The knowledge Integration Strategy Analysis after Geely Acquisition of Volvo

Zhang Jie-mei
Business Management Institute of Henan University; Post-doctoral mobil station of Applied Economics of Fudan University Kaifeng, China Shanghai, China jiemei1226@163.com
AbstractPost-merger integration is not only concern the integration of tangible assets, but should focus on knowledge integration. After the M&A, to absorb the knowledge of merged corporation shoud be given priority to, then to create new knowledge on this basis by integrating the existing knowledge. By analysisng the case that Geely's acquisition of Volvo, The paper aims to explore the strategy to improve the performance of knowledge integration after enterprise merger.

Keywords-enterprise merger; merger and acquisition; Knowledge integration I. INTRODUCTION

pointed out that [1], testing the knowledge structure, knowledge type, knowledge production, accumulation and distribution in the strategic acquisition is very important for improving enterprise performance. If you can not integrate the knowledge of the two parts effectively, it would be difficult to produce the desired synergies. In the post-merger integration process, the effective integration of knowledge between the two mergered enterprise is the important process to improve the performance of mergers and acquisitions. Therefore, after the merger, it's necessary to make an effective integration of knowledge systems between the two parts, play knowledge integration on the advantage role of enterprise competitiveness. III. THE BASIC SITUATION OF THE CASE China's Geely Holding Group signed the agreement on the acquisition of Volvo Car Corporation with the Ford Motor Company in Gothenburg, Sweden in March 28, 2010. With respect to Geely capturing Volvo successfully, More Chinese enterprises' overseas acquisitions usually ended in failure.In recent 20 years,the pace of China's enterprise overseas acquisitions is at an average annual growth rate of 17%, but the failure rate is up to 67%. Compared to Volvo which is created in 1927, it's only 12 years since Geely cars entered the field of autmobile. if Geely doesn't have enough appetite to digest the elephant it swallows, it can backfire.Considering the close relationship between Volvo and its old partner Ford,the two are sharing in a number of key technologies, general intellectual property rights. Therefore although Geely has bought 100% of the intellectual property rights and Volvo technology, but it only confines to use the technology of Volvo on the Volvo's original brand. According to the disclosed transaction details by Geely,before the financial settlement, Volvo Cars will be managed by Geely, Ford and Volvo; and after the settlement, Ford will transfer the management to Geely comprehensively. However, because of the limit of laws, only a small part of the related technologies of Volvo can be used in future Geely cars. A considerable part intellectual property can be used by Ford. Automotive industry is one kind of capital, technical and personnel intensive industry, After Geely acquiring advanced technologies through acquisitions, the more important is that considering the autonomy of its subsequent digestion and absorption and development capacity, especially in absorbing core technology. Geely needs to cultivate a group of lucky highlevel professional and technical personnel and working capital.

The advent of the knowledge-economy era, put forward new challenges to our country's enterprise, but also brought new development opportunities. Enterprises can gain the target company's knowledge resources through the acquisition , and then integrate and innovate the exiting knowledge of two sides, therefore create new competitive advantages.However, in many cases of integration failure, Chinese companies not only failed to achieve a breakthrough in knowledge resources, but disrupted the pace of development of the original enterprise. II. ENTERPRISE MERGER AND KNOWLEDGE
INTEGRATION

Enterprise merger is one kind of economic strategy that one company aims on obtaining the control of other enterprise by a transaction of property rights ,also is the external transactional growth strategy that the company adopts in order to achieve scale expansion rapidly, strengthen competitiveness, reduce and get out of the market barriers and improve the efficiency of resource allocation. The merger becomes one kind of external growth ways for the company's rapid expansion in the 20th century, and is in favor of the capital operators.In fact, a large number of studies show that,with the rapid growth of the acquisition number and transaction amount, the rate of merger failure is very high. Domestic and overseas scholars have done a lot of research on the acquisition failure,and find that many failures are related with the post-merger integration.The merger is one part of the enterprise which have specific knowledge, and is the effective mean that the enterprise gains and accumulates knowledge thus seeking to development.Knowledge Integration after the merger refers to the process that the acquiring parties adopt various means (such as technology promotion and transfer, retaining the core of the merged party, etc.) to integrate their existing management and technical knowledge to create new knowledge, and then gain synergies. Prahalad and Hamel

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IV.

