The Chinese automotive industry has grown as astronomically since the 1990s. As indicated by Lin et al., over the last two and a half decades, China has grown from manufacturing 2 million vehicles yearly to becoming the world’s largest automotive manufacturing country and automotive market since 2009 (589). As indicated by Veloso and Erica, for years the Chinese automotive industry was strategically placed target the low-cost market a factor that restricted the nation’s perspective in having a corporation that would be considered a global market leader in luxury vehicles manufacturing (111). Prior to 2011, Geely Automotive was a somewhat small, anonymous carmaker in China; however, the company owner and management had an ambitious plan to become a global competitor. Geely was established back in 1986; nevertheless, it began operations as an automobile manufacturer in 1997. The company’s founder and Chairperson Shufu Li had ambitious plans to be the first to own and operate the largest privately owned carmaker in the nation. However, he knew that Chinese carmakers had significant flaws when it came to automobile operations, design, safety, quality, as well as brand building. With this in mind, in 2010, Zhejiang Geely Holdings, Greely’s parent company acquired the popular Swedish automaker Volvo at that time owned by the Ford Motor Company. Currently, is ranked as the third in sales in China a clear indication of a successful business strategy by Shufu Li, however, it would be imprudent to believe the journey to success was straight forward, which was never the case.
The automotive industry is highly competitive and significantly underwritten by market laws such as consumer loyalty that make it hard for new players to make a significant mark. Geely chose M&A as the best market entry methodology by acquiring Volvo Company in order to increase its market share both globally and locally. According to company reports, back in 2009, Geely sold about 326,710 vehicles earning the company a total revenue of $2.5 billion. Conversely, in the global automobile industry, the company was relatively small brand virtually unknown in some part of the world. As indicated by Balcet Hua and Xavier about 91% of Geely’s sales were made in the Chinese market only 9% coming from the international market majorly in developing countries including Middle East, Africa, and South-East Asia (336). On the other hand, in 2009, Volvo sold 334,808 vehicles constituting to earnings of $9.67 billion, approximately four times Geely’s revenue. Additionally, sales came from about 100 countries. With this information, clearly, Geely’s acquisition of Volvo was driven by the need to increase sales. Other than sales, the strategic management team at Geely saw the merger as the best way to develop the “safest, most environmentally-friendly and most energy-efficient cars” (Alon, Marc, and Marc, 489). This is because Volvo had cutting-edge technologies in safety in addition to environmental protection as well as global recognition as a premier innovator of car parts. For that reason, Volvo was is in line with Geely’s dream as indicated by the company Chairperson in an interview with People’s Daily (2009) (Balcet Hua and Xavier, 337)
When a business takes its business across its geographical borders, it is hard to have instant success; for the case of China’s automotive industry, most individuals believe that Chines products are substandard. This the concept of “liability of foreignness” described as the costs of doing business abroad (Balcet Hua and Xavier, 338). Geely’s solution to this problem was maintaining operations of Volvo vehicles as well as headquarters back in Switzerland and not China; however, the company faced significant risks as well. The process of merging and acquiring hosts a significant amount of risk. As explained by Alon, Marc, and Marc, mergers and acquisitions are particularly susceptible to risk factors that come within the enterprise due to differences in organizational culture and other internal environment changes (849). In the case of Geely ’s acquisition of Volvo the option to demote the Hans-Olov Olsson, former President and CEO of Volvo, to Vice-Chairman was not taken well by the staff members as well as other markets stakeholders. As explained by Lin et al., a majority of Volvo Company saw Shufu Li, self-appointment as the Chairperson of the company a hostile thus decreasing their motivation and satisfaction (599). Other than negative staff, reaction there was an immediate decrease in consumer’s confidence in the company. As explained by Balcet Hua and Xavier, in 2011, Volvo lost 122 dealership agreements seeing to the reduction of sales in the end (221). Soon after it became official Geely had acquired the Volvo company the company stock rose at the end of the month. Nevertheless, soon after this surge ended and the stocks fell from 4.14 Yuan to below 3 Yuan by May 17. Additionally, after a fortnight the stock again by an estimated 27.5%. As explained by Balcet Hua and Xavier,), the snake swallow like” model of mergers and acquisitions traditionally generate a significant amount of issues because they do not look good and it takes a significant amount of time to convince investors that the benefits are mutually shared (337). In this case Volvo despite looking like the week company stood to gain structurally.
As is known to all, Geely before merger and acquisition is a low-end car production, a small private enterprise, the acquisition of Volvo was a change in strategy that seemed to have a noteworthy influence on management styles as presented by Hofstede’s theory. Most Chinese corporate entities are known to have a high level of hierarchy level, meaning the leaders have a significant amount of authority and believe they know what is best for the company. On the other hand, the Swedes are known to have limited hierarchy levels; meaning the leaders are open to discussions with their subordinates. The differences in hierarchy levels was a cause of concern as the Swedes felt unappreciated during the early stages of the merger. Chinese culture is known to support collectivism rather than individualism. During the early stages of the merger, it became clear the Swedes queried over the managers drive for collective performance scrutiny across the board meaning they sustained much pressure from other individual’s mistake.
In summary, Mergers and acquisitions remain as the most used strategies of market entry by businesses wishing or working towards having a global market share. In the paper presented, Geely Automotive Company grew from becoming a minuscule company in China into a global brand through the acquisition of Volvo Company. The company increased its sales through better brand recognition as well as attained state of the art technology that aided in its development additional value of its own brands. Nevertheless, the merger was faced by various challenges such as negative staff acceptance that led to demotivation. However, currently, as the third largest seller of vehicles in China, the seems to have worked through its tough times.
Alon, Ilan, Marc Fetscherin, and Marc Sardy. “Geely motors: a Chinese automaker enters international markets.” International Journal of Chinese Culture and Management 1.4 (2018): 489-498.
Balcet, Giovanni, Hua Wang, and Xavier Richet. “Geely: a trajectory of catching up and asset-seeking multinational growth.” (2014): 360-375.
Lin, Danping, C. K. M. Lee, Henry Lau, and Yang Yang. “Strategic response to Industry 4.0: an empirical investigation on the Chinese automotive industry.” Industrial Management & Data Systems 118, no. 3 (2018): 589-605.
Veloso, Francisco, and Erica Fuchs. “The future of the Asian auto industry: regional integration, alternative designs, and Chinese leadership.” International journal of vehicle design35.1-2 (2018): 111-136.