After a one-year long and difficult negotiation, on March28 2010, the China Geely Group went where no Chinese auto firm has gone before, buying a luxury car brand, Volvo, for $1.8billion from Ford, including the 100% shareholder and the relevant assets. It was China's largest overseas automotive industry acquisition, which was also the first wholly-owned merger. Besides, it was the first time for a Chinese own brand to merge a luxury brand. This deal proved to be a most ambitious action for the Chinese automaker’s desire to transform itself into an international auto player and wrote a new chapter for the Chinese automotive industry.
The deal was greeted with cautious optimism by some experts, saying the move offered a bright future to both buyer and seller, which provided them with long term strategic benefits. Geely sought to tap China's high-growth auto market by acquisition to upgrade its car lineup, while Volvo tried to gain more profit in the Chinese market. On the contrary, it is commented that Geely had eyes bigger than its stomach, it was an asymmetric merger. Just as the words of chairman of Geely, Li Shufu, described the deal as the “poor boy from the countryside” (Geely) marrying the “rich girl from the city” (Volvo).No matter what the comments are, securing such a successful acquisition serves as a high standard for other companies to follow and to learn from the experiences and skills gained. Under the background of post-financial-crisis, the Chinese corporations get more opportunities to be players in the international market. Moreover, the Chinese mode, with strong support from the government, may help more firms participate in the international competition.
This article will analyze the factors that contributed to the successful merger between Geely and Volvo from three different perspectives, Geely’s, Volvo’s and some external reasons, which would give an example for other merger.
Evaluate the factors from Geely’s perspective
Two companies’ complements
Geely is a privately owned company which is famous for its low-cost compacts, while Volvo always advocates its energy-saving and environment-friendly measures. Since 2007, Geely’s former competition strategy has changed, from lower price to brand, technology, better service, safety and energy-efficiency. Because nowadays people pay much more attention to automotive safety and environmental protection, so the Volvo would be a better choice. From this perspective, the support from the customers is beneficial to the merger. Furthermore, comparing with the two companies, their customers come from the opposite wealth class, the two sales markets never overlap, which meant the combination makes them form a stronger and more comprehensive market, and that would do better for both companies.
Strong support from the Government
Actually, this successful acquisition is not only a simple cooperation between the two private car companies, but also a political merger with the clear support from the Chinese government. This will be a revolution for the whole Chinese cars industry. As we all know, the Chinese market is the biggest market for cars sales, however, the majority of the markets have been occupied by foreign corporations. Therefore, Chinese corporations are badly in need of western technology to struggle for one slice of cake and save their poor exports. In order to improve the level of domestic cars industry, government helps Geely a lot about the acquisition. Firstly, Li Yizhong, China’s Minister of Industry and Information Technology, was present at the official signing of the deal in Sweden, this showed that the government took it very seriously. Secondly, the government took political measures, including the “going-out” strategy and the subsidies policy. The former one encouraged the firms to grab the international opportunities for development of knowledge, management and assets, and the latter one subsidized sales of “green...
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