Saab by cuiliqing


									International Investment & Trade

Teaching Staff: Dr. E. Verwaal, Dr. F. Wijen

              Student Group:


             Company description
We have chosen to use Saab Automotive AB as the subject of this assignment. Saab
Automotive AB, originally part of a Swedish aircraft manufacturer, is a global passenger car
manufacturer with factories and dealerships all over the world. Besides the fact that Saab is an
international car brand, it was recently bought by the Dutch car manufacturer Spyker, which
makes it an interesting company and the perfect subject for this assignment.

Saab AB (or Saab) as we know it now was originally part of Svenska Aeroplan Aktiebolaget
(hence the acronym SAAB). This company, founded in 1936, was initially started for the sole
purpose of building aircrafts for the Swedish Air Force. The Second World War was drawing
coming closer and even though the country was neutral, Sweden wanted to be able to protect
itself. This was the birth of Saab. When the war ended in 1945, there was little use for the
company and they started looking for other markets in which to operate. This is when in 1944
Saab decided to start building passenger cars and three years later the Saab 92001 was born.
This model was followed by the Saab 93, 94 and 95. When the Saab 96 came, this was the
first widely popular car Saab produced and their ticket into Europe.

In 1989, after having produced a long series or passenger vehicles, Saab was bought by
General Motors and AB, both owning 50% of the shares. The financial boast that came with
GM was a very good development for Saab. Unfortunately, Saab was not able to stand on its
own, and after a few joint ventures, GM announced they wanted to sell Saab in 2009. After a
few failed deals, Saab was eventually bought by the Dutch automobile manufacturer Spyker
cars BV on February 23, 2010 (Wikipedia, 2010)

                                          Question 1

There is not just one theory that can explain the success or failure of companies who decide to
move their sales and/or production abroad. The first question is concerned with these theories
and we will discuss and decide which one has proven to be, or in our case used to be, the
success factor for Saab Automobile MB. The theories we will asses in our paper are:
comparative advantage theory, absolute advantage theory, mercantilism theory and the
Linder’s theory of Overlapping Demand.

The comparative advantage theory states that even-though a nation may have an absolute
disadvantage in producing a good with regard to another nation, it does have a comparative
advantage with the other nation. The comparative advantage of the nation is the production of
the good for which the absolute disadvantage is the smallest (Verwaal & Wijen 2009, p. 67).

The absolute advantage theory states that a nation is able to produce a larger amount of output
with the same amount of input or producing the same amount of output while using less input
then another nation (Verwall & Wijen 2009, p. 65).

The mercantilism theory states that for one, a nations wealth is based on the accumulated
wealth of the country (usually the amount of gold present) and secondly a nation’s
government should be focused on reducing imports and increasing their exports activities
(Verwaal & Wijen 2009, p. 64).

The Linder’s theory of Overlapping Demand states that a nations demand is largely
influenced by the level of GDP per capita in a country for manufacturing goods. If a nation
has a higher overall level of wealth, they will be trading more of their manufactured with
countries that have a similar level (Verwaal & Wijen 2009, p. 74).

When reviewing the previous theories, we have come to the conclusion that Linder’s theory
of Overlapping Demand describes the situation of Saab Automotive MB the best. We came to
this conclusion by looking at the major clients of Saab, which are: the United States, the
United Kingdom, Sweden, Germany and Switzerland (, 2010). The GDP
per capita in these countries are: $46716, $35445, $37383, $35613 and $42534
(, 2010). Since the level of the GDP per capita is high in all these
countries one would expected there to be a large amount of trade between these nations which
is indeed the case. Due to the high level of income there is in these countries, people can
afford to buy a car, which is a luxury product. For this reason it is logical that the sales in
these countries contribute for a large amount to the total sales of Saab.

