Geely, a Chinese automaker, acquired Volvo, a Swedish automaker, in 2010. This cross-border merger presented significant cultural differences that needed to be addressed for integration to be successful. Prior to the acquisition, Geely conducted extensive due diligence to understand Volvo's culture. After the acquisition, Geely implemented cultural sensitivity training, promoted cultural fusion to create a new shared culture, and encouraged ongoing communication between the companies to facilitate integration. The case of Geely acquiring Volvo provides insights into overcoming cultural barriers through pre-acquisition research, training, and fostering a cooperative culture between the combining organizations.

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Shu lu
Mergers &Acquistions
Spring 2015
Prof. Alan Palmiter
How to strike down the culture barrier in order to Ace the Cross-Border Mergers and
Acquisitions? The success of Geely buying Volvo
Abstract: As a method of sharing resource, the cross-border mergers and
acquisitions is faced with the difficulty of achieving its expected results. In fact, most
cross-border mergers and acquisitions, which were anticipated to be vigorous, proved
soundlessly, quickly ended. The majority of the cross-border mergers and acquisitions
does not adds any value to the companies, what is worse, bringing catastrophe to the
companies. Achieving the goal of M&A is a long and slow process. The research reveals
that 50%-70% of the cross-border M&A failed in the cultural integration in the post-
M&A. Even the strong capital cannot fill the gap of cultural difference and the crack of
thinking model. However, the Geely buying Volvo case seems to be a successful
exception. Although M&A in car industry has notorious record, Geely, a Chinese
carmaker, paid $1.8 billion for the brand of Volvo in 2010. At that time, Volvo had lost
$2.6 billion during the period of 2008-2010. Most critics did not believe that this M&A
could work well. And it did. Only one year after completing this cross-border M&A,
Volvo stopped its decline of four consecutive years and returned to profitability. In 2011,
the revenue growth rate of Geely hits 43.06%.
In addition, Muhammad, Eric and Helen found that Economically larger culture
clusters with more likely to acquire firms form within their own cluster, and the firms
located in culture clusters with lower levels of economic activity are more likely to
choose cross-culture targets. In other words, Geely buying Volvo case is not only good
sample of cross-border M&A, but also is good illustration of how a firm in a lower level
economic hurdles culture barrier to acquire other firm in higher level economic.
Therefore, Geely buying Volvo case is good guidebook to interpret how to
implement culture integration between two firms belonging different culture clusters.
I the Background of Geely buying Volvo
Geely shocked the world in a flash when it completed acquired Volvo car in 2010.
As an un-known carmaker with only 13 years experience, Geely had low brand equity
and was typical Chinese Corporation, whereas the Volvo has existed for more than 80
years and won brand reputation globally. With the deal done, the real challenge for Geely
will lie ahead, as it aims to restore Volvo to long-term profits. Volvo Cars posted revenue
of $12.4 billion in 2009 by selling 334,000 cars, but it recorded a pretax loss of $653
million. At the same time, the cash flow of Geely is abundant. In other words, It had very
strong the short and long term-debt paying ability.

