Zhejiang Geely Holding Group: Acquisition of Volvo Cars

1. What were the reasons behind Geely's acquisition of Volvo Cars? Was it a good strategic move? 2. How effectively was the post-acquisition phase handled? 3. Beyond the acquisition of Volvo Cars, what other opportunities should Geely explore in the global auto market?

Article Below to answer the questions above.

FELIX OBERHOLZER-GEE WILLY SHIH NANCY DAI Zhejiang Geely Holding Group: Acquisition of Volvo Cars A tiger belongs to the forest. It belongs to the wild and not [confined] in a zoo. We need to liberate this tiger ... I see China as one of the markets where Volvo has the opportunity to liberate itself and show the potential that it has. That is the rationale for the deal. - Li Shufu, Chairman, Zhejiang Geely Holding Group At the closing ceremony in March 2010 for Zhejiang Geely Holding Group's acquisition of Volvo Cars from the Ford Motor Company, Li Shufu talked about his vision for turning the loss-making Swedish automaker around. Volvo's sales were primarily in Europe and North America, and Li saw this as the brand's biggest challenge. He wanted it to build a factory in China, but he also noted that the new facility would supplement Volvo's existing factories, not replace them. More importantly, Volvo was a key piece in Li's long-term vision to build a global auto maker. Press accounts were skeptical. The Economist reported, "The record of cross-border car making mergers is atrocious."2 The reporter considered the purchase a huge gamble, nonetheless calling it an extraordinary statement of intent. But he also worried about cultural clashes, which he called almost certain. He questioned whether Geely possessed the management expertise to take on the famous but failing company. Others were skeptical as well. "Volvo has been losing money for years and no one knows when it will stop bleeding," said Zhang Xin, a Beijing-based analyst. "It could get itself into a black hole financially, not to mention the cultural and operational challenges ahead ... I hope it won't end up like SAIC's Ssangyong deal." Li's interest in Volvo dated back to 2002, shortly after Geely received its automobile production license from the Chinese government. Geely, officially known as Zhejiang Geely Holding Group Co. Ltd., started out as a refrigerator manufacturer in 1986. In 1994 Li diversified into the production of motorcycles. It was a late entrant to the auto industry, entering the market only in June 1997. The first production vehicle, the Geely Haoqing rolled off the production line in August of 1998 (see Exhibit 1). This was during a time when the Chinese government was encouraging the development of domestic auto production capabilities. The government's focus on consolidation of the sector and thedevelopment of established state-owned enterprises meant that small producers like Geely faced restrictions. The central government limited private investment in automobile production because it wanted to avoid overcapacity like it saw in the US; it really wanted to reshufe the top firms into three or four state-owned enterprises to more effectively meet foreign competition. From the earliest days of Geely's foray into automobiles, Li had the ambition to build a large global player. "Chairman Li did not just scratch his head and come up with the idea to buy Volvo," reported Reuters.4 "He predicted the downturn of Detroit automakers years ago and has since been on the alert for opportunities. We wouldn't make a move if we did not see a big chance of success." Having now closed the acquisition, Li had the opportunity to take the next step. And he knew the company faced significant challenges with the integration ahead. Growth of the Chinese Auto Market, 1994 - 2010 The automobile market in China developed very late compared to those in the West, Japan, and Korea. Until the mid-1980s there was minimal domestic production of cars. Most production was focused on commercial vehicles like trucks and buses. Increasing domestic demand drove a dependence on imports, so in 1983 the Chinese government formed a 20-year joint venture between American Motors Corporation (later acquired by Chrysler Corporation) and state-owned Beijing Automotive Works to produce Jeeps. The government also initiated joint ventures between state- owned Shanghai Automotive Industry Company (SAIC) and Volkswagen, and between Guangzhou Auto Group and PSA Peugeot-Citroen. In 1994 the Chinese government launched the Automotive Industrial Policy (AIP) as part of the state's Ninth Five-Year Plan. This policy specifically encouraged technology transfers from foreign multinationals who partnered with Chinese domestic firms through joint ventures (IVs). The government also sought to foster economies of scale within state-owned enterprises (SOEs), and encourage oligopolistic competition in the domestic Chinese auto