                                           Question 2

In the automotive industry there has always been intra-industry trade. The market leaders
usually sell their older technology to the smaller companies who do not have the funds to
design and develop the different parts them self. The main components that are subject in the
intra-industry trades are the engines and chassis. It is very expensive for small companies to
develop these parts so they try to trade with the automotive giants.
Saab was until February 15th owned by GM. In the years before that, the two automotive
companies shared their technology in order to produce better cars. At this time, Saab is no
longer owned by GM but it is in the hands of Spyker. Since the acquisition, Saab is exporting
their knowledge to Spyker and is importing the design qualities of Spyker (Madslien 2010).
In the future there is the possibility for the company to expand their intra-industry trade.
Because the European Union is now without trade barriers, it is not as expansive to trade in
Europe as it used to be because there are no tariffs and other trade barriers. In addition to that,
some of the worlds largest and most advanced car companies are in Germany, which is within
arms reach for the Swedish based company. These fellow manufacturing firms could be
potential partners.
There is however one company which might be even cheaper to deal with: Volvo. Volvo is
also a Swedish based automotive company. The transport cost would be hold to a minimum if
Volvo and Saab would decide to put there heads together. The real advantage of this possible
partnership would be if they exchanged semi-finished products. When there would be decided
to share technology, this could be done almost for the same price with all car companies in
the world.
We think, because Saab is in a financial rough spot, the inta-industry trade will only increase
until they have the funds to develop their own chassis.

                                           Question 3

There are four different kinds of industry globalisation drivers, we are now going to discuss
them one by one for Saab and the entire automotive industry.

Economic drivers:
For a well functioning automotive company, it is logical to take the steps to sell your products
abroad. Not all nations are able to produce their own cars, certainly not if the country is as
small as Luxembourg for example. In that case it is much cheaper for a country to import cars
and therefore it is logical that successful automotive companies export their products. In the
case of Saab, one would expect them to have outsourced their production since it is expansive
to have a factory plant in Sweden where the wages are high. Saab has decided to keep their
factory in Sweden because it has always been there, to provide jobs in Sweden and because it
would have cost to much effort to outsource the production (,
2007). They wanted the Swedish company to stay a Swedish company. This has been possible
because the critical mass to function has been present in Sweden.

Governmental Drivers:
In the case of Saab and quite frankly the whole European automotive industry there are little
to no barriers. Due to the European Union, the tariffs in the EU are no longer there so there is
much less problems with transportation. Since Saab’s major customers are almost all situated
within the EU, this is no problem for them. There are however a few government policies that
do have a problematic on the cost for the Automotive Industry but do benefit the customers
and the environment. The EU has set strict rules for car makers that want to sell their cars in
Europe, with regard to passenger safety and the pollution of a car (, 2010).
This has increased the development cost of cars significantly.

Competitive Drivers:
As we stated before, there are numerous countries around the world where people are not able
to produce the same quality cars either because they do not have the resources or the market
is not big enough for a native company. This makes the markets interdependent) Saab has
been operating in over sixty countries world wide (, 2010), in which
they have a lot of competition of mainly the German and French manufacturers. Saab has
been trying to distinguish them selves by offering safety and above all the emotion of the
brand (Feldmeth, 2010).

Market Drivers:
We think that due to the change in customers needs is where Saab went wrong. The Saab 9-5
was at her introduction in 1995 left almost unchanged while the public wanted something
new. The other car companies did deliver upon this request while Saab did nothing besides
some minor updates. This might have been Saab’s biggest problem. They used to offer design
combined with safety and emotion, for which there always was a niche market. Now they are
getting back to these roots and they will again be satisfying their customers.

                                           Question 4

Saab Automotive MB does not have a very balanced national and global strategic advantage.
The costumers of the automotive industry all have relatively homogeneous needs. The
costumers all want save, reliable and quality cars. Saab tries to compete with its competitors
but failed in the quality division, the quality of their main competitors has been higher the
past years. Because of this homogenous need all around the world, there is a high potential for
globalisation within the automotive industry.

Economies of scale and scope certainly exist in the automotive industry. The government
policies have, as we said before, an effect on the production and development due to its cost
inflation because of the safety and ecological measurements. This has had an increase in the
sales price of cars which is also gradually increasing (,
2009). When looking at the globalizatin drivers with regard to Saab, we can conclude that it
meets some of its demands but not all.

