Volvo’s Underperformance in China Report

Introduction

Volvo Group is a Swedish vehicle manufacturer that provides transport and infrastructural services to the global market. Volvo promotes reliability and cost-efficient maintenance as its product’s selling point. However, Volvo does not enjoy the same appreciation as other giants of the vehicle market, such as BMW or Mercedes. Despite its global recognition and relative prestige, Volvo’s products struggle to compete in the Chinese market. This report will analyze the managerial capacities of the Volvo Group China and suggest a leadership perspective on the underperformance issue.

Analysis: The Challenge

After the introduction of Volvo into the Chinese market, problems arose that impeded the company’s stable development in the country. First, the Western media reacted negatively to the acquisition, which was associated with the then-political villainy of China (Fang and Chimenson, 2017). However, the main problem with the effective introduction of the company, according to Scientific Management, was the lack of organizational behavior (Organisational Management). Li Shufu, the Chinese CEO of Zhejiang Geely Holding, underestimated the complexity of acquiring an internationalized brand (Jonsson and Vahlne, 2021). As a result, local management capacity in China’s emerging economy prevented Volvo from gaining market share. Insufficient managerial function results in an inability to manage the increasing complexity of coordination due to increased demands, complexity, and diversity of cultures and market characteristics (Jacob, 2019). The problem of succeeding in China has been problematic since the early years of her rule Li Shufu. In this regard, VGC, with a new management team led by the CEO, was tasked with developing new models to increase profits.

Cause of the Challenge

The reasons for Volvo’s underperformance in China are multiple. Firstly, lacking the managerial capacity in an emerging economy leads to disrupted operations due to the complexity of operational tasks (Yakob, 2019). Yakob (2018, p. 2) said “managerial capacity develops organically and relatively slowly within a company.” Secondly, Chinese executives underestimated the difficulty of establishing an organizational culture (Jonsson and Vahlne, 2021). Thirdly, such non-market factors as political tension, lack of publicity in Chinese media, and specifics of Chinese consumer informed subpar sales (Zhu, 2020). Thus, lack of experience, managerial capabilities, and external non-market factors contributed to Volvo’s failure in China.

Challenge’s Impact on the Company

Although Volvo’s reputation as a reliable and affordable manufacturer was not markedly compromised, its financial stance was substantially undermined. According to Zhu (2020, p. 459), “from January to August 2020, Volvo ranked twenty-seventh among all brands in terms of sales volume in China.” Additionally, Volvo failed to build an image of a luxury brand. Zhu (2020, p. 463) indicates that other reputable brands like Mercedes have successfully established themselves as prestigious manufacturers despite having a “higher degree of localization.” Overall, Volvo missed an opportunity to establish a desirable public image in addition to a considerable loss of potential revenue.

Evaluation and Recommendation

Volvo’s structure suggests strong leadership, but practice shows weaknesses in the Chinese environment. The organizational theory includes an analysis of the performance and efficiency of organizations, as well as the actions of employees and groups within them. According to Volvo (Volvo Group, 2021, p. 189), the company’s organizational structure emphasizes “the synergistic effect of having global organizations for product development, procurement, and manufacturing, while maintaining clear leadership and accountability for each area of the business to ensure that customer needs are met.” The manager has ultimate authority over resource allocation and manages it through scheduling, subordinate work programming, and authorizing essential decisions. While Volvo’s management meets the basic criteria of the theory, its approach does not work in China.

Key factors driving Volvo’s poor performance include a lack of local management capacity, inadequate expectations, and external factors outside the market. Given the theory of organizational structure, the range of control means assigning an appropriate number of employees to the manager. Implementing the principles of coordination, planning, motivation, and leadership is necessary. It is necessary to assign as many employees as possible to a manager and give them enough time and support to manage their staff. Yakob (2018, p. 2) postulates that increasing organizational capacity is critical to “child growth, productivity, and longevity.” Since these problems still exist, Volvo’s organizational structure needs to be addressed, and the approach to organization needs to be reformed.

The company should consider introducing new leadership strategies to correct this problem and promote organizational capacity development. According to Altinay et al. (2020), applying principles and coaching to managerial practice contributes to organizational capacity development. These results are consistent with the situational leadership model, which suggests a gradual transition from directive to supportive behavior (Thompson and Glasø, 2018). Volvo should introduce case approach concepts to educate local staff and promote managerial development.

In addition, Volvo could benefit from improving its brand in the Chinese media environment. Hossain et al. (2017, p. 64) note that Volvo has developed a unique management philosophy known as the Volvo Way. The company has a robust quality control system to enhance the reputation of a reliable and efficient product (Hossain et al., 2017). Highlighting these qualities in an advertising campaign will help Volvo gain a competitive edge in a saturated market.

Conclusion

Volvo Group is a globally recognized vehicle manufacturer that provides numerous transportation domains worldwide. However, the company struggles to capitalize on its strengths in the Chinese market. The theory of managerial capacity has been instrumental in understanding Volvo’s shortcomings in its expansion to China. Implementing a situational approach to leadership and solidifying customer perception via media campaigns have been proposed to address the underperformance in the Chinese setting.

Reference List

Altinay, F., Altayli, Y., Altinay, Z., Dagli, G. and Altinay, M. (2020) ‘The Role of Mentoring and Coaching in Managerial Capacity Development’, Postmodern Openings/Deschideri Postmoderne, 11.

Fang, T. and Chimenson, D. (2017) ‘The internationalization of Chinese firms and negative media coverage: The case of Geely’s acquisition of Volvo cars’, Thunderbird International Business Review, 59(4), pp.483-502.

Hossain, M.Z., Tasnim, M. and Hasan, M.R. (2017) ‘“Is Quality Ensuring to Get Competitive Advantages in Auto Manufacturing Industries?”—A Study of Volvo Group’, American Journal of Industrial and Business Management, 7(1), pp.48-68.

Jonsson, A. and Vahlne, J.E. (2021) ‘Complexity offering opportunity: Mutual learning between Zhejiang Geely Holding Group and Volvo Cars in the post‐acquisition process’, Global Strategy Journal.

‘Organisational Management: Contemporary Organisational Management’ [PowerPoint presentation] 2022.

Thompson, G. and Glasø, L. (2018) ‘Situational leadership theory: a test from a leader-follower congruence approach’, Leadership & Organization Development Journal.

Volvo Group (2021) Leading The Transformation. Web.

Yakob, R. (2018) ‘Augmenting local managerial capacity through knowledge collectivities: The case of Volvo Car China’, Journal of International Management, 24(4), pp.386-403.

Yakob, R. (2019) ‘Context, competencies, and local managerial capacity development: A longitudinal study of HRM implementation at Volvo Car China’, Asian Business & Management, 19(5), pp.582-609.

Zhu, J. (2020) ‘December. A Case Study on Volvo in China: Using the non market strategy to analyze the underperforming of high reputation companies’. In 2020 Management Science Informatization and Economic Innovation Development Conference (MSIEID) (pp. 459-463). IEEE.