At the time, Geely’s purchase of Volvo from Ford in 2010 was one of the most high-profile takeovers by corporate China, and it still serves as a test case for Beijing’s industrial ambitions. The deal is part of the debate that rages over China’s overseas acquisitions, which are often subject to close European and US scrutiny. At the higher levels inside Volvo itself there was an acute sense of the company’s vulnerability. What happened, however, came as a surprise to everyone.
‘I believe that when Geely acquired Volvo they did so for the brand, the technology, the engineering, the market presence. The one thing they had – and that was misunderstood by many – was a huge respect for Swedish innovation, engineering, people and the Swedish business model,’ says Tom Johnstone (who we met in Chapter 15), one of the European corporate heavyweights brought in by Geely to help steer the ship. Although a Scot, Johnstone is a veteran of Swedish industry, the former boss of ball-bearing maker SKF and with a string of Swedish board positions under his belt. All its life, Volvo cars had been a division of a bigger industrial group – first as part of Volvo AB, which made trucks, earth-movers and marine engines, and then a division of Ford. Now it became a company in its own right, giving it a shot of energy.
Ford had brought some financial discipline, but it wanted Volvo to be part of the bigger structure, says Lex Kerssemakers, the Dutch head of Volvo in the US who, when we spoke in 2017, had been with the company for 25 years. Volvo management felt under siege by the Americans: ‘Engineers and people here felt limited in their freedom, we had to comply with rules not based on our values and ethics – instead, there was hierarchy, processes, law and order, meetings, formalities. Swedes want to be independent, they want to be left alone, they don’t bother other people too much. When you take away their independence they start to revolt, and that happened a little under Ford.’
The Chinese were clever, Kerssemakers says – the new owners didn’t start a revolution, but created momentum: ‘That was a huge difference, it triggered a lot of dynamism. Follow your business guts, they said.’ Geely gained a lot of respect because they trusted Volvo, they had the patience and vision to allow the company to do its job. ‘We know how to make cars, the competence level is extremely high, so the Chinese said: you are the knowledgeable partner. What they brought was an entrepreneurial attitude – follow your intuition, don’t try to calculate everything. Many of us felt extremely obliged not to disappoint the major shareholder.’
Under Ford, Volvo had adopted a tortoise approach – ‘withdraw into your shell, pull in your legs and head and allow the Ford strategy to wash over you,’ says Carl-Peter Forster, a German executive who had worked in the auto industry all over the world, helping to lead companies such as BMW, General Motors and Tata Motors before he joined Volvo. ‘The American automotive companies believe it is best to tell everyone exactly what process to follow every day. So you push back. I think Volvo has started sticking arms and legs out and is moving forward confidently again. Geely supported us financially, but didn’t rescue us – that changed the mindset inside the organisation. You have to allow the organisation to build a great product, and allow the people to decide what is a great product that suits our brand.’
The approach was similar to that of the new Indian owners who took over Jaguar Land Rover at around the same time that Geely bought Volvo, Forster says. A more entrepreneurial culture came in and said: I believe in the brand, lets unleash the organisation. ‘Initially you have to fund it, but in both cases it worked. It was a huge investment for Geely, and they are a smashing hit.’ The Chinese owners were not benevolent, it was all about business performance, about moving faster and growing, being more entrepreneurial, about drive and speed: ‘We didn’t have that under Ford – how could we? We were told which model we could do.’
This was what ‘freeing the tiger’ looked like in practice. ‘Li Shufu is pushing like hell – we will never be going fast enough for him,’ says Johnstone. ‘It’s a lesson for the rest of Sweden – we need to go faster. Those companies who are open to Chinese competition already realise that. … The Chinese can build a city for 10 million people in the time it takes for us to build a bridge.’
Magnus Sundemo, the union leader and arch-sceptic of the Chinese, now admits that his fears were groundless. When Geely first took over and were making changes at the top, they sacked a lot of managers – with Sundemo’s assistance. ‘I didn’t tell them who to sack, but I advised them. In a sense, that was the Swedish model,’ he says. Sundemo remembers the first board meeting under the new boss, when Li started reciting poetry: ‘It was both exciting and scary. They came in with a philosophy of handing control back to Volvo. That was a brave step.’ Geely gave the top management freedom to do what they wanted, and they were supportive, instead of scrutinising every decision as Ford did. ‘Ford put in controllers, a mega matrix organisation. They had all these managers in human resources, research, production and finance, to interfere in the organisation. Ford had a lot of cash to throw around, but no ideas about how to develop the industry.’
It seemed freeing the tiger might be more than a catchy slogan. The Chinese strategy of running Volvo Cars as an independent organisation within Geely, with unprecedented freedom and access to capital, delivered results. After an initial slump in 2011–12, Volvo rebounded. Its profit margins nudged up towards those of the big three German brands that are seen as Volvo’s main competitors – Audi, BMW and Mercedes. Sales hit a record at more than half a million cars in 2015, and continued to climb. Its first new models under Chinese ownership were well reviewed. Development times were slashed – it took Volvo 44 months to develop a new car in 2010; five years later it was down to 30 months. Instead of extracting a dividend, Geely invested all the cash back into the business, spending £7bn on developing new models, engines and platforms.
