Geely's Acquisition of Volvo

Topics: Barriers to entry, Automotive industry, Barriers to exit Pages: 9 (2774 words) Published: November 7, 2011

1. Introduction to the Case
This Case is about
* The Automotive Industry of China
* The acquisition of “Volvo” by “Geely” (a Chinese firm) * Geely is an automotive company in China, which was engaged in producing non-luxury cars for its local market in the country since 1998. * Li Shufu was the founder of the company, who was basically a poet and has a philosophical attitude towards life. * The time of the case is year 2010.

2. Situational Analysis
Li Shufu was born in China in 1963, the son of a small business owner. He started the business from making photographs of tourists, then he shifted to making refrigerators and refrigerator parts, and from there he diversified again to motorcycle production business. At the age of 35, in 1998, he started the business of producing cars. The name “Geely” came to him in a dream.

Geely was a privately owned firm, which was involved in producing non-luxury cars for its local market of China. For the acquisition of Volvo, Li obtained financing from state-owned banks and governments in China and this acquisition made Geely able to enter in the new market of luxury cars by following a “related diversification” strategy.

Now Geely is heading towards lowering the costs and making Volvo more profitable in the industry and following a growth strategy in its business

3. DEEP LIST Analysis
i. Demographics
Volvo was a Swedish company; Geely was planning to produce luxury cars at Volvo plants and offering these cars to local Chinese, who desire to drive these luxury cars. This strategy enabled the Geely to target a new market segment in the country. ii. Ecological

Producing and providing good quality luxury cars to the society for its use. Success of this acquisition settled a good example for potential foreign investers.

iii. Economical
There was great potential in the Chinese markets for luxury cars, as last year of 2009 shows that more than 7 million luxury cars were produced in the country and yet the vehicle penetration was much less than 50 vehicles per 1000 people, compared with 750 vehicles per 1000 people in other G8 nations. Analysts pointed to very high profit margins in China in the luxury car market, which both BMW and Daimler enjoyed as a result of their new sales success in China. In the 1st quarter of 2010, BMW sales in China more than doubled compared with the first quarter of 2009.

iv. Political
Government of China was determined to develop an automotive industry in the country and was providing every type of assistant to the government-owned firms for the creation of joint ventures in this regard. Government was also encouraging private investors to invest in this field. Although some barriers were established by Swedish government but those were also not so difficult to follow.

v. Legal
There were no legal hurdles, established by the government or other agencies, found in the environment. So, it was very easy to commence an automotive business in the country. vi. Informational

It helped Geely to get the knowledge about an internationally established business of Volvo and its different channels.

vii. Social
These luxury cars will help Geely in changing the lifestyles of the people of China. Local production of parts that will be used in the assembly process of these cars at Volvo plant will also provide employment to local people.

viii. Technological
This acquisition will help Geely to transfer the luxury car technology to Chinese nation, which also will include the research and development work by Volvo in this field. By producing parts of these cars at local level will also help to make local people familiar with the latest technologies of luxury car manufacturing.

4. Key Trends in the Environment
Overall environment for manufacturing luxury cars for Chinese market was remarkably ideal, as the government of China was fully determined to ensure the...
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