BAIC and the Saab Automobile Acquisition Opportunity

The chief financial officer at Beijing Automobile Group Co. Ltd., a large Chinese state-owned automobile manufacturer, is weighing up whether the company should purchase an equity stake and/or access to the intellectual property rights and production equipment of Saab Automobile, the troubled Swedish premium automaker owned by General Motors. Previous experience of Chinese technology acquisitions in the auto sector has given him pause for thought. He has to weigh up the likely return on investment, the ability of the company’s workforce to absorb and develop new technology, and the role of competitors in China’s rapidly growing auto market. He has three options: purchase access to Saab’s intellectual property rights alone, purchase an equity stake as well as access to those rights or do neither. If he goes ahead with either of the first two options, and if the gamble pays off, he will enhance his own reputation and that of his company. However, if the gamble fails, not only reputation but potentially a lot of money will be lost and much effort wasted in trying to absorb a foreign product into current operations.

The case can be taught at both undergraduate and postgraduate levels in courses on international business, strategy and organizational behaviour. Its objectives are:<ul><li>To underline the importance to Chinese manufacturing firms of high-tech intellectual property rights.</li><li>To explain the pros and cons of acquiring foreign intellectual property rights.</li><li>To highlight the importance of absorptive capacity and dynamic capabilities when acquiring intellectual property rights as a basis for learning and establishing new products.</li><li>To illustrate the difficulties of valuing intellectual property rights and asset values of foreign subsidiaries.</li><ul>

• Absorptive capacity
• dynamic capabilities
• valuing
• technology
• acquisition
• China