industry. The IV strategy had a primary policy goal of transferring manufacturing know-how and technological and management expertise from foreign partners to domestic companies. For those foreign partners, this was the only way to access the market. For SOEs, this was a way to acquire capabilities.5 Beijing-based First Automobile Works (FAW), Shanghai Automotive Industry Corporation (SAIC) and Hubei-based Dongfeng Motors (the so-called 'big three') all benefited from this infusion of know-how and ability to produce foreign branded and designed vehicles. For privately held firms like Geely, it meant more powerful local competitors who had access to advanced design and manufacturing skills. The decade from 2000 to 2010 was marked by dramatic market growth along China's eastern seaboard, especially in cities like Guangzhou, Shanghai, and Beijing. By early 2010, the Chinese auto market reached a significant milestone, overtaking the US. as the largest in the world. Sales of domestic branded vehicles accounted for 30 percent of the total, with balance made by joint ventures with foreign firms, producing vehicles designed or imported from abroad.6 The overall sector grew at a compound annual growth rate of 24% per annum between 2005 and 2011.7 \"E\" and \"F\" body styles,a were forecast to grow in share as smaller \"A\" and \"B\" models were expected to become less popular as consumer preferences shifted towards SUVs and larger vehicles.8 The market leaders were SAICGMWuling, Shanghai Volkswagen - the joint venture between Volkswagen and SAIC, and FAW Volkswagen, the joint venture between Volkswagen and FAW Group. Among domestic brands, BYD Company's F3 sedan was the best seller.9 The low-cost car segment was dominated by Geely and Chery Automobile Co. GM estimated that the low end market, at six million vehicles a year, was already larger than markets like France and Japan.10 "There's a massive market for people who want affordable vehicles," according to Kevin Wale, head of GM's China operations.11 GM and SAIC were investing in large capacity additions for its Baojun brand, with new inland factories. Domestic competitors like Dongfeng Motor planned to double sales between 2010 and 2015, and also were investing in large capacity additions.12 Geely sales in 2010 totaled 415,800 cars, and it booked an operating profit of approximately CNY 20.1 billion, an increase of 43% over the prior year. Net profit amounted to CNY 1.368 billion. 13 It planned substantial capacity growth to 680,000 cars a year for 2011.14 Geely's Early Product Strategy During the early 20005, Geely's product strategy was very market focused. Car models were developed based on what was selling in the market. \"A very typical way was to have a clear benchmark target,\" explained Hu Zhengnan, President of the Geely Automobile Research Institute. As the company picked regional markets to target, it would negotiate with local governments for incentives to set up a manufacturing facility. \"Normally the local OEM already had local production there, so we were using our car to compete with them,\" Hu continued. \"At that time, I think that BYD F3 was the most successful A class vehicle. So I think at that time, the competition was very simple, we have more features than you, better quality than you, maybe cheaper than you.\" There was no systematic product development strategy beyond that at Geely prior to 2009. As a sign of its ambitions, Geely made its first appearance at the 2006 Detroit Auto Show, the first time ever for a Chinese auto maker. It showed its CK sedan, which used a 1.5-liter Toyota designed four-cylinder engine built under license.15 But the reception for the vehicle was rather poor. Car and Driver noted: The Geely CK looks hopelessly outdated, despite its modern headlights and taillights, and will likely have to sell for far less than $10,000 to make any serious headway in our market. Geely's plan is to first sell the car in Puerto Rico within the next year to see if anyone is willing to buy it, then if successful they will begin selling the CK in the United States.16 But not everyone wrote Geely off. \"At a time when virtually everything Americans buy is stamped Made in China and the US. auto industry is suffering another shuddering contraction, it's easy to imagine America's automotive landscape overrun with Chinese-made autos, many of them probably purchased at Wal-Mart,\" wrote Automobile magazine:17 With the dubious exception of Nanjing's MG, none of China's carmakers owns a marque that is recognizable outside the country. This absence of brand and image is the most serious flaw in China's great automotive scheme. Note the words of Michael Ganal, head of sales and marketing at BMW, the group that wrote the book on automotive branding: \"Strong brands are the most desirable asset for any company." Sure, China's automakers will address the