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Geely Case Study

Students’ Name

Institutional Affiliation
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Table of Contents

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

1.1.1 Geely’s Market .............................................................................................................. 4

1.1.2 Overseas Expansion ...................................................................................................... 5

1.2 Volvo Overview ................................................................................................................... 6

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

2.1 Issues in acquisition............................................................................................................. 7

2.1.1 Issues in Europe ............................................................................................................ 7

2.1.2 Issues in China .............................................................................................................. 8

3.1 Challenges Faced By Geely in their New Expansion Plans ............................................. 9

3.2 Recommendations ............................................................................................................. 11

References ..................................................................................................................................... 13
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List of Figures

Figure 1 Geely's Market ................................................................................................................................ 5

Figure 2 Volvo Market.................................................................................................................................. 6
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1. Introduction

1.1 Geely Overview

Geely is a brand of automobile companies in China and known for its reputation. Geely
manufacturing cars under its parent company Geely Automobile Holdings of China. Geely was
listed in Hong Kong stock exchange as a Geely holding group. A Geely automobiles holding is
controlled by its CEO Li Shufu. It must be clarify that Geely Holding group acquire the Volvo car
manufacturer of Swedish, not its parent company Geely Automobile Holding Group. Geely is the
reputed manufacturing company in China and known as one of the four largest private carmaker
companies in China, along with Great Wall, BYD, and Chery. Being a largest player in market
Geely was considered as the 10th largest company in China with the total number of units sales
326710 along with 12000 employees in 2009.

Geely was started in 1986 in the Zhejing province of China. Initially, Geely manufactured
refrigerators and motorcycle parts until 1997. After that, it launch the car manufacturing business,
in 2005, Geely became the largest private automobile company in China and manufactures 460,000
cars in the end of 2009 (Geely, n.d.).

1.1.1 Geely’s Market

Initially, Geely products were outdated and copied form different companies, but during
several years this company had invest in its technology and employees to produced its own
products such as Geely panda, Emgrand series, Geely FC and so on. Investment in technology
affects high on sales like those that 200 cars were sold in 209, but in few years, it reaches the
landmark of 326710 in 2009. It starts slowly, but cover in no time with impressive figures.

This graph shows the domestic growth of Geely, which is achieved by the best leadership
skills of Mr. Li. About to 95% of sales registered in China in 2009 and other 5% in different
countries. Although, there is massive gap between domestically and globally, but Mr. Li had some
lon-term planning to make this company in overseas. It is no surprising that Geely was a low cost
brand because of its short history. It can be observed from the price of Geely’s that most of the
products are under 100000 RMB. Geely’s technology and brand improves with the passage of time
such as it started in 1998, then in 2001, it was certified as the first private automobile company of
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China. Their innovation can also be analyzed when they start to develop their own products in
2005 so; there growth was there with passing time.

Market share of 2009 for topn ten players

in China
10,00
%
9,00
%

8,00
% Market
share
7,00
%

6,00
%

Figure 1 Geely's Market

1.1.2 Overseas Expansion

Geely started expansion in 2003, when it exports cars in overseas. It was the only company
from China, which develop its market by participating in the Franfurt show in 2005. Furthermore,
it enhancement being increased in 2009 as it produces the 5% of sell from overseas. The countries
which are includes in the sell are African countries, Pakistan, Bangladesh, Peru, and South East
Asian countries, but Mr. Li has ambitions to expand its business to Europe and America. However,
it fails in Europe in testing drive because of its safety and blackness in technology. However, Mr.
Li refuse to step down and tries to invest more in technology because it was the only way to come
up with new products. In order to updating the technology, Geely has been looking for its first
acquisition in overseas and it got in 2009, when Geely bought Drivetrain Systems International
(DSI). The first successful acquisition enriched the ambitions of Mr. Li therefore Geely contacted
ford to acquire the exceptional brand of Swedish car manufacturing company Volvo and then the
big acquisition takes place that Geely acquired Volvo (Wang & Young, 2015).
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Now, Volvo also got a chance to enter in Chinese market although it was complicated with
Chinese manufacturers because China has strict policy of tariff and taxation on cars. China is the
largest automobile market as per the statistics of the USA, 2009. China has comparatively high
potentials for luxury, so they use the opposite phenomenon for material processions and
purchasing. The Chinese people who can afford imported luxury cars, they buy imported cars
having a big engine when the rest of the Chinese are more inclined towards buying fuel-efficient
cars. Geely, being a local seller in the market, provide them a competitive advantage and edge over
the other automobile companies (Zhang, 2017).

1.2 Volvo Overview

Volvo is a car manufacturing company is Swedish. This company was establish in 1927
and it was owned by AB Volvo until 1999, after that it was acquired by Ford Company as the
prominent player of automotive industry. After the Ford Company, it was acquired by the Geely
Automotive Holding Company of China. Volvo was the international brand with the annual sales
of 334,808 cars globally and US is known as the largest market of Volvo cars. Although, Volvo
ranked number one in Swedish market, but there are also some finance crises in Volvo’s company,
in the result Volvo consider as a small business. (Wang, 2011) .

