Sony Ericsson Negotiation Process

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  • Topic: Supply chain management, Ericsson, Mobile phone
  • Pages : 6 (1923 words )
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  • Published : May 28, 2012
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The creation of Sony Ericsson Mobile Communications

Formal discussions were held between Ericsson and Sony in late 2000 with serious discussions in early 2001. Before the start of reorganising its operations the Ericsson handset division – DCP Division Consumer Products - employed close to 18,000 people, or almost 20 per cent of total Ericsson employment. Between 6,000 and 7,000 were transferred to Flextronics. An estimated roughly 8,000 were released and another 3,500 were transferred to Sony-Ericsson, EMP 900 Technology Licensing (EBT).

A number of companies had already approached Sony before Ericsson became the main solicitor. They included Motorola, Alcatel and Siemens. Nokia had already, at earlier stage in the 1990s approached Sony when the company wanted to sell its TV operations while at the same time creating a joint venture in telecommunications, an offer that Sony declined. The Sony-Ericsson discussions initially focused on a soft alliance but Sony firmly required a joint venture. Sony emphasized three considerations as very important – cost, quality and TTM, while semiconductor technology was not going to be included in the deal. Sony identified its strength in user interface and would focus on upper-layer applications, where modules are important in areas such as still cameras, video, MPE4, Bluetooth and GPRS

The Head of Business of Sony initiated discussions with Ericsson in the 2000s to form a joint venture with Ericsson. Sony had a good market for mobile handsets in Japan but was not very successful abroad as the company “came too late” – with only about one per cent of the market. Sony top management suggested that it should be 10 per cent and could reach 20-30 per cent after 6-7 years. Sony started its cellular business in the early 1990s but realized that Samsung came later and has been much more successful – without any experience in radio. Samsung bought almost everything from Qualcomm to enter into the US and subsequently entered into GSM business. Sharp, without any earlier radio experience has also been successful, and was the first supplier in Japan to offer a handset with a built-in camera.

Before reaching a Memorandum of Understanding (MoU) with Ericsson in early 2001 Sony had been approached by various handset manufacturers and was also courted afterwards.

Ericsson and Sony entering into Negotiations

Ericsson at the time was a major partner in the relation – in terms of global sales and technology and saw relations between the companies as ten-to-one in favour of Ericsson in spite of its horrendous losses in selling handsets. However, Sony remained self-opinionated and refused to make any cash contribution, which became a major reason while Ericsson Mobile Platform (EMP) remains outside the joint venture. However, EMP is reducing its operations and does not want to be captive of Sony and is also selling technology to other customers such as LG. A full agreement was reached in December 2000 but a mutual assessment had not yet been made, although it was agreed that the two companies would form a 50/50 joint venture. Ericsson still requested money as it considered Sony to be the minor partner. Eventually it was agreed that EMP should be excluded. Then followed very tough negotiations on a number of key issues such: governance, management, manufacturing, management of R&D, etc. The negotiations were carried out by teams from each side consisting of some ten people. Real negotiations started in January 2001 and a number of differences were sorted out and a MoU was signed in April 2001 – with real diligence to be completed by August 2001. There occurred a number of problems although it was agreed that the companies should form a 50/50 joint venture with Board of Directors from the two companies and a the president to be named by Sony.

A number of critical issues were sorted out during June-July 2001, of which intellectual property rights (IPR), the role of EMP and the...
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