Geely’s acquisition of Volvo is another example of the growing trend of cross-border mergers and acquisitions (M&A) and cross-ownership in the automobile industry. Not many would have predicted that the Ford owned Volvo would one day be owned by a Chinese car manufacturer.
Similarly, not many would have predicted the acquisition of Jaguar and Land Rover by India’s Tata Motors a few years ago.
The investment across brands and ownership of brand portfolio by the large automobile manufacturers can make it difficult for consumers to identify “who owns what”. For example Volkswagen recently acquired a 49.9% stake in Porsche AG and a 20% stake in Suzuki Motors. General Motors (GM) is another company that owns a number of brands globally. While there are benefits for doing so, companies need to clearly define target markets in order to avoid brand cannibalization (something which GM and Daimler-Benz had to deal with after the acquisition of Daewoo and Chrysler respectively).
Geely has assured consumers that while the company will open new manufacturing plants in China to service the domestic market, the acquisition will not result in the closure of Volvo’s factories in Europe. This would suggest that Chinese consumers would be attracted by the Volvo brand name regardless of whether it is produced in China or Sweden. But in Europe the strategy would be to build locally to help overcome the dreaded “made by” versus “made in” argument. While the ownership is now held by a Chinese firm, the company would hope that the continued production in Europe would help consumers relate to Volvo as the Swedish brand they have always known. If the examples of GM, Toyota and other manufacturers is anything to go by, Geely’s investment strategy could pay dividends.