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Using the Swedish nameplate to produce and sell luxury brands in China while maintaining its operations in Europe to supply the international market. With time the cars produced in China might be used to supply international markets other than the ones which are fulfilled by the existing European sites. The focus will be on strengthening the current position of Volvo in the existing markets. As for Geely, any technological benefits possible from the acquisition and combined research centre will be taken an implemented. Geely also wants to push its own products around the world. It has started to enter markets in Asia and the Middle East. Along with improving its vehicles by taking inputs from Volvo’s manufacturing techniques. In terms of operations: the brand of Volvo will not be diluted and the current manufacturing sites in Europe will be kept as they are. But new manufacturing sites will be set up to cater to the demand in China and other important markets. Question 3-A. What challenges did Geely face in the M&A? Labour Unions: Volvo's unions opposed the deal throughout much of the process over concerns that their jobs would be moved to China. This was one of the major hurdles for the success of this acquisition. Cultural Resistance:

o Volvo, a Swedish brand with over 80 year’s history which rooted in Nordic culture. Geely, a barely known brand which only has developed for 13 years will face a struggle integrating the two corporate cultures. Swedish trade union are known as “the world’s toughest workers”, whether Geely will be able to cope with this aspect was expected to be a hurdle in its path. o The very fact that organisations from different parts of the world have their unique cultural characteristics become a source of fear for the employees. The concern is that the change in the environment might not be conducive to the working style that they have grown accustomed to.

Management Difference: Volvo has been a top brand in global automobile industry, But Geely targeted in low end market. How to minimize the divergence in management principle would be a challenge for Geely? Branding Issues: Two kinds of issue tend to dominate: a total lack of awareness of a Chinese brand may lead to fear of the unknown. A brand may be a household name in China and alien elsewhere. Nobody in Sweden had heard of Geely before the company’s acquisition of Volvo. Even if the brand is known, the perception of Chinese products is often as “cheap” or “low quality”. The negative perception of ‘Made in China’ is still strong. In the context of an M&A deal, customers of the target company often become concerned that their product or service may be affected as a result of the acquisition. In some cases, this results in significant loss of customers. The association between poor quality products or services with Chinese companies can also create additional anxiety among employees of the target company. Political resistance: China’s political roots and unprecedented growth has politicians across the globe concerned about remaining competitive and protecting local industries against workforce relocation. Chinese companies can sometimes be seen as innovative; this is often countered with the argument that the advanced technology used is suspected to have been stolen from foreign firms Employee resistance: Drivers of this anxiety, as our study indicates, are beliefs that if a Chinese company were to acquire their company, job security is less likely or at least uncertain. Question 3-B. What did Geely (Chairman Mr. Li) and Volvo Cars did to resolve these barriers and challenges? What suggestions can you give to Geely (Chairman Mr. Li) and Volvo Cars to achieve better integration and synergy? “Volvo will be Volvo and Geely will be Geely” Strategy: This plan for keeping the original identity of Volvo has succeeded in maintaining its brand image and soothing over the differences with the labour unions. For better integration a shared R&D facility has also been setup in Gothenburg. This caters to the technological integration issues that might occur. A separate Volvo plant in China: For strengthening the market expansion in China separate plants have been planned to cater to the local demand and Geely is not involved. This preserves the original brand positioning of both brands and helps Geely to reap the benefits of this joint venture while targeting 2 different customer segments at the same time. The new management was selected from within Volvo this also helped to smooth the transition. Appointing people new to Volvo would have been accepted by Volvo employees easily and there could have been integration issues. Geely Chairman Li Shufu personally visited Volvo’s headquarters and had open discussions with representatives of the unions. Mr. Li also provided a written promise that he would not lay-off employees and that he would ensure their welfare.

