Geely and Volvo: A Watershed Event

It’s official. In what is truly a watershed event, Zhejiang Geely Holding Group signed a binding deal on Sunday to buy Ford Motor Co.’s Volvo Cars unit for $1.8 billion, representing a coup for the independent Chinese automaker — and the country it represents.

Geely is an unlikely champion to be taking this first important step on China’s behalf. As a privately owned company, it has not been blessed to nearly the same extent as its larger, better-funded, state-owned rivals with cheap loans and favorable government policies. Based in coastal Zhejiang province, Geely began as a lowly producer of inexpensive motorcycles for China’s local market for transportation, and as recently as 1997, was not even in the automobile business.

When Li Shufu, Geely’s visionary founder and chairman, announced that he wanted to enter China’s fast-growing passenger car business, everyone in the world, including nearly everyone in China, thought it was the funniest thing they had ever heard. How could such a company compete with the likes of Volkswagen, GM and Ford in China? The doubters forgot that no less than Honda had made a similar leap several decades before, and they vastly underestimated the tenacity of Chinese entrepreneurs like Mr. Li.

From its humble beginnings and that bold announcement by its chairman, Geely has emerged as one of China’s largest local passenger car brands, with nearly 4 percent of the market, more than Citroen, Ford and a host of other more famous players. Geely first entered the global market when it struck a deal with U.K.-based Manganese Bronze Holdings PLC to produce London taxicabs in China. An updated — and lower-priced — version of those classic vehicles began to roll off Geely’s assembly line in Shanghai in late 2008, and are now being sold in China as well as to export markets.

As remarkable as its story is, Geely is not an isolated case. In industry after industry, relatively unknown local companies are growing larger as China’s economy creates unprecedented growth opportunities for companies that understand its markets. As these local companies gain scale in China, they inevitably set their sights globally. The new class of future global leaders being created by a rapidly-growing China economy will ultimately reshape the landscape of every industry.

Overseas acquisitions will hasten this development. By buying Volvo, Geely will in one fell swoop acquire an industry-leading brand, and all of the technology, engineering, styling and marketing resources and infrastructure that contribute to that position. By making this acquisition, Geely will not only emerge as a new global player, but it will move to the top of the heap in China as well. Unlike its other local competitors, Geely now has the bragging rights that come with being the first to make such a big step into the global marketplace.

When I first came to China in 1992, I knew that the country’s auto industry would one day be the largest in the world. In my wildest imagination, though, I could not have predicted that China would be the largest industry by far as early as 2010, and that one of its local companies would take such a bold step onto the global stage. All of this is testimony to how quickly things change in China.

Fasten your seatbelts — there is much more to come.

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