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Volvo is good and bad for Geely
(China Daily)
Updated: 2010-04-02 11:11
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Last Sunday, Zhejiang Geely Holding Group signed China's biggest overseas auto deal to buy Ford Motor's Volvo, a Swedish luxury car brand. But this doesn't mean transnational mergers and acquisitions will become the order of the day for China's automakers, says an article in Beijing News. Excerpts:
Geely's deal with Ford to take over Volvo may not necessarily open the floodgates for China's auto industry. Instead, it could create extra risks.
The leading international technologies that Geely can acquire from Volvo will help it immensely - because as a company Geely is characterized by "cheapness". But the problem is that the host government, the acquired enterprise and its stakeholders (such as labor union) might set harsh conditions for technology transfer.
Even if Geely gets the technology at a reasonable price, the takeover does not mean it can bid goodbye to self-absorption and research and development (R&D).
If Chinese enterprises cannot cultivate strong global competitiveness, their attempts to enhance their R&D capabilities through cross-border merger and acquisitions (M&As) will probably come to nothing.
Large-scale cross-border M&As will inevitably create a heavy debt burden for the parent firm, especially for Geely, which is not known to have abundant funds, and the fluctuation in exchange rates would further exacerbate the debt risks.