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To provide further reassurance of Geely’s capabilities, Mr. Li invited Swedish media and Volvo union representatives to visit Geely’s headquarters in China. Suggestions: There are 3 main aspects which should be focused upon as mentioned below Resolving power and people issues: People have some doubts and fears when even such an acquisition takes place. These have to be addressed in the beginning by providing assurances from the management to ensure credibility. Geely is already proceeding in the right direction and should continue to do so in the future. Monitoring the progress by using an integration team: An integration team comprising of carefully selected local champions has to be built to cater to all types of integration issues that the employees might face. Keep momentum in the business progress of both companies: Nothing helps more than improving performance. If this aspect of the business suffers then it gives rise to doubt among the employees about their future and on the other hand an increase in performance generates confidence. This is especially important in the initial phase of the acquisition. Question 4. How has Volvo Cars performed as a business since the M&A in 2010? Brand positioning: Volvo is also seeking to return to its roots by emphasising the safety features of its vehicles. New product launch: Volvo’s launch of the XC90, a large SUV designed to compete with the BMW X5 and Audi Q7, is being hailed by Volvo executives as part of a rebirth of the company since it was sold by Ford to China’s Geely in 2010. Financial Performance: Volvo has had its financial ups and downs since the Geely takeover. The global economy has been unstable, which has been reflected in the performance of every global carmaker. But their recent performance has been much better. The operating margin has reduced due to some non-recurring expenses from the last few years. And is quite low when compared to its competitors. Volvo is also considering jobs cuts to improve this statistic.

Figure 1: Volvo Net Sales Figure 2: Volvo Operating Margin

The R&D expenditure has increased considerably over the years. This is another reason for the low operating margin as shown above. Self-Financing Ratio is defined as Cash-flow from operating activities divided by net investments in fixed assets and leasing assets. This shows to what extent the additions to fixed assets and investments are financed from funds internally generated by the company. The initial decline can be explained by the increased investments (mainly R&D & new plant set-up) made in order to revive Volvo and strengthen its market position. The recent increase in the ratio is definitely a positive indication.

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Figure 3: Research and development expenses Figure 4: Self Financing ratio

Overall Volvo's performance has been far better than analysts expected and Volvo now under the ownership of Geely is considered to be moving in the right direction. Current events: Volvo posted a 71 per cent rise in first-half operating profit compared with 2015. This was driven by sales of higher-margin products and the effects of a strong US dollar versus the krone. Volvo Cars posted a 4.6 per cent increase in retail sales for the month of July 2015, selling 38,128 cars globally. Europe as well as the US market were key drivers of growth. Both regions reported significant increases based on sales of the new Volvo XC90. Volvo Car UK is celebrating its best sales performance in 20 years, proof of the desirability of its cars and demand for Volvo’s new in-house Drive-E powertrains with class leading emissions and performance. Volvo is forecasting a big profit rise this year as a new sport utility vehicle and rebounding sales in Europe and the US offset a slowdown in China, the Swedish carmaker’s biggest market. But Volvo’s margins remain stubbornly low, partly by virtue of the sums it is investing in new products and the production restructure. The operating margin was 2.2 per cent in the first half — up from 1.4 per cent last year but weak in comparison to the German premium carmakers, which achieve operating margins of roughly 10 per cent. Question 5. Right after the M&A, the Geely side felt that the Volvo brand was "too Scandinavian" (not global enough). Geely executives wanted flashy, eye-catching cars for the Chinese market. Geely wanted Volvo to become a bit less Swedish in the China market. In Sweden, because of a long dark winter, people like light interiors. But in Chinese culture, dark colours are viewed as more luxurious. The Volvo side wanted to stick to its understated roots, modern Scandinavian design, and core values. If you are the executives of Geely or Volvo, how would you solve these differences? It has been observed that brands that cater their products according to the local requirements have better chances of succeeding in comparison to 1 product for all strategy. Volvo will have to find a way to create different variants for catering to both Scandinavian and Chinese markets. In terms of operations they might have to adopt a mass customisation strategy. This would mean that the cars will have identical parts under the hood but their designs would be slightly different. This strategy of mass customisation might be expensive but in the long for sustainable growth it just might be necessary. References

- Devolving Volvo: Economic Times - China's Geely completes Volvo buy: Thompson Reuters - Volvo Annual Report 2014 - Volvo upbeat as first-half profits rise 71%: Financial Times - China’s Foreign Investment Analysis: Savonia University Of Applied Sciences