Contents

1. Introduction ............................................................................................................................. 4

1.1 Geely Overview ........................................................................................................................ 4

i. Product positioning .......................................................................................................... 4

ii. Global Expansion ............................................................................................................. 5

b. Volvo Overview ................................................................................................................... 6

2. Acquisition of Volvo ............................................................................................................... 7

a. Issues in addition.................................................................................................................. 7

i. Issues in Europe ............................................................................................................... 7

ii. Issues in China ................................................................................................................. 8

3. Challenges ................................................................................................................................... 9

3.1 Opportunities ....................................................................................................................... 11

3.2 Recommendations ............................................................................................................... 12

References ......................................................................................Error! Bookmark not defined.

List of Figures

Figure 1 Product Positioning (Wang, 2011) ................................................................................... 5

Figure 2 Volvo Overview (Wang, 2011). ....................................................................................... 6
 1. Introduction

1.1 Geely Overview

Geely was established in 1986 in China as home manufacturing appliances company until
1997. Initially, this company manufacture refrigerators and its accessories and started to
manufacture motorcycles in 1993. Geely began to manufacture automobiles in 1997. However, the
founder of Geely, Mr. Shufu Li, wants to make this company globally. Before 2011, Geely was an
unknown company in the market of China, but they had strategies to make it globally. Mr. Li was
the strategic leader who knew that there is a gap of carmakers in China and internationally
regarding design, safety, quality, and brand buildings. In 2010, Geely's parent company Zhejiang
Geely Holdings, acquire the Swedish carmaker company Volvo from the Ford Motor Company.
Moreover, Geely is one of the fourth largest independent company along with four largest
companies (Chery, BYD, Great Wall, and Geely) in China therefore, it takes place in top ten
companies in China in terms of its market share, and install their plants in eight cities of china
(Wang and Young, 2015).

1.1.1 Product positioning

At the early stages, Geely models were outdated and copied from other carmakers companies,
but through the last seven years, Geely put the serious efforts and upgrade its technologies to get
the market position. Geely has self-developed its products, for example, Geely Panda, Geely FC,
Emgrand series, and so on. Geely was listed in Hong Kong stock exchange as a Geely holding
group, and produced five brands with 30 models and market them as well. About 200 cars were
cold in 1998, but their sales turned out to be 326710 in 2009 that shows the efforts of the company.
It is clearly be observed that there is a big difference in growth percentage from 1998 to 2009. This
performance was only from the domestic level, but Mr. Li wants this company at a global level
(Wang, 2011).
Figure 1 Product Positioning (Wang, 2011)

Geely is operating under a low-cost market segment, having cars with low price and its own
technology based on Chinese culture of entrepreneurship. 95% of cars produced by Geely were
sold in the Chinese market, rest 5% in a different developing country.

1.1.2 Global Expansion

Traditionally, China was the exporter of busses, trucks, and heavy equipment. Slowly, their
market builds through technology and productivity. Geely Holding Group established offices in
five different areas are the Middle East, South Asia, Africa, South America, and North America.
It was found in 2002. Furthermore, Geely expands its network to 500 distributors across 45
countries. Geely participated in International Auto-Mobil-Ausstellung (IAA) in Frankfurt,
Germany. After the participation, Geely made cars only for the purpose of export. It produces a
variety of cars and establishes its offices in Indonesia and Russia. Sales were increasing with time,
like 5% of sales from different countries. The speed in Geely’s technology clears the intentions to
export its cars globally. The first acquisition happened in 2009 when Geely acquired Drivetrain
Systems International (DSI). After the success of DSI, Geely made its ambitions to acquire more
so; it contacts with Ford for acquiring the Swedish luxury brand Volvo cars. Since then, Volvo is
work under the Geely Company (Wang & Young, 2015).

The biggest opportunity for Volvo was to enter the Chinese market. China had very strong
tariff and taxation policies on import of cars, 25% of money needs to pay in taxation. Hence it is
impossible to compete with Chinese manufacturers at this cost of import. Secondly, China is the
largest automobile market in the world, as its outlook the USA in 2009. China has high potential
in luxury cars since Chinese people have an opposite phenomenon for purchasing, material
procession. In China, people who can afford want to buy imported luxury cars with big engine
whereas in the rest of the world people are more interested in fuel-efficient vehicles. Being a local
seller in the market will give them a competitive edge over others

1.2 Volvo Overview

Volvo was started in 1927 with headquarter in Sweden and was listed in Swedish stock
exchange in 1935. In 1998, Volvo was taken over by Ford for $ 6.45 billion. It produces cars and
industrial vehicles for European and international market. It has more than 2300 dealers in the UK,
US, Germany, and China, distributing 11 models of Volvo worldwide. In Sweden, Volvo was
number one in market share, though it covers 12.5 % of its total sales. Volvo is operating in the
premium segment of the market, providing high-quality luxury cars. After the recession of 2007
in 2008, Volvo had significant concerns regarding the sustainability of Volvo as its sales start
decreasing, and the profit margin was decreasing in the profit and loss account. Back in 2009,
downsizing in Volvo went up to 30% (Wang, 2011).

