Module 4, Discussion: Geely Goes Global

Module 4, Discussion: Geely Goes Global

Discussions are designed to help you critically analyze an international business problem, at times using the theories and frameworks described in your textbook.Introduction

Instructions

Read the closing case ‘Geely Goes Global’ at the end of the chapter on Foreign Direct Investment and answer the following: Following the Volvo acquisition, Geely built a new, wholly-owned factory to product Volve cards in the US.  Why was a direct investment strategy preferred to other ways of growing the US market, such as through exporting or licensing the Volvo brand and designs to another producer? 

Directions

Students are advised to post at least two responses to each discussion question, one of which should be a reply to someone else’s post. Students who post only one response will earn a maximum score of only 25/35 (71%) regardless of the quality of the post.

Discussions need to be professional. Please make proper use of capitalization to begin sentences; also make sure that there are no misspellings, incomplete sentences, or other violations of grammatical rules.

The basic criterion for a discussion post to be considered effective is that your message must be original and intelligible. You must communicate concisely and effectively. In addition, you must meet the weekly requirements for full credit on discussion assignments (additional criteria in the discussion rubric).

You should keep each response within a word limit of 300 words.

Evaluation Criteria

All discussions together make up 35% of the total course score. This discussion is worth 35 points. Here is the rubric Download rubricfor this discussion.

Write a comment for the each responses below: (keep each comment within a word limit of 300 words.)

• Response 1:  Geely may have preferred to engage in an FDI project due to several factors. Freight costs might make it more cost-effective to build the vehicles in the USA. It’s also a very feasible project to undertake. The United States possesses the human capital, technological, and transportation infrastructure necessary to operate a vehicle manufacturing plant efficiently. However, one of the major deciding factors may have been the risks involved with licensing production to another firm. For example, if Geely were to license their Volvo production to a US manufacturer such as Ford, this licensee may gain a tremendous amount of insight into Volvo’s design and manufacturing process. This could erode Geely’s competitive advantage. This could happen even in a country such as the USA with strong patent laws and without any patent violations occurring. For example, assume that instead of an FDI project, Geely decided to license the production of Volvos to Ford. The process of building Volvos according to Geely/Volvo specifications (and presumably using machinery and tooling supplied by Volvo) might erode Greely’s competitive advantage by giving Ford insight into sensitive production techniques and processes that Ford may later incorporate into their own manufacturing processes.

It’s also possible that having the vehicles produced in the USA helps the Volvo brand to disassociate from the negative connotation sometimes attached to Chinese-made products.

• Response 2: Geely agreed to purchase Volvo for $1.8 billion in 2010. Although people had low expectations of the acquisition, the combination of Volvo’s innovative design and Geely’s manufacturing prowess proved great success. By Geely acquiring Volvo, they gained access to the entire line of new technology, distribution channels, and new markets. The direct investment strategy gave Geely more control over the development and export of their products. There are a lot of costs associated with exporting products that were mitigated by direct investment and selling domestically. For instance, it avoids all transportation costs, import tariffs, and any currency exchange risks associated with foreign trade. Exporting or licensing the brand to other manufacturers would result in limited control over their quality and could constrain their marketing capabilities. All too often firms spread themselves thin by outsourcing work and cutting any cost deemed a non-necessity. They expand quicker than they can maintain for the prospects of more money. However, just like in personal finances, spending beyond your means will always result in less return. Geely’s strategy avoided this while maintaining their high-quality standards of safety and elegance.