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The Persuader

My personal blog, started in 2006.



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26.02.2011

Volvo unveils its China strategy

Volvo press conference

Volvo has announced that it will build a plant in China, and seeks approval for a second, in what it calls its second home market.
   It was inevitable, though for the long-term survival of the brand, it’s not a bad idea.
   Through Geely’s acquisition, it can potentially leapfrog other foreign car brands inside China by having more than a domestic partner: a domestic owner.
   There won’t be much toing and froing as Geely can call the shots with Communist Party authorities.
   The company already has a technology centre in Shanghai to deal with design, purchasing and manufacturing decisions.
   The new Chengdu plant, says Volvo, will only build Volvo cars—there will be no Geelys going through there.
   Volvo also says it will not affect jobs in Europe, which can be believed at this stage: the plant should be sufficient to deal with growth in China and the eastern hemisphere, where Volvo could be a lot stronger.
   While Volvophiles won’t be upset about most of the developments above, there will be one that will concern them.
   The company says that Volvo Car China’s new-product development will be done in Shanghai, not Göteborg. Göteborg will take the lead on hybrid and electric cars globally.
   Given the volumes involved—Volvo is targeting 200,000 cars per annum by 2015 in China—I’m not sure if it means that China will get its own range of cars. The likely scenario is that there will be a single, global range at these numbers.
   So how will the balance of global Volvo NPD be shared between Göteborg and Shanghai?
   Volvo suggests that HQ remains in Sweden on one hand, but, according to Freeman Shen, senior vice-president and chairman of Volvo Cars China Operations, says, ‘The Volvo Car China Technology Centre in Shanghai will develop into a complete product development organization on an international level. It will have the competence and capacity to work together with the HQ in Sweden, participating in Volvo Car Corporation’s work process for developing entirely new models,’ says Freeman Shen.
   I’m not criticizing Geely’s competences because if you look at its latest models, the company has certainly come a long way. Chinese designers, if nothing else, are fast learners, and knock-offs are becoming things of the past if 2010’s new models are anything to go by.
   And as a Swede is heading over to China to help set up the plant, one envisages that similar training in the Volvo design and creative process will be in the offing.
   Otherwise, there won’t be much separating Volvos from other car lines with the exception of a grille with a diagonal bar.
   But the press conference still leaves questions unanswered about how the NPD process will work.
   Nevertheless, allowing Volvo to pursue innovation is good news. Ford permitted it to happen but so much platform development was done elsewhere. Volvo remained in charge of global safety for Ford models, and gave the old S80 platform to a variety of cars, including the current and previous Taurus.
   The difference is, the parent company’s platforms weren’t half bad to begin with. I’m not so sure about Geely’s.
   I do, however, like the idea of an innovative, world-first Volvo that can get its new developments in safety and alternative energies out to the market before the competition. No more will the firsts be moderated by Dearborn.
   Innovation has not deserted the company—it has announced a V60 diesel plug-in hybrid—but we will not know what the new Volvo will look like till a model, with no Ford heritage, surfaces in a few years. That will be an interesting development.
   Geely chairman Li Shufu says, ‘We continue to uphold our principle that Geely is Geely and Volvo is Volvo. A more globalized, more focused luxury brand will turn our vision of a growing and profitable Volvo Car Corporation into reality. The company will continue to contribute to the development of the global automotive industry by introducing world-first innovations that make an outstanding brand win in the market-place.’

That doesn’t really settle it though.
   I have some concerns with Mr Li’s market positioning, because there are Swedes, indeed many Europeans, who don’t see Volvo as a luxury brand.
   Thanks to Ford, Volvo was edged upmarket to avoid competition with its own models—but it means its market share at home has been severely reduced.
   Earlier this century, most Swedish taxicabs were Volvos—today Mercedes-Benz and Toyota serve a proportion of the local market as Volvo could not offer the smaller models it once did.
   And if its home market share continues to decline, never mind how China goes: Volvo will be increasingly inaccessible to first-time car buyers in Sweden. Its need, then, to retain brand values might be weakened.
   Speaking hypothetically, if these world-first innovations are created merely for luxury models, then how long will they take to get to the everyday market?
   I remember an era when Volvo didn’t skimp on safety and innovations for even its lowliest models. And Volvo-as-luxury seems to fly in the face of that.
   The reality is, if Volvo is going to find more volume in the orient, then the luxury positioning will be more dominant.
   It’s going to be easy to foresee Volvos going all over the east from the Chinese plant, to allow for greater profits. Renault and Peugeot are sourcing from plants in Korea and Malaysia to serve the eastern hemisphere, and as far afield as eastern Europe, at more reasonable prices. It would not be a bad idea for Volvo to follow suit: it’s not in the hallowed realms of BMW, and its pricing needs to reflect that.

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Filed under: branding, business, cars, China, culture, design, marketing, Sweden, technology—Jack Yan @ 03.04

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