THE PROBLEMS AFTER GEELY'S ACQUISITION OF VOLVO

After Geely's acquisition of Volvo, it will face many challenges: how to manage corporate brand capacity, how to advance the level of management and technology, and how to keep the Volvo brand is not diluted, how to keep Volvo continue to develop emerging markets based on the European market .In this cross-level merger that the smaller swallowed the bigger, the issues involved include the problem of rehousing the original enterprise workers, integration of Eastern and Western management culture, and even the solvency of the creditors of Volvo, debt transferment etc., it is a very huge project. Geely need to have a clear understanding of post-merger integration of knowledge: Knowledge Integration after the merger is a complex and systematic project, especially that enterprises in China lack many areas of knowledge, and therefore it should make full use of all kinds of opportunities after the merger to learn the related knowledge that the acquired part accumulated, rather than be busy in the convergence and innovation. In addition,the reality that the homogeneous knowledge is very less between the two mergerd parts should be noted. Homogeneous knowledge is the intersection of the knowledge of the two sides, expressed as a common language,the commonality of professional knowledge, the common methods to understand the problem [2]. Studies have shown that ,without the homogeneous knowledge,it is impossible for the two sides to understand and trust. In the integration, homogeneous knowledge have a similar effect, homogeneous knowledge is the bridge between the two sides, while the heterogeneous knowledge is the underlying cause of conflict.Geely's acquisition objective is a more mature company in developed countries, the organizational system, the brand and the market operation of the company are relatively mature and standardized. Whether they can learn to digest knowledge in those areas after the acquisition is the major challenge that Geely faces. V. THE STRATEGY OF KNOWLEDGE INTEGRATION AFTER GEELY'S ACQUISITION OF VOLVO

A. Consider the Knowledge Characteristics of the two Mergered Parts Fully Because the strategy and core business after the merger will change, so the knowledge of the two mergers will eclipse, some valuable knowledge will have no value. In order to clarify the content of knowledge integration, focus and methods, it needs to identify and category the knowledge of the two mergered parts, eliminate the knowledge of little value, and re-classify, organize and sort the knowledge according to importance [3]. 1) The Compatibility of Kgnowlede: The knowledge integration of the 2 mergered parts is built on the basis of shared knowledge. The common knowledge of the 2 parts is more, the compatibility of both is higher, post-merger integration of knowledge is more easy. The Knowledge Integration after the merger is based on the stock of existing knowledge, taking into account the overall interests of the

enterprise after the merger, combined with the external environment, through the absorption, integration and other activities, knowledge system with an adaptation to the requirements of enterprise development. The most effective way to integrate the explicit knowledge is to transfer it to the instructions of the enterprise system and rules, the staff should follow the instructions to complete the work. While to tacit knowledge, because it's not easy to express and difficult to be instructed, imparting knowledge between the two parts is becoming more difficult and also resulting difficulty in acquisition of business knowledge with each other, which affects the effectiveness of both learning.Therefore, the higher the degree of recessiveness of the knowledge, the more difficult for the dissemination and transferment between the interpersonal, team and organization, the greater the difficulty of knowledge integration. In addition, the implicity of the tacit knowledge will vary in the extent. Therefore, the establishment of formal mechanisms for knowledge exchange and development of a common language became an important part of knowledge integration after the merger. 2) The Complementarity of the Knowledge: Whether enterprise knowledge or staff individual knowledge, there is a certain life cycle. If before the end of the life cycle of the knowledge, there is no timely manner that to add new knowledge content through communication, learning and other means, adjust the existing knowledge structure, then the effectiveness of knowledge resources to be fully exerted and to maintain competitiveness and sustainability will be inevitably affected.In the complementary premise, mutual integration and penetration of the knowledge between the parts are the basic requirements of knowledge integration after the merger.In reality, the knowledge complementary between the mergering and the target company is multifaceted, multi-level,the need and possibility of individual knowledge complementary between the enterprises not only exsits between the employees, but also exsits in the mergering and the target company. As both employees come from different knowledge environments, each knowledge structure has its own strength. Through the mutual knowledge exchangement and cooperation, their way of thinking can be transformed and their work skills be improved .In addition, the adjustment of enterprise personnel system, improvement of the organizational structure and the reformation of the management system after the merger will be prepared for the complementary and integration of the enterprise knowledge. 3) Knowledge Complexity: Knowledge complexity refers to practice, technology, individuals and the amount of resources associated with the specific knowledge. When the scope of knowledge need to be integrated more widely, it will result in the interaction and communication between or within organizations more complex, and make the knowledge recipient put more resources and manpower to

