihui (2012) identifies four major principles that are crucial in terms of acquisition and aim at predetermining a potential efficiency of the merger, namely, principles of security, effectiveness, integrative principle, and liquidity principle. Therefore, it is relevant to analyze the case of Volvo’s acquisition by Geely Holding according to those principles. This analysis will focus on alternative solutions and strategies concerning the cooperation between Volvo and Geely.

The effectiveness of cooperation could be achieved either in case Volvo stayed independent, and cooperated with Geely Holding only in terms of financial and particular managerial issues since in such a way the authenticity and unique brand name of the company would be properly preserved, or in case the companies are ready to merge, create an exclusive line that would reflect the results of the merger, namely, the enhanced policies and innovating technologies. The option that was chosen by Geely Holding and Volvo should be regarded as less efficient since albeit it acquired Volvo, they are still two separate companies, which may result in disparities on the global scale as well as within the inner corporate policy.

The principle of security also reveals some alternative decisions and directions for further progress. To be more precise, it is important to underline that when Geely made a decision to acquire Volvo, the potential business risks were considered and discussed such as some important differences between the Eastern and Western management styles and employee welfare. Moreover,”Full autonomy of Swedish headquarters and high freedom to operate independently is essential to keep Volvo’s brand image. Moreover, keeping the workforce and high labor costs in Sweden also avoid the clash between management team and labor union”(Huihui, 2012). As a matter of fact, there are two alternatives that might have been incorporated from the beginning of the acquisition process. The first one suggests a shared responsibility for the taken risks, and the second deals with the solution according to which the potential risks will be taken only by one side of the deal.

The principle of liquidity is also a significant aspect of the cooperation course between Volvo and Geely Holding. The acquisition of Volvo became a considerable burden for Geely Holding in terms of financial assets. Moreover, the same aspect of being a financial burden was present in case of Ford. Therefore, it is necessary to establish such a strategy that would provide proper and timely financial remuneration for the investor, or provide other investments in order to balance out the financial expenses and the actual income.

Finally, the principle of integrity should be discussed. According to Huihui (2012),

“According to the long term strategy of Geely, it will increase 40 more automobile models in 5 technical platforms and establish 15 manufacture bases with sale of 2 million cars. Acquire Volvo Car is a short-cut for Geely to realize its global ambition by 2015.”

The in-depth insight as well as profound analysis of the issue in question results in a set of recommendations. First, a factual autonomy should be given to Volvo in order to preserve its reputation and authentic significance on the global scale. The experience of Geely Holding is very important, but it may be regarded as an additional source of experience for Volvo as well as its major investor. Second, the principle of security is recommended to be actualized properly in order to support the currently discussed one.

As a matter of fact, it is recommended to discuss the risks involving both in order to avoid further disparities.

Conclusion

Thus, the thorough, detailed and insightful analysis of the acquisition of Volvo by Geely Holding reveals significant perspectives, potential, and goals that will be actualized proved that the development of this cooperation should be constructive. The discussion of the problematic issues confirms that the case is not a simple one, whereas an analysis of the paradigm shifts and adjustments underline the excellent opportunities for both companies. These alterations were conducted within all of the major systems, which means that the approach is constructive and goal-oriented. Moreover, the availability of several alternative variants in diverse issues concerning management, strategic planning, and actual corporate performance confirms the vast space for further development, improvement and mutually beneficial cooperation of both companies. Furthermore, it is crucial that both corporations treat each other with respect and try to benefit on the common conditions, not only individually. It is a true partnership model. Finally, it is recommended to follow the mode of independent Volvo in order to preserve the authenticity and originality of the Volvo production, its key automotive technologies and unique developments, whereas Geely Holding may become an investor and provider of additional support. In such a way, the course of cooperation will be of a long-term, efficient and profitable nature.