challenges. They can buy expertise and technology from the West, consolidate, make more and better vehicles, and build their own nameplates. But the process Will take a long, long time-and by then, WalMart may have gone the way of Woolworth's. The Acquisition I think this parallels the Chinese reform story. I t's like I see I need to do something, but I really don't have a very well-dened solution or roadmap. Dr. Ran Zhang, Partner, WM Motor Technology Group Co., Ltd. Ran Zhang was trained as an economist at Boston University, and after graduation went to Ford Motor Company in 1995. Li Shufu hired him from Ford to join the Volvo project. Zhang joined just as the deal was about to be signed. Having been at Ford for 15 years, there was a question in his mind why he would want to join the project \"Honestly my assessment at that time, the chances of success was no more than 15%,\" he recalled. But it was a unique time in the history of China's auto industry. Zhang continued: There was a very common feeling among the core team members. This was an opportunity that you don't have very often, if ever in your career. If you look through the past 1000 years, there are not really a lot of time periods like this. People really wanted to give it a try, because nobody knew where the boundaries were. We were defining the frontier for China of what was possible at that time. Before that there were a couple of high-profile M&;A's, like the acquisition of IBM's PC business by Lenovo, the Thomson TV business by TCL, and the Shanghai Automotive Industry Company (SAIC) takeover of the Korean carmaker SsangYong Motor. Three or four high profile cases, and none of them was really considered very smooth. Chinese government approval and acquisition nancing Lining up financing for the acquisition was a major challenge. Chinese private enterprises faced much steeper challenges than SOEs as banks did not want to assume risks Without government guarantees. Li Shufu approached four state-owned banks: Export-Import Bank of China, China Development Bank, Bank of China, and China Construction Bank. All of these efforts, as well as approaches to numerous investors, came up short with issues on either the amount they were willing to finance or terms and conditions that would accompany a transaction. Li turned to local governments, a popular financing vehicle for private companies like Chery and BYD, who often obtained funding in exchange for locating factories in specific regions. Li personally led many of the discussions, and ultimately was able to borrow CNY 3 billion from state-owned institutions with a guarantee from the Chengdu government. The Daqing municipal government also agreed to provide CNY 3 billion, Shanghai Jiading Sate-owned Assets Management (Group) Co., Ltd. provided CNY 600 million, and Shanghai Jiading Industrial District Development (Group) Co., Ltd. provided CNY 400 million. 18 Ford decides to sell Ford had grouped Jaguar, Land Rover, and Aston Martin, and Volvo Within its \"Premier Automotive Group,\" a business unit that housed all of its luxury brands. It also included its Lincoln- Mercury division. Initially this led to a great deal of cross-unit collaboration, as they tried to use common platforms and find synergies across the multiple vehicle lines. During this time, Volvo's annual sales typically were around 300,000 units. The global economic downturn and increase in oil prices that followed the September 11, 2001 attacks in the US. exposed the company's dependence on trucks and sport utility vehicles. When rising gasoline prices pushed buyers away from those vehicles, losses started to mount. Ford's market share plunged, and by the time the company hired Alan Mulally in 2006 as its new CEO, the carmaker was posting huge losses amidst rumors that it would be forced into bankruptcy. 19 Mulally initiated a l'One Ford\" campaign aimed at streamlining operations and restoring company profitability. He mortgaged all of the company's assets and used the proceeds to finance a major overhaul of Ford operations. In 2007, Ford sold Jaguar and Land Rover to Tata Motors, followed by the sale of Aston Martin to a group of investors. He also aggressively cut excess capacity and focused on new models in the core car and truck lines. Zhang explained: So Ford eventually figures out, okay, they have too much on their hands. They needed to spin out all of those. So with all of that as the background, now suddenly we have this opportunity, it was really very intriguing. So for a few things, one is for Chinese indigenous companies, it is not even imaginable to go out and take over, right? Second, the desire is so huge because we know the Chinese auto policy is to open up markets in exchange for technology. That's the general theme. However, it was very difficult, particularly for the indigenous ones because they were weak. They didn't know anything. They