China's Disruptors : How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business (9780698184114) by Tse Edward

Author:Tse, Edward
Language: eng
Format: epub
Publisher: Penguin USA
Published: 2015-06-14T16:00:00+00:00

GEELY BUYS A BRAND

At the start of 2010, Geely Auto was a minor player in China’s auto industry—a mid-sized, privately owned carmaker based in east China’s Zhejiang Province. The company was profitable, but with sales of just 400,000 vehicles a year. In March of that year, however, it transformed its scope and reputation overnight with the announcement that it was buying Swedish carmaker Volvo from Ford Motor Company for $1.5 billion.

Five years on, the prospects for Geely’s global aspirations remain as uncertain as the day the company struck that audacious deal. And if its gamble does pay off, it could well find itself as China’s first global automaker.

The purchase was anything but an obvious prospect for success. Although it more than quadrupled the Chinese carmaker’s revenues, and nearly doubled its annual sales volume, it also landed Geely with a company that had been losing money for years. Despite its best efforts, Ford had failed to revive the brand since acquiring it in 1999. Turning it around would require $11 billion, Geely estimated—quite a stretch for a company with an annual turnover of just $3 billion before the Volvo purchase. Geely’s founder and owner, Li Shufu, however, was confident he had a solution that would allow him to succeed where Ford had failed, by selling Volvo cars in volume in China.

Li, born in 1963 into a farming family in Zhejiang Province, had been running his own businesses since his teenage years, starting with a photo studio with equipment he made himself. Noticing that photographic by-products included valuable elements such as silver, he started a second business trying to recover valuable metals from discarded equipment. That enterprise went nowhere, so after studying engineering, in the late 1980s, he started a refrigerator components company, which he then upgraded to making whole refrigerators. A change in regulations forced him to hand that business over to the local government. After a second spell at university at age 30, he launched China’s first privately owned motorcycle factory in 1993.

His timing was perfect. As Deng Xiaoping’s relaunch of economic reforms took hold, people across China abandoned their bicycles for motorbikes, and by the mid 1990s Li was running one of China’s biggest private companies. Fifteen years later, it was an automaker with giant aspirations.

During the first few years after the Volvo acquisition, things didn’t work out as Li had planned. He had expected that his company, already China’s biggest non-state-owned carmaker, would parlay its new access to a globally recognized brand name and advanced automotive technology into a major position in the country’s burgeoning motor-vehicle market. But Chinese government officials, who had long wanted to see the country’s state-owned auto firms emerge as national leaders, were clearly uncomfortable with the deal. They ruled that, despite Geely’s 100 percent ownership of Volvo, the government would continue to treat Volvo as a foreign company. If Geely wanted to make and sell Volvo cars in China, it would have to form a joint venture with its own subsidiary.

Though sales of Geely cars rose steadily to 700,000 by 2013, its Volvo arm continued to struggle.

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