Ericsson in China
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Case Code: BSTR127 Case Length: 11 Pages Period: 1985 - 2004 Pub Date: 2004 Teaching Note: Available |
Price: Rs.400 Organization: Ericsson China Industry: Telecom Countries: China Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Localization Strategies
To tap the potential Chinese market, the Swedish giant made concerted localization efforts. The company realized that integration with the local economy was essential for success. To this end, the company decided to localize procurement and supply for its wide range of businesses. Under its 2000 Plan, Ericsson ordered RMB 14.9 billion worth of components from local suppliers in 2000, which experts felt, was a substantial order. Ericsson's determination to take root in China was expected to enable Chinese enterprises to land even more generous orders and have a larger share in the Sweden-based company's production and R & D activities. Apart from the staggering 4-time increase in domestic purchase value (from RMB 3.9 billion in 1999 to RMB 14.9 billion in 2000), Ericsson's accumulative investment in China reached $600 million by year-end 2000. Industry experts commented that the increase in domestic purchase improved the "homemade" rate of Ericsson (China) products. Two of the company's mobile phone models -- T18 and A1018 -- got more than 60% of their components from domestic suppliers...
Competition
Though China's telecommunication market was growing faster rate than anywhere else in the world and Ericsson had a successful localized strategy, not everything seemed bright for the Swedish conglomerate on the mainland. The company suffered setbacks in 2001-02. Craig Watts, an analyst with Norson Telecom Consulting in Beijing, said, "I don't think there has been a worse time for Ericsson in the China market. We have just seen an erosion. The domestic makers are on their heels and are a lot cheaper. Ericsson is still winning contracts -- it just got a $150 million deal from China Unicom, for instance -- but the competition is much stiffer." The most obvious problem was the collapse of Ericsson's handset market share. In the mid to late 1990s, Ericsson controlled the mobile handset market in China along with Motorola and Nokia. But, by the early 2000s, the company was barely visible. At the end of 2001, Ericsson China controlled only 5% of the market, which further dropped to around 2% by mid-2002...
Entry of Sony Ericsson in the Chinese Market
Sony Ericsson launched Sony Ericsson China in August 2002 to produce and market handsets for both domestic consumption and exports. Ericsson was widely acclaimed as the top handset vendor in China in the 1990s, but eventually lost market to Motorola, Nokia and others. Sony did not have a history of very strong sales in the Chinese handset market. Sony Ericsson China was formed with the intention of recovering market share. Ericsson formally exited the handset market in 2002, and the entire responsibility of handset design, production, sales and support was transferred to the new company. Combining strengths from Sony (entertainment and design) and Ericsson (mobile communications technology and R&D), the company aimed at creating a new consumer segment, with who laid more stress on enhanced value for money. Advanced features like imaging, entertainment and interactivity were incorporated in the new Sony Ericsson handsets. Since its inception in 2002, Sony Ericsson was launched several handsets with features designed specially for local customers...
The Future
The growing telecom and IT industry in China offered huge opportunities. The mobile and Internet telephony market in China was growing at one of the fastest rates in the world. The obstacles faced by Ericsson included stiff competition from multinational companies like Nokia and Samsung, domestic competition from companies like TCL and ZTE, and shifting loyalties of consumers from multinationals to affordable local companies. Ericsson's share in the mobile handset market dropped from the leadership position in the late 1990s to less than 2% in 2002. Even the joint venture with Sony failed to reverse the trend. Analysts felt that in the face of such intense competition, the company needed to rethink its policies. While localization had helped, pricing and quality were two aspects, which had to be looked at afresh. Affordability was a primary reason for Ericsson losing its market to local competition...
Exhibits
Exhibit I: Telephone Users in China
Exhibit II: Ericsson's Offerings
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