Volvo Case Study: Expanding Growth In China

Question

Task: A case study based on a firm or a sector of the economy, followed by SWOT analysis of free market economy. 

Assessment Brief: Choose a well- known Western company and discuss considerations in faces for operating in today’s China. The second part of your work requires you to discuss advantages and disadvantages of the free market economy vs socialist economy and conduct a SWOT analysis in the appendix in the context of your chosen firm. Make sure you have all three parts in your final work. 

As you prepare your analysis there are a few other points you must take into account. 

• Provide a short introduction to your chosen company but do not use up precious words in describing the organisation. Much of this should emerge from within your analysis. 
• Always draw on evidence to support your analysis and conclusions. Using evidence without analysis will amount to describing what has happened and will not gain many marks. 
• It is critically important that evidence the sources of evidence you have used to support your work. These may be academic sources but are also likely to include: 
• Annual Reports and Accounts
  Internal organisational reports and working papers 
• Newspapers
  Industry Reviews Newspapers/Journal Articles Research reports 
• Conclusion: Your conclusion should draw together the different strands of the analysis which should then be used to assess the implications for the position of the organisation. This requires you to take your findings about strengths, weaknesses, opportunities and threats and consider what these imply for the Company. Draw evidence from your analysis to come to a clear, consistent and rational assessment of the organisation’s strategic position, highlight the implications for the organisation and make some predictions on how the business may be affected in the future referring to WTO free market economy status. 

Answer

1. Introduction to the scenario of Volvo case study
1.1. Acquisition of Volvo by Geely
An unknown Chinese Geely enticed a powerful attention through the global Medias, by the acquisition of the company of Volvo. It flourished mainly in the China and Sweden. It acts as an important factor in the growth of economy in China. The Volvo case study focuses on the product, situation of finance, market structure and technological branding of the company. The two organizations have few similarities, and great differences between them in terms of segmentation of products, language, branding technology and so on. Hence there arises absence of instant savings of cost by the process of integration (Alvstam & Ivarsson, 2017). Shared components in common indicate the problem of unsuccessfulness in the acquisition. The essential opportunity is the enabling of expanding growth in the market structure of China as the “second-home market” of the company of Volvo.

2. Free market economy vs socialist economy:
2.1. A Brief Overview
In an economy of the free market, the labour and production are regulated by the demand and supply laws, compared to the Central Government. In such an economy, the organizations sell the highest rate of products and services that the consumers will be paying and the labours get the highest rate of salaries that the organizations will be paying as per their efforts (Babones, 2018). The socialist economy, the ownership of the public is concerned with the involvement of assets that are owned by the state, enterprises that are owned collectively, and shares from the “mixed enterprises” that are owned by the public. The economy involves the firms and companies receiving the direct kind of investment from foreign or the FDI.

2.2. Similarity
The similarity between the capitalist or economic free trade market and the socialist economic market is that both of the markets involve capital and labour as their essential forces of economy. The efficiency in the economic free market is determined through incentives of market encouraging cutting of costs in firms. Whereas, the socialist market determines the efficiency through few incentives of government ownership (Balcet, et al., 2017). Fifthly, the taxes in the economic free market are determined through limited spending of government and that of socialist market is determined through high and progressive spending on the services of the public. Both the structures of market economy mentioned in the context of Volvo case study identify wealth as the rule for measuring the economical pattern.

2.3. Difference
The differences between the two markets are discussed in the following section of Volvo case study. Firstly, a system of free economy market includes ownership of the private assets and businesses. It depends on the markets that are free for determining the price, income, distribution and wealth of the products and services provided by the company (Chen, 2019). While the social economy market involves ownership of the government co-operatives. Secondly, the equality in the economic free market is determined through the income of the forces of market. While on the other hand, the equality in the social economic market is determined through income redistribution. Thirdly, the prices in the economic free market are determined through the demand and supply. Whereas, the prices in the socialist market is determined through controls of price. Fourthly, the efficiency in the economic free market is determined through incentives of market encouraging cutting of costs in firms (Chimenson & Fang, 2016). Whereas, the socialist market determines the efficiency through few incentives of government ownership. Fifthly, the taxes in the economic free market are determined through limited spending of government and that of socialist market is determined through high and progressive spending on the services of the public. Lastly, it is noted herein Volvo case study that the healthcare in the economic free market is left on the market association, while in socialist market it is left on the free healthcare provided by the government.