The annual revenue of

Volvo
20

15

10 revenu
e

2005 2006 2007 2008 2009

Yea

Figure 2 Volvo Market

Figure 3: Volvo Overview (Wang, 2011)

The figure shows the crises of finance in Volvo for losing it money about to 1.5 billion
USD in four years and consider as the biggest loss in its history.
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2. Acquisition of Volvo

Zhejiang Geely Holding took a big step in the international market in 2009. The parent
company Geely has announced that it would purchase Volvo Company from Ford Motor
Company. Geely had acquired Volvo in US$ 1.8 billion, and it was the largest cross-border
acquisition made by Geely, which is the Chinese private enterprise (Yuanyi et al., 2015). Forest
and Sullivan, the industrial analysts, stated that Volvo could not fail, and if it fails, the Chinese
government will face the unbearable loss. Challenges exist with the merger because it is not the
mere cars acquisition but also research and development services such as rights, supply, and
intellectual property rights. All the companies are familiar that they will be careful with card
production. Mr. Li also clarified that the Geely produces the best cars that are properly planned
before manufacturing and marketing. Currently, Geely has owned three factories that are located
in Europe, the United States, and China (Wang & Young, 2015). According Geely’s president Li
Shufu said that Volvo’s biggest handicap is its economies of scale and will only start making a
profit if sales hit 370,000 units a year. This number currently stands at 335,000 vehicles globally,
of which 22,664 are Chinese market contributed numbers. (Alexander, 2011) Geely will help
Volvo to reduce the production cost and enter Chinese market to achieve economies of scale. (Tan,
2009)

2.1 Issues in acquisition

The most common issue in the USA and Chinese industries that are described herein
details.

2.1.1 Issues in Europe

From the very start, Geely is known as the cheap car manufacture with having a low cost,
but Volvo is known as the famous car manufacturer in the market. The international market has
faced numerous issues due to their acquisition. Geely-Volvo has a factory in US, so the
dissimilarities are seen in both companies because the former is the cheap car manufacturer
company, but the latter is the most popular factory. Two most common issues that the carmakers
face are highlighted here.

Actually, there are many issues, which are analyze in Geely and Volvo acquisition. The
main issue in US market is that US is a high standard market in the world and their cars are well
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organized and manufactured as well. The first challenge, which was faced by Geely and Volvo
merger acquisition is to meet the standards of US because Geely did not enter with poor image as
its quality standards are very low (Tay, 2012) . However, Geely has a name and support of Volvo
Company instead of that it is a big challenge. Volvo is also facing same challenges because it
coordinated with low standard company that could damage Volvo’s image as the vice president of
sales state that, we all need to understand what we are doing with the brand and analyze the
direction of change therefore both safety and other standards at first priority, which must be
observed (Zhang, 2017).

The second issue, which is highlighted, is cultural integration. Merger is always a changing
from either a same countries or different countries. There is a big difference between a Chinese
and Swedish culture. Cross-border relationships are not easy for two different countries. It requires
a lot of time in it. Although Geely has some experience of export in foreign market, but it was in
Middle East countries USA is very different from Middle East. In this Geely/Volvo has acquire
less skills and experience to start business there therefore this situation may cause loss for both
companies (Wang & Young, 2015).

2.1.2 Issues in China

Issues arise when companies merge within the country. Acquisitions and mergers create
hurdles within either the country they are from the same country or another country. Just like issues
in Europe, Geely/ Volvo faced problems within China. It is evident that Mr. Li promised to make
Geely successful automobile industry at the national and international level. Geely is known for
selling cheap cars, but Volvo is famous because of luxury brands. These companies were involved
in having the same business as well as attained a lot of acceptance in their countries. Their sales
increased up to 3500000 unit at the end of 2009. Still, there are few similarities between Geely and
Volvo but more dissimilarities. In the light of numerous issues, the two important hurdles are (i)
country and its culture and (ii) market (Zhang, 2017).

The first and utmost issue that took place in the Chinese market is the varied economic
structure of both countries. China is a communist country where Geely is headquartered while
Sweden is a democratic country, where Volvo is headquartered. It is a vast difference, and it
became tough for both companies to merge by possessing two different economic systems within
one country. It is not easy for both economies to stable within the culture because China and
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Sweden have vast cultural variations. No doubt, there are unlimited opportunities in merger and
acquisitions country, but culture is the serious hurdle in Geely-Volvo Company. If Chinese culture
merges with western culture, then it will cause problems. Mixed culture diversifies the workforce,
but Geely-Volvo has to sort out this issue (Zhang, 2017).