Figure 2 Volvo Overview (Wang, 2011).

Volvo operates under two segments of companies, which includes Volvo Car Corp and Volvo
Industrial and Commercial Corp. The Geely acquired only Volvo Car Corp, whereas Volvo
Industrial and commercial Corp are still held by Ford, which is a parent company acquired Volvo.
2 Acquisition of Volvo
It was a big step of Zhejiang Geely Holding, to move its step in the international market in
2009. Geely’s parent company also announced that it would purchase the Volvo company form
Ford Motor Company. Geely, acquire Volvo in 1.8US$, it was the largest cross-border acquisition
Geely as a Chinese private enterprise (Yuanyi Amy Chen, et al., 2015). According to industry
analyst of Forest & Sullivan, "Volvo cannot be failed." If it fails, then the Chinese government
faces a huge loss, or it can be said that Chinese government loss its face. It was expected that there
must be challenges in the merger because it was not the only acquisition of cars but also R&D,
supply, rights, and intellectual property. Both companies were familiar that they have to be more
careful in the production of cars. Mr. Li insured that they Geely produced the best cars and planned
to develop new cars in the market. Geely currently has three factories located in China, the United
States, and Europe (Wang & Young, 2015).

2.1 Issues in acquisition

2.1.2 Issues in Europe
Geely was commonly known as the cheap car manufacturer with low cost whereas, Volvo is
known for a prominent car manufacturer in the market. Becoming international market
organizations faced many issues. GEELY/Volvo has a factory in Europe, so; there are many
dissimilarities regarding the correlation of both companies. Here the two main issues are
highlighted which are faced by both carmakers.

Firstly, Geely is unknown in the international market because it does not export their cars outside
Asia. On the other hand, Volvo has the expertise to sell its cars into other countries at though the
sales were low compared to domestic sales because the majority of users are from Bangladesh,
Pakistan, Uruguay, and Peru. As consumers in these countries are not same as Europe, there is a
difference in buying power and purchasing power. Persons differ from Asia and Europe.
Furthermore, expectations and preferences are changed in both continents. These all indicators
show that it would be tough for Geely/Volvo to stable in this market because Geely's car prices
are low as compare to Volvo's car prices, for example, Geely's car price is 100,000 renminbi while
Volvo's car price is 400,000 renminbi. Due to this image, both companies are finding themselves
in a difficult position to capture the Europe market (Tay, 2012).
 The other issue or challenge in Europe market is that Europe market completely exposes
the company, which could not perform well in the European market so, it was completely clear of
carmakers that manufacture with complete safety and quality. For example, in 2006, the Landwind
produced by Chinese automobile industry was totally exposed by European media. Landwind was
not appreciated by different countries of Europe in terms of poor handling and safety features. The
same thing happened with Geely when it introduced its car in Russia. Geely faced civism highly
after a crash test, where passengers in Geely CK saloon were only 10% chance of survival because
traditionally Chinese automobile companies are not known for their best cars, unlike Germans and
Japanese. They have a lack of expertise to manufacture and design cars, but there is some positivity
for both companies that they can observe foreign cars and their technologies. They have to
understand the safety measure of cars such as airbags and power windows. Moreover, creativity
must be learned to get a competitive advantage. Volvo must be affected by the image of Geely
because the merging of cheap cars with prominent cars affected the performance of companies.
Geely and Volvo must test quality, price, car handling, and another test (Tay, 2012).

These are the basic issues, which could face by the Geely and Volvo. Both issues show the
basic concern when any carmaker company establishes its business internationally if the issues
resolved by the carmaker, then they make an impact on the Europe market.

2.1.3 Issues in China

There are always be issues when companies are merging in any country. Merger and
acquisition of any company are creating many hurdles, either they are from the same countries or
cross-culture. M&A always plays a vital role in it. After the challenges and issues in Europe,
Geely/Volvo also has to face issues in China. Although Mr. Li promised that Geely would be
successful in the domestic and international market. Although, it clear that Geely is known for
cheap cars and Volvo is recognized as one of the best and luxury brands. There are fewer
similarities and more dissimilarities between Geely/Volvo. Such as, both countries have the same
business area and have achieved a lot in their countries. Moreover, the increased number of sales
about to 3500000 unit in 2009. Now there are many issues, but to sum up, two of the most
important hurdles are country and its culture, and the other one in the market.

