International Human Resource ManagementFull description
Case Study
Geely-Volvo Geely-V olvo Case
Question 1. Why did Ford want to sell Volvo Cars? Why would Geely like to buy it? Reasons why for decided to sell Volvo
If we look at the context of the sale of Volvo we nd that at that time the automotive industry was in a crisis. This was just after the gloal nancial crisis. !nd like many com"anies at that time #ord was struggling to kee" u" their "erformance in such a scenario. !lso #ord failed in its attem"t to uild its $remiere !uto %rou". This also led to a large drain of cash and management time. So then one of the reasons why #ord sold Volvo was ecause they needed to im"rove their nancial situation. !n insight can e otained y looking at the "erformance of the Volvo rand under the ownershi" of #ord. Volvo had not shown "rot since &''(. )hich means that the sales were lesser than ex"ected and the rand image had diluted. !nother "ossile reason why #ord decided to sell Volvo was that it did not see it ecoming a "art of its future strategy. !fter that "eriod #ord decided to strengthen its core !merican market and let go of the com"anies elonging to the $remiere !uto %rou" i.e. !shton *artin and +aguar ,and Rover.
Reasons why %eely ought Volvo
*r. ,i-s usiness "hiloso"hy is also im"ortant in this context. !s clearly mentioned in )S+ article given in the readings /0is method in all his usinesses over the years has een to cut costs dramatically1 increase "roduction in a hurry and dominate an industry. )hen the formula exhausts its usefulness1 or when new com"etitors crowd in1 it is time to move along to the next thing. 2y &''31 %eely had egun to lose some momentum. 4ther com"anies had egun to enter the same market s"ace. The other "rolem was image. !5uent and so"histicated uyers rejected %eely for the same reasons that their "oorer com"atriots inland liked the rand6 "rice. It-s not a stretch to imagine that *r. ,i took this as a sign that it was time for %eely to move on to the 7ext 2ig Thing. !nd then Volvo ha""ened to e for sale.8 ,i Shufu1 is intent on ecoming a serious gloal com"etitor y ex"anding into western markets. !nd this ac9uisition could also "ave the way for %eely to start marketing its own "roducts around the world. %eely has started to "ush its own Chinese car rands in !sia and the *iddle :ast1 and entertains ho"es of entering the !merican market over the next few years. %eely-s "lan includes using the Swedish name"late to "roduce luxury rands in China ;; which "assed the
Question 2. What is the strategy of Geely behind its acuisition of Volvo Cars? !lease look at the develo"#ents of both co#"anies after 2$1$% es"ecially in the as"ects of target #arkets& global #arket e'"ansion% #anufacturing% technology ()*+,% brand #anage#ent% "roduct lines% etc. The notale develo"ments are as follows
The 2oard of =irectors at Volvo Car Cor"oration has decided1 "ending a""roval of Chinese authorities1 to invest in a new "lant in the city of Chengdu and continue investigations for a "lant also in =a9ing. Shanghai will serve as Volvo Car China head9uarters and centre for "roduct develo"ment1 design and sourcing. !mong other "riorities1 Volvo Car China will also su""ort Volvo Cor"oration R>= in Sweden regarding the develo"ment of electric vehicles and hyrids. The %eely Chairman added that *r Stefan +acoy will succeed Ste"hen 4dell as Volvo Cars$resident and Chief :xecutive1 taking u" his role on ?@th !ugust1 &'?'. 0ans 4scarsson1 de"uty Chief #inancial 4Acer1 will ecome acting C#4 of Volvo Cars1 re"lacing Stuart Rowley. *r 4dell and *r Rowley are moving to leadershi" roles at #ord of :uro"e. ?
Volvo Car %rou"1 the "remium car maker1 has re"orted an o"erating "rot of S:B?1@@'m for the rst half of &'?(1 com"ared to S:B@DmE for the same "eriod in &'?F. %eely 0olding1 majority owner of Volvo Car Cor"oration GVolvo CarsH and %eely1 will estalish a Research and =evelo"ment Centre in %othenurg1 Sweden. The Centre will develo" a new modular architecture and set of com"onents for future C;segment cars1 addressing the needs of oth Volvo Cars and %eely
2ased on the aove develo"ments and the understanding of this case1 the strategy of %eely can e summarised as follows
Question -/. What challenges did Geely face in the 0*/?
,aour ! deal1 customers of the target com"any often ecome concerned that their "roduct or service may e aKected as a result of the ac9uisition. In some cases1 this results in signicant loss of customers. The association etween "oor 9uality "roducts or services with Chinese com"anies can also create additional anxiety among em"loyees of the target com"any. $olitical resistance6 Chinas "olitical roots and un"recedented growth has "oliticians across the gloe concerned aout remaining com"etitive and "rotecting local industries against workforce relocation. Chinese com"anies can sometimes e seen as innovativeO this is often countered with the argument that the advanced technology used is sus"ected to have een stolen from foreign rms
&
:m"loyee resistance6 =rivers of this anxiety1 as our study indicates1 are eliefs that if a Chinese com"any were to ac9uire their com"any1 jo security is less likely or at least uncertain.