struggled to find any solution to get any kind of technology. And not all of them were successful. So with this everybody got excited, perceived [the project] as extremely challenging, that's where we started. After Ford announced its intention to sell Volvo, Li assembled a project team that included outside advisors. He met with William Clay Ford, Jr. and Alan Mulally in January 2009, and by March, Geely submitted a first-round bid document. Li traveled to Gothenburg in September 2009 and met senior Volvo executives for the first time. After working through numerous issues, Li signed the definitive agreement on March 28, 2010, in Gothenburg. Zhang recounted Li's sense of the opportunity ahead of them to unleash the energy of the Volvo team: He said, \"You know, I sense the Volvo people really were tied up by Ford for long enough, and they have an internal desire to change their fortune.\" Then why don't we just release their energy? So this is what was later coined as "unleash the tiger.\" Or unchain the tiger, so that's where that came from. There was a sense that they would do what they can do. And I think that quickly generated a lot of energy. The Post-Acquisition Phase Iust after the closing, Chairman Li repeatedly reminded us Geely is Geely, Volvo is Volvo. We didn't want to touch Volvo. Otherwise, they could easily blame us, that Geely had a bad impact on them. To be honest, before communicating before talking with each other, they also didn't understand Geely properly, saying Geely people [were] probably relatives or schoolmates of Chairman Li's. Actually, Chairman Li has used a very professional team. Even going back more than 15 years, Chairman Li hired a professional CEO, and he always delegated to the CEO and the management team. We have no family members of Chairman Li working at Geely. So this is very different from other Chinese private companies. Daniel Li Li Dong Hui (Daniel) joined the Geely Group as chief financial officer and executive vice president in April 2011 and became a member of the board of directors of Volvo Car Corporation in April 2012. He was responsible for the overall strategic planning of the Group's accounting and financing system, which gave him a unique perspective on the Volvo Cars acquisition, and the post-acquisition integration process. With the closing of the transaction, the next steps were not very clear. "Yes, the target is right in front of you, the transaction is about to be done, right? And now what?" explained Ran Zhang. "What was the next step? The thought process about the next step was very foggy." Relatively few people on the Geely team spoke English let alone Swedish, so the key question became how to manage Volvo on a day to day basis without conflicting with Li's instructions to keep Volvo separate. Zhang continued: So the mechanism design or governance design started to quickly focus around those fundamentals. Very quickly we concluded to redesign the governance. Let's use the board to manage the executive management committee. And then incentivize them to do the right thing and minimize Geely's direct involvement within Volvo. Li Shufu named himself chairman of Volvo Cars. He then recruited automotive industry veterans to join the Volvo board: Hans-Olav Olsson, who was Volvo Cars' CEO between 2000 and 2005; MAN AG chairman and CEO Hakan Samuelsson, and Magna International Executive VP Herbert Demel. The other two Chinese directors received college degrees outside China and had worked for international automotive companies before - Winnie Kin Wah Fok was a veteran from private equity who sat on the board of bearing supplier SKF, and Freeman Shen, head of Fiat Powertrain Technologies China who joined Geely in late 2009. Stefan Jacoby, former CEO of Volkswagen Group of America, was named president and CEO of Volvo Cars. Jacoby had worked for Volkswagen, including time spent in the Asia Pacific region. Yang Jian, writing in AdAge, applauded Li's selection of directors and managers: 20 Li Shufu is a wise man. He knows most of his existing deputies are not up to the task of running Volvo Cars because of their lack of international experience. Given their background, it is hard to assemble a better team of directors for Volvo Cars than those Geely has announced, or to find a stronger candidate than Stefan Jacoby for the CEO role. The board structure (see Exhibit 2) was rather unusual, because as Volvo's sole owner a separate board was not really required. But Li used it as a way of insulating Volvo from Geely on a day-to-day basis. Under the governance structure, Daniel Li explained that the board had the direct responsibility for running Volvo through its Swedish management team: This three-label governance sounds very simple. Shareholder meeting, board meeting, and then management team. But what's unique, the unique thing is Volvo is 100% owned by Geely. Volvo