The first issue takes place in the Chinese market is that both countries have a different
economic structure; for example, China is a communist country, and Sweden is a democratic
country. This is a huge difference because it is tough to merge in the two economic systems in one
country. Furthermore, culture also plays a huge role in M&A because it is not easy to get to stable
in one culture. Although there are many opportunities in M&A, country, and culture, the issue is
a very serious hurdle for Volvo Company. China has Chinese culture while Volvo has we turn
culture if Chinese and western culture merge in the same factory, which is operated in China that
cause problems. However, mixed culture also shoes the diversify workforce in the instead of that
Geely/Volvo have to tackle this issue (Zhang, 2017).

The market is another issue for Geely/Volvo M&A because of the dissimilarity in culture
and country. Geely's export its car only 5% and 95% of the cars are in china while, Volvo is truly
an international brand. The number of models Geely produced is seven, whereas Volvo has
produced ten models. In addition, the price range is also different from one another price of Geely's
car is 40000-112000, and the price of Volvo is 183000-583000. Moreover, both have dissimilar in
market segmentation and customer base. These all indicators highlight the market situation of
Geely and Volvo. Merging of companies creates hurdles, but it also shows that there is a gap in
the market, where customers want beautiful cars with more safety and quality. M&A may also
impact positively in China because Volvo technology and innovation is strong then Geely. It means
companies can be merge and produce better results with diversifying the workforce in their
organizations (Zhang, 2017).

3. Challenges
The challenges in the acquisition were surprising for car manufacturers around the world,
since companies from different culture, having different currencies, rules and regulation, taxation
system, tariff, customer base and cost of production went at the last level of interaction and
collaboration known as a strategic alliance.

Cultural Differences: China, which belongs to communist culture and Sweden, which has a
democratic culture, was the biggest challenge to deal with. China has collectivism values; on the
other hand, Sweden has a culture of Individualism and was a democratic country (Wang, 2011).

Social Structure: China has a corporate culture of hierarchy, which means everyone works in
their domain of responsibilities and not expected to cross the limits of hierarchy and responsibility.
On the other hand, Swedish culture shares the values and norms of social equality, which states
that everybody has an equal chance of contributing to organizational goals and objectives, and the
hierarchy doesn't matter. French culture has low power distance values.

Time Schedule: According to (Wang and Young, 2015) For Chinese time is not an important
accomplishment of tasks is important; meeting scheduled in Chinese culture has a low probability
of starting on time. Swedish people share hardcore western values of time management and
schedule their time.

Face Keeping: Keeping face is the key to Chinese spirits, which means Preserving one's image,
dignity, prestige, and integrity. It is very common in Chinese culture, because building a social
relationship is much more important for Chinese people, as compared to a professional business
relationship. China is corporate culture emphasis on harmonious relationship, whereas Swedish
culture has purely task-oriented values (Wang, 2011).

Language: Language has always been a concern in dealing with Chinese counterparts. Chinese is
the most widely spoken language in the world, but Swedish people merely understand the Chinese,
though they are comfortable with English, none of the Chinese counterparts understood English.

Brand and Customer Loyalty: Since Volvo operating under the premium segment, famous for
high-quality luxury cars, which have its own customer base and loyalty around the world. On the
other hand, Geely, which is a weak brand having low cost and quality, the acquisition might affect
the brand image of Volvo in the future. The shifting to production facility from Sweden to China
had already raised many concerns in the mind of European consumers. Hence, there are rumors
the design and R & D might be shifted to China (Geely, 2010)

Cost Structure: There is a big difference in cost structure between Geely and Volvo is the
difference between the price of cars of Volvo and Geely. According to Volvo and Geely current
prices, the average price of Volvo is five times higher than the price of Geely. If the production
facilities are shifted to China, how will the difference between wages be managed since China has
very low wage rate than Sweden?

Financial Management: There are many trade barriers such as currency exchange rates, the
difference in taxation, multinational capital budgeting, and transfer pricing. Currencies considered
between two counterparts were USD, Swedish Krona, Chinese Yuan, and Euro. The one with the
lowest fluctuation must be used to manage cash flow between two companies. Beside this Geely
needs to consider inflation rates and long term hedges. Hence another challenged arise financially
was the debt financing policies of Geely; on the other hand, the profit of Geely was much less than
the loss of Volvo in 2010 (Wang, 2011).

3.1 Opportunities

Based on learning from another most successful acquisition between Nissan (Japan) and Renault
(Germany), which was somehow similar to Geely and Volvo because they had somehow same
challenges and threats, but the consortium of the alliance was synergized in terms of benefits. We
can critically forecast benefits, amongst which some are tangibles, and others are intangible.

