Frost & Sullivan comments on Geely's purchase of Volvo
In a statement, the company said: 'While the deal itself will take until the 3rd Quarter of 2010, so the actual benefits will really be reaped from 2011 onwards. As it has been structured and conceived, there are significant opportunities for Volvo as well as Geely in this alliance. While penetrating China will be a major opportunity for Volvo, Geely has the opportunity to gain engineering and process know-how to improve quality, safety and reliability of its models, thereby boosting the export potential of its vehicles.
'In terms of manufacturing locations, while Geely's commitment to keeping Volvo as a separate division from its Chinese operations, does ensure the short term operation of Volvo's plants in Sweden and Belgium, there is no long-term certainty about the future of these plants. Geely would be best placed to sell Volvos manufactured in China itself in the local market, while using the existing facilities in Europe to continue serving markets in Europe and North America. However, Geely could enable Volvo reduce its cost by increasing content sourced from China.
'There are also significant challenges that need to be addressed, for this deal to be successful. In particular, Volvo being a premium brand, competes on technology with the likes of BMW, Mercedes-Benz, and Audi. While Volvo has established its safety and reliability as its brand attributes, the company will need continuous investment to ensure its R&D is able to churn out advanced technologies. Currently, Volvo is behind its premium competitors in introducing other advanced technologies in domains such as vehicle powertrain, which is becoming a critical area, with the growing pressure from regulators on reducing emissions.
'Overall, Geely's purchase of Volvo will work only if the company is willing to adopt a radically different approach from its Chinese competitors that had previously undertaken automotive acquisitions and failed.'