Challenges Facing By Organisations in Transnational Management: a Case Study of Geely.
During the past few decades, the world economy has become increasingly integrated due to the fast development of information technology. Globalisation has become a trend in the contemporary business world. It can bring firms a lot of opportunities as well as threats. More specifically, globalisation implies the access to bigger markets, potential scale of economies, and better management practices and technology. On the other hand, threats arise from the increased competition in the global stage (Greenaway, Gullstrand and Kneller, 2008). Despite the potential threats, many firms still make efforts to find ways of globalising themselves to take advantage of the opportunities in the global markets. Mergers and acquisitions (M&A) is one of the means by which firms can join the global competition. No matter what means firms use to globalise, they will experience the challenges involved in the transnational management. In order to address the issues in the transnational management, this report would use the case of Geely’s acquisition of Volvo to illustrate the challenges which might emerge from an M&A strategy. Also, a critical evaluation in terms of the success or failure of Geely’s strategic move will be provided from the standpoint of cross-culture management.
Geely as the biggest private-owned car manufacture in China has signed a deal to buy Volvo from US car giant Ford for £1.2bn. This agreement has been announced in December 2009 and it is the biggest overseas purchase by a Chinese car manufacture (Hepker, 2010). During the economic recession, the loss-making Volvo, along with several other brands of Ford, has been put on market for sale since 2008 (Lynam, 2010). Moreover, Alan Mulally, the CEO of Ford has disclosed his intention to focus on the Ford brand worldwide which also explains why Ford would give up Volvo (Dolan and Shirouzu, 2009). Accordingly, there is no wonder that Volvo is perceived by Ford as a liability and being released after Jaguar and Land Rover.
Globalisation through M&A
The strategy of M&A used by Geely is suggested as a relatively efficient and cost effective way to enter the global market compared to establish the operation activities abroad (Sherman and Hart, 2006). Geely invests heavily on its research and development (R&D) area which secured its position as the market leader in China. However, its technology in terms of safety, which Geely used to be proud of, is not good enough for Geely to compete in the global market. That is to say, if Geely enters the global competition, it will lose its advantage in terms of safety technology and it would struggle to survive since there is merely any other competitive advantage it can rely on. As Volvo is famous for its safety technology, Geely’s acquisition of Volvo can be justified. More specifically, Geely can obtain Volvo’s advanced safety technology and develop it as a competitive advantage after the acquisition is complete. Moreover, the acquisition of Volvo can increase the awareness of Geely’s own brand in the world.
Before the acquisition, Geely is undergoing a strategic move from economy cars to upscale cars. As Volvo usually stands for luxury cars, the acquisition is thus consistent with Geely’s strategic move which adds credibility to the decision (McCracken, and Dolan, 2009). Furthermore, it is suggested that M&A as a strategy for globalisation is cheaper to obtain brand loyalty and customer relationship than it is to build them (Sherman and Hart, 2006). Volvo as an acquired brand would be beneficial to the sales performance of Geely. More specifically, Geely can take advantage of Volvo’s existing global distribution channels, especially in Europe, to boost its sales.
Relationship with Trade Union
The establishment and management of the relationship with Volvo trade union would be a real challenge for Geely since different nations have different policies with regard to trade union. In China, the trade unions are much less powerful than those in Europe. That is to say, Geely would deal with a trade union with great collective bargaining power which is totally different from its own. Moreover, Geely’s knowledge and experience in managing such a relationship is very limited. Before the acquisition, the Volvo trade union has already claimed that they do not support the deal between Geely and Volvo. Soeren Carlsson, the head of Volvo trade union, suggests that the focus of trade union is on the workers’ jobs and benefits and they are concerned with Geely’s capability to fulfil these requirements. They are also worried that Geely might relocate plants in Europe (Geely, 2009).