Tangible and Intangible Benefits

a) Expansion in China: The biggest opportunity for Volvo was to enter the Chinese market.
China had very strong tariff and taxation policies on import of cars, 25% of money needs
to pay in taxation. Hence it is impossible to compete with Chinese manufacturers at this
cost of import. Secondly, China is the largest automobile market in the world, as its outlook
the USA in 2009. China has high potential in luxury cars since Chinese people have an
opposite phenomenon for purchasing, material procession. In China, people who can afford
want to buy imported luxury cars with big engine whereas in the rest of the world people
are more interested in fuel-efficient vehicles. Being a local seller in the market will give
them a competitive edge over others.
b) Local Manufacturing in China: Geely has strong ties with its supply chain partners and
vendors, which makes them a low-cost manufacturer in the industry. They have an
optimized solution for cost reduction and production, which makes them more efficient. If
Volvo shifts its production facility in China, they can have tremendous cost reduction, avail
cheap labors, avoid the high cost of the transfer, and avoid import taxes.
c) Government Procurement: Chinese government is the biggest customer of the
automobile sector in the world; they purchase cars from small cars to big luxury cars from
the local market. According to the China Daily newspaper, in 2009, Chinese government
procured vehicles worth 80 billion RMB. Volvo can be created as a domestic player in
China after the acquisition with Geely (Giovanni Balcet, et al., 2017).
 d) Financial Investment from China: China is the second-largest economy in the world,
with the highest consumer in the world. Despite having high export China export covers
only 10% of their GDP. ( World Bank, 2012). Investors in China can throw big money in
Volvo to boost its performance.
e) Home Market: China consumers value the foreign products from the local ones; reliance
on Geely can provide an opportunity to Volvo to understand Chinese markets. Chinese
consumers value foreign product more from the local ones.
f) Mutual learning: Learning is on both sides by Geely and Volvo, Geely can learn from
Volvo on safety technology, product development, brand management, and international
organization management since Volvo has core competencies in all these areas.
g) Market positioning: As stated, Chinese people like a big car with a big engine and luxury
vehicles, which makes them different from other consumers. Volvo can position their
product in that segment. On the other hand, Geely can position their product overseas
because of the international transition history of Volvo, according to annual report Geely
sales are 95% in China prior acquisition; they can increase their market share in
international markets.
h) Cost Control for Volvo: Volvo has low-profit margin because its production cost is very
high, they can benefit from the Geely competence in purchasing, but one thing must be
catered that Volvo needs a cheap component with good quality.

3.2 Recommendations

It is clear that there are fewer areas, where Geely and Volvo are similar instead; the two companies
have a huge difference in many aspects. Now, this makes M&A very special because when two
different companies work together, then there are possible chances of huge profit and loss.
According to Chinese media, this M&A is called 'snake eats an elephant' because no one even
images that this merge could happen. This M&A clearly shows the risk as the company's size,
brand, culture, market, and so on is different. This M&A is evaluated by the traditional theory;
China is in the process of rapid change, so does the world. The solution to these problems is to
make them opportunities. There are many opportunities for Geely and Volvo (Wang, 2011).
According to (Peter Campbell, 2014), Geely, which already acquire Volvo cars and now becoming
the highest shareholder for Mercedes-Benz owner Daimler A.G with the worth of %9bn
approximately 10% of its shares (Star online, 2018). This shows the M&A of Geely and Volvo.
Now is at the major market position and Mr. Li, who promise and ensure that the company will
get the success becomes successful. To sum up, this whole situation merging with the better
company affects positive if the visionary leader leads the company.
 References

Geely, 2010. Geely Annual Report: Retrieved from:

http://www.geelyauto.com.hk/core/files/financial/en/2010-02.pdf

Giovanni Balcet, Wang, H. and Richet, X., 2017. Catching up strategies and multinational growth:
the case of Geely Volvo.

Peter Campbell, 2014. Geely builds $9bn stake in Mercedes owner Daimler, s.l.: Financial Times.

Star online, 2018. China's Geely buys US$9bil Daimler stake.

Tay, J., 2012. The Strategic Acquisition of Volvo car corporation by Zhejiang Geely Holding
Group.

Wang, L., 2011. A Case Study of the Acquisition of Swedish Volvo by Chinese Geely.

Wang, X. J. and Young, M. N., 2015. Geely Automotive's Acquisition of Volvo. Asian Case
Research Journal .

Yuanyi Amy Chen, Wang, X. J. and Young, M. N., 2015. Geely Automotive's Acquisition of
Volvo. Asian Case Research Journal.

Zhang, W., 2017. Chinese Outbound Mergers and Acquisitions: the Case of Geely’s Acquisition
of Volvo.