2.4. Advantages
The advantages of the free economic market involve civil and political freedom, transparency in the economy and growth, enhancement of competitive markets, consumer’s opinion in determining demand of the services and products, and lower pricing.

The advantages of the social economic market involve social equality focusing on the reduction in disparities of wealth, inflation, and unemployment. It also includes ability for making well use of resources, labour, and land through avoiding the insufficient amount of production (Elliott, et al., 2019). It is concerned with the minimization of wages, nationalism in main industries, wealth and its redistribution, schemes of security in social background, identification of rights of the trade unions, and protection of employment.

2.5. Disadvantages
The disadvantages of the free economic market illustrated in the Volvo case study involve the policy of survival of the fittest through competition which may cause the organizations for disregarding the public safety issues for increasing the “bottom line” (Fang & Chimenson, 2017). It also includes unequal distribution of wealth and absence of economic stability for over production through the ranges of sound growth to recessions that are cataclysmic. It also is concerned with the assumptions that have no consistency with the reality needed for operation.

The disadvantages of the social economic market mentioned in the Volvo case study involve economic expansion at a slower rate, slower opportunity of entrepreneurship, and motivational limitations for receiving few rewards or benefits. It also involves distorted signals of price, reduction in incentives and prosperity, lesser feasibilities, and negative impact on society and politics.

3. Considerations Faced by Volvo for operating in today’s China in relation to Free market economy vs socialist economy
3.1. Challenges

• What are the culture differences outlined in the Volvo case study?

The cultural differences are vast in the companies of Volvo and Geely of Sweden and China respectively. China was fully separated from the world since the year of 1978. The understanding of the China and other countries of West improved after 1978. The cultural differences include self-conception, structure of society (Oberholzer-Gee, et al., 2019), maintain scheduling of time, consciousness of time, consideration and respect for others, tasks-oriented harmony and friendship, and respect for rules and processes that are written.

Firstly, the Chinese culture is collective, while the culture in Sweden is individualist. If no measures taken, this difference mentioned herein Volvo case study will put a risk factor in the level of co-operation between the two companies in business venturing (Oberholzer-Gee, et al., 2019). Secondly, Chinese society is hierarchical and formal while the society of Sweden is informal. This will initiate a problem in communicating between the two companies in the two respective countries. Thirdly, Sweden has to follow a strict table of timing, while the Chinese person does not follow such schedules. This may initiate a problem. China is now indulging into strict routine of timings. Fourthly, problem may arise as the Chinese people follow the past deeds and the Swedish people follows the future interpretations for working. Fifthly, the Chinese people are considered to be not enough respectful in dealing with others, or cannot accept terms of criticism. Whereas the Swedish people never does that. Sixthly, the Chinese people are more relationship oriented in expanding business, while the Swedish people are more task oriented. Lastly, the Chinese people possess belief in personal relationship terms than the written codes of rules, while the Swedish people never does that.

• Language

As stated in the Volvo case study, there exist linguistic barriers within the Volvo Company of Sweden and the Geely Company of China. China speaks Chinese, while the Swedish people communicate in the language of Swedish (Qi, 2019). Therefore, they must adapt to speak to each other in the language of English. Swedish people do not observe speaking in English as a problem, but the Chinese people possess difficulty in speaking the language of English. This may create a problem in their business communication.

• Brand and customer

The branding and customers in the two companies have the following features to be discussed in this regard (Tian & Yuan, 2019). Firstly, being under the “communist party of China”, the company of Volvo is a dictator damaging the brand name and availability of customers, particularly in the Europe and North America as they are democratic. Secondly, production moved to China results in poor quality production than that in Sweden. Thirdly, the moving of design to China also damages the originality of design deviating the customers. Fourthly, the Volvo Company must have reduction in the costs from Geely Company through shared components that are cheap causing damage in their reputation and quality. Lastly, if Volvo is forced for utilizing the labour of Geely in poor conditions of work, the value of the company of Volvo will decrease.