Another issue that prevails in China is the market issue that Geely-Volvo faces due to
cultural dissimilarity. Geely exports only 5% of the products internationally, and 95% of its car
manufacturing products was used within the country while Volvo is the complete international
brand. Geely has seven models, while Volvo produces ten models, which are another difference
between both companies. The price range of both countries is also different as the price range of
Geely car is 40000-112000 while the price of the Volvo car is 183000-583000. Both these
countries are different in term of customer base and market segmentation. These indicators are
used to highlight the market situation of Volvo and Geely. Merging of these companies has created
many problems for both companies. It reflects the market gap where customers get cars with
quality and safety. Acquisitions and mergers have a positive impact on the Chinese Market because
technology and innovation of Volvo are stronger than the Geely. If these issues are sorted out, then
Geely-Volvo wills diversity their workforce within the organization (Zhang, 2017).

3.1 Challenges Faced By Geely in their New Expansion Plans

The challenges in acquisition of majority shares in parent company of Mercedes, Daimler
A.G for US$9 billion will pose significant challenges for the alliance between two companies,
since both companies are 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 strategic alliance. According to Letestu and Holmgren, (2012)
globalization of cooperation’s has raised significant cultural concerns amongst leaders and
management seeking for significant presence in more than one country. Gdańska, (2009) states
that major issues faced during internationalization process includes (a) designing adequate
international strategy, (b) structuring adequate organizational design and (c) managing people in
cross cultural environment. All these challenges pertains unique cultural constrains for
organizations in the host country as all these factors are consequential elements of cultural
difference between home and host country environment. Gdańska, (2009), states that it is essential
for managers to be aware of the some divergences among national cultures in terms of values,
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beliefs, convictions, basic assumptions, and artefacts as it has significant implications on

multinational business operations.

Cultural Differences: China which belongs to communist culture whereas Mercedes,

Daimler A.G belongs from Germany which has democratic culture which is one of the biggest
challenge to deal with. China has collectivism values on the other hand Germany has a culture of
Individualism being a democratic country. (Vennova,2009) Schomaker and Genc (2003) argues
that cultural incompatibility between the target and acquiring firm has significant impact which
might result in devastating outcomes resulting in failed merger and acquisitions. Cultural
incompatibility might not lead to synergy affecting the success of merger, thus social identity of a
firm plays an important role in the integration teams, where identification is drawn from the
nationality of team members or from organization affiliations. Thus it is integral for companies
like Samsung to pay special attention to the strength of organization identity, cultural compatibility
and strategic combination potential when deciding if a partnership should be integrated or not. If
the companies do not understand each other it is highly likely that any form of partnership will
result in failure. The extent to which firms must integrate with each other depends on how closely
they are working together.

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 German culture shares the values and norms of social equality
which states that everybody has an equal chance of contributing towards organizational goals and
objectives and hierarchy doesn’t matters. German culture has low power distance values.
(Mengyu, 2008)

Time Schedule: According to Mengyu Li, (2008) For Chinese time is not important
accomplishment of tasks in important, meeting scheduled in Chinese culture has a low probability
of starting on time. Germen people share hardcore western values of time management and
schedule their time.

Face Keeping: Keeping face is the key of Chinese spirits, which means Preserving one's
image, dignity, prestige and integrity. It is very common in Chinese culture, because building
social relationship is much more important for Chinese people, as compared to professional
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business relationship. China’s corporate culture emphasis on harmonious relationship whereas

Swedish culture have purely task oriented values. (Vennova,2009)

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

Brand and Customer Loyalty: German companies such as Mercedes, Daimler A.G are
operating under premium segment of passenger, 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 Mercedes and
Daimler A.G. The shifting to production facility from Germany 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.

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

Financial Management: There are many trade barriers such as currency exchange rates,
difference in taxation, multinational capital budgeting and transfer pricing. Currencies considered
between two counterparts were Chinese Yuan and Euro. The one with lowest fluctuation must be
used to manage cash flow between two companies. Beside this Geely needs to consider inflation
rates, and long term hedging.

3.2 Recommendations
Both Geely and Mercedes and A.G should send their management team to Germany and
to China as an expatriates to tackle the challenges. Expatriation has emerged as an important aspect
of internationalization for MNC’s to fulfil cross national challenges of global landscape and
workforce complexity. According to Rani et al., (2016) effective communication is an important
aspect of internationalization Geely needs to emphasize on cross-trained, multi-cultural managers
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who share their experience and insights with all corners of the business, whether strategic planning,
marketing, new business development, financial services or human resources. Thus, language
barriers can result in misunderstanding and conflict amongst business unit, while promoting Solo
mentality culture.
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References
Geely, 2010. Geely Annual Report,

Geely, n.d. www.Geely.com. [Online]

Available at: http://global.geely.com/overview/

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, s.l.: s.n.

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, A. C., 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.