Geely's Acquisition of Volvo - Challenges and Opportunities - Case Study Example

Geelys Acquisition of Volvo: Challenges and opportunities Brief history of Volvo and Geely Volvo is a Swedish based automobile company that was one of the pioneer producers, distributors and sellers of hard body vehicles like tracks, buses and other construction hard body machines. The company has been based in Gothenburg in Sweden and was performing well in the global markets until the financial crisis of the United States that affected other global business in 2007. The financial problems that faced the company forced to approach a takeover by a Chinese automobile firm, Geely, a company that has had such a move in store for a long time. Geely was initially founded as a refrigerator maker in 1986 as a family business but grew into major automobile company serving china and Asian markets (Putzger 27). The growth of Geely into a major force in the Asian automobile industry was assisted by the acquisition of government firms that were facing financial crisis by then. However, following its naming as the preferred buyer for Volvo in 2008, Geely attained a major global limelight as its reputation before major markets was increased. As a result, the company improved its chances of selling its products beyond the Asian continent and acquired a significant stake in the United States automobile industry (Hollander 10). Brief introduction of the case In 2008, the automobile industry problems increased significantly and this created a major crisis in the industry, which forced Ford, Volvo’s partner in the United States to place it in the market. A number of companies bided for the company but Geely; a longtime admirer of Volvo emerged as the best buyer and was granted the permission to buy the company. Despite acquiring the major stakes in the company, Volvo retained its trademark and was to continue its production under the same name (Hollander 10). Stefan Jacoby, the former director of Volkswagen was appointed the CEO of the company after Geely paid a total of $1.3 dollars to Volvo and $200 million to Ford in the process of completing the acquisition process. Despite the massive failures in the acquisition process in automobile industry, the Geely acquisition of Volvo was considered as a major success. However, the analysts have questioned the ability of Geely, a small automobile company in china with no significant massive control to manage Volvo. However, the successful acquisition of Volvo by the company was pegged on the growing Chinese market; one that convinced Ford could help Volvo regain its lost glory due to the financial crisis (Putzger 27). Volvo SWOT analysis A discussion of the company’s SWOT will provide a review of the company and how its acquisition was essential in the face of the challenges that it was facing following the financial crisis in the United States. As a company that has stayed in the market for a long time and established a stronger brand, Volvo has a number of strengths that made the acquisition process easier as compared to other companies. The company has a long-standing reputation as one of the few automobile companies in the United States with strong safety measures and standards. This has resulted into reduced number of accidents, which have bedeviled other companies in the industry except Volvo (Hollander 10). The company has also established as a manufacturer of a variety of car models that have continued to fulfill the demands and preferences of the customers. This has enabled the company to retain a pool of loyal customers who despite the challenges that the company was facing decided to stick with it. The manufacture of elegant class of cars and other buses has also enabled the company to retain an elite class as its major customers, a fact that has continued to improve the overall sales of the company’s vehicles annually. Apart from the satisfaction it gives the customers, Volvo has also retained major subsidiaries as its major brands including Volvo trucks, buses and other construction equipment (Hollander 10). Despite the strengths of the company, Volvo faced a number of weaknesses that increased its susceptibility to failure during the financial crisis of 2007. Despite controlling the elite class, Volvo failed to create an impression on the middle class and this was majorly attributed to its higher prices. This affected its ability to penetrate the emerging economies especially in Asia and Africa as a majority of the middle class in these regions could not afford the vehicles. This affected the company’s ability to control a major percentage of the market as compared to other automobile companies in the United States (Zander & Rose 17). However, the company has massive opportunities that it can currently pursue under the new ownership by the Chinese based Geely. Its expansion into the Asian market presents massive opportunities to the company to design products the targets middle class vehicle buyers from china and beyond. As china continues to grow as a major company, the purchasing power of its people has also improved an advantage to the company. However, the dominance of the industry by major players like Toyota and Mercedes affects its ability to expand beyond the current locations and increase its global presence (Levin 5). Porter’s analysis of Volvo Five porter analyses provide a better survey of the ability of the company to survive in the face of competition and changes in the market. A number of factors in the external environment affect the success of Volvo and its ability to make significant impacts in the market. The threat of new entrants into the market is one parameter of five-porter analysis and this is low within the automobile industry. This is due to the high cost of entry and the barriers that exist for new players in the sector, a fact that other big companies have used to control the market (Zander & Rose 17). The bargaining power of the customers is also low due to the high demand for cars especially among the middle class despite few market players restricted by new entry barriers. However, a large number of substitute products exist from other companies with stronger financial strength like Toyota, which impacts on the company’s control in the market. The bargaining powers of the suppliers have also remained relatively low due to their inability to manufacturer vehicles independently. However, the high degree of rivalry among competitors in the market and this has affected struggling companies like Volvo as major firms enjoy the results of the rivalry (Kurylko 23). Recommendations The failure of Volvo that resulted into the acquisition by Geely due to the financial problems that faced the company in the wake of the credit crunch could have been prevented. The company should thus shift its focus from sleek cars targeting the wealthy individuals to increase its production for the middle class. This will increase its overall sales and raise its status despite the strong competition in the world automobile market. The Chinese market also offers a great opportunity for the company to redeem its financial muscle by focusing on the middle class and spreading its influence to other Asian countries (Levin 5). Conclusion The acquisition of Volvo by Geely in 2008 opened a new chapter for the former Swedish automaker following a major financial crisis that almost sent it out of the market. This opportunity presents it with a number of opportunities to improve its overall performance and regain its lost glory through in the global market. Works Cited Levin, Doron. "Volvos New Lease on Life, In China." Fortune.Com (2013). Print. Zander, Christina, and Rose Yu. "Volvos Marketing Pitch to China: Try a Cinnamon Bun." Wall Street Journal. 2013. Print. Hollander, Gavriel. "Fresh fields Steers through Chinese Volvo Acquisition." Lawyer 24.14 (2010): 10. Kurylko, Diana T. "Volvo CEO Is Eager To Bring China-Built Vehicles To America." Automotive (2014): 23. Putzger, Ian. "Skys the Limit?" Journal of Commerce, 5.18 (2004): 26-28. Read More