Localization Strategies of Ericsson in China *

Abstract:

Ericsson's relationship with China dated back to the 1890s, when the first batch of Ericsson handsets was shipped to Shanghai. Since then, China has gradually developed into one of Ericsson's primary markets. The Chinese market presented huge opportunities in terms of volume and size. The telecom and IT industry in China was growing at the fastest rate in the world and Ericsson was determined to have a share of the pie. The company set up its first office in Beijing in 1985 and in 1994 Ericsson (China) Co. was established. Ericsson adopted a well laid out localization strategy to optimally exploit the Chinese market. Between the late 1990s to the early 2000s, Ericsson shifted the procurement and supply side of its wide range of business to China. It also brought in its traditional partners. This offered huge employment opportunities for local Chinese and also contributed to the country's economic growth. Besides, huge investment in R&D by Ericsson and commitment to develop the country's 3G technology contributed to China's telecom and IT growth. However, in the early 2000s, the market for Ericsson products in China lost out to stiff local competition. Analysts observed that Ericsson needed to rethink its strategy on pricing and quality of its products.

Issues: » Understand the approach taken by multinationals to tap new markets. » Determine various issues involved in the setting up of a new company in an international market. » Appreciate localization strategies adopted by an MNC to expand its operations. » Appreciate the complexity of a growing market like China. » Evaluate the growth of a European telecommunications major in China. » Understand the contribution of an MNC in the host country's economic development.

Questions for Discussion:

1. Discuss the various localization strategies adopted by Ericsson to strengthen its position in China. What is your opinion on the effectiveness of these strategies?
2. What were the various contributions of the company towards the growth and development of the Chinese telecom industry? Also discuss the contribution of Ericsson China towards the development of the general economic environment in China.
3. In your opinion, what are the various issues that multinationals should keep in mind before entering a new market? What reasons would you assign towards the failure of Ericsson China despite the initial euphoria? How do you think the company should rectify its position in the country?

Key words:
Ericsson, Ericsson China, TCL, China Mobile, Localization Strategies, Joint Ventures, Elcoteq, Motorola, Ericsson China Academy, China Unicom, Nokia, Siemens, Samsung, Sony-Ericsson China, Distribution Channel

*Note : This case is a simplified version of a longer case study, and is intended for learners for whom English is a foreign language. The longer version of this case study (BSTR127) is available at: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR127.htm