The Snake Eats the Elephant
In 2010, Geely Holdings Corporation purchased Volvo cars from Ford Motors for a mere $1.8 billion, quite a bargain considering the price tag of $6.45 billion Ford paid for Volvo in 1999 (Wang, 2011). Faced with loss of sales due to the economic downturns, Ford motors decided to concentrate on it’s core brands and sell off other such as Land Rover and eventually Volvo.
The purchase of an established western automobile brand by an unknown Chinese company took many by surprise. After Ford redirected Volvo’s priorities from safety to design, a mistake which competitors exploited, many analysts doubted whether Volvo can regain their safety-driven image (Economist, 2014). An image that, since Volvo’s acquisition, has become one of Geely’s focal points (Wang, 2011).
In addition to ensuring Vovlo is a profitable investment, Geely must successfully integrate the two companies. No easy task given the vast differences of both companies and their national origins. But doing so would allow Geely to gain a competitive advantage over domestic competitors within China as well as promote a seamless expansion into global, specifically western, markets; something that many other Chinese companies have attempted but failed, due to safety and emissions shortcomings (McDonald, 2015). Additional costs can be reduced by producing Volvo brand vehicles within Chinese factories for export.
This paper will explore how Geely plans to successfully leverage its own output capacities and Volvo’s existing high brand equity to achieve these goals. It will analyze Geely’s ability to successfully integrate two remarkably dissimilar car companies in a way that distinguishes itself from competitors domestically and internationally. It will also explore the importance research and development will play in achieving this, their strategies for entering global markets and the potential obstacles they will encounter in doing so.
Competitive Advantage
Arguably the most important topic to consider in regards to this case are how Geely, a company with a mere 2% market share in it’s home country, is equipped to fulfill their desires of restoring Volvo to its previous success. How will this acquisition contribute to their ambitions of being a global player in the automobile industry?


Considering the unique set of resources both brands possess, Geely has the potential to be highly competitive in contrast with other Chinese automobile manufacturers. One of the most significant advantages of the Geely-Volvo relationship stems from Li Shufu’s recognition that Volvo and Geely are two separate brands, or as he put it, “Geely and Volvo are brothers, not father and son” (Perkowski, 2013). This realization allows Volvo a significant amount of freedom in its operations, something that was lacking under Ford (Young, 2013). Doing so allows Volvo to return to it’s core value-offering of safety, and Geely is able to learn from this offering and adjust its own brand image through its workers’ absorptive capacity, who have been described by one of Volvo’s mechanical engineers as highly eager to learn (Tovey, 2015).
Technology and capital
Geely’s acquisition of Volvo gives it access to the fruits of research and development. Geely is able to expand upon this R&D with it’s own monetary investments, such as the $11 billion recently invested to gain a foothold in western markets (Economist, 2014), which results in new advancements such as the compact modular architecture (CMA). Geely’s abundance of capital allows it to attract high profile talent that will prove to be an asset in it’s future success (Shirouzu, 2015).
Market penetration
The Geely-Volvo relationship also opens a huge potential for ease of access to markets both within China and internationally. Being owned by a Chinese parent company, restrictions that are legally imposed on foreign automobile companies no longer affect Volvo (McDonald, 2015), a huge advantage when considering Chinese citizens perceive western automobile brands as being higher quality (Bradsher, 2014). Geely is also able to use Volvo’s existing brand awareness in international markets as an avenue for entry, and gain respect in the international spectrum through offering Volvo automobiles that are made in China. This strategy can also be done to penetrate other market segments. The high-end segment is currently being explored through the revamped XC90, Volvo’s most luxurious car to date, which will be made in Chinese factories (Economist, 2014; Hunt, 2015).
Importance of R&D
Environmental Concerns

