Failed synergy from brand alliance: what Volvo learned in China?

Abstract

Purpose

Brand alliance strategy is a popular strategy for multinational enterprises entering foreign markets, especially when domestic firms in the host market have a relatively weaker brand image. However, Volvo Construction Equipment's failure to acquire a domestic firm in China (Shandong Lingong Construction Machinery Company Limited [SDLG]) challenges existing management theory. Thus, the purpose of this study is to understand the reasons behind the failure of a leading international brand’s acquisition of a local brand in a fast-growing developing country.

Design/methodology/approach

This paper conducted a case study to illustrate how Volvo failed to benefit from the dual-brand strategy by analyzing its brand architecture strategy, the industry specificity of its heavy equipment, issues around its complex dealership and the implementation of optimal distinctiveness for the Volvo brand after acquiring SDLG.

Findings

Although Volvo’s dual-brand strategy with SDLG was theoretically valid, in practice, the strategy made the two brands very distinct in their business-to-business (B2B) consumers’ perception and dealers’ operation. Given a wrong estimation of Chinese demand in its premium market, Volvo, which targeted only the Chinese premium market, failed to benefit from its brand alliance with SDLG in the Chinese market.

Originality/value

The analysis of Volvo’s acquisition of SDLG enriches the current theory of international business and brand management. In particular, the results provide new insights into how leading international brands can avoid potential failure in a fast-growing market. Moreover, this paper highlights the difference of branding strategy in the B2B and business-to-consumer markets, which carries value to business executives.

Citation

Guo, X., Meng, Y. and Xiong, J. (2022), "Failed synergy from brand alliance: what Volvo learned in China?", Journal of Business Strategy, Vol. 43 No. 4, pp. 257-266. https://doi.org/10.1108/JBS-02-2021-0034