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coordinate and transfer work. If the knowledge of both M&A business is extremely complex, some knowledge with certain path characteristics transferred from the acquired companies may be encountered the problem of incompatible path, and make it unable to be recognized, processed and integrated. Knowledge Complexity requires that the recipients must have similar resources condition to master, absorb, digest and use certain knowledge. B. Careful Analysis of the Characteristics of Both M&A Enterprises 1) M&A Experience: Corporate behavior shows obvious Marginal Search tendency. The marginal Search tendency refers to that decision-makers tend to search for the new program "near" the original program. The enterprises will learn from the previous behavior results, and the successful were repeated with the unsuccessful given up. The results of these behaviors were internalized in organizations in the form of "organizational memory". The decision-makers will search the solutions to the problem from Organizational memory. M&A integration experience of the two sides involved in the merger will affect both the effectiveness of knowledge integration. M&A experience includes not only the experience of post-merger integration, but also of selecting the target entity. As after M&A Knowledge Integration was involved in cultural integration, staff integration, organizational restructuring and other aspects, that the two sides want to successfully complete the acquisition of knowledge integration requires companies with extensive experience in merger integration and the integration of skilled techniques, otherwise it will be difficult to achieve the desired effect. Experience displays many forms within the organization, in addition to a number of principles, including related practices, the set of organizational structure, and some tacit knowledge that can not be effectively encoded and so on. Most M&A corporate staff from different organizational entities who inevitably have their original brand of organizational practices and rules, which make them involuntarily to understand and reflect on the facing problems and scenarios from a fixed perspective. When entering the new organization, employees discovery that the new organizational practices and operating procedures are very far away from previously approved practices and procedures, it will affect their enthusiasm of transferring, disseminating and learning new knowledge, and even that the knowledge of counterpart is value, they do not easily change their existing working methods and processes. Therefore, when the M&A enterprises are homogeneous, if they have similar practice or group rules, the integration of knowledge after merger will be more likely to occur. 2) Whether Replace the Senior Managers of Target Enterprise: After the merger, replacing the senior managers or not is an important aspect of the problem that the researchers focus on. It was generally supposed that the staying and leaving of senior managers will have a greater impact on the performance of the merger and acquisition, but there are two opposing views about the effects. Through empirical study, Chinese scholars Cheng zhaoqian and Xu

Jinhua [4] did not get the final conclusions about impact of staying and leaving of senior managers on the performance post-merger. Through the interviews with M&A business, we found that the majority of interviewed senior managers in the acquisition of companies indicated that it is useful for knowledge integration of business to retain the target company's top manager after merger, which was consistent with conclusions of Zollo and Singh [5]. 3) Industry Correlation: The industry correlations between Target Company and M&A business will directly determine the effect of knowledge integration. If the industry correlation related to both M&A companies is highermore value activities can be shared and complemented in the value chain of both companies. And a variety of tangible value activities and intangible relationship network can be fully used to make both companies exposed to a lot of core knowledge of them. Whats more, both sides of companies have made similar knowledge accumulation, which will create conditions for the digestion and absorption of new knowledge. If mergers and acquisitions companies have very different industry backgrounds, the combined enterprise would be difficult to tap into the knowledge of the target enterprise. C. Knowledge Integration Should be Implemented by Phases Geely purchasing Volvo is a knowledge integration process in which the acquirer is absorbing and digesting the knowledge of Target Company as principal body in order to achieve both knowledge acquisition integration and innovation as the ultimate goal. The biggest challenge of Knowledge Integration after M&A is how to reduce knowledge loss in the initial acquisition. Knowledge Integration process after Geely M&A should be implemented by phases, dividing into protective stage, symbiotic stage and the synergistic phase [6]. Mergers and acquisitions make the internal environment of companies undergone tremendous changes that will result in staff with mood of anxiety and fear from the acquired party then leave, so most of M&A occur along with the phenomenon of employee turnover. However, the employees, especially key employees are the main owner of knowledge, and their departure would undermine knowledge system of the acquired party, thus reducing the value of mergers and acquisitions. Therefore, after the merger it should firstly take protective measures to reduce the loss of the acquired party's knowledge. Achieving successful or not in protective stages is the prerequisite for knowledge integration. In the symbiotic phase, various communication channels should be established to promote the acquisition of both exchanges, deepen mutual knowledge and understanding and promote mutual learning. Symbiotic stage has a unique meaning to Geely. As the acquirer and target company have a big gap in knowledge systems, if after the protective phase, M&A business are eager to enter the synergy stage of knowledge, it will inevitably lead to the proliferation of conflicts, thus affecting the effectiveness of knowledge integration. The smooth in Symbiotic phase is the foundation of knowledge integration. Through the mutual learning and understanding in the symbiotic phase, it will