is not a listed company. When we meet at [the] shareholder meeting, we don't [really] need a shareholder meeting. But the reason the Chairman decided to organize the three-label governance - it's very clear the shareholder meeting is the top- level decision-maker. Nevertheless, Volvo is guided and monitored by the board, not by the Geely Holding Group ... This is not like other groups, [where] finance reports to finance, HR reports to HR, Legal reports to Legal. We have none of these reporting lines between Volvo and Geely. That's also the meaning of [ the relationship] of Volvo to Geely is brothers, not son to father. So, with this special setup, Volvo knows Geely wouldn't interfere with their business. And the board is not just simply Geely assigned many board members. Although we own Volvo 100%, but then we only have board members Li Shufu and me, it's not limited by any rules or regulations.So it's a very professional board. And then, through this board, we screenedand, you know, hired the CEO and then delegate to the CEO, and hired the EMT (Executive management team) and organized the whole management team. So it worked quite well. The board was entrusted by the shareholder (Zhejiang Geely Holding Group) to determine investment needs appropriate to the needs of the company and its development. This ultimately totaled in excess of US$10 billion. Volvo management was delegated substantial decision making power. According to the lldocument of authorization,\" the management could authorize certain amounts of money, including financial and non-financial authorizations. Different from before, the amount of authorization could be adjusted every year based on performance.21 \"Before (Geely acquired Volvo), there were Swedes and there were Brits from the US. sitting on the board,\" explained Marko Peltonen, a Volvo union representative. \"But they rarely discussed anything. Every time they gathered for the board meeting, they seemed to have come for the food in Gothenburg.\" 22 Beyond the Board, Geely sent no operating executives to Volvo. \"During the Ford time, Ford sent 100 people to manage Volvo, in most of the senior positions, and also most of the department heads, all came from Ford,\" Li explained. \"But Geely didn't send anybody to the senior positions of Volvo.\" He added that the separate management of Volvo also was challenging and had some unexpected consequences: You know what happened? It was even very difficult for Geely to get financial reports from Volvo. Geely Holding Group owns Volvo 100%. In the end, Volvo has to be consolidated into Geely's reports. But it's even difficult to get a monthly report from Volvo. Because Geely is Geely and Volvo is Volvo, Volvo's management team simply thinks they don't have to work with Geely, and they don't have to provide this information... To consolidate the financials, you need detailed information... But [Volvo] just refused to provide the monthly reports. The distinctly separate management of Volvo was reinforced by fear on the Geely side of damaging the brand value of Volvo. Press accounts were already suggesting that under Geely's ownership, Volvo would become more like the stereotypical Chinese producer of low-end inexpensive vehicles. Zhang elaborated: The very first thing we sought to avoid was to damage the brand value of Volvo. So there was an internal rule that said, basically, in public, Geely guys and Volvo guys never hold hands. Volvo is Volvo and Geely is Geely, because the very second consumers start to think Geely is Volvo, the value would collapse. So that was the last thing we wanted. I think that was very smart. Daniel Li explained that this relative separation at the board level continued to the present: So we have, from the Geely side, only two board members. Chairman Li as the Chairman and myself. The integration started slowly with the financial integration. Learning to Work Together Prior to 2010, we did not have much real Rfa'D cooperation. We only had some very small projects. For example, at Volvo safety is very important, so we asked Volvo to do some design reviews for us. With these very small ro'ects, we be an to coo erate an .. . ._. ' ormal coo eration be an with CMA in late \"' g P 'cim Lam \" g 2012. I was lucky to be involved in this - v i said that they cannot do any training for us, because they didn't think that they could . , D. They thought the best way to build RS'D skills was to do a project together. But there seemed few opportunities for collaboration. Frankly, the Geely brand was low, and the Volvo brand was very high. One philosophy was very clear from both sides: we don't want this cooperation to damage the Volvo brand. So we needed to try our best to protect their brand image. Fortunately, at that time, Volvo was looking for a next generation small vehicle architecture. We thought maybe the small vehicle platform