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Table1 :2008-2011 Financial Briefing of Geely unit: million
Financial Index 2008 2009 2010 2011
Total Assets 10,150.97 18,802.19 23,974.34 27,596.76
Total Liability 5,368.49 11,705.67 14,896.67 17,446.64
Ownership
interests
4,782.48 7,096.52 9,007.68 10,150.12
Revenues 4,289.04 14,069.23 20,099.39 20,964.93
Net profit 866.05 1,319.03 1,549.71 1,715.85
As the table1 shows, this M&A brings the promotion of the profitability
indicators including the revenues and net profit to Geely. The brand effect, which Volvo
brought to Geely, has begun to appear in the overseas market. In 2011, Geely exported
nearly 40000 vehicles, up 76% from a year earlier. This achievement offsets the non-
ideal domestic business of 2011and keeps the Geely's overall growth positive growth. In
2010,after the success of the Geely mergering Volvo, J.D.Power put the Volvo out of
luxury car list. It claimed that even if Geely was willing to pay for its service, it could not
provide luxury car marketing research to Volvo anymore. And in August 2011, J.D
Power puts Volvo back to the same level with BMW. In 2011,the growth in Volvo cars
sales rose 15% in Europe, 26% in the United States, 44% in Japan, 79% in Russia, 50%
in China.The above date shows that Geely mergering Volvo succeeds in implementation
of synergistic effect and gains the expected commercial value.
This paper explores the effects of cultural dimensions on the outcome of cross-
border M&A deals. Further, this paper analyses how Geely eliminate the cultural
difference during the M&A and after the M&A.
II Culture Framework
This paper chooses GLOBE (Global Leadership and Organizational Behavioral
Effectiveness) as typology in order to divides societies into 10 different culture clusters
based upon extant research and other factors such as geography, language, religion and
notably their historical accounts(See Table 2)
Table 2
Culture Clusters Countries
Anglo Australia, Canada, England, Ireland, New Zealand,
South Africa (White Sample), United States
Latin America Argentina, Bolivia, Brazil, Colombia, Costa Rica, El
Salvador, Guatemala, Mexico, Venezuela
Eastern Europe Albania, Georgia, Greece, Hungary, Kazakhstan,
Poland, Russia, Slovenia
Latin Europe France, Israel, Italy, Portugal, Spain, Switzerland-
(French Speaking)
Germanic Europe Austria, Germany, Netherlands, Switzerland-(German
Speaking)
Southern Asia India, Indonesia, Iran, Malaysia, Philippines, Thailand

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Sub-Sahara Africa Namibia Nigeria, South Africa ( Black Sample),
Zambia, Zimbabwe
Confucian Asia China, Hong Kong, Japan, Singapore, South Korea,
Taiwan
Middle East Egypt, Kuwait, Morocco, Qatar, Turkey
Nordic Europe Denmark, Finland, Sweden.
The GLOBE framework uses leadership as cultural dimensions. In other words,
these countries falling in the same categories have similar leadership culture. Based on
analyzing a sample of 56,978 cross-border mergers between 1990 and 2007, Erel, Liao &
Weisbach found that leadership culture exerts a huge influence on the M&A behavior.
Although the interaction between culture and M&A is unclear, there are two
principles can be confirmed First, corporation culture is tightly associated with the
national culture. Second, these companies in the same culture clusters are more likely to
achieve the expectation of the M&A than those in the different culture clusters.
The longer geography distance is; the deeper gap of culture is; the lower success
rate of M&A is. The reason behind it is when the difference is too significant, too serious;
M&A tends to be stifled by differences, especially, when the cultural differences is
initially underestimated.
Therefore, paying proper attention to cultural difference is the key to realize the
synergy effect during the course of the cross-border M&A. While people with different
cultural background, value orientation and mode of thinking working in the same
enterprise, inevitably lead to internal cultural friction and cause the cross-cultural conflict
in their daily life.
However, Morosini, Shane and Sighn present that an integrative model of the
impact of cultural differences on capability transfer in cross-border acquisitions. They
point out that cultural differences affect the post-acquisition capability transfer through
their impact on social integration, potential absorptive capacity, and capability
complementarity. Two dynamic variables – the use of social integration mechanisms, and
the degree of operational integration of the acquired unit – are proposed to moderate the
effects of cultural differences on social integration and potential absorptive capacity.
In our sample case, Geely, 13 years old Chinese corporation locates in “Confucian
Asia” culture cluster; whereas Volvo, 83 years old Swedish corporation, locates in
“Nordic Europe” culture cluster. Obviously, Geely buying Volvo case is a typical cross-
border M&A, more specifically, cross the two different culture cluster. Pursuant to the
GLOBE framework, the Cultural Gap between “Confucian Asia” and “Nordic Europe”
mainly displays in the following:
First, the power distance is much longer in “Confucian Asia” than in “Nordic
Europe”. From the ancient times to the present, countries in “Confucian Asia” culture
cluster have stricter hierarchy than those in “Nordic Europe” culture cluster. Especially,

