After the acquisition of Volvo international car industry and a well-known brand, the issues of integration to the local market, raising profitability, and brand positioning became topical. The analysis of the case could help develop a better understanding of the car market and reveal the strategies Volvo and Geely used to make the most of their new status.
Integration with Local Market
The access to Chinese car market is complicated mostly due to the unfair competitive environment. With the state-owned car companies (SOE) given the privilege in the key sphere of the Chinese economy, foreign companies need to establish a partnership with Chinese companies to introduce their products, which bears additional costs. Another issue undermining the financial health of Volvo in China was an elaborate system of intellectual property for technological solutions. It is also obstructed the plans of Geely to enhance their products with Volvo’s knowledge. However, a histogram of private car sales shows a 25% growth, which inspires hope for finding and occupying a niche.
The bad news is that around 90% of the market is taken by Chinese original equipment manufacturers (OEMs). To win over even the smallest share of a market seems to be a tough challenge. The situation is also worsened by the unpredictable market changes that are the result of frequent ruling party interventions. The gradual change in the quality of the local production is narrowing the gap between foreign and Chinese manufacturers. Nowadays, the quality guarantee and low-complaint performance do not apply solely to international brands, so Volvo cannot use that as a marketing strategy too.
Raising Profitability
Chinese Market sales of Volvo cars in 2009 showed that locals are mostly interested in mid-class mid-price family vehicles such as crossovers or lengthened sedans. The latter were developed in 2010 exclusively for the Chinese market and turned out to be successful showing a 35% increase in comparison to the previous year. For Volvo, 2010 became the year of a substantial increase in profits with a 19% growth of combined sales in China. This growth was mostly due to good sales of crossovers and XC 60 in particular, which constituted roughly 40% of the gross sales. Thereby, the strategy to expand the range of products assimilating and developing new models to suit the market needs appeared to be a success. In addition, the statistics indicated the demand of Chinese buyers for crossovers, which determines the further path of the company. Due to the relative success in the market, Volvo could allow itself to experiment with the new models.
Brand Positioning
Buying Volvo, the owner of Geely stressed his desire to preserve the brand name and uniqueness. Volvo became a fully autonomous company under the Geely holding with all of its staff policies remained intact after the acquisition. This probably gave Volvo a breath of fresh air and the much-needed market space in China. In 2011, Volvo announced its plans to expand in the Chinese market. It was probably the unanticipated success in China that inspired Volvo board of directors to face towards Asian markets almost doubling the plans for the number of outlets, R&D and manufacture facilities in China, while their primary rivals compete for the US and Europe. Globally, Volvo occupies a middle segment of the market oriented towards people who prioritize durability and comfort over style. The Same strategy seems to apply in China, where Volvo will establish itself as a top-quality seller.