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From overseas press

Can Geely live up to the Volvo deal?

(chinadaily.com.cn)
Updated: 2010-03-30 15:57

Being one of China's biggest privately owned automakers, Zhejiang Geely's $1.8 billion deal with Volvo is "a landmark agreement designed to elevate the Chinese company's profile onto the global automotive stage", said an article in the Wall Street Journal.

The article revealed that it's the first time for a Chinese company to take charge of a major global car brand and it demonstrates how China's economic rise is reshaping large swaths of global business.

According to the Wall Street Journal, Li Shufu, chairman of Geely, confirmed that his company would build a Volvo plant in China, and he likened Volvo to a tiger. "To liberate the tiger we need to think about how to uncover the value in Volvo," he said.

Li's vision for Volvo is to "radically slash Volvo's costs for some of its primary activities by tapping the relatively cheap labor available in China", people familiar with the deal say. But he isn't going to merge the two brands. "Volvo would remain as an independent brand, and he would retain Volvo's current management team for the time being", said the article.

However, despite being a milestone for Geely, the Volvo deal also forced the privately owned automaker to face tough challenges, since "it has little experience selling cars outside China, let alone running major manufacturing operations in a country as far away and as different from China as Sweden", according to the article. "Geely's lack of global stature, and its past reputation for making low-end vehicles, could be a drag on Volvo's reputation for quality and performance.".

The article also took Lenovo's takeover of IBM's PC business as an example to point out that, although Chinese companies have accelerated the pace of mergers and acquisitions overseas, they have had limited success. "Even the biggest Chinese companies generally lack extensive international management experience, and they tend to have highly centralized corporate cultures that don't mesh easily with those of foreign companies."