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in “Confucian Asia”, elites enjoy massive of privileges and they taken it for granted,
whereas these countries in “Nordic Europe” culture encourages people to pursue equality.
Especially, in Sweden, people do not submit to authority easily. Indeed, they admire
ordinary life style. Second, the tolerance of uncertainty is much more flexible in
“Confucian Asia” than in “Nordic Europe”. People living in “Confucian Asia” are more
likely to accept the unexpected factors and results. Third, “Confucian Asia” advocates
that people should sacrifice their individual interest for collective interest when they are
faced with conflict. Conversely, “Nordic Europe” encourages people to seek individual
achievement and satisfaction. Fourth, “Confucian Asia” is full of male chauvinism.
People tend to believe that men are superior to women, so men are supports to lead
women. Fifth, with the long-term orientation, people living in “Confucian Asia” are
more likely to be diligent and thrifty than those living in “Nordic Europe”.
These above distinct characteristics of “Confucian Asia” and “Nordic Europe”
lead to intense culture conflict, which Geely and Volvo have to deal with.
III Approach of Cultural Integration
Culture not only affects people's thinking and behavior, but also has a direct
impact on the enterprise growth and profit. Weber, Shenkar & Raveh believe the
relationship between senior managers in the cooperation and the cultural integration have
a great impact on the cross-border M&A. Therefore, there is a direct relationship between
the measure of integration of corporation culture and the success of M&A. In order to
achieve the predetermined target, the buyer and seller with different culture cluster
should bridge the culture gap. Berry presents that there are four model of cultural
adaption during the course of M&A. First, “integration” is a two-way penetration,
compromise, tolerance on both sides of culture. Second, “absorption” means that the
merged company completely abandons its original value and behavior system to accept
the culture of the acquirer company. Third, Separation means limiting the staff contact
each other in order to maintain the independence of two different cultures. Forth,
“deculturaion” means the employees of the merged company neither cherish their
original culture nor accept the acquirer’s culture. The cultural and psychological bond
rupture between employees and companies.
The successors improved the integration model. Harris & Moran presents that
their theory embraces Dominance, Compromise, Synergy and Isolation. Hasperslagh
&Jemison put forward that the new models include Holding, Preservation, Symbiosis and
Absorption. Even though these terminologies are distinct, the basic content is similar.
The selection of integration model largely depends on the Cultural difference and cultural
characteristics of two companies. For instance, If the acquirer company has stronger
culture than the merged company, the absorption model usually is employed. Whereas, If
both companies hold strong culture, the preservation model tends to be utilized.
IV. The implementation of culture integration
1. Culture observation before the merger

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The cross-border M&A needs to do meticulous culture observation in the pre-
M&A. Before officially acquiring Volvo, Mr. Li Shufu, chairman and founder of
privately held Geely, spend five years on keep in contact with Volvo in the attempt to
build up private relationship with the senior ranks of Volvo. After official announcement
about merger, Geely spent the whole four months on due diligence investigation, which
range from the trivial factors - e.g., the way people how to wear their tie and suit, to the
imperative factors - i.e., the long-term expectation employees long for. It is worth
mentioning that Rothschild Bank formed a competent quartet to provide the Geely with
the financial advice during the whole process. One member of the quartet is Hans-Olov
Olsson, who has ties stretching back decades to Volvo Cars and its former parent Volvo
AB (VOLVb.ST). Olsson served as chief executive and then chairman of Volvo Cars,
and later as Ford's chief marketing officer. A "restrained, analytical, archetypal Swedish
businessman," he played a vital role in representation of Geely against Volvo Cars
employees, unions and suppliers. Olsson not only understands the culture of Volvo, but
respect it as well. He saved Geely myriads of time to investigate the Volvo and make
communication with Volvo more effective.
In addition, Rothschild Bank is expert on carmaker deal. It has profound insight
of the whole car industry and is able to comprehend the corporate culture of different car
company. According to Thomson Reuters data, even before the Volvo transaction,
Rothschild bank had worked on $89.25 billion worth of auto deals over the last 12
months, more than any other bank.
All the foregoing facts indicate that selecting proper consultants not only can
simply balance asymmetry of information between firms, but also can break the culture
barrier as well. Therefore, obtaining sufficient first-handed material and hiring
competent consultants is critical to embark on the official M&A. The fully apprehension
of other firm’s culture constitutes solid foundation of the culture integration. Table 3
provides a contrast of the corporation culture between Geely and Volvo.
Table 3
Geely Volvo
Pattern of Management The clear hierarchical
relationship between
higher and lower levels;
Militarization efficient
execution management
style
Humanized management;
emphasizes the equality,
communication and
personal development.
Core Value Safety, environmental
care and energy saving
are the values form the
Geely.
Quality, safety and
environmental care are
the values that form the
Volvo Group’s common
base and are important
components of its
corporate culture.
Work Attitude Employees work hard
and often work overtime.
Employees tend to find
the balance between work

