CRI听力: Geely-Volvo Acquisition: How Will the Two Brands Work Together?

There are many concerns about whether China's domestic car brand can handle an internationally famed brand such as Volvo, as the two brands come from two different cultures.

As we will hear from our Damin, the top executives and some analysts favor an approach that is based on the two brands sharing technology and processes while maintaining independent management.

Reporter:

Entering the car industry in 1997, Geely is nearly 70-years younger than Volvo and its income in 2009 also seems small. Compare the 4 billion RMB profit of Geely to the 100 billion RMB profit of Volvo, just last year.

But as China became the world's top car market last year, the sales of Geely increased by nearly 60 percent. On the contrary, Volvo shrank by more than 10 percent.

Zhao Hang, director of the China Automotive Technology and Research Center, recalls a talk with Geely Chairman Li Shufu lately.

"Li Shufu said, Ford and Volvo are more like father and son. Volvo can get many advanced technologies, which Geely cannot afford, but we can give Volvo a more free and independent space."

Klaus Paur, director of the Shanghai-based TNS automotive consultant company, says Ford never made significant profits after it acquired Volvo in 1999. He adds that focusing on its core brand and selling the luxury subsidiary models to credible companies have been part of its strategy in the last decade.

"Ford is also interested in keeping Volvo's brand alive, which means as a car manufacturer in China with a lot of potential for future, the strategic plan of Geely is probably the healthiest for the Volvo brand."

Klaus Paur also says the acquisition succeeded after a series of "step-by-step" research and negotiations. However, he says, how the two brands work together will depend on the effectiveness of management integration.

Cases of failed acquisitions have not been rare in the last decade. The divorces of both Daimler-Chrysler in 2007 and Shanghai Motor in 2004 shows that breakups can happen between two companies even in the same macro cultural area.

Most analysts agree that sharing talent and ideas is the best way to smooth integration between the management of these two companies. This is especially true since the companies come from very different cultural backgrounds.

Klaus Paur says placing the headquarters in Gothenburg, the Swedish capital, is the best option available.

"What you need to have are internationally experienced people in places who are managing the brand in the first place. And in the second step, it has to be of course incorporated to the overall Geely strategy."

Zhang Xiaoyu, Vice Director of China Machinery Industry Federation, agrees.

"Most international companies' overseas teams do not have enough people familiar with local technologies, culture and market. That is one of the reasons we have seen so many failed mergers in the last two decades."

Geely Chairman Li Shufu says that except for signing the deal with Ford, right now he is busy negotiating with academic and professional schools for training programs.

For China Drive, I'm Damin.