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reduce the knowledge barriers of both sides, and create the conditions for the next phase of knowledge integration and innovation. Furthermore, it can inspire the demand for knowledge integration to some extent. In synergistic phase the knowledge of both sides are performed knowledge integration and innovation within the new organization to achieve 1 +1 >2 synergy. Knowledge Collaboration of both M&A sides is not only the main motivation, but the ultimate goal of knowledge integration. Special Attention to Cultural Integration Cultural differences is an important and complex variable, it will not only reduce the efficiency of communication between M & sides, hinder the members of both M & sides transfer and exchange of knowledgebut also induce a lot of conflict. The greater the cultural differences of M & sides , the greater the difficulty of knowledge integration. Geely acquisition of Volvo, as the difference of both companies countries, languages, customs the development of ideas and many aspects of others. All have their own independent of each other's corporate culture, and there are reasonable for the local business environment, but the difference between corporate culture is bound to exist. Therefore, in the integration process after the merger, we should strive to create a strong multi-cultural environment. The top managements of M&A party should take the lead in the attitude of tolerance and inclusive heart and equal treatment of the acquired party's corporate culture, establish harmonious interpersonal relationships and smooth cultural network, enhance understanding and communication between the two sides of the management teams, let managers of both sides to accept a different way of thinking, in the future business goals, values, management and systems to reach a consensus, then find an entry point for integrating the two sides. In addition, companies must attach great importance to the general staffs of integration after the merger, understand the anxiety and uneasiness employees of M&A party, through develop in-depth cultural communication with informal organizations. On the basis of mutual respect for original culture of each enterprise, enterprise should take the discussion, training and other means of communication to promote mutual understanding and mutual trust. Enterprise should select the appropriate integration model of corporate culture to gradually give up the psychological exclusion and confrontation of employees to the acquiring party, encourage employees to actively participate in shaping a new corporate values together, and further enhance their sense of belonging and sense of identity and cohesion of the enterprise, to stabilize the workforce, stimulate their enthusiasm and creativity. E. Emphasis on Organizational Learning For the two sides of M&A, knowledge integration process is essentially the process of organizational learning. Whether the initial development of knowledge, or knowledge of the late fusion are integrated into the learning process of members. The study of Organizational Learning Theory is divided into four types what are individual learning, team learning, organizational learning and D.

interorganizational learning. Individual learning is the basis and prerequisite for other levels of learning. Therefore, the learning ability of both employees directly determine the effect of knowledge integration between the two sides. If the corporate members of both sides can choose different modes of learning according to the characteristics and differences which excavated in the knowledge, and can effectively use these learning modes to start to learn, which can effectively absorb more knowledge and skills, also contribute to individual knowledge transfering into organizational knowledge.
CONCLUSION

After the acquisition, When the enterprises building a knowledge association, they both face the differences of knowledge,also face the conflict between each other's values. Therefore, the two sides should give full consideration to the knowledge characteristics of two sides, careful analysis the characteristics of the two sides enterprises, implement the knowledge integration by phases , pay attention to cultural integration, attach importance to organizational learning. Through implementing a series of strategies and expanding the total amount of knowledge of the two sides, constantly updating knowledge, in order to achieve the ultimate goal of improving the performance of Merger and Acquisition Integration. ACKNOWLEDGMENT This paper is one preliminary achievement of the research "A Study on Knowledge Integration After M&A of Enterprises" No. 10YJC790378 sponsored by youths fund of Ministry of Education of China in the humanities and social science research and by China Postdoctoral Science Foundation No. 20100480526 . Thanks go to the organizing committee of AIMSEC 2011 for offering this platform of communication. REFERENCES
[1] Prahalad C. K. & Hamel G. Strategy as a field of study: Why search for a new paradigm [J]. Strategic Management Journal, 1994 (15): 516. Bloodgood JM., Salisbury WD Understanding the Influence of Organizational Change Strategies on Information Technology and Knowledge Management Strategies [M]. Decision Support Systems, 2001. Qiu Junping, Liu Huancheng. Theory Knowledge Management and Enterprise Restructuring [J]. Journal of The China Society For Scientific and Technical Information, 2002(6): 349-355. ( in Chinese) Cheng Zhaoqian, Xu Jinfa. By Annexing Enterprise Senior Managers at Stamford Bridge in the Theoretical Discussion and Empirical Analysis[J]. Foreign Economies and Management, 2001, 23(5): 2832. ( in Chinese) Zollo M. & Singh H. Deliberate learning in Corporate Acquisitions: Post-Acquisition Strategies and Integration Capability in US Bank Mergers [J]. Strategic Management Journal, 2004 (25): 1233 1256. Wang Xiaojie. After the Merger of Enterprises in our Country Overseas Knowledge Integration Research [D]. Shandong University Master's Thesis, 2009. ( in Chinese)

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