The Sony Ericsson joint venture is a case study that can be used to explore key international business strategies and concepts. 1. Sony & Ericsson’s motivations behind the joint venture (JV) The Swedish telecommunications company Ericsson, one of the “Big Three” mobile handset manufacturers in the 1990s, started to reach difficulty as it entered the new millennium. In 2001, Ericsson’s sales dropped by 52%, recording a $1.39 billion loss which preceded an announcement that would lay off 20% of their workforce. Ericsson found itself losing market share to “Big Three” rivals Nokia and Motorola and eventually even to Siemens. Analysts attributed this downfall to Ericsson’s stagnant phone designs, slow time to market and their inability to foresee market movement. Kurt Hellstrom, Ericsson’s CEO at the time, also stated that Ericsson needed a deeper understanding of consumer electronics, entertainment, audio, video and design. The personal consumer technology giant Sony saw immense opportunities in the early mobile phone industry. Sony predicted the industry’s movement towards multi-media broadband and foresaw the future consumers’ needs of mobile handsets with multi-media content such as movies, pictures and games. It was a perfect market for Sony to venture into with its expertise in consumer technology. Previously, Sony had missed entering the mobile phone market with the introduction of the GSM network in the early 1990s and held a mere 2% share of the worldwide mobile market. However, they identified an opportunity with the arrival of the 2000s also came a new mobile network called 3G, and Sony was determined to not make the same mistake as it did with GSM. Sony’s previous successful products, such as the Walkman, had all been independent ventures. However, the mobile phone industry required close co-operation with mobile carriers, which presented a challenge for Sony, known to be historically independent. Hence, in order for Sony to break into the mobile market, it needed to create a strategic alliance with a mobile operator that was already integrated well into the telecommunications market. The increasingly competitive mobile handset environment forced both Sony and Ericsson to address the weaknesses of their core competencies. Incidentally, both firms had the competencies that the other firm did not – Sony’s strengths in design, consumer electronics expertise, branding, and multi-media content and Ericsson’s established market share and skills in technological knowhow and distribution.
2. Alternatives to JV
One rationale for the JV was to combine Sony's consumer products expertise with Ericsson's extended knowledge in mobile technology. By licensing, Sony can acquire the mobile technology of Ericsson and exploit the multimedia technology into the handsets in order to strengthen Sony's image beyond traditional multimedia boundary. However one drawback the companies face is difficulty transferring the tacit knowledge including negotiation of the transfer price and monitoring the transfer outcome. However it is difficult to internalise Ericsson's tacit knowledge given the rapid developing nature of the mobile industry. Also as the handset technology is a main competitive advantage of Ericsson, they might not be willing to engage in licensing to prevent opportunistic acts of learning. Licensing for Ericsson has the benefits of less investment on R&D but still maintain a strong ability of product development. Major competitor Nokia was able to dominate as it succeeded to keep up with the recent trends of technology. However, as licensing does not provide the control on production, this was not an appropriate strategy to adopt. Ericsson might also face difficulty in internalising the tacit knowledge, slow learning and a risk of leakage of technology know-how.
2.2 OEM Contracts
Sony could have achieved the objective by using an OEM contract as it would benefit from the technology transfer of...