Volvo-Geely’s Li Shufu: If international companies are to succeed in China, they must learn locally to prosper globally; Volvo, like other western car firms, has learned that you cannot just be present in China to succeed

If international companies are to succeed in China, they must learn locally to prosper globally

Volvo, like other western car firms, has learned that you cannot just be present in China to succeed

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By Li Shufu

9:00PM GMT 09 Mar 2014

When the global auto industry gathered in Geneva last week to show off its latest products for 2014, the impact of China on sales, output and profitability was a common theme.

Chinese consumers and Chinese demand are vital for the health of this industry, compensating for volatile market conditions in many other parts of the world – particularly in Europe.

The pace of development has been unprecedented, with Chinese car sales increasing from under 380,000 a year in 1996 to almost 22m last year.

Yet even today, car ownership in China is still at only 60 vehicles per thousand people in major cities, compared with more than 800 per thousand in America and more than 600 per thousand in Europe.

But while the Chinese market has plenty of room to grow, the car industry must adapt to changing market conditions – not least the constraints on economic development caused by pressures on energy, the environment, resources, skills and distribution – as well as increasingly discerning consumers.

Chinese buyers are becoming more discerning and more rational in their approach to vehicle ownership, particularly when it comes to the environment, energy and safety.

So China, the largest car market in the world, is no longer a one-way street for global companies seeking to maximise sales. Instead, manufacturers are investing billions to open Chinese plants and establish joint ventures and sales networks.

At the same time, Chinese firms are learning how to improve quality, to use new technologies and establish viable export businesses. They are also learning the benefits of inter-dependence with global brands.

This mutual benefit is central to Chinese enterprise, which is why companies operating in China need to embrace international standards of corporate culture and technology. Hence many Chinese companies are increasingly willing to pursue alliances and acquisitions.

Zhejiang Geely, the company I founded, symbolises this approach to a global enterprise culture. In recent years, having established one of the largest privately-owned car groups in China, we have acquired the London Taxi Company, as well as DSI, the Australian automatic transmissions business, and most notably, Volvo Car Corporation. Building on that expansion, we last month acquired Emerald Automotive, the UK producer of lightweight hybrid electric vans.

Chinese companies are now learning from their international subsidiaries, and explaining how best to grow in China. Our work with Sweden’s Volvo demonstrates this approach, sharing best practice in financing, product development, technology and marketing, while allowing Volvo to grow within its own product and brand strategy.

This is why Volvo is benefiting from an $11bn (£6.6bn) transformation under Geely’s ownership, enabling it to unveil new models. As part of the shared enterprise culture between Volvo and Geely Auto, the Hong Kong listed arm of Zhejiang Geely, we have now also established a joint research and engineering centre in Sweden.

This is an important symbol of China’s approach to enterprise culture. It is not an imposed model. Chinese companies are not demanding access to technology with nothing in return. It is about shared knowledge and shared best practice. It combines branding and technology developed in one specific locality, with increasing market familiarity in growth regions, shared investments and product development, and purchasing scale, all on a global stage.

Simply having local iconic brands and a global presence is not enough. We have learned at Volvo, at London Taxi and with Geely itself that this co-operation also depends on individuals working together on cross-cultural and multi-national projects.

So we have launched a global centre – the first of its kind in China – to research the benefits of cross-cultural integration. The Sanya Research Center for Global Corporate Culture, at Sanya University, has attracted more than 20 professors to help more global corporations study and practise corporate interaction.

In automotive terms, this means greater automation and connectivity, so that your car could become a round-the-clock assistant and a workspace, rather than just being a mode of transport. It is not only consumers in developed economies that expect such next-generation technology from their carmakers – it is also true in China.

This requires that the companies serving those markets combine high customer satisfaction, strong innovation and skills, and a willingness by management and employees to harness new science and technology.

Without compromising the unique appeal of different Chinese or European brands, such as Geely and Volvo, we need to secure the benefits of localised R&D, localised talent, sourcing and market-knowledge combined with global market access, global supplier relationships and globally-experienced management.

There has been an incorrect assumption about Chinese companies working with European partners that China gains, particularly in terms of intellectual property and technology, with little reciprocal benefit. Our work with Volvo disproves this misconception. We are ensuring that Volvo retains its brand identity and its world leadership in safety and the environment, without any threat or interference from Geely.

At the same time, our knowledge is helping Volvo to grow in the world’s largest market. Already, Volvo sales in China jumped by 45pc last year, as consumers recognised its appeal on safety, design and environmental performance.

Volvo, like other western car firms, has learned that you cannot just be present in China to succeed. Similarly, we know that Chinese companies cannot be successful in exports without world-class technology, transparency and good corporate governance. So, the Chinese market is proving a case study for inter-dependence in areas such as natural sciences and education.

This approach to enterprise and corporate culture is about sharing local knowledge – from technologies to customer relations – and maximising the benefit globally. The links between Geely and Volvo or London Taxi are signs of this sharing.

Post-Geneva, we know one thing for sure: this interdependence and shared corporate culture will become more important than ever.

Li Shufu is Chairman of Zhejiang Geely Holding Co. and of Volvo Car Corporation

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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