Ericsson in China

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Case Details:

Case Code : BSTR127
Case Length : 11 Pages
Period : 1985 - 2004
Organization : Ericsson China
Pub Date : 2004
Teaching Note : Available
Countries : China
Industry : Telecom

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"China is an extremely important market for Ericsson and a global supply hub for our R&D and production."

- Carl-Henric Svanberg, Ericsson President and CEO, in 2004.¹

"China offers one of the largest opportunities for wireless telecommunications in Asia. As a committed, local partner in China for more than 100 years, Ericsson is honoured to be part of this high-growth market......."

- Jan Malm, president of Ericsson China, in 2004.²

"This MoU combines the strengths of both our organizations, and the synergy created by this cooperation will result in a better integrated supply chain for our customers and therefore increase their efficiency. We look forward to a long and mutually beneficial relationship for many years to come."

- Xingsheng Zhang, president and Chief Executive Officer of AsiaInfo during the signing of an MoU with Ericsson for future strategic cooperation, in June 2003.³

Introduction

Ericsson's relationship with China can be traced back to more than a century - to the 1890s - when the first batch of Ericsson telephone sets were shipped to Shanghai. Since then, China has gradually developed into one of Ericsson's top markets.

As of 2004, over 50% of mobile subscribers in China were connected through Ericsson supplied networks. Ericsson had 26 offices, 10 joint ventures and four wholly owned subsidiaries in China in the early 2000s. Kurt Hellstorm, (Hellstorm) president of Ericsson, forecast in 2000 that China was likely to become one of the largest markets for mobile phones in the next few years. With continued investment and a localization strategy that stressed cooperation with local partners, Ericsson was positioned to strengthen its market in the country. Analysts observed that though the telecom markets in North America and Europe had slowed down in the late 1990s and early 2000s, the Asian market had scaled new heights in spite of setbacks because of SARS.⁴

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Experts ranked the Chinese market second only to the United States in terms of volume and growth prospects. According to some industry estimates, in 2004, there were more than 400 million mobile phone users and 10 million Internet users in China (Refer Exhibit I for growth in mobile phone usage in China).

Ericsson was determined to tap this huge market. The company adopted several measures like setting up local production units, intensive R and D activities and localization of production and supply networks. The increased focus on Chinese operations led to enhanced job opportunities in the host country. It also boosted local Chinese business by actively involving domestic suppliers. Local suppliers who dealt with Ericsson had to manufacture products according to global standards, which automatically helped improve China's manufacturing and production facilities. With Ericsson's growth in China, the country's telecom business and general economic environment was also positively impacted.

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1] "Ericsson appoints new President for Ericsson China", Ericsson Malaysia Press Releases, www.ericsson.com.

2] "Ericsson expands China Unicom", www.unstrung.com, January 2004.

3] "AsiaInfo and Ericsson -- China -- Sign Memorandum of Understanding on Strategic Co-Operation", Business Wire, June 18, 2003.

4] Severe acute respiratory syndrome (SARS) is a viral respiratory illness that was recognized as a global threat after first appearing in Southern China in November 2002.