Glamor Economics

Chapter 73

Chapter 10 Section 7 Behind Geely's Acquisition of Volvo - Cross-border Mergers and Acquisitions

Today, under the economic background of global integration, transnational production and operation has become a new business strategy and resource allocation model.The transnationalization of production and management is the most prominent international phenomenon in the field of production, and it is also a more profound manifestation of the closer development of international economic relations.Transnational corporations organize the production process on a global scale, and the market barriers of nations and countries are continuously broken through by the global strategies of multinational corporations.

At 2010:3 pm on March 28, 9, Geely formally reached an agreement with Ford Motor Company of the United States to acquire Volvo Cars under Ford for US$18 billion, obtaining 100% of the shares of Volvo Car Company and related assets (including intellectual property rights).Experts pointed out that Geely, which is in the transition period to high-end cars, seized the opportunity of the financial crisis and successfully acquired Volvo. The happiest Chinese in people's eyes.

Geely's acquisition of Volvo is the first time that a domestic auto company completely acquires a global famous auto brand with a history of nearly a hundred years, and it is the first time that a Chinese company has acquired a full shareholding, a full-brand acquisition and a full-system acquisition of a foreign company.

Geely's acquisition of Volvo did not happen overnight.As early as 2002, Li Shufu had the idea of ​​acquiring Volvo. He has been studying it for more than 8 years, and it has been nearly 3 years since he first formally communicated with Ford.In Li Shufu's view, Geely's understanding of Volvo and the auto industry, as well as Ford's understanding, are very important elements for Ford to choose Geely as Volvo's new owner.

"It's not that you can buy Volvo, one of the three famous cars in the world, with money. On the other hand, it doesn't mean that you can't buy it without a lot of money." Li Shufu believes that China's cost advantages in procurement and research and development, It will definitely enhance the global competitiveness of Volvo cars in the future.

Regarding this merger and acquisition incident, Li Mingguang, director of the Foreign Investment and Economic Cooperation Department of the Ministry of Commerce, told China Economic Weekly that although Geely is not the first case of a domestic vehicle manufacturer acquiring an overseas vehicle manufacturer (SAIC Motor acquired South Korea's Ssangyong), but the impact is great.In Li Mingguang's view, China's huge market share is also one of the main factors attracting Volvo.

"Although Geely's technical strength is not as good as Volvo's, we have a huge domestic market as a support, which is good for revitalizing the Volvo brand." Li Mingguang said.He believes that this merger will play a role in demonstrating and leading the revitalization of China's manufacturing industry. "China's private enterprises already have the vision and ability to carry out transnational operations. We cannot ignore the status and role of private enterprises in 'going out'."

Cross-border mergers and acquisitions are the international flow of more factors of production, including management, technology, information, and markets. —— Cross-border mergers and acquisitions reduce international trade in final products, while increasing international trade in intermediate products through market internalization.

Under the global production deployment of multinational corporations, the production location of products and their parts mainly depends on the optimal allocation of production factors, and the differences between countries are gradually weakening.In the global expansion of multinational corporations, the industrial distribution is more and more the result of the global strategy of the multinational corporations, and less and less continues to be the embodiment of the national industrial policy.The exchange of products is the basic and primary form based on the formation of comparative advantages based on the country's economic conditions.The international flow of factors is a more advanced form than the international flow of goods, which can form new comparative advantages and optimize resource allocation, which is the economic significance of cross-border mergers and acquisitions.

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The resource allocation behavior of an enterprise is to obtain as large an incremental resource as possible with as little resource consumption as possible through the re-optimization and combination of resources.In other words, it is an act of pursuing capital appreciation.The cost reduction process itself is a process of optimizing the allocation of resources.The composition of resource allocation costs includes: pre-preparation costs, such as information costs, decision-making consulting costs, asset evaluation and audit costs, and negotiation costs for external projects; direct costs during the period, such as acquisition costs, transaction costs, labor placement costs, and incremental inputs The input cost of the project, the revitalization cost of the revitalization project; the later integration operation cost, risk cost and opportunity cost, etc.

(End of this chapter)