Insight in the Geely Volvo deal

Li shu Fu masters relationships

At age 46, Li Shufu, born into a peasant family in Zhejiang in the south-east, has the audacity of a contractor that had experienced economic growth. At 20, he sold refrigerators. Then in Hangzhou, capital of the province, he started a motorcycle factory, which will Zhejiang Geely Holding Group when it begins production of automobiles.

Geely is a small manufacturer, but Li Shufu has the art of finding support. Last year, U.S. bank Goldman Sachs lends 250 million dollars. And, for the purchase of Volvo, it borrows the equivalent of one billion dollars to a group of Chinese state banks. In financial circles western Beijing, one wonders if this aid is not in contradiction with the competition rules of the WTO.

Politically, its industrial beginnings, Li Shufu has moved closer to Xi Jinping, governor of Zhejiang. It now belongs to the group of nine leaders of the Communist Party must strengthen its position as the leading contenders to succeed President Hu Jintao. On March 28, located by chance on an official trip to Sweden, Xi Jinping came to the ceremony to buy Volvo enjoy, in addition to Li Shufu, the impact of the event. In China, the friendships remain a regional basis for policy.

Press worry about Geely ability to pilot Volvo

Obviously, the reputation of the firm Geely has been tenfold. The site Auto-ifeng.com believes that the mass of reports made about the acquisition of Volvo is equivalent to an advertising campaign of $ 2 billion. Many Chinese media detailing the strategy of Li Shufu: owning a global brand known for its security concerns and environmental protection will enable it to develop its own products not only in China but elsewhere in the world.

Congratulations and fears, however, are mixed. The Chinese media wondered how the purchase will be profitable. The turnover of Volvo is in decline and the economic crisis has exacerbated the financial losses of the group. The planned comparisons with the "old European aristocrats of the automobile" as-described journalist Wei-Jinqiao failed. In late 2008 nor Mercedes or BMW neither Renault have accepted the offer to buy at the price Ford proposed. The purchase was made by Geely at 1.8 billion while Ford acquired Volvo for 6.4 billion.

Li Shufu said that Volvo's difficulties came from the small size of its production. On 31 March in Beijing at a press conference, he explained: "A limited production capacity means higher costs per unit." The solution is to have confidence in "the rapidly growing Chinese market growing and to position Volvo as a brand leader, "he said. The existing channels in Sweden and Belgium will be maintained. And a Volvo plant will be installed in China with the goal out 300,000 vehicles per year.

How to manage a European company for a Chinese?

In China, the practices of European capitalism are another source of concern. Several papers recommend to watch closely the amount of payroll taxes. In China news, the journalist Zhao Jie summarizes a widespread feeling: "The acquisition of Volvo is the first step. The next step will be to deal with unions. "Li Shufu said that he was in contact with labor unions Volvo during the 2-year-long negotiation of purchase and they are satisfied with agreement signed with Ford. To reassure them, including Geely announces that the distribution network of suppliers and Volvo will not be questioned.

The aftermath of the agreement in Gothenburg will be followed under the microscope, both by Chinese manufacturers who wish to buy foreign companies and Westerners seeking to sell their business. For his part, Li Shufu is already on another track: Geely has taken a majority stake in Manganese Bronze, which makes London taxis. This British company is currently in deficit.


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