Before the Chinese takeover, Volvo had no manufacturing facilities outside Europe; now it has three plants in China and one in the US, while China has become its biggest market. Its new R&D company, CEVT, went from zero to more than 2,000 highly skilled employees in Gothenburg in the blink of an eye, bringing together an international team of designers. ‘The suspicious view [of the Chinese] gradually disappeared,’ Christer Karlsson, professor at Copenhagen Business School, told the Financial Times. Sundemo says: ‘We could never have made the investments that were made under Geely if we had remained under Ford. At no time did we come close to expanding so fast and taking such brave decisions on new products.’ In the words of Hans Enocson, former chief executive of GE in Sweden: ‘Ford didn’t invest in Volvo, they just milked it.’ Geely was a very different owner.
The most tangible result of the takeover, the XC90, bore little relation to the old Volvo SUVs whose tyres were deflated by environmentalists ten years earlier. This was a second generation SUV, redesigned from top to bottom, the quintessential product of Chinese energy combined with Swedish expertise. ‘The XC90 is Swedish,’ Sundemo insists. ‘Our big idea was to build on the history, the good things – safety, environmental quality, Nordic design, and to go the full way.’ Indeed, the new model emerged out of a tension between Volvo’s Chinese and Swedish leaderships. In 2013, Li publicly criticised Volvo’s design, particularly interiors that he saw as ‘too Scandinavian’. Sundemo recalls: ‘In the beginning there were some misunderstandings – Li wanted to go luxury, Jacoby wanted to be Nordic.’
Carl-Peter Forster also noted this contrast: ‘It is quite interesting to observe – to create a Swedish super-premium international brand entails some interesting challenges. One of the slight challenges we have is to present the premium-ness of Volvo in a country like China, where premium-ness is all to do with visual richness, gold-plated things – which is absolutely un-Swedish. Lots of people love the restrained, minimal Swedish design using natural colours. For certain luxury brands that is difficult. Lots of Europeans have a soft spot for this refined luxury that has a sense of understatement and style. Not to the same extent in Asia or Russia.’
It could be tempting to see Geely and Volvo as a story of happily ever after. This tectonic shift in the Swedish and Chinese business landscape might seem to have taken place largely without tremors, eruptions or earthquakes. This is not the case. Cars are a cut-throat business. Throats were cut. Li sacked his first appointed chief executive, Stephan Jacoby, in 2012 while the latter was still in hospital after suffering a stroke. Jacoby was popular with staff for his love of cars and reluctance to allow Geely to get its hands on too much Swedish technology. Pehr G. Gyllenhammar, a former head of Volvo Group, recently described Volvo’s fate as a tragedy. ‘I think they’ve ruined the whole of Volvo since I left, dismantled the largest industry in Sweden in a hurry, without getting anything for it. … There are many who are extremely pleased, but not the Swedish people, who have enormous loyalty.’
The changes have been part of a gradual decay of the Swedish model, according to Glenn Bergström, head of the blue-collar union at Torslanda. To him, the fate of nearby Saab still hangs over Volvo like a shadow. Hit by the same crisis that drove Ford to sell Volvo to the Chinese, Saab failed to find a buyer with deep enough pockets and went bankrupt in 2011. Thousands of jobs were lost. ‘We didn’t used to fear unemployment, now we do,’ Bergström says. ‘If something should happen to Volvo Cars there is not a chance in hell that they could take care of that.’
So how does the story look from the Chinese side? At the time of the acquisition, the media were fond of quoting a Chinese expression that Geely buying Volvo was ‘like a snake swallowing an elephant’. The simile referred to the differences in size between the two companies, rather than any anthropomorphic features of the animals in question. But after the event, the phrase seems more appropriate as an image of an elephant-shaped snake, its thin skin stretched over something that is still clearly an elephant.
In his simple, oak-panelled office at Volvo’s low-ceilinged headquarters in Torslanda, Peter Zhang, who played a key role in Geely’s takeover of Volvo and was Li Shufu’s spokesperson, takes a big-picture view of the process. Despite the high costs, there was no question of closing production and moving it to China. It is more about generating value, he says: ‘The costs going forward will level out – through productivity gains, higher levels of automation and so on. It has turned out to be good. We didn’t even think of reducing the manufacturing footprint in Sweden in 2010, and there is even less reason to think about that now.’ For Zhang, companies are just organisations of people, and those people have roots – they have been brought up in their own ways, immersed in their own cultures. ‘So it’s all about how you have a company style or culture that brings the best out of people.’
Of course there were culture clashes – this was inevitable, Zhang says. But Li Shufu was a ‘sensible guy’ who had respect for Volvo’s culture and core values, and he established a governance structure so Volvo was governed by an independent board. Zhang says: ‘When we took over in the beginning we said Volvo will be governed independently. “Geely is Geely, Volvo is Volvo” – that was the catchphrase. So the board has been trusted to make decisions with the support of the owner. We have had a lot of strategic projects between Geely and Volvo, with people working together, so I have overheard comments about the other organisations, and people might feel a little frustrated when it comes to understanding each other. But these sorts of tensions over time have become fewer and fewer, people are trying to find ways to understand each other and work with each other.’
Zhang met the former union boss Stefan Löfven once more after Löfven had become prime minister in 2014. ‘When we saw him again he was very pleased,’ Zhang recalled. ‘He said we had delivered what we promised.’