Geely’s Acquisition of Saab Company

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Table of Contents

Introduction
Resource Based View of the firm rationale
Value Chain Rationale
Financial rationale
PEST Analysis
References

Introduction

First of all it is necessary to mention that for the period of economic prosperity and fierce global expansion, Saab could be regarded among the most successful Geely’s strategic investments in foreign automakers. Geely’s acquisition of Saab could not be hostile; it could be regarded as a friendly purchase, supposed to improve the car manufacturing of both contractors. The purchase could have been a horizontal acquisition. When American automobile manufacturers expanded globally, there were too many companies for the market to support. This acquisition was aimed for creating fewer companies that are seemingly more competitive.

Resource Based View of the firm rationale

Before analyzing the resource based view, it is necessary to mention that Conrad (2004) in his financial research gives the following notion: “Economic theory holds that in the normal course, and in the absence of market imperfections, abnormal economic rents will get competed away by rivals or new entrants to an industry. The Resource Based View holds that firms can earn sustainable supra-normal returns if and only if they have superior resources and those resources are protected by some form of isolating mechanism preventing their diffusion throughout industry”. From this point of view it should be stated that the financial resources of Geely and Saab should be regarded as the general merging of the companies and financial activities.

It is necessary to mention that Geely is not some huge car manufacturer. The 2008 sales entailed 4,821,692,505 Hong Kong Dollars ($ 622 051 371). The enterprise value of Saab is evaluated as $1 353 227 000. Originally, the acquisition of Saab by Geely could be rather advantageous as the company has essential financial activities. Geely would have also acquired additional space for marketing activity as well as the positioned brand.

Value Chain Rationale

The analysis of the activities that any company incorporates for the maters of competitive advantage should be started from the general analysis of competitiveness of the corporation. The fact is that, on HK 4 821million reported in 2008, the cost of the additional services totaled 5.7% of sales (i.e., the gross profit was 94.3% of sales). The gross profit reserve appears to be essentially better than it was in 2007, when cost of services sold totaled 22.8% of sales. Originally, there was a wide variation in the gross profit margins at the three comparable companies, from 21.0% of sales to 95.1% of sales.

Originally, the industry which the company is involved in is the car manufacturing. The fact is that, the main advantages of the company is the manufacturing of comparatively cheap automobiles for Eastern Europe and Asia.

The activities, which are involved in successful performance of thee company are the following:

Inbound Logistics. Includes receiving, storing, inventory control, transportation planning.
Operations. Includes machining, packaging, assembly, equipment maintenance, testing and all other value-creating activities that transform the inputs into the final product.
Outbound Logistics. The activities required to get the finished product at the customers: warehousing, order fulfillment, transportation, distribution management.
Marketing and Sales. The activities associated with getting buyers to purchase the product, including: channel selection, advertising, promotion, selling, pricing, retail management, etc.
Service. The activities that maintain and enhance the product’s value, including: customer support, repair services, installation, training, spare parts management, upgrading, etc. (Song, 2008)

Financial rationale

Risk analysis for the financial profitability should take into account all the financial numbers of the marketing strategy and results of the company. Initially, it should be stated that the company operates on the stable market with comparatively low competition, nevertheless, the competitors are ready to conquer for the Chinese market, and the East European market have been already flooded with different car brands (European, Asian and American).

PEST Analysis

Political

There are no political obstacles for the development, as well as merging of the companies and the car manufacturing industry in general. It should be stated that political situation promotes the economic development of the country, consequently, the actions, aimed at improving the well being of China and Chinese industry are encouraged.

Economic

Economic situation of the car manufacturing industry is rather favorable for the further development. The fact is that, it is regarded as one of the most profitable sphere, and, in spite of the fact this sphere is highly competitive, there are still markets which are not flooded with cars, so, there is room for development.

Social

It should be stated that social sphere in this case is the least important, as China does not suffer the lack of working places on the one hand, and the merging will not cause the changes in this situation on the other hand. Consequently, there is no need to make deep researches and analyses of this factor, nevertheless, there is strong necessity to study the social factor of the target markets.

Technological

Technological factor is the most favorable in the whole sphere. It is stated that the technologies are developing rapidly, consequently, the development of the company from the technological side is beyond any doubt.

References

Conrad, J. M. (2004). Resource Economics. Cambridge, England: Cambridge University Press.

Foss, N. J. (Ed.). (2007). Resources, Firms, and Strategies: A Reader in the Resource-Based Perspective. Oxford: Oxford University Press.

Geely Cars Enter Local Market. (2007). Manila Bulletin, p. NA.

Garten, J.E. (2002). The CEO’s new agenda. Sloan Management Review, 44(1).

Gulati, R., Freeman, K.W., Nolen, G., Tyson, J., Lewis, K.D., & Greifeld, R. (2004). How CEOs manage growth agendas. Harvard Business Review, 82(7).

Funk, K. (2003). Sustainability and performance. Sloan Management Review, 44.

D’Souza, D. (2002). Technological capitalism and its discontents. Web.

Song, T. S. (2008). Resources for China-ASEAN Relations. China: An International Journal, 6(1), 171.

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