was a good opportunity )r both of us. Hu Zhengnan For the years immediately following the acquisition, the Geely and Volvo engineering teams had minimal interactions. One initial project was launching the production of Volvo cars in China. Global auto market volumes were still recovering from the 2008 recession, so Volvo had excess capacity both in its Torslanda, Sweden and Ghent, Belgium factories, and there was reticence on the Volvo side about adding additional capacity. Zhang explained that the Geely team took a different point of view: In the first three or four years, it was how to launch the first or second manufacturing facility in China for Volvo How to launch products that fit China, the ES 60, XC 60, all of those products. It seemed like there was a lot of hesitation or thought from within Volvo, why bother? Then chairman Li said look, you know what? I'm not going to take a penny away from Volvo, so don't worry. I'm going to find another way to find money to do this. All I need is your commitment to launch new products in China, that's all. In 2015 Volvo opened its first China factory in Chengdu, Sichuan Province (see Exhibit 3). It had a planned annual production capacity of 120,000 vehicles produced on two shifts per day. The 2013 production schedule reflected a gradual ramp up to allow an initial focus on maintaining the highest quality. In preparation, around 100 Chinese employees were sent to Torslanda and Ghent where they took part in a two-month training program on the Volvo Cars manufacturing system (VCMS) as well as the company culture. Following their return to Chengdu, these employees helped train other newly hired employees. All new employees underwent an average of one-and-a-half months of training in order to get familiar with VCMS and the Volvo Cars company culture. " Chinese customers do not have lower expectations than European ones. They expect premium quality products from Chinese plants,\" explained Lars Danielson. " Customers also have plenty of choice in the highly competitive market in China. That is why we need to make sure that we are credible and deliver high-quality Volvo cars out of Chengdu that are at least as good as the cars we build in our European plants.\"23 In 2015, Volvo became the first carmaker to export Chinese-made vehicles to the US. The Chengdu plant also brought with it extensive efforts to source parts locally. Many of the parts makers were existing global Volvo Cars suppliers that already had production facilities in China, but the Chengdu factory team and local government also collaborated with a number of Chinese suppliers. All suppliers were required to meet Volvo's global supplier management and assessment standards and had to pass a strict evaluation process. The involvement of China-based suppliers meant that the percentage of locally sourced parts in Chengdu-built cars was significant. For the Volvo 860L model, this started initially around 50 per cent increasing eventually to 80 per cent overall. An area that offered significant cost savings opportunities for Volvo was to aggregate parts purchasing volumes with Geely. From the perspective of Geely engineers, Volvo parts seemed relatively expensive compared to what they were used to paying, but the debate often turned to a question of how much design margin the respective teams expected on specific parts. Hu Zhengnan offered an example: We reviewed the technical specifications one by one together, and I think we have removed a lot of unnecessarily [tight] specifications, for example, like the aluminum ring. Volvo had one requirement that this ring must be inside of the mat for more than 45 minutes, and then taken out to do the testing and validation - to check the strength of the structure. So we ask why do you have this specification? They said it was because their customers had such working conditions. So we asked suppliers What was the difference between that. The suppliers said they didn't know. But the quotation from the suppliers was different. Without this specification, aluminum, every kilo is around CNY 27. With this specification, the aluminum is CNY 31. So I asked What is this CNY 4 difference from? They said unknown risk. So why do we need to add this? In comparison to other OEMs, nobody has this special requirement. So, why don't we just remove it for CMA? For SPA, we can have it since it's a luxury vehicle platform, but for CMA we must remove it. Another thing is for example we have a lot of Wire links. So normally, everybody learns if we package the link more straight then the efficiency is higher. But Volvo specification is you need to bend it 180 degree and still have high efficiency. So I asked them, to reach your specification we need to use a special material, special links to reach that. But this is unique, double the price of any other supplies. Hu added that Volvo and Geely engineers