China’s Zhejiang Geely Holding Group Co., the new owner of the iconic Swedish car company Volvo, is evaluating strategic options on how to best position the Volvo brand. The brand, which has long been known for building high-quality, safe automobiles, was sold by Ford to Geely in August of 2010. One strategy under consideration is exporting Volvos assembled in China to the United States. Although the company could build a Volvo assembly plant in the United States, the firm’s focus is to boost demand for Volvos in China by increasing production capability there. The company’s profitability is impacted by exchange rate fluctuations, especially the euro-U.S. dollar exchange rate, as Volvos are shipped from Sweden and Belgium for sale in the U.S. Since the U.S. currency and the Chinese currency have a more stable relationship because of China’s active management of its currency, producing Volvos in China would act as a hedge against exchange rate fluctuations. The key concern about exporting Volvos produced in China for sale in the United States is that consumers may not have the same prestige product positioning that they do for Volvos produced in Europe. The strategic move could undermine consumer confidence in the quality of the product.
QUESTIONS FOR DISCUSSION:
- According to the article, many Americans readily accept a variety of products made in China, including high-tech computers and iPhones. Are American consumers ready to accept a Chinese-manufactured premium car?
- What are the advantages of disadvantages for Volvo for the two production expansion plans it appears to be considering, that is increasing production capability in China or building an assembly plant in the United States?
- If Volvo does decide to export Volvos made in China to the United States, what strategic recommendations would you give to Volvo Chief Executive Stefan Jacoby about how to position and market the cars?
SOURCE: Shirouzu, N. (2011, January 13). Volvo mulls China-made cars for U.S. Wall Street Journal, p. B4. (Retrievable online at: http://online.wsj.com/article/SB10001424052748704803604576078002874055280.html)