The paper 'Global Business Strategies' is a wonderful example of a Business Case Study. China has become one of the fastest-growing economies to date and this has meant that there is a need for companies operating in China to expand into new markets. Therefore, the intention for Chinese carmaker Geely to purchase a European automaker, Volvo is more of a strategic decision than just business expansion. One benefit that is associated with such an acquisition is that Geely will gain the market share that was previously held by Volvo (Dunne 2002, p.
5). It is a sure way of gaining a competitive advantage in a highly competitive global car market as it places the Chinese automaker on the global market compared to when it was only known in China. Therefore, this paper will analyze the global business strategies that could be available for Geely as it seeks to grow its business. Market Entry Strategies FDI Vs Exporting There are numerous ways Geely is able to penetrate the foreign market for its brands, as well as the Volvo brand. It is important to note that Volvo is one of the most respected European automakers thanks to its European technology that would be transferred to its owners, Geely on the acquisition.
In addition, foreign market entry strategies depend on the risk involved with the transaction. From the case study, Geely’ s acquisition of Volvo can be described as a foreign direct investment (FDI) where they would have ownership of Volvo’ s production units in Europe as well as its existing market (Neery 2008, p. 64). The fact that Geely invests in the Swedish automaker makes it an FDI where it gets 100% ownership of Volvo.
This means that Geely would have the technology used in the production of Volvo which may be essential as it may enable them to also implement such a technology in the production of their vehicles. Aside from that, Geely is also able to enjoy the economies of scale that were previously enjoyed by Volvo, which has a long history and reputation in the global auto market. In particular, it was the vision for Geely to secure access to Volvo’ s modern automotive technology. Geely may also use the acquired marketing units of Volvo to market their existing product line a case which also provides a large market for Volvo in the Chinese market.
Since Geely has full ownership of Volvo, it will be able to have a tight control over its operations and its technological competencies. However, direct investment through a wholly-owned subsidiary method of foreign market entry may be too costly as it was the case with Geely. In particular, Geely spent about $1.8 billion for full ownership of Volvo which was rather expensive considering the level of risk associated with such a venture, especially with declining auto sales (Dunne 2002, p.
6). In addition, Geely will be needed to show more commitment to such a venture as they take up all the operations of Volvo. Finally, there may be a backlash from the nationals and government in the home country of Volvo majorly due to the low quality associated with Chinese products. European vehicles are known for their quality, and this may be difficult to maintain with a Chinese owner as it is considered a European tradition.
List of References
Dunne, M 2012, “Stuck in the Zoo: The Geely-Volvo Deal, Three Years Later,” The Wall Street Journal, Dec. 03, 2012, Viewed from http://blogs.wsj.com/chinarealtime/2012/12/03/stuck-in-the-zoo-the-geely-volvo-deal-three-years-later/
Harzing, AW 2002, “Acquisition versus Greenfield Investments: International Strategy and Management of Entry Modes,” Strategic Management Journal, vol. 23, no. 3, p. 211-227.
Neery, JP 2008, “Trade Costs and Foreign Direct Investment.” International Review of Economic and Finance, vol. 18, no. 2, p. 207-218.
Pan, Y & Tse, D 2000, “The Hierarchical Model of Market Entry Modes,” Journal of International Business Studies, vol. 31, no. 4, p. 535-554.
Terpstra, V & Sarathy, R 2001, International Marketing, 8th edn, Dryden Press, Chicago IL.
The Economist 2009, Idea: The Experience Curve. The Economist, September 14, 2009, viewed from http://www.economist.com/node/14298944