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Employees are willingly
to sacrifice his personal
life for the interest of
Geely. This is a common
problem for most
enterprises in China.
and leisure.
Organizational
communication
The working language is
Chinese.
The working language is
Swedish and English.
Cultural identity in law
and trade unions
The power of union is
very weak. Geely is able
to fire any employee
without the union’s
permission.
The power of union is
very strong. Volvo has
not discretion in
arrangement of overtime
work. Moreover, Volvo
cannot fire any employee
without the union’s
permission.
2. The implementation of the cultural integration
The first challenge of the acquirer and acquiree is how to gradually integrate the
two different corporation culture based on the observation. Cultural integration is the
process full of interaction. During this course, employees from two companies have to
learn how to cooperate with each other. How to create an ideal environment to tolerate
the difference of culture and, at the same time, to stimulate innovation is a puzzle to each
cross-border M&A case. Here are some methods to do it.
a. Cultural sensitivity training
The management and employee need to recognize the obstacles and constraints
between different cultures through the mutual teaching and learning. Once they adopt the
different values and personality, the cultural conflict would be definitely reduced.
After acquiring Volvo, Geely established Enterprise Culture Research Center in
Hainan Sanya. This center is a hub extending to Beijing and Goteborg. The center is
committed to comparison and study of the society and culture across countries in order to
promote the establishment of a new, global corporate culture. Each year, the manager of
middle lever in Volvo and in Geely is sent into this center aperiodically to learn new
language and culture. Most participants consider that communication with people from
different country in the center facilitates their acceptation of different culture, and
moreover, they feel comfortable and confident when they return their job.
b. Cultural fusion
Cultural fusion, refers to based on understanding of the different culture of
enterprise, through the identification, selection and identification, the different culture
into the enterprise to effectively together, in order to build new culture on the whole
consistent.

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Five years after acquiring Volvo, Geely finally decided that it was good timing to
establish a new brand through mixing two different culture. So far, the exact name of new
brand has not reveal ,but Geely stated that it would use the Compact Modular
Architecture (CMA)jointly-developed with Volvo to produce a new model car, which
main selling point is save weight and reduce costs. Although they ride on the same
platform, the Geely variants will be completely different than those from Volove That is
a perfect example to illustrate how to take advantage of Culture fusion to create a new
product.
c. The ongoing communication between two firms
The culture gap between the acquirer and merged companies in cross-border
M&A cannot be vanished overnight. Actually, the long-term and continuous
communication in the post-M&A stage should always exist. It is predictable that the
employees under influence of two distinct culture clusters inevitably create friction while
they have to cooperate. Establishment of official or unofficial communication mechanism
should dramatically eliminate the abrasion and then take advantage of multiple cultural in
order to synergize enterprise culture.
In November 5, 2010, Geely and Volvo Car Corp announced the establishment of
"Volvo and Geely dialogue and cooperation committee". The committee consists of 9
members, each party appointing four members. The chairman is Mr Li Shufu, but he is
merely an independent member of the committee, which means his role is rather like a
listener than a decider. The committee meets twice a year. The place of meeting rotates in
Sweden and China. At the meeting, nine members exchange their idea and share
information. Before specific business cooperation projects or proposal are brought to
into the broad of shareholders, this communication platform facilitates the decision-
making process. In addition, dialogue and cooperation committee provides semiofficial
discussion mechanism before any proposal of cooperation entering into enforcement.
Mr Li Shufu said: "the establishment of dialogue and cooperation committee is
the best interpretation of our strategy: 'Geely is Geely; Volvo is Volvo’. The
communication mechanism will ensure the equality between both sides. We ultimate goal
is to create the win-win situation for Volvo and Geely by means of combining the leading
edge technology of Volvo and the deep understanding of Geely in Chinese consumers.”
d. Culture Toleration
In order to implement culture integration, the acquirer usually can’t resist
temptation to enforce the acquiree to abandon its original corporation culture and then
fully adopt the culture of the acquirer. The research manifests that the enforcement of
cultural assimilation might be feasible when the acquirer and the acquiree from the same
culture cluster. However, it might probably spell catastrophe while the acquirer and the
acquiree from the different culture clusters. The study indicates that in the latter scenario,
the management of the acquiree tends to naturally resist the culture integration. The more
pressure the acquirer puts on the acquiree, the more resistance the acquiree occurs.