• Cost structure

With the huge differences in their cost structures, the company of Geely will not be able to understand the management and investments in the Volvo (Vaughan, 2017). According to the research on Volvo case study, the Volvo has greater cost investments than that of Geely and the production rate is lower in the former than in the later company.

• Finance management
  • Exchanger rate: The exchange rate in the finance management includes the following features. Firstly, the Yuan of China is comparatively stable in terms of the Dollar of US, but is under pressure for strengthening. This pressure must be maintained to curtail financial problems. Secondly, the market determines the exchange of Dollar of the US and Krona of the Sweden and there is a vast fluctuation historically. This must be put under measurement. Lastly, the rate of exchange of Euro and the Krona through the determination of the market results into a smaller rate of fluctuation historically.

• Multinational capital budgeting

The multinational budgeting of capital includes the following factors discussed in the Volvo case study. Firstly, the international flow of funds between the two companies must create a problem. Secondly, the difference in the rate of inflation might create a problem (Wittmann, 2019). Thirdly, the rate of exchanges between the two companies may cause a problem. Fourthly, the differences in the taxes may cause a problem. Lastly, the capital cost in capital budgeting between the two companies must be different from each other in order to curtail a problem. It depends on the local market capital and the rate of taxes.

• Finance investment 

Finance investment in the company of Geely includes profits before the taxations as “1.5 billion RMB”, the net assets at current as “9.894 billion RMB”, and the Volvo company’s cost of acquisition as “12.1 billion RMB” (Wittmann, 2019). While on the other hand, the finance investment of the Volvo Company examined in the segments of Volvo case study includes its loss in the years of 2008 and 2009 as “10.1 billion RMB” and “4.38 billion RMB” respectively.

3.2. Opportunities
3.2.1. Expansion in China
3.2.1.1. Local manufacturing: For being successful, it is stated herein Volvo case study that the Chinese market adapts manufacturing in local way. The following are the advantages obtained through it. Firstly, it involves reduction of cost through a lot of use of cheap goods that are produced locally. Secondly, it involves reduction of cost due to cheap cost of labours (Wittmann, 2019). Thirdly, it involves avoiding the increased transportation cost for moving China from abroad. Lastly, it avoids the tax importation at 25% approximately.

3.2.1.2. Government procurement car list
The government list of procurement of cars includes two advantages. Those are – firstly, the size of the county’s government is responsible for a huge business structure. In the year 2008, the government of China expended for buying automobiles, an amount of 80 million RMBs increasing 8% of the market (Xu, 2019). Secondly, following the tradition, people in China buys product already used by the officials of government and they put faith on the products to be prestigious.

3.2.1.3. Finance investment
China accumulated an enormous growth after thirty years. Volvo being a part of Geely requires financial investment opportunities. The investment in China is not necessarily restricted. Volvo can demonstrate in giving well returned abilities. This will expand the growth of Volvo.

3.2.1.4. Home market
The investigation carried on the scenario of Volvo case study signifies that Chinese people value foreign products more and Volvo may have a better marketing strategy due to this by keeping its original branding elegance (Yakob, 2018). The royalty and elegance of its originality in the branding must attract more Chinese consumers to purchase their products.

3.2.2. Mutual learning
3.2.2.1. Entrepreneurial leadership
The entrepreneurial leadership discussed in the context of Volvo case study in the mutual learning of markets possess the following features. Firstly, it includes small drives of achievements and taking of risks in a sensible way. Secondly, it includes high rate of creativity and enthusiasm. Thirdly, it includes a tendency for quick acting with an opportunity. Fourthly, it involves a vision of future. Fifthly, it involves continuous hurry with impatient ways. Sixthly, it involves a perspective on vision combining tenacities. Seventhly, it involves bureaucracy and hierarchical disliking. Lastly, it involves dealing with customers that are preferred to be external.

