Volvo's Transformation under Geely: No Smooth Ride in the US?
Case Code: BSTR494
Case Length: 20 Pages
Pub Date: 2016
Teaching Note: Available
Organization: Zhejiang Geely Holding Group, Volvo Car Corporation
Countries: China, the US
Themes: Overseas Mergers & Acquisitions, Turnaround
Abstract Case Intro 1 Case Intro 2 Excerpts
Li Shufu and Geely
Li Shufu (Li) began his entrepreneurial journey in 1982 at the age of 19 when he bought a camera with his high school graduation money and started a small-scale photography business. He later started a photography studio where he also sold handmade camera accessories.
In 1986, Li founded the Zhejiang Geely Holding Group (Geely) (meaning 'lucky' in Mandarin) in Hangzhou, the capital of Zhejiang province. He invested his earnings from the photography business to start a refrigerator parts company. Initially, he produced parts for other companies but eventually set up his own refrigerator company. Due to a tightening in industrial regulations, Li had difficulty obtaining permits for continuing his business and was eventually forced to close down his factory. In 1993, Li saw a new opportunity while visiting a state-owned motorcycle factory. Soon after, Li bought a small state-owned motorcycle company, thereby acquiring the technology essential for producing his motorcycles.
In 1994, Li bought new machinery for his manufacturing plant and started producing motorcycles. In 1996, Geely sold 200,000 units to emerge as the major motorcycle manufacturer in China. 10 All this while, his ambitions were to build a car. However, it was not the right time for him to plunge into this business as China’s 1994 auto industry policy stated that no new passenger car manufacturers would be approved in the near term. He made numerous appeals to the Ministry of Machine Building, central office in People’s Republic of China but with no success. Li, however, did not give up his ambitions. In 1997, he became aware of a prison-owned auto factory in Deyang, Sichuan, which was on the verge of bankruptcy. The factory did not produce passenger cars, but manufactured micro buses and small vans. However, it had something Li was in need of – permission to manufacture vehicles. Li bought the company in a bid to possess the factory's official vehicle production certificate. Li aimed to develop cars that the average middle-class Chinese consumer could afford. In 1997, Geely officially launched its automobile manufacturing business for US$ 8 million. The company's mission was to produce affordable cars that were priced reasonably at around US$ 6000...
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