FROM ACQUISITION TO INTEGRATION

By Wang Xiang

Geely’s global acquisitions point to increased competitiveness and development of new technologies

Acquisition is only the beginning of cooperation. Though both subsidiaries of Geely Holding, Geely and Volvo have operated independently as parallel brands in intense market competition.

Geely’s Hangzhou Bay R&D Center in eastern China’s Zhejiang Province.

On June 23, Geely Auto Group finalized an agreement with Malaysia’s DRB-HICOM Berhad on the acquisition of the shares of its subsidiary companies, including a 49.9 percent stake in Proton Holdings and a 51 percent stake in Lotus Group. Geely has thus become the exclusive foreign capital strategic partner of Proton.

On the morning of Aug. 4, Geely made another move. At its Hangzhou Bay R&D Center, Geely Holding Group, Geely Auto Group officially signed an agreement with Volvo Cars on the establishment of a jointventure company. An Conghui, CEO and President of Geely Auto Group, noted that it was the very first time a Chinese auto brand established a comprehensive cooperative relationship with a leading international brand in technology sharing and collaborative procurement.

According to the agreement, Geely Holding and Volvo Cars are each to hold 50 percent of the shares of the jointventure company. The joint venture owns the resources of Volvo’s SPA (Scalable Platform Architecture, with an investment of US$11 billion in R&D) and four-cylinder engine technology, as well as Geely Holding’s CMA (Compact Modular Architecture, with an investment of US$20 billion in R&D) and seven-speed DCT (Dual Clutch Transmission) technology. Meanwhile, the joint venture covers the R&D of components for electric vehicles such as batteries, motors and battery charging systems.

Geely Going Global

At the end of the 20th century, Volvo blossomed in the international market with an excellent safety profile and brand name. Ford took interest in Volvo's brand and bid for a takeover. In 1999, Ford successfully took over the Swedish national brand for US$6.45 billion. However, Volvo dramatically weakened after the takeover. Following the 2008 financial crisis, Ford had to shift its strategy to “One Ford”, focusing on its own brand. Lacking sufficient resources, Ford was eager to sell its subsidiary brands to reduce losses.

Geely Holding Chairman Li Shufu had long been an admirer of Volvo’s brand. After rounds of negotiations and consultations, Geely bought up Ford's Volvo Cars for US$1.8 billion on Aug. 2, 2010, and acquired 100 percent of its stock equity from Ford, including the Volvo brand.

Before that, Geely had already succeeded in overseas markets. In October 2006, Geely successfully took control of a British classic taxi company, Manganese Bronze Holdings, laying the foundation for an expansion in the European market. In March 2009, Geelycompleted the wholly-owned acquisition of an Australian automatic transmission company— Drivetrain System International Holdings, the second largest of its kind in the world. The deal broke the monopoly of foreign and joint venture brands in the core auto parts market.

The latest information from Geely Holding indicates that Geely’s plan for the acquisition of Terrafugia, a United States manufacturer of flying cars, has been approved by the United States authorities, meaning that Geely will focus on intelligent vehicles in the future.

On Aug. 4, Geely Holding officially signed an agreement with Volvo Cars on the establishment of a joint-venture company.

Cooperation Begins with Acquisition

Acquisition is only the beginning of cooperation. Though both subsidiaries of Geely Holding, Geely and Volvo have operated independently as parallel brands in intense market competition. For the sharing of its key technology, Volvo has been extremely reticent. So far, not a single senior executive from Geely Holding or Geely Auto has been assigned to Volvo Cars, evidence of the prudence of both sides.

The ultimate goal of Geely’s acquisition of Volvo is its key technology.

“With Geely Holding’s acquisition of Volvo Cars in 2010, Geely Auto found a good teacher, a good partner,” An explained. “In 2013, Geely set up its European R&D center (CEVT) in Gothenburg, Switzerland, for the joint development of CMA with Volvo, which features the world's leading safety technologies, high-efficiency new energy power assembly and intelligent networking. The establishment of the jointventure company will level the ground for technology sharing between us. Intellectual property rights still belong to the developer, but both sides are entitled to sharing technologies. In the future, both can engage in the joint development and sharing of modular platforms and other technologies.”

Both Geely and Volvo fully recognized the strategic value of coordination, cooperation and sharing from the success of CEVT and CMA, and both are determined to continue with this journey. Their joint-venture company will enable them to share advanced technologies of vehicle architecture and power assembly, as well as the collaborative procurement of spare parts, for the joint development of the next generation of pure electric vehicles. Meanwhile, closer personnel exchange and training will enhance their core competitiveness for sustainable development.

Successful acquisition depends on a company’s capital operation capability, while further growth depends on its core competitiveness. Over the years, Geely has achieved in-depth integration with Volvo by taking over a brand name and building a jointventure company for mutual learning, technology sharing and collaborative procurement. Seven years on, Geely Auto has at last gained the opportunity to share Volvo's “Nordic descent”.

“The scale effect through collaboration is the most ideal business model,” An said.“It’s also the inevitable choice one has to make to maintain competitiveness in a rapidly changing market.”

At the press conference announcing the deal with DRBHICOM Berhad, many Malaysian journalists showed great interest in Geely’s future cooperation with Proton. An explained that Geely’s cooperation with Volvo is set to include a brand-new model, which is likely to be applied to other cases of acquisition and cooperation in the future, including Proton, in order to give full play to the scale effect of the coordinated development of subsidiary brands.

Hakan Samuelsson, President and Chief Executive of Volvo Cars, said that both Volvo and Geely will be engaged in genuine in-depth cooperation. The establishment of an open technology jointventure company increases the frequency and scope of technical communication and lays the foundation for more farreaching strategic cooperation.