The four global strategy levers are: major market participation, product standardisation,
activity concentration and uniform marketing (Yip, 1989). When looking at the market
participation, Saab has certainly been trying to participate, they are selling there cars in over
sixty countries (, 2010), this seems much but their market share is small.
The production standardisation is high in the automotive industry so it is also the case with
Saab. When ordering a car, there of course are a lot of options that can be added to the car,
but all cars are essentially the same. The marketing strategy of Saab is globally orientated,
they try to sell as many cars as possible in all the countries they operate in.

The solution for Saab’s current sales problems and the unbalanced global and national
strategic is simple, they need to update their products. They are going to do this later this year
with the introduction of the new 9-5 (, 2010). When their new car is
ready for production, the balance will once again be there.

                                          Question 5

In the automobile industry there are several methods of international sourcing (or
outsourcing) you can apply. You can do your research and development abroad, you can
outsource your customer service and you can have your production done elsewhere. Besides
this, you have to consider what type of international sourcing you are going to apply. Are you
going to source locally or globally and what is going to be your way of sourcing; captive
sourcing, joint venture or outsourcing?
We will now evaluate how efficient each type of international sourcing is for Saab and what
would give them a strategic advantage over their competitors.

If you look at what types of international sourcing Saab is applying you notice they are using
a combination of different strategies. Currently, Saab is producing in Sweden, Austria,
Mexico and Japan (breakeryard, 2010). The plant in the United States was closed in 2010.
This shows that Saab was combining onshore, nearshore and off shore sourcing. The fact that
the plant in the United States was recently discontinued in times of crisis shows that Saab
values on- and nearshore sourcing more highly then offshore sourcing.
The loss of the plant in the United States is very unfortunate because it means that Saab can
no longer avoid import taxes and tariffs, which would have given them a strategic advantage.
Besides outsourcing entire manufacturing plants, which gives Saab the strategic advantage of
low wages (Mexico), avoiding import taxes and tariffs (Mexico, USA) and being closer to
their supplier and buyer (Austria), Saab also applies another type of international sourcing,
namely a joint venture. During the period of 2005-2009 Saab has set up a joint venture
together with TietoEnator, called TietoSaab. This strategic partnership entails that
TietoEnator will take care of all of Saab’s IT infrastructure (TietoEnator, 2010). Another joint
venture Saab set up is with Valmet Automotive in 1968, where Saab produced certain models
in a Valmet plant in Finland. This joint venture was discontinued in 2003 (Valmet
Automotive, 2010). These two joint ventures allowed Saab to enter the Finish market and
offered a huge strategic advantage for Saab without producing in Finland themselves.

We conclude that the joint ventures Saab has set up have been very beneficial, since it has
allowed them to enter the Swedish and European market without to much investment. Besides
this, the combination of onshore (Sweden), nearshore (Austria) and offshore (Mexico, Japan)
allows them to enter the global market, profit from low wages, avoid import taxes and tariffs
and brings them closer to their suppliers and buyers. Though these are all strategic
advantages, it is hard to find a comparative strategic advantage, for it is possible for almost
any car manufacturer to apply before mentioned strategies.

                                          Question 6
If we look at the automotive industry with regards to foreign direct invest you can identify a
very simply pattern. A manufacturer establishes in the country of foundation and it then fully
explores the domestic market. When they do this successfully, they will have to expand
abroad. Initially this is done by means of subsidiaries. After subsidiaries prove not to be
sufficient, manufacturing plants are installed abroad. First in places ‘close’ to the country of
foundation, both geographically and culturally. Later, also to other continents. This way, the
manufacturer is closer to their supplier, closer to their customer and import tariffs are

