Buying Volvo is a Tricky Business

Chinese firms eager to expand abroad clinched some quality deals over the past two years, taking advantage of the opportunities created by the global financial crisis.

But some of those Chinese companies are now finding that swallowing up a foreign competitor can cause a bad case of initial indigestion that is a lot more complicated than a passive equity stake-holding to address.

One example is Zhejiang Geely Holding Group, which acquired Volvo from the Ford Motor Co in?August.

Geely founder and Chairman Li Shufu told a forum in Shanghai earlier this month that he has had to learn to cope with “disagreements” with the management team in Sweden.

“Volvo should retain a brand image of luxury cars,” he explained. “It is unwise to make Volvo cars smaller in size or simpler in design. If people want stretch limousines, Volvo should produce them.”

His thinking is based on the fact that many Chinese like big cars as a way of flouting their wealth and social status.

That’s not how some senior executives in Volvo view the future of “gas guzzlers.” They insist that big cars are on the way out as people across the world become more environmentally conscious and the market for low-carbon vehicles picks up?momentum.

Yes, cross-border integration has its headaches.

Li took pains to stress that he has never quarreled with or confronted his colleagues in Sweden, but it’s °?obvious that a cultural gap has opened in their corporate strategy.

Geely acquired Volvo with an eye to going global. How that goal might be affected by differences in basic approach has yet to play out.

During the interview, Li reiterated that Geely and Volvo are two separate companies. He said Volvo can take advantage of Geely’s established sales network in China, while Geely can learn from Volvo how to build better, safer cars.

His international ambition for Geely may rely less on Volvo than originally expected. Geely, a medium-sized Chinese start-up auto maker, acquired Volvo for US$1.5 billion, less a third of the price Ford paid for Volvo back in 1999.

“Li needs to learn to speak on level ground with former bosses of Volvo,” said Zhou Xiaolin, a professor and president of the Shanghai Association of International Economic and Technological Cooperation.

“It is truly hard for an entrepreneur from an emerging market to hold sway with a group of seasoned automobile veterans,” Zhou said. “That will be hard to change, even though Li is now in the driver’s seat and has an amazing track record.”

Chinese companies poured US$40.5 billion of direct investment in 2,570 overseas firms in 119 countries and regions in the first 10 months of this year. Many of them are discovering the underlying problems that pop up after the ink on the contract is dry. In?some cases, they lack the confidence to elucidate their merged business strategies.

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