Volvo to increase localization as it establishes Chinese headquarters

Gasgoo.com (Shanghai January 25) - Volvo announced that the company would officially open its Shanghai headquarters today. Stefan Jacoby, president of Volvo Cars, will personally take part in the ceremony as part of his three day official visit to China. In a media interview, Volvo's spokesman stated that the company would take on many new services to become an all-purpose business group.

Tomorrow will mark the company's first major premiere in the Chinese market since it changed hands from Ford to Geely last August.

"Actually, opening the Chinese headquarters on the 25th is only a small step. The real highlight will come after Spring Festival," said a company spokesman. He continued, "Volvo is constructing a complete automobile design technological center in China, which should be finished following the Spring Festival. At the same time, Volvo China's much-anticipated business strategy will be officially announced in the end of February or March."

If Volvo's plans for a Chinese technological center do come to fruition, it will signify agreement between Volvo and parent company Geely's chairman Li Shufu's plans. With the luxury automobile segment looking more completive in the new year, Mr. Li looks set to take advantage of this opportunity to begin large-scale localization.

All-purpose Chinese headquarters

With China's traditional Spring Festival rearing its head, the automobile industry has already entered a slow sales season. It is at this time Volvo is mulling about how to begin its opening attack on the domestic market.

According to a report that appeared in the First Financial Times, the new Volvo Sedans (China) Co., Ltd. will be increasing the scope and number of its China's services. The newspaper reported that Volvo China will be opening departments in product development, construction, quality control, purchasing, investment, finance, legal affairs, human resources, public services and other domains in addition to the Chinese branch's original sales, marketing and service departments. Following the company's stock exchange registration, Volvo will begin its shift from a national retail sales company to an all-purpose business group. The report went on to say that the company's Chinese headquarters would be similar in scale to its Swedish base, forming what Mr. Li once described as Volvo's 'twin headquarters.'

Following the decision to open the Chinese headquarters, Volvo's regional management underwent slight restructuring. Late last year, the company appointed Dr. Alexander Klose as CEO, who left the company after two months. Richard Snijders, former CEO of the company's Japan branch, replaced Dr. Klose, who returned to his previous position at Ford, earlier this month.

At the time of Dr. Klose's leaving of the company, there was much speculation among industry insiders as to Geely's plans for Volvo. Several in the industry hypothesized that his sudden resignation was sparked by dissatisfaction among the company's top brass. Despite its acquisition by Geely, Volvo was still able to maintain fairly high global growth in 2010, with 374,000 vehicles sold that year. However, its global performance was in slight contrast with its sales in China, where the company placed far behind its competitors in the luxury car segment, despite offering discounts on its vehicles.

"With Geely having taken control of Volvo, it is hard to avoid shift in personnel," remarked industry analyst Cao He. "This may only be the beginning," he added, "After all since Volvo is aiming to strategically transform [into a global competitor], it must bring in fresh blood and innovative ideas."

There are other sources that predict that Volvo's Chinese headquarters will seek to reach equal footing with its Swedish brother, with it directly reporting to Mr. Jacoby.

@@page@@Post-Spring Festival plans

Sources within the company revealed that Volvo would be taking a greater number of steps after the Spring Festival, including opening a technological center in China and making official announcements of its 2011 sales strategy.

Plans for establishment of a technological center in the country are very significant for Volvo. Sources said that development and research carried out in the center would be done in coordination with the Swedish base. Work would be done on modeling, design, R&D and other aspects of Chinese and international vehicles.

"Core support will be given to Chinese localization of Volvo's products, with product design done to suit Chinese consumer's tastes and habits," the aforementioned source stated. "In other words, Volvo’s Chinese sales will take a more prominent position in its strategy."

Currently work done at most international companies' Chinese research centers only goes as far as localization and testing of imported models. Several luxury car brands are looking at how to move their research centers beyond this level of development.

"In the past two years, China has already become the world’s fastest growing luxury car marketplace," said automobile analyst Jia Xinguang. "It has already become the decisive battleground for the world’s leading brands. Because of large victories seen by brands such as Audi, Mercedes-Benz and BMW are doing deeper research into localization [of their products]. It can be said that Volvo's largest hopes for a global revival lie in whether or not they can achieve success in the Chinese market."

However, there are many in the industry who have reason to believe that Volvo will face an uphill battle in the Chinese market. Among the difficulties in store for the company is finding qualified staff for its research center. Although the research center will be gaining greater support from Volvo's top level management, it will be under serious scrutiny to select and cultivate the necessary talent.

Additionally, Volvo also faces challenges on the localization front. The company needs to be able to provide more competitive localization for its products, while at the same time being able to put out its products with the speed the Chinese market demands. Currently, Volvo's vehicles are produced through Changan Motors, whose capacity is very limited.

A third challenge the brand faces is how to expand its sales and localized product development while maintaining its status as a high-end brand. With Mercedes-Benz, BMW and Audi fiercely competing over the luxury car segment, it remains to be seen if Volvo has what it takes to make a breakthrough.

In response to these doubts, Shen Hui, Volvo's senior vice president responsible for operations in China, stated that although not much time has passed since Geely's acquisition of Volvo, the company has put a lot of effort into strengthening its Chinese managerial team, as well as further exploring and researching the Chinese market. "We will maintain Volvo's high-end status," he said.