Geely's Acquisition of Volvo: Challenges and Opportunities

GEELY'S ACQUISITION OF VOLVO: CHALLENGES AND OPPORTUNITIES

In the last two decades automotive industry has been changed in so many ways. More demanding customers, opening of huge new markets, ever growing technological challenges and emerging of new competitors sometimes backed up by government power all contributed to a change in way of doing business. Auto companies often beeing seen as a subject of national pride in order to expand and stay in the market were forced into joint ventures with other companies from around the world. Huge mergers took place, Volkswageen and Skoda, GM and Saab, Chrysler and FIAT just to name a few. Sometimes fusion was painless especially between companies coming from western world with similar values and business customs, but sometimes shift in ownership brought many questions in light. That can be seen in example of two companies Geely and Volvo.

Gelly is the company founded in 1986 by China born Li Shufu. As a son of small business owner he started his own entrepreneurship by making and selling photographs to establishing photo studio as young adult. In his twenties he tried himself in business of making refrigerators and refrigerator parts but had failed. Finally in 1998, when he was in his mid thirties, Geely company began making motorcycles followed by small vans.

Shortly after that Geely received state approval from the Chinese government to make passenger cars. It started with the production in its Chinese plants in 2002. Being one of the rare privately owned companies with no connections to government, the company achieved great success by introducing several types and models of inexpensive cars. Also, its production peaked and Geely was able to manufacture 330,000 vehicles by 2009. In 2007, Geely's steadily growing profits reached RMB 200 million, and a year after that the profits had risen to an astonishing RMB 800 million. The Geely company had grown and was ready to expand beyond its geographical domain. It set its eyes on Volvo, a brand recognized as a jewel amongst auto makers despite its diminishing shine.

Volvo was founded as a Swedish company in 1927. Future of the company was determined by quote of its top managers at the time "Cars are driven by people. The guiding principle behind everything we make at Volvo, therefore, is and must remain, safety". And so it was. Through decades Volvo was able to distinguish itself in fields such as various safety features, unique design and cutting-edge technology especially in regard to safety of passengers. After while Volvo become most sought vehicle among people who had strict demands about safety but did not wish notoriety which comes with driving other luxury cars such as BMW and Mercedes. In 1999 Ford took over still profitable Volvo under its wing for US$ 6.45 million. Ten years later Volvo sales was 330 000 units. That was 120 000 units short of its peak in 2007. Reasons for such decline in sales were: other competitors introduced models which competed directly with Volvo's each model, car industry worldwide shift its focus on safety features thus robbing Volvo its unique image and lastly, it has been replaced as a vehicle of choice by many with Subaru. Volvo was ready for big change in management, business strategy and ultimately ownership.

In China car market annual sales grow from 330, 000 units in nineties to to more than 7 million units in 2009. Vehicle penetration was less than 50 cars per 1,000 people comparing to 750 cars per 1, 000 people in G8 countries. Rising GDP and living standard