There are different theories about the process of foreign direct investment. According to
Raymond Vernon, the process of FDI depends on the stage of the product. There are four
stages (introduction, growth, maturity, decline) and depending on the stage of the product, the
product moves internationally says Charlotte B. Broaden (1999). It also entails the movement
to low- cost countries and the standardisation of production over time.
Research at Uppsala University came to a different conclusion. They said that firms first set
up production facilities in close by countries, then establish subsidiaries and only when this is
successful, move to different continents (Foreign Investment in Developing Countries, 2010).
Buckley & Cassons’s theory though, states that FDI is driven by the costs of transaction,
which is why firms move to foreign countries. Lastly, there is a theory called the Ownership,
Location and Internationalisation (OLI) paradigm, designed by John Dunning. This theory
states that these three ‘advantages’ (ownership, location and internationalization) is what
drive a company into foreign investment (Thanabut, 2007).

If we look at Saab, we see that they clearly follow the pattern described by Uppsala’s
research. Saab first exploited their own market, then set up joint ventures in Finland and later
in Austria to expand to the European market. Only when this proved to be successful did Saab
move to North America and Japan.

                                                  Question 7

Now we will evaluate which five countries are most interesting for Saab to invest in and
which five countries are the least interesting. To do so, we first came up with several criteria
on which basis we would evaluate the countries. The criteria we considered relevant were; the
number of private cars, the growth of the automobile industry, the total population and the
number of owned cars per 1000 citizens. The first two criteria will tell us something about the
state of the automobile industry in each country and the last two criteria combined tell us
something about the use of cars in each country. Our method of ranking is very simple, yet
efficient. The country with the highest ranking got a seven, the next a six etcetera.

Five most interesting countries
For obvious reasons we could not evaluate every country to derive the most interesting ones.
That is why we made a selection of 7 countries, which we would then evaluate on the basis of
the before mentioned criteria. The countries were chosen on the basis of the criteria that we
considered being the most important one; the number of private cars. Initially we wanted to
look at the growth of the automobile industry, but we discovered that these figures would not
give a fair representation of the country because of the financial crisis. The figures were
derived from The International Organisation of Motor Vehicle Manufacturers (OICA). After
having selected the countries, we evaluated them on the basis of the other criteria.

Country                 Private cars1       Automobile               Total         Number of cars
                                            industry growth          population3   per 10004

    The International Organisation of Motor Vehicle Manufacturers (OICA)
    The International Organisation of Motor Vehicle Manufacturers (OICA)
China                    10,383,831     + 48.3              1,338,612,968      22
Japan                    6,862,161      - 31.5              127,078,679        325
Germany                  4,964,523      - 13.8              82,329,758         566
South Korea              3,158,417      - 8.2               48,508,972         248
Brazil                   605,989        - 1.0               198,739,269        158
USA                      2,249,061      - 34.3              307,212,123        451
India                    2,166,238      + 12.9              1,156,897,766      N/A

Five least interesting countries
Obviously, to derive the five least interesting countries we used the exact same criteria, only
this time; the ones with the lowest figures were selected. Then we applied the same technique
as we did for our highest rankers and came up with the following result.

Country                  Private cars    Automobile         Total              Number of cars
                                         industry           population         per 1000 (2007)
                                         growth (%)
Serbia                   8,720           -13.4              7,379,339          200
Finland                  10,907          -38.7              5,250,275          483
Egypt                    38,420          -42.5              78,866,635         29 (2005)
Netherlands              50,620          -42.2              16,715,999         441
Austria                  56,000          -52.6              8,210,281          511
Ukraine                  65,646          -83.6              45,700,395         128
Portugal                 101,680         -28.1              10,707,924         225

In our opinion, the chosen criteria pretty accurately appoint the most interesting countries.
Yet there are some flaws, or rather weaknesses, to our evaluation. What is not taken into
consideration is the purchasing power of the population. A relative big population such as
India can still be less interesting then a smaller population because the income per capita is
smaller. That is why including the average income per capita would have given a more
accurate conclusion. The reason for not including this criterion is because there are many
more criteria applicable to our research and we cannot include all. The last thing that prevents
the analyses from being flawless is the fact that not all statistics are from the same year, due
to the fact that not all data was available for 2009. Even so, we think the selection we made
on the basis of our criteria pretty accurately appoint the countries that are most and least
interesting for Saab to invest.