A PESTEL analysis reveals a recurring theme in several areas of the need for cleaner technologies. The Chinese government has implemented several pilot programs, to varying degrees of success, which promote the production of electric vehicles through local and systemic policy (Marquis, Zhang, & Zhou, 2013). The use of electric vehicles not only benefits companies who engage in EV production through government favor, but also the end consumer, who are seeing increased restrictions on the amount of new license plates given (Hopper, 2015).
Consumers are also affected directed by air quality pollution. This is an important factor in remaining competitive in the Chinese market in the future, and is being addressed: Volvo recently changed the powertrain of all their vehicles to be compatible with electric powered motors, they are also being equipped with cabin filtration systems to prevent external pollution from entering the vehicle (Amend, 2014).
Safety
In terms of fostering the success of the Geely brand, since acquisition of Volvo, Geely has changed their brand message from “best affordable cars in China” to one that is more aligned with Volvo, “Safe driving here” (Wan, 2015). This is an extremely important move, considering the dangerous safety record many Chinese produced automobiles have (Okulski, 2011).
Global Expansion Strategy
Geely’s strategy is to first introduce its Geely brand vehicles in emerging markets (Shirouzu, 2015). While it is not currently releasing its Geely brand vehicles in western markets, it is taking a much more intelligent alternative of first utilizing Volvo’s existing brand awareness to sell its China-made Volvo cars in western markets. These new cars, specifically the XC90 luxury SUV and S60 Inscription sedan will utilize Geely and Volvo’s jointly created Compact Modular Architecture (CMA) technology, which will help cut costs as well as create ease in releasing different scale models, such as larger models that are more appealing to the American market. Geely has also announced plans to engage in FDI by opening a production plant in the United States (McDonald, 2015), and their new Berkley County, SC plant is due to go online in 2018 (Newstex, 2015).
A parallel can be drawn between Geely’s global entry strategy to that of Lenovo’s acquisition of IBM’s Thinkpad. In this case, IBM was also losing money and decided to sell their line of laptop PC’s to Lenovo. Similarly, Lenovo recognized they did not have the talent required to manage a global PC business, and perhaps the most valuable asset they acquired in the deal were the former IBM executives hired on by Lenovo (Barboza, 2004), similar to the way Geely is attracting skilled and experienced talent. This type of acquisition, which proved successful for Lenovo, has been dubbed the “Snake eats elephant” (Wang, 2011).
Obstacles

Using Hofsted’s cultural analysis, one can see that the only similarities China has are that in uncertainty avoidance and masculinity with Sweden and the US respectively.
If Geely wants to be a competitor in the global playing field, it will first and foremost need to address the liability of foreignness that is likely to influence their presence in western markets. This is especially true given the perception of reduced quality that many people have in regards to products of Chinese origin. One may argue that many products are made in China, and while true, these are often smaller products or products designed by western companies. A product which puts human life at such high stake, like a car, of Chinese origin has not yet entered western markets.
The high power distance level of Chinese employees might prove a difficult point for fostering innovation from the Geely side of the cooperation, however this can be overcome in the integration stage with various forms of training and exposure to the Volvo method of engaging in innovation. Geely can also tap into the bank of young Chinese nationals who have returned from studying in foreign universities.

Li Shufu has verbally stated more than once that he recognizes Volvo and Greely are two separate companies, and he has no intention of trying to impose his own ideas of corporate governance on Volvo. Considering how vastly different they operate, this is a wise choice. However, if the two companies want to truly benefit from each other to the maximum potential, eventually there must be some sort of integration in their partnership.
The first priority would be for them to build a common vision, or perspective, in what their long term goals are, yet still allowing each company it’s own sense of independence and sovereignty. Given the vast cultural differences of the two companies, it has been suggested that this be done in a two step process: a separation stage and an integration stage (Wan, 2015).
In the separation stage, they should focus on increasing understanding between the informal and formal institutional differences facing both, in and outside the company culture. Doing so will promote communication efficiency and increase the knowledge base available to both, as well as assess their future strategic and organizational fit. While this is being done, Geely can remain profitable by having Vovlo cars continue to be sold towards the high-end segment and Geely towards the more affordable segment. Without this first stage of willingness to understand, they two cannot proceed to the next stage of integration.
After Geely and Volvo have established a common ground for their long terms goals, they can proceed with true-integration. In this stage, Geely and Volvo can share more intimate knowledge and details about their internal processes. This may result in an overall restructuring of one company or the other, or perhaps both. From a company-wide cultural point of view, it may be argued that Geely has more to gain/learn form Volvo, who already has experience selling in the international spectrum. Acknowledgement of this should not detract from the reality that Volvo can also highly benefit from Geely’s output capacity and eliminate the Achilles heal of market restrictions within China.
Another option would be, after integration, for Volvo and Geely to operate as two brand offerings under a parent company, as they currently are, and merely utilize each others resource advantages to thrive in their own individual segments. Under this proposition, Volvo would remain as a mid-high to high-end product, and Geely would continue operation as a more affordable vehicle for the masses. Although considering Geely’s aspirations to increase its quality, and Volvo’s potential to leverage off it’s safety driven reputation, it is likely we will see something in between. As Volvo’s global brand manager has said, “There will be a more modest luxury in China that is much more compatible with the Volvo brand…what’s happening in China is that it is going away from the very bling-bling, overloaded luxury to a more Volvo-type of luxury” (Tovey, 2015). The snake has eaten the elephant, but whether the snake can successfully digest the elephant has yet to be seen.
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