3.2.2.2. Marketing position
The marketing positions considered in this Volvo case study include the combination and contrast of two market structures – the positioning of market of the company of Volvo in China, and the positioning of market of the company of Geely overseas.

3.2.2.3. Cost control for Volvo
The company of Volvo includes two steps in order to control costs. Firstly, the company must attempt for profit maximizing from the competitive market of the Chinese Geely. It must find cheap elements with nice qualities with the support of Geely. Secondly, Volvo must attempt to focus on the setting of a design centre in the country of China. Efficacy in the process of working must be supplied by the company of Volvo.

3.2.2.4. Development of Geely through the help from Volvo
The Geely can develop by taking help from the Volvo through the following ways. Firstly, Volvo can provide Geely with the concept of safe technology in a version that is much simpler and understandable for Geely. Secondly, the modified processes of the company of Volvo in product developing must be adapted by the Chinese Geely. Thirdly, as Volvo has a better idea of distribution in the countries that are industrial. The Chinese Geely must accept their support in order to form a good and developed understanding. Lastly, Volvo must help Geely in the international organizational behaviours as Volvo is an international company and Geely is a local company.

3.3. Rational assessment of the Volvo’s strategic position
3.3.1. Implications for the Volvo
For maintaining its value Volvo must operate in an independent way. They must maintain the management body originally along with some required changes. This will reduce the pressure from the “union workers”. A special strategy must be adopted by the Volvo in the Chinese country. A distinct team must be operated and established for directing the activities of the CEO. It must include experienced human resources about the market in China. For achieving a proper reduction in costs, it is specified herein Volvo case study that a specific team of management must be operated under the guidance of the experienced leaders from both the companies (Yakob, et al., 2018). For efficient communication, inter-culture learning and a specific use of language must be established between the two companies. Regular courses must be assigned for the management team of both the companies.

3.3.2. Future predictions regarding effects of WTO free market economy status of Volvo
The future predictions suggested by the WTO in acquiring the free market economic status of the company of Volvo considered in the present Volvo case study, involve the civil and political freedom, transparency in the economy and growth, enhancement of competitive markets, consumer’s opinion in determining demand of the services and products, and lower pricing. In such an economy, the labour and production are regulated by the demand and supply laws, compared to the Central Government. In such an economy, the organizations sell the highest rate of products and services that the consumers will be paying and the labours get the highest rate of salaries that the organizations will be paying as per their efforts.

3.4. Strategies for success
3.4.1. Suggested strategies
3.4.1.1. Fully independent Volvo
For maintaining its value Volvo must operate in an independent way. They must maintain the management body originally along with some required changes. This will reduce the pressure from the “union workers” (Yiyi, 2017).

3.4.1.2. Special strategy in China
A special strategy must be adopted by the Volvo in the Chinese country as discussed in the context of Volvo case study. A distinct team must be operated and established for directing the activities of the CEO. It must include experienced human resources about the market in China.

3.4.1.3. Cost reduction
For achieving a proper reduction in costs, it is mentioned herein Volvo case study that a specific team of management must be operated under the guidance of the experienced leaders from both the companies.

3.4.1.4. Inter-culture learning and language
For efficient communication, inter-culture learning and a specific use of language must be established between the two companies. Regular courses must be assigned for the management team of both the companies.

3.4.2. Adopted strategies by Volvo and Geely so far
The adopted strategies by the both companies so far are jotted down in the following section of Volvo case study. Firstly, Volvo established an independent team of management along with members having huge experiences about the Chinese market structure. This must ensure the preserving of their own brand name and entice the consumers. Secondly, a new organization is established in the country of China. A special strategy is adopted by the Volvo in the Chinese country. A distinct team is operated and established for directing the activities of the CEO. It includes experienced human resources about the market in China. Thirdly, the local productions in China enhanced the expansion of production in the company of Volvo, being itself an international market. Fourthly, they adapted reduction of cost through purchasing items in the country of China (von Bismarck & Zheng, 2016). For achieving a proper reduction in costs, a specific team of management is operated under the guidance of the experienced leaders from both the companies. Lastly, for efficient communication, inter-culture learning and a specific use of language is established between the two companies. Regular courses are assigned for the management team of both the companies.