             Conclusion                  Most interesting                Least interesting
                 1.                          China                            Serbia
                 2.                        Germany                           Finland
                 3.                           Japan                           Egypt
                 4.                          Brazil                          Ukraine
                 5.                           USA                            Austria

                                            Question 8

    Central Intelligence Agency
    The World Bank
We thought it would be interesting to choose our top choice stated in question 7, China.
Because China seems to be the best choice for most car companies nowadays to invest in, but
these companies face various ethical dilemmas. Saab would be one of these companies.
Whilst Saab, in its dying years, sold some of its old production lines to BAIC (A big car
corporation in China, similar to GM) to create some revenue. Now it seems that this brief
partnership is aching for more.
But must Saab do this? Mr. Shirouzu of the Wallstreet Journal (2009) said that this would
increase Saab its offset market in China enormously. But is Saab selling its soul to BAIC?
BAIC would use the vehicle-engineering and manufacturing technology and know-how it
acquires from Saab, to produce its own production line of decent premium quality cars, which
the Scandinavian car company is renowned for. Saab boss Jan Ake Jonsson (2009), said that
this merger of services with BAIC would be extremely beneficial to both companies. But as is
the problem with its Scandinavian brother Volvo, which rumours say is being taken over by
Geely (another big Chinese car corporation), the integrity of these brands is at stake.
Scandinavian cars such as Saab, stand for safety and are well known for its family car
reputation. When consumers find out that their quality family salon car is being build in a
cheap and poorly skilled labour country, this would pose a problem for Saab’s image in
Since Europe currently is the main offset market for Saab cars, Saab is facing a dilemma. The
have to make a decision whether they want to partner up with a Chinese company, or stay
independent to keep their image. If or rather when Saab goes to China, it has a tremendous
new market in which it can sell its cars, and in the future start its own dealerships and perhaps
even build manufacturing factories in China.
This would result into a massive increase in sales and also result into a fast reduction in
production costs. But to what sacrifice? In the end Mr. Amend(2010) from
states that it is just a matter of time when Saab enters the market, probably through the help of
BAIC. Saab sales chief Adrian Hallmark claims that ‘Volkswagen, that has very little brand
awareness in China sold 970,000 cars and trucks in the region last year by linking with local
companies as; Shanghai Automotive Industry Corp. and FAW Group Corp. Saab sold another
13,000 without the support of its Chinese partners.’(Saab United). This shows that Saab
executives think that they can minimize brand diluting by simply not selling their cars under
their own brand name.
The second dilemma Saab is facing, is whether they are selling their company’s soul to
BAIC. Due to the fact that more technology and knowhow has moved BAIC, more Saab-like
cars have been spotted driving around through China. Saab seems to have found a solution to
this problem by selling itself to the Dutch car corporation Spyker. What Spyker has done with
this acquisition, is that it supports the Saab management with its decision to go to Asia and
share their technology, but still retain the Saab ‘DNA’. It ensures this by only sharing
somewhat outdated technology, that in Chinese cars would still be rather new, so not
including its latest R&D technology will let Saab keep its cutting edge position on the market.

