SUMMERTIME in Gothenburg has the same relaxed feel found around the rest of Scandinavia - the days are long, nights are short; tourists flock to its open-air festivals, while locals escape for their holidays that start in June and often stretch into August.

But this year, the mood has been different in Sweden's western port city as the fate of one of its biggest employers hung in the balance.

On August 2, months of conjecture and negotiations came to an end when Chinese regulators approved the sale of Volvo Cars - which has been producing automobiles in Gothenburg for more than 80 years - to Hangzhou, China-based Zhejiang Geely Holding Group for an estimated US$1.8 billion.

Volvo's 10,500 Gothenburg workers - who produced around one third of its 334,000 cars last year - are wondering whether it's just a matter of time before their factories are shuttered, making way for low-cost sites in Geely's home country, whose OEMs are said to have a cost advantage of as much as 35 percent over those in developed markets.

Beyond such immediate concerns, however, auto-sector experts are also asking what the deal means for not only China's fledgling auto makers with global ambitions like Hong Kong-listed Geely, but also the car giants in developed markets - like Ford, Volvo's former owner - which are struggling to hang on to their former glory days?

And ultimately, can Geely succeed where other cross-border mergers and acquisitions in the auto sector have stumbled? Geely's M&A gambit is an unusual one. "There haven't been too many examples of exactly this, where a company from an emerging economy has the wherewithal to purchase a company that's been around for a long time," John Paul MacDuffie, Wharton management professor, observes.

No surprise

But with hindsight, Volvo's acquisition wasn't as unexpected or audacious as many thought it was when the mid-sized Chinese startup - rebuffed initially - began talks in earnest last year with the troubled Big Three US auto giant, which owned Volvo cars since 1999 and would eventually sell it for less a third of the price it paid back then.

Geely's acquisitions "would have been unheard of 10 years ago, but we shouldn't be surprised," says Ian Fletcher, a UK-based auto industry analyst with IHS Global Insight. "Geely wants to grow on the back of Volvo's established brand, which has a lot of aspects that Geely's doesn't, such as a (track record) of safety and quality. And it gives the Chinese auto maker a stepping stone to becoming part of the establishment."

Geely and China's other private, listed rivals - Chery and BYD, to name two - are following in the footsteps of the global auto making giants, says Pedro Nueno, professor of entrepreneurship and president of China Europe International Business School (CEIBS).

As the US auto makers found in the 1960s, the Europeans in the 1970s and the Japanese in the 1980s, going global can give them much-needed economies of scale, supply chain flexibility and greater market access than if they remained domestically focused. "The market in China is huge and they are doing everything possible to maintain or increase their market share there," Nueno says. "But their ambition is global."

Leading the charge has been Li Shufu, the chairman of Geely and now Volvo Cars, Nueno adds. "Three or four years ago, he told me his international strategy was that by the year 2015, 60 percent or more of his production could either be done or sent abroad." By many measures, that's a bold dream, but coming from an entrepreneur like Li not unbelievable, says Nueno, approvingly.

The son of a farmer, who in 20 years built a refrigerator-parts company into a fast-growing car maker, Li is an industry maverick.

Charismatic and indefatigable, the 47 year old has turned Geely - which means "lucky" in Mandarin - into China's 10th largest car company by sales, and is known for launching unusual designs, including a luxury sedan with a single chair in the back (with a built-in massage device), with unusual names, such as King Kong, Urban Nanny and Beauty Leopard.

And it's not just eye-catching names, but also low prices for which Geely is known - its cars sell for as little as 40,000 yuan (US$5,890), compared with Volvo's top of the line XC 90 price tag of US$205,000 in China. As for overseas expansion thus far, Geely has been exporting its cars, mostly to other emerging markets such as Algeria and Iran.

Small fry

Despite its phenomenal growth, Geely is still a small fry in the global context. Last year, it produced 330,000 cars, compared with Ford's 4.7 million (and 7.2 million at world No. 1 Toyota), according to the International Organization of Motor Vehicle Manufacturers.

Even locally - in the world's biggest auto market, with nearly 14 million units manufactured there last year alone and some 16 million expected to sell this year - it has catching up to do. Local rivals moved aggressively ahead - in 2009, Beijing Automotive produced 685,000 cars, Chery 508,000 and BYD 428,000.

Against this backdrop, the Volvo deal looks even more enticing. "To enter the global market, a much tougher and discerning market, Chinese auto manufacturers need technology, and a global production and marketing platform. This purchase gives Geely both," says John Zhang, a Wharton marketing professor.

Indeed, just getting the deal over the finish line means Li has succeeded where other car companies have failed.

The bid of Tengzhong, a little-known Chinese heavy equipment company, to buy the Hummer brand from GM was struck down by Chinese authorities earlier this year, reportedly amid concern about Tengzhong's inexperience.

A consortium including Beijing Automotive Industry Holding Corp, China's fifth-largest auto maker by sales, failed in its bid to buy Volvo's domestic rival Saab from GM, and settled for some SAAB design assets.

But now Geely also has a company under its wings that is weak financially.

Though turning a small profit in the first two quarter of this year, its last full-year profit was in 2005. Revenue on sales of 334,000 cars for last year was US$12.4 billion, down 18 percent from the previous year, and its pre-tax loss totaled US$653 million. In contrast, Geely sold nearly the same number of vehicles in 2009, generating a sixth of Volvo's revenue but posting a net profit of US$200 million.

"Even if it fails (with Volvo), the Chinese manufacturer learns some good lessons out of the experience and should not mind too much about paying the tuition," says Wharton's Zhang.

(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. All rights reserved. Shanghai Daily condensed the article.)