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Based on the analysis on 212 valid samples out of 230 questionnaire, Yuan Shi &
Xiaoshu Zheng found that toleration of the existence of the different corporation culture,
at least in the first stage after acquisition, creates larger brand equity for both sides in the
cross-border M&A. Specifically, in the first two years after acquisition, the best strategy
to Geely is remaining the independence of Volvo without any kind brand changes, which
is called “business as usual”.
Mr. Li Shufu made it clear to Volvo's staff and management team that Volvo was
a tiger, which cannot be imprisoned. It should return to nature and conquer its own
territory. During the course of negotiation, Mr. Li Shufu promised that he would not
interfere in the daily management of Volvo and he would not shut down any
manufactories located in Gothenburg and Belgium. Moreover, he consented to retain all
incumbent managers and employees. Undoubtedly, these friendly gestures won the
support of union and finally helped Geely to defeat other bidders.
In the first two years after acquisition, Geely observed its “business as usual”
brand strategy, which means to deliberately separate Volva from Geely in order to keep
the independence of Volva. Volvo Ocean Race is a good example of Preservation of
Volvo’s original culture. The Volvo Ocean Race is the world’s premier offshore race, an
exceptional test of sailing prowess and human endeavor, which started over 37 years ago
as the Whitbread Round the World Race. This event held by the Volvo every four years,
needs about 55 million euros of fund. Although sponsors, partners and the host city are
willing to shoulder a fraction of the cost, Volvo still need invest a certain amount of
money into this famous event. Li Shufu had to faced with the dilemma whether Volvo
should continue holding this expensive event, because one of core corporation culture of
Geely is “To Practice Thrift.” However, after weighing the brand benefit and social
effect, Li Shufu determined to support this event.
V. Conclusion
Cross-border M&A is a significant method of resource sharing. Culture gap
between two companies exerts huge influence in management. To avoid the failure of
cultural integration in the post-M&A, the strategy of culture integration largely depends
on what kind of the culture cluster companies falling into and what kind of stage
companies go through. There is no panacea to all kind of Cross-border M&A. Each case
is unique. The Geely buying Volvo case is good sample to reveal how to explore and
analyze these sensitive factors in order to enhance the communication. The paper points
out that, to some extent, culture integration is not always good choice in Cross-border
M&A. Before jumping into mixture hotpot, the acquirer need pay more patience to
remain the independence of the acquiree, especially under the circumstance that company
with lower brand equity mergers the one with higher brand equity. Even higher brand
equity enhanced low brand equity after acquisitions, the study shows that mixing two
distinct corporation cultures together create the risk to brand loyalty. More wisely, the
acquirer should set up official or unofficial communication mechanism between two
companies in order to bridge the culture gap. After gradually adopting the new culture,

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the acquiree should make a close study to find a best way to integrate the resource of two
companies. To some degree, culture integration is not always good for companies in
cross-border M&A. A leader of the acquirer might need to stand back to provide the
acquiree enough time and space to develop when the culture gap can not be bridged.