                                          Question 9

China would be the best country to set up a production facility. This would be because of a
number of factors; China is the most rapidly growing economy of Asia as shown on
IndexMundi, it has a GDP growth rate of 8.7% (2009 est.) with this rate it has surpassed
Japan. It has a growing market of people that have become wealthy enough to afford a car.
China’s first-quarter sales totalled 4.61 million units, this was nearly twice the U.S.
volume.(Saab United) The labour forces are cheap, so production will be cheaper and laws in
China concerning environment and production materials aren’t that strict. The strategy we
would apply is to join in on a Chinese company such as BAIC or Geely. Because a semi-
merger with such big and established companies would ensure that you can push your cars
through their dealerships. But we would not link our brand name with Chinese car brands. If
we would, we could enjoy benefits such as free advertisement and customer familiarity. But
since Volkswagen has sold 13.000 cars in China with very little brand awareness, this would
also be possible for Saab. Saab also has product uniquely appealing to Chinese consumers.
Saabs are premium cars, popular with wealthier buyers, with the 9-5 perfectly sized for the
big-car tastes of Chinese consumers, says Saab sales chief Adrian Hallmark in
WardsAuto(2010). So there is a growing market with wealthy buyers on which the 9-5 series
Saab plays directly into. This strategy of connecting with an already established domestic
company like BAIC used as a distribution partner, to push your foreign products on the
market, isn’t all that new of course. But what is relatively new, is that most foreign brands
like to piggyback on domestic brands. So this gets rid of brand unfamiliarity and makes
introduction into new market easier. But as seen with Volkswagen, we do not find this
necessary for success in China.

                                         Question 10

Saab’s international position has plummeted through recent times, but it seems, now that Saab
has been acquired by Spyker, it is going well again. From a downwards % of -35% in 2009 in
comparison to the same period a year before(Saab United, 2009) to a slight increase of -28%
Meanwhile the factory in Trollhattan, Sweden is producing Saab cars again. Shareholders
alike are pleased on how it is going. But with new international activities soaring up, you get
a fork in the road. Some stakeholders choose to continue to produce from the Trollhattan
factory in Sweden, to ensure the safety and quality of the family salon car, while others want
to enter the Chinese market. But as Saab sales chief Adrian Hallmark (2010) says, you have
to be patient, Saab is recuperating. Some say Saab has to act now, it has to jump on ‘the
money train’, China has a growing market and if you enter now you would fortify your
position for upcoming years. Others say that Saab needs to get its figures out of the red first,
before expanding outside of Europe and America. Because Europe and America have similar
saturated markets, these are more predictable, and that the factory in America has been closed
is not such a good sign, it says that Saab still needs to recuperate. While the Asian market
with its rapidly growing economy is slightly unpredictable and filled with turmoil, you could
say it’s a risky investment. So you have two strategies to choose from, one is to recuperate
and the other to seize the moment and invest. Why not do both? This is what Saab sales chief
Adrian Hallmark thinks, he says that it’s just a matter of being hyper-aggressive, hyper-
prioritized in terms of where you go. Remain stable in European and American markets, and
seize the right opportunities with the right distribution partners in China(Saab United).

Reference list
The International Organisation of Motor Vehicle Manufacturers (OICA) ‘2009 production
statistics’, 2010,

Central Intelligence Agency, ‘World Factbook’ 2010

TietoEnator ‘TietoEnator and Saab to enter into a strategic partnership’, 01.04.2010,;96;135&hid=1019158

Valmet Automotive ‘Company History’, 2010, http://www.valmet-

Breakeryard ‘Company history’ 2010,

Charlotte B. Broaden ‘Topics on Foreign Direct Investment’ September 29 1999

Thanabut ‘Dunnings OLI’s theory for FDI patterns since WWII’, 25.04.2007,

Foreign Investment in Developing Countries ‘The Uppsala internationalisation model and
psychic distance’ June 2008,

The World Bank ‘Data’ 2010 ‘breaking: Saab deels verkocht aan Chinezen’ December 2009, ‘grappig: China krijgt ook een Saab 9-5’ april 2010,

GM Media’ Saab cannot be concluded’ December 2009,

The Wallstreet Journal, ‘platforms, know-how expected in Saab deal’ September 2009,

The motor report ‘ Saab assets sold to china’s BAIC’, December 2009,

Businessweek ‘Saab retreat hits China’s auto ambitions’, November 2009,
hinas_auto_ambitions.html ‘Saab Sees riches in Chinese Market’, but still calls U.S. most important’
may 2010,

Indexmundi ‘China GDP- real growth rate’, May 2010,
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Verwaal, E. & Wijen, F.H., 2009. International Investment and Trade. 2009-2010 Edition.
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