Question -. What did Geely (Chair#an 0r. i, and Volvo Cars did to resolve these barriers and challenges? What suggestions can you give to Geely (Chair#an 0r. i, and Volvo Cars to achieve better integration and synergy?
/Volvo will e Volvo and %eely will e %eely8 Strategy6 This "lan for kee"ing the original identity of Volvo has succeeded in maintaining its rand image and soothing over the diKerences with the laour unions. #or etter integration a shared R>= facility has also een setu" in %othenurg. This caters to the technological integration issues that might occur. ! se"arate Volvo "lant in China6 #or strengthening the market ex"ansion in China se"arate "lants have een "lanned to cater to the local demand and %eely is not involved. This "reserves the original rand "ositioning of oth rands and hel"s %eely to rea" the enets of this joint venture while targeting & diKerent customer segments at the same time. The new management was selected from within Volvo this also hel"ed to smooth the transition. !""ointing "eo"le new to Volvo would have een acce"ted y Volvo em"loyees easily and there could have een integration issues. %eely Chairman ,i Shufu "ersonally visited Volvos head9uarters and had o"en discussions with re"resentatives of the unions. *r. ,i also "rovided a written " romise that he would not lay;oK em"loyees and that he would ensure their welfare. To "rovide further reassurance of %eelys ca"ailities1 *r. ,i invited Swedish media and Volvo union re"resentatives to visit %eelys head9uarters in China.
Suggestions6 There are J main as"ects which should e focused u"on as mentioned elow
Resolving "ower and "eo"le issues6 $eo"le have some douts and fears when even such an ac9uisition takes "lace. These have to e addressed in the eginning y "roviding assurances from the management to ensure crediility. %eely is already "roceeding in the right direction and should continue to do so in the future. *onitoring the "rogress y using an integration team6 !n integration team com"rising of carefully selected local cham"ions has to e uilt to cater to all ty"es of integration issues that the em"loyees might face. Bee" momentum in the usiness "rogress of oth com"anies6 7othing hel"s more than im"roving "erformance. If this as"ect of the usiness suKers then it gives rise to dout among the em"loyees aout their future and on the other hand an increase in "erformance generates condence. This is es"ecially im"ortant in the initial "hase of the ac9uisition.
Question 3. 4ow has Volvo Cars "erfor#ed as a business since the 0*/ in 2$1$?
2rand "ositioning6 Volvo is also seeking to return to its roots y em"hasising the safety features of its vehicles. 7ew "roduct launch6 Volvos launch of the PC'1 a large S
#inancial $erformance6
Volvo has had its nancial u"s and downs since the %eely takeover. The gloal economy has een unstale1 which has een reected in the "erformance of every gloal carmaker. 2ut their recent "erformance has een much etter. The o"erating margin has reduced due to some non;recurring ex"enses from the last few years. !nd is 9uite low when com"ared to its com"etitors. Volvo is also considering jos cuts to im"rove this statistic. J
Figure 15 Volvo 6et 7ales
Figure 25 Volvo 8"erating 0argin
The R>= ex"enditure has increased consideraly over the years. This is another reason for the low o"erating margin as shown aove. Self;#inancing Ratio is dened as Cash;ow from o"erating activities divided y net investments in xed assets and leasing assets. This shows to what extent the additions to xed assets and investments are nanced from funds internally generated y the com"any. The initial decline can e ex"lained y the increased investments Gmainly R>= > new "lant set;u"H made in order to revive Volvo and strengthen its market "osition. The recent increase in the ratio is denitely a "ositive indication.
Figure -5 )esearch and develo"#ent e'"enses Financing ratio
Figure 35 7elf
4verall Volvo-s "erformance has een far etter than analysts ex"ected and Volvo now under the ownershi" of %eely is considered to e moving in the right direction. Current events6
Volvo "osted a 3? "er cent rise in rst;half o"erating "rot com"ared with &'?(. This was driven y sales of higher;margin "roducts and the eKects of a strong
Question 9. )ight after the 0*/% the Geely side felt that the Volvo brand was :too 7candinavian: (not global enough,. Geely e'ecutives wanted ;ashy% eyecatching cars for the Chinese #arket. Geely wanted Volvo to beco#e a bit less 7wedish in the China #arket. erences? It has een oserved that rands that cater their "roducts according to the local re9uirements have etter chances of succeeding in com"arison to ? "roduct for all strategy. Volvo will have to nd a way to create diKerent variants for catering to oth Scandinavian and Chinese markets. In terms of o"erations they might have to ado"t a mass customisation strategy. This would mean that the cars will have identical "arts under the hood ut their designs would e slightly diKerent. This strategy of mass customisation might e ex"ensive ut in the long for sustainale growth it just might e necessary.
References ; ; ; ; ;
=evolving Volvo6 :conomic Times China-s %eely com"letes Volvo uy6 Thom"son Reuters Volvo !nnual Re"ort &'?F Volvo u"eat as rst;half "rots rise 3?6 #inancial Times Chinas #oreign Investment !nalysis6 Savonia
(