Geely-Volvo deal a new chapter for Chinese companies

19:54, March 30, 2010      

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Chinese automaker Geely has finally married Sweden's iconic Volvo brand with a wedding gift valued at 1.8 billion U.S. dollars.

The long-awaited acquisition, which Geely and Volvo's parent company Ford both aim to close in the third quarter, is the first successful purchase of a high-end global brand by a private Chinese car manufacturer.

Although questions remain on whether and how the 24-year-old Geely would swallow the 84-year-old Volvo, the takeover offers a bright future to both buyer and seller. The deal will write a new chapter for Chinese enterprises to go global.

It is a win-win wedding in terms of the world auto industry. China overtook the United States to become the world's biggest car market last year as sales saw a 46-percent growth to reach 13.6 million units despite the global recession.

The deal offers great opportunities for both Geely and Volvo. That's because the former aims to let Geely cars go to the whole world and the latter has started to target Chinese customers.

Since the Chinese government initiated a "go-out" policy in 2002, China have been making many attempts to break through. But China's industry lacked technology and brand recognition.

Geely's deal came after two other Chinese companies failed to buy two Western brands - General Motors's Hummer and Saab units. The ambitious Geely, starting business as a refrigerator parts supplier, this time has won support from the Chinese government for a domestic brand.

The largest Chinese private car maker not only acquired 100 percent of Volvo Cars and related assets, but also gained access to the brand's core technology and patents. It also landed the company's existing global sales channels.

It is likely to give the Chinese auto industry a big leap in terms of technology and research and development, which is a milestone for the development of all Chinese enterprises.

Usually it takes time for a company to grow and establish a reputation worldwide, particularly in a mature global market. Such an overseas acquistion could be a shortcut for a company in an emerging market, including China, to build a global presence at a relatively low cost.

Nonetheless, signing a deal is only the first step. Integration is the key for a Chinese company to run an overseas brand.

It's been five years since Lenovo, China's largest PC maker, bought U.S. computer giant IBM's PC unit. It's still not clear whether Lenovo's cash was worth the effort.

To bring the marriage to an happy ending, Geely's boss Li Shufu needs to figure out how to make good use of Volvo's brand and technology, as well as the transformation of the corporate culture and management.

At least, Geely has got a good start for both itself and the Chinese market. We will wait and see if other Chinese companies achieve more successful Volvo-style deals in the days to come.

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