In Europe, trade union is a very important force in the business community (Zhu, 2010). Geely has recognised the importance of Volvo trade union and it has been very careful in dealing with the issue within a transnational context. As the chairman of Geely Li ShuFu said, “Volvo is Volvo, Geely is Geely. They are two bodies, two systems. The two brands are totally independent operations; staff will be managed without any cross” (Zhu, 2010). From this statement, it is obvious that Geely is trying to establish empathy with Volvo trade union by conveying the information that Geely would not aggressively consider itself as having the controlling power over Volvo trade union. The relationship between Geely and Volvo trade union is partnership rather than ownership. Besides, the chairman of Geely also promised not to relocate the plants in Europe. This can help to win the trust of Volvo trade union. Also, Geely disclosed its intention to looking for experienced professional managers to lead Volvo instead of sending its own managers to Volvo. This will increase the willingness of Volvo to communicate and negotiate with Geely since the experienced managers would have good knowledge of the local culture and practices. Mr Li also said, “we respect their core values, they mature business culture and business brand” (Zhu, 2010). This statement expressed Geely’s openness to the local culture which is imperative in the transnational management. Based on the evidences provided above, it is believed that Geely’s coordination with Volvo trade union is quite successful from the standpoint of cross-cultural management.
Managing operations within cross-national context
Geely has been targeting low-end consumer groups since it is established. As a result, it always focuses on lowering its operation cost. On the contrary, Volvo is specialising in producing luxury cars with a lot of marketing costs to maintain its brand image and huge investment in R&D to secure its leading safety technology and ensure the quality of cars. The two brands are operated in totally opposite business models. There are a number of choices that Geely can choose to manage the operation after the two brands are united. For example, Geely could lay off Volvo’s employees and move the plants to China to pursue its low cost model. At the same time, it can produce cars at low cost and sell it at a premium price under the brand of Volvo. However, this could damage the brand image of Volvo and customers might not trust the cars produced by Geely even the cars are branded as Volvo.
It is obvious that Geely has already taken these factors into account so it did not take the option mentioned above. Instead, Geely decided to keep the two brands independently and make the two organisations operate separately (Zhu, 2010). This decision might be resulted from several reasons. For example, the significant differences between the labour costs in China and Europe. More importantly, the local laws vary between the two areas. That is to say, Geely might be able to fire its employees with short notice in China but it cannot easily lay off a large number of Volvo’s employees in Europe. On the other hand, Volvo trade union would not agree on the relocation of production line either to China or to the other parts of Europe. The discrepancy between the power levels of trade unions from the two areas also contribute to Geely’s decision of separating the operations of Geely and Volvo. According to Geely’s CEO, Geely would produce the cars branded with Volvo in Europe and re-export them to China (Zhu, 2010). Under Geely’s current operating decision, it can take advantage of Volvo’s global distribution channels to boost sales and improve its brand image as Geely without the expected potential risks caused by the different operating conditions of different nations. In this sense, Geely’s operation management within the cross-national contexts is believed to be appropriate.
Cultural conflict in transnational management
It is suggested that cultural conflict arise from the differences in terms of the philosophies, styles, values, and missions of two organisations. Culture is influential in the ways that employees would respond to the new organisational culture (Bijilsma-Frankema, 2001). During the process of M&A like Geely and Volvo, the issue of cultural conflict would be very obvious at corporate level as well as national level. National culture is believed to be deep rooted and it plays an important role in influencing economic utilities, personal motivations, and the ways personal information is interpreted (Edwards and Rees, 2006). At the national level, previous studies have identified several cultural differences between Eastern and Western counties. More specifically, the Chinese culture emphasis on the individuals while the corporation is preferred in the Western culture (Ni, 1999). At the corporate level, organisations would also develop a culture system which involves the distinctive values in terms of management style and practices. Such a corporate culture system is developed from the unique national culture values, that is to say, significant differences would exist in the corporate culture if the corporate culture represents broader national culture differences.
