The acquisition of Volvo Cars by China’s Geely is a telling story of the factors that determine the success of cross-border M&A.

It would be tempting to read the deal in hindsight and charge it with geopolitical implications. But reading history backwards is always misleading. Let’s go back to 2010. 

Volvo was on the brink. Its owner, Ford, had made little investment since acquiring the Swedish automaker in 1999 and sales were decreasing. The financial crisis was the nail in the coffin and Ford was forced to sell. 

When Geely showed up as a prospective buyer, it raised many eyebrows. Not because of its passport; rather because of its profile. Volvo had developed a name for safe, reliable, family-friendly cars since 1927. Geely had started out as a refrigerator company in 1986 and its cars epitomised Europe’s perception of made in China products at the time: cheap, unreliable, hardly appealing. Besides, no Chinese carmaker had ever pulled off such a large deal before. 

The Swedish unions were up in arms too, fearing most of the local jobs would be lost and relocated to China: offshoring to east Asia was business as usual back then. And yet Swedish politicians took a very hands-off approach and let the deal play out. They didn’t see it as a threat to national security. In fact, they saw a big opportunity for the country’s largest automaker. 

"Volvo Cars will get new owners from the world's biggest car market, and will be the first in a new generation of carmakers [there]", the Financial Times reported then enterprise and energy minister Maud Olofsson as saying. 

Once Geely closed the deal, it based Volvo’s transformation on operational independence and local research and development (R&D). 

“Basically, Geely said, ‘OK, we will support you financially. We will make it easy for you to come into the Chinese market; the rest is up to you’,” a research paper led by Primoz Konda, a phd fellow at Aalborg University, reported a Volvo executive as saying in 2017.

After winning the management over, Geely won over the Swedes too when it started increasing the headcount at Volvo Cars’ headquarters in Gothenburg. 

“The biggest thing they did was to leave the creativity in Gothenburg. They used the local knowledge while adding a bit of push that forced the company to be faster in releasing its creative spirit,” recalls Aleksandar Zuza, research officer at Sweden’s largest industrial union IF Metal. 

The Chinese owner committed to keeping company R&D in Gothenburg while at the same time developing a joint innovation platform — China Europe Vehicle Technology Centre — to leverage Volvo’s innovation prowess to the benefit of the whole group. The process forced the two companies to bridge cultural differences and find ways to innovate together. 

“They had two completely different perspectives on how to do innovation. For Volvo, it was: develop, test, launch; for Geely it was launch, test, develop,” says Mr Konda. 

Ultimately, they were able to find a common way forward. The research led by Mr Konda shows that after the establishment of CEVT the number of patents increased by three times for Geely and by 2.3 times for Volvo. 

In the meantime, Volvo Cars flourished again. Sales touched a new record high in 2023. The company had 43,000 employees at the end last year, with two-thirds of them in Europe, up from 19,494 at the end of 2010. Its IPO on the Nasdaq Stockholm in 2021 valued it at $18bn, 10 times the $1.8bn Geely paid to Ford in 2010. Despite a disappointing stock performance, the company continues to be on a “growth trajectory” and has a target of 1.2m vehicles by the mid-2020s, CEO Jim Rowan told fDi. 

So did Geely’s, which has become China’s second largest automaker. 

Ultimately, the deal is a textbook case of an M&A whose success defied odds and geography. Political support, operational independence, commitment to local R&D and collaboration all contributed to its success.  

They are all quintessential elements of an era where cross-border investment and China’s rise were hailed as a worldwide opportunity. 

That era is no longer. The same deal would be all but impossible, today. Cars have become very sophisticated, and sensitive, pieces of technology; protectionism is pulling China and Europe further apart; Geely is now a giant that would likely act differently. 

And yet its lessons and achievements are today more important than ever. As isolated as it may be, the acquisition of Volvo Cars by Geely made everyone better off, for once fulfilling the potential of Chinese FDI. 

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