started to work more closely together on a variety of lower level projects, mostly focused on cost reductions and supplier involvement: We had piece-by-piece workshops with Geely engineers and Volvo engineers together. Also we invited 3-4 different top-level suppliers to review our ESOW, our Engineering Scope of Work. We reviewed all the specs inside of ESOW. And also, we ask suppliers, what way can help us reduce the cost? Another thing is, maybe we can - as much as possible - use your existing module, to develop our system to reduce cost. So I think this is one way, to have workshops with Volvo and suppliers together, to learn more about the supply. Another thing is we combine the volumes together. This is very simple way: for example, Volvo has very high costs because they normally only have one supplier. Normally, they didn't use the public bidding way. So we are different. We have workshops with different suppliers together, learning from them to simplify the technical specifications, follow the more common specifications, but still approved by Volvo teams. Then we send out the specifications to ask for suppliers to join and give us the quotations. In 2016, Volvo announced its new China manufacturing strategy, and that it would begin production of its smaller 40-series models at a new facility in Luqiao, 350 km south of Shanghai (see Exhibit 4). It also planned to move production of its new S90 luxury sedan from Sweden to China. \"With three plants and the designation of one car line for each plant Volvo creates an efficient production structure ensuring future capacity for growth,\" explained Hakan Samuelsson.24 Lars Danielson, Volvo's senior vice president for the Asia Pacific region, added: "We are leveraging our advantage of being one company [with Geely] instead of a joint venture [in China]. China is replacing the US to become the world's biggest premium car maker with over two million this year.\"25 China sales tripled from 2013-2016, driving significant overall volume growth for Volvo Cars (see Exhibit 5), making China Volvo's largest single country market. When the S90 later began production at its Daqing factory in Heilongjiang Province (see Exhibit 6), it was shipped back to European markets via the trans-Asian rail route (see Exhibit 7). Geely Auto sales grew as well, gaining share in the hotly competitive China market (see Exhibit 8). The China Euro Vehicle Technology Center and the C Segment Platform As Geely Auto tried to grow its own product offerings and move upmarket into larger vehicles, it sought to move towards more of a platform centered architecture that Volvo had long utilized. At the same time, Volvo was looking to expand into smaller car segments. For Volvo the C segment was a big opportunity that was not fully covered with its current V40 and vehicles derived from Ford architectures. Li Shufu's vision for the Geely Group was to create a global company and at that time, the group only had one platform, one architecture that could meet global requirements the \"SPA\" architecture that Volvo was about to finalize. Geely Auto's vehicles were all more or less point designs, so Li challenged the organizations, both Volvo Cars and Geely Auto, to develop another architecture for smaller cars for the C segment. Mats Eagerhag, who had led vehicle systems development for many years at General Motors Europe and Saab was recruited by Stefan Jacoby to come to Volvo. Saab had recently filed for bankruptcy, so he knew that there was a significant resource that potentially could be mobilized quickly to address the opportunity. \"Volvo said that we didn't have enough resources, here in Sweden to take that on,\" he explained. \"So the task was given to Geely and Mr. An [at Geely].\" (An Cong Hui was president of the Geely Holding Group, and the CEO for Geely Auto). Eagerhag quickly proposed a new center, which became the China Euro Vehicle Technology Center (CEVT). At the time Geely had approximately 1600 engineers, most very young with limited experience. In comparison, Volvo had approximately 6,000 engineers. The young Chinese engineers were eager to learn, and Mr. An gave Fagerhag clear instructions to train them. 1'I could be tough on them, but they had to learn quickly,\" Fagerhag recounted. \"They were very eager to learn but they were, of course, not so experienced.