In the case of Geely and Volvo, the CEO of Geely has fully realised the significant culture differences that the two organisations are embedded, both at the corporate level and national level. Instead of struggling with finding an appropriate and effective way to manage the cross culture differences, Geely has decided to avoid or minimise the management difficulties by keeping the two organisations operate independently. There are a few factors that might contribute to the formulation of such a strategy. For example, before the acquisition, the Volvo trade union has been continuously sending message to Geely that they do not support the deal. Even after the acquisition, the Volvo trade union still concern Geely’s ability to help Volvo make its turnaround. This strong resisting feeling from Volvo trade union could be caused by the fact that Geely is a foreign company with little reputation recognised worldwide. If it is another company from a Western culture background to acquire Volvo, then it is very likely that Volvo trade union would not be so worried.
On the other hand, Geely follows a low-cost operation model while Volvo focuses on high-end market segment. There is no doubt that discrepancies would exist between the corporate culture of the two organisations even the national culture differences are not considered. Furthermore, Geely as a local private-owned car manufacture in China, it has no experience in managing the culture issues across the nations. The acquisition of Volvo would be Geely’s first attempt to experience the global business world. Also, Geely has invested a lot in acquiring Volvo which means Geely cannot afford to take any risks that would lead to the failure of such an investment decision. As a result, Geely’s decision of keeping the two brands operates independently is appropriate. Through this way, Geely would not bother how to deal with the complexities of culture differences and it can put its efforts on other business activities.
Protection of Intellectual Property
Another important issue Geely would face in managing the business activities within a cross-national context is the protection of its newly acquired safety technology from Volvo. More specifically, in the Western developed countries, the protection of intellectual property of a company have been secured by laws for a very long period. As a result, the competitors would take this seriously since they are clear that if they steal the key technology from other companies then they will be stuck in a lawsuit. On the contrary, the awareness of intellectual property in China is extremely weak. During recent years, although the protection of intellectual property has been considered in the laws, such a protection is still weak since it would take very long time to come to a conclusion if a dispute arise due to the incomplete law system. Accordingly, Geely would face a real threat of the imitation in terms of its safety technology from local competitors in China.
In China, Geely’s focus on economy cars implies that it would put its efforts on sourcing the raw materials to lower its production and operation costs. The protection of its technology is rarely considered as necessary since its main competitive advantage is low cost rather than its technology although it has invested a lot in R&D. With the acquisition of Volvo’s advanced safety technology, Geely would face the issue of Intellectual property protection which might not be considered as a big problem in the Western business environment. In order to deal with the differences between the business environments, Geely has decided not to bring Volvo’s safety technology back in China. More specifically, it will produce the cars with Volvo’s technology in Europe as usual and then export it to China. Through this way, the risk of releasing Volvo’s key technology would be avoided. At the same time, Geely could easily bring the technology home if its domestic business environment in China becomes more developed.
It is suggested that the process of post-acquisition integration is one of the important factors which could determine the success or failure of an acquisition (Haspeslagh and Jemison, 1991). One of the biggest challenges for Geely is how to carry out the post-acquisition integration process within a cross-national context. Although Geely has claimed that the management of the two organisations would be mainly independent, it is still necessary for Geely to adjust its management practice to achieve a further integration of the two organisations. This is because no matter how independent the two organisations would operate, Volvo is still a part of Geely. Geely’s decision to keep them separately could be subject to its inability of conducting cross-national management which can be considered as temporarily. That is to say, Geely’s strategic choices with regard to the management of the acquisition may not reflect its real intention. Based on Geely’s little cross-national management experience, it has claimed to hire experienced managers to lead Volvo and this is perceived as appropriate in the current circumstances.
In conclusion, this report has provided a critical analysis of the acquisition of Geely and Volvo. It has justified the rationale of Geely’s strategic move to acquire Volvo to enter the global market. Then it has discussed the challenges Geely is facing in terms of the cross-national management. These challenges includes the relationship with Volvo trade union, the operational management of the two brands, the management of cultural conflicts, the protection of intellectual property, and the post-acquisition integration process. Each of these issues has been explored in details and Geely’s responses to these challenges have been analysed. From the standpoint of cross-national management, it can be concluded that Geely’s strategy in the management of the acquisition is appropriate in the current situation and its acquisition of Volvo can be considered as successful so far.
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