4. Conclusions
The entire Volvo case study can be concluded by saying that the Volvo must adapt several strategies in order to expand its growth in the Chinese market. It can be best shown through a market environment analysis provided within this Volvo case study. The above discussion developed on this Volvo case study concluded that Volvo adopted different marketing and strategic approach while extending the business in China based on socialist market acquisition strategies and government policy. The advantages and disadvantages of free market has been analysed by Volvo in order to survive in free market environment. Therefore, acquisition of Geely requires strategic formulation and reformation in line with governance and business development in Chinese market.

5. Bibliography
Alvstam, C. G. & Ivarsson, I., 2017. Becoming a National Champion yet Remaining a Global Player: The Acquisition of Volvo Car by Zhejiang Geely. Volvo case study In: Managing Culture and Interspace in Cross-border Investments. s.l.:Routledge, pp. 61-69.

Babones, S., 2018. Why Geely may be Tesla’s main China challenger in the near future.

Balcet, G., Hua, W. & Xavier, R., 2017. Catching up strategies and multinational growth: the case of Geely Volvo.

Chen, T. I. E., 2019. Research on Geely Group's Cross-cultural Integration Strategy in the Perspective of Comparative Management. DEStech Transactions on Social Science, Education and Human Science, Issue iceme.

Chimenson, D. & Fang, T., 2016. Understanding China through Understanding Volvo Cars: The Case of Volvo Cars in Swedish Media-A Research Note.. China Media Research, 12(4).

Elliott, A., Kesselring, S. & Eugensson, A., 2019. In the end, it is up to the individual. A conversation on automated mobilities, social life and innovation between Anders Eugensson (Volvo Group, Sweden), Anthony Elliott (UniSA) and Sven Kesselring (HfWU). Applied Mobilities, 4(2), pp. 244-250.

Fang, T. & Chimenson, D., 2017. The internationalization of Chinese firms and negative media coverage: The case of Geely's acquisition of Volvo cars. Volvo case study Thunderbird International Business Review, 59(4), pp. 483-502.

Oberholzer-Gee, F., Shih, W. & Dai, N., 2019. Volvo Cars: Acquisition by Geely.

Oberholzer-Gee, F., Shih, W. & Dai, N., 2019. Zhejiang Geely Holding Group: Acquisition of Volvo Cars.

Qi, L., 2019. Research on Technological Collaborative Innovation of Geely’s Acquisition of Volvo. s.l., Atlantis Press.

Tian, S. & Yuan, Y., 2019. How to Improve Subsidiary Willingness towards Reverse Knowledge Transfer in Emerging-Market Multinational Enterprises?: A Case Study of Geely Group. s.l.:s.n.

Vaughan, A., 2017. All Volvo cars to be electric or hybrid from 2019. Volvo case study The Guardian, Volume 5.

von Bismarck, G. & Zheng, Y., 2016. Geely: A Case Study on the Trend Following Volvo-Owner. In: Multinational Management. s.l.:Springer, pp. 33-54.

Wittmann, X., 2019. Geely’s acquisition of volvo part A: The challenge of reviving the swedish brand.

Wittmann, X., 2019. Geely’s acquisition of volvo part B: A needed change in culture.

Wittmann, X., 2019. Geely’s Acquisition of Volvo Part C: Working Toward Sustainable Success: Will Volvo Flourish in China?.

Xu, X., 2019. Observation and Evaluation on an English Lesson-Is Volvo Swedish, American or Chinese?.

Yakob, R., 2018. Augmenting local managerial capacity through knowledge collectivities: The case of Volvo Car China. Journal of International Management, 24(4), pp. 386-403.

Yakob, R., Nakamura, H. R. & Ström, P., 2018. Chinese foreign acquisitions aimed for strategic asset-creation and innovation upgrading: The case of Geely and Volvo Cars. Technovation, Volume 70, pp. 59-72.

Yiyi, Z., 2017. Financial risk in cross-border M&A: The case of Geely Group-Volvo merger. Volvo case study s.l., IEEE, pp. 1-5.

6. Appendix