\" The CEVT team set out to design a new compact modular architecture (CMA), which was intended to be used for a new generation of mid-sized Geely cars and small sized Volvos. The team first had to understand what kind of needs Geely had. The Chinese assignees were quite helpful in bridging the knowledge gaps. Fagerhag also pointed out the differences in approach to specifications: Volvo has perhaps the longest vehicle specification I have ever seen. During my Geely time, I have never seen all the requirements are so carefully written and described as the Volvo ones. Volvo's were like an old telephone book filled with requirements. It was amazing. I don't know Whether it was the Ford culture or not, because I had no experience. But we had a massive number of requirements and Geely had very few. That was an interesting experience to understand what the Geely side needed. If you want to be successful with something being sold in China, you need to know What the priorities are and What the customers need. 50 that was very much What we had to focus on in the first part. You knew how to develop a car. You knew how to develop an architecture. You had people that had done that several times. However, what you are building for and what should your target be, those were of course some of the important things we did initially. CMA had to span a Wide range of needs, so it was designed to be highly modular so that the designers of the \"top hat\" could vary the length, weight, and the height to support sedans, hatchbacks, wagons, cross-overs, SUVs. The first vehicle to use CMA was the new Lynk 8: Co 01, a new badge that was designed to be a Geely Group \"in between\" brand. 1O Exhibit 1 Geely's First Production Car - Geely HQ Source: Company photo. Exhibit 2 Volvo Cars Corporation Board Structure and Board Committees Nomination Shareholder's Committee Meeting Volvo Car Corporation Volvo Car Corporation Volvo Car Corporation Board of Directors Board of Directors Board of Directors CEO Executive Management Team (EMT) Source: Adapted by casewriter from Qianma Wang and Dongmei Liang, New Manufacturing Era: LI Shufu, Geely and Volvo's Super Manufacturing (Beijing: CITIC Press Group, 2017), p. 202.Zhejiang Geely Holding Group: Acquisition of Volvo Cars 619-041 Exhibit 3 Volvo Cars First Production in China XCTTO1 Source: Volvo Cars company photo. Exhibit 4 Volvo Luqiao Factory (Drawing) Source: Volvo Cars company drawing. Note: The Luqiao plant was owned by Zhejiang Geely Holdings but operated by Volvo Cars. It was planned to build smaller 40-series CMA-based cars, as well as CMA-based cars for Lynk & Co.619-041 Zhejiang Geely Holding Group: Acquisition of Volvo Cars Exhibit 5 Volvo Cars Unit Volume Growth (Worldwide) Units Sold (000) 700 642 600 572 534 503 500 466 422 428 400 300 200 100 0 2012 2013 2014 2015 2016 2017 2018 Source: Prepared by casewriters based on company data.Exhibit 7 Volvo S90 Produced in China for European Markets HELLO - 9 WORKER CANARALNAY Express VOLVO Source: Company photo. Exhibit 8 Geely Auto Sales Volume (000) Units Sold (000) 1,600.0 1,500.8 1,400.0 1,247.1 1,200.0 1,000.0 765.9 800.0 600.0 549.3 490.9 415.8 400.0 329.0 221.8 200.0 THIL 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Prepared by casewriters based on company data.Zhejiang Geely Holding Group: Acquisition of Volvo Cars 619-041 Endnotes Andrew Peterson, "Finally ... China's Geely Buys Volvo From Ford for $1.8 Billion," Motor Trend (March 29, 2010), https://www.motortrend.comews/ finally-chinas-geely-buys-volvo-from-ford-for-18-billion-7140/ accessed October 28, 2018 "Status Symbol: Geely buys Volvo," The Economist (March 31, 2010), https:/ /www.economist.com/ business/2010/03/31/ status-symbol accessed December 6, 2018 Fang Yan and Alison Leung, "Geely eyes China market to revive Volvo brand," Reuters (March 29, 2010), https://www.reuters.com/ article/volvo-geely-idUSTOE62502A20100329 accessed October 28, 2018. Fang Yan and Alison Leung, "Geely eyes China market to revive Volvo brand," Reuters (March 29, 2010), https://www.reuters.com/article/ volvo-geely-idUSTOE62502A20100329 accessed October 28, 2018. 5 Willy Shih and Nancy Dai, "Dongfeng Passenger Vehicle Company: Marketing Challenges for the 'Underprivileged Latecomer," HBS Case No. 612-029 (September 27, 2011) 6 "Factbox: China becomes world's No. 1 auto market," Reuters (January 8, 2010), https://www.reuters.com/ article/ us-auto- china/ factbox-china-becomes-the-worlds-no-1-auto-market-idUSTRE60722020100108 accessed December 7, 2018. Arthur Wang, Wenkan Liao, and Arnt-Philipp Hein, "Bigger, better, broader: A perspective on China's auto market in 2020," Mckinsey &Company (November 2012), https:/ / $3-ap-northeast-1.amazonaws.com/mckinseychinavideos/PDF/Mckinsey- Perspective-on-Chinas-auto-market-in-2020.pdf accessed December 10, 2018. Arthur Wang, Wenkan Liao, and Arnt-Philipp Hein, ibid. 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Jonathan Moules, "Mulally's tough road at Ford," Financial Times (May 1, 2014), https:/ /www.ft.com/ content/43233bac- d128-11e3-9f90-00144feabdc0 accessed October 8, 2018; Tom Krisher, "Ford CEO Mulally Faces New Challenges," Washington Post (August 22, 2007), http://www.washingtonpost.com/wpdyn/content/article/2007/08/22/ AR2007082202190. html?noredirect=on accessed October 8, 2018. 20 Yang FangJian, "Geely Assembles a Sharp Team to Manage Volvo," AdAge (August 11, 2010)