The Joint Venture of Sony Ericsson - Case Study Example

The Rise and Failure of Sony Ericsson Name Course Instructor College Date of Submission Introduction The joint venture of Sony Ericsson (SE) was established in 2001 between two corporations Sony and Ericson. Both are the largest shareholders in SE with 50%. The joint venture was established to combine the consumer products from Sony electronics expertise with Ericsson’s technological leadership and largest market in mobile communication network. It was driven by the desire of becoming the most attractive and innovative global brand in the mobile handset industry and electronics (Yamanda 2001). Motivation for the joint venture For a group to have a joint venture there should be a hidden motivation behind the desire to joint and operate as one team. Sony was motivated for the joint venture by the strategic factors that prevailed and that would be offered by the market. The first one was seeking Ericsson’s technological excellence in telecommunication in specific the technical wireless expertise and the largest market share that Ericsson had that would enable it to excel in the market that was ‘so fiercely competitive’ (Kietzman 2008; Yamanda 2001). Ericsson still had its distinct motivations; Ericsson aimed at accelerating the financial state of the company and improving it technological capacity, with the goal of being able to produce electronics that would rival the position of Nokia as a market leader in telecommunication industry. Thus the joint venture had a shared common goal and would allow SE to present a range of products that were far much ahead in terms of technology and innovation than any other electronic company then (MobileInfo 2001). The success of the joint venture would have facilitated penetration to closed Japanese market through Sony, as well as its unique technical know-how in the entertainment technology and design would have complemented well with the mobile technology provided by Ericsson mobile. Ericsson would not have been left without significant benefits from the venture; the joint venture would have allowed Ericsson access Sony’s design and production processes in addition to the imaging, music, audio and video entertainment that Sony had through the production of new, innovative entertainment handsets that would enter the virgin markets of the world. This venture was also in line with Sony’s future strategy in the cellular market. This was supported by the views of the Sony President,” the cellular handsets business is the Sony’s key strategic area in future, and I vow to make handsets one of Sony’s key internet related products” (Latour 2001; MobileInfo 2001). Expansion of Sony’s miniscule market share was also a key desire to join Ericson, this would position its handsets on a global market which was relatively weaker compared to that of its competitors. Sony’s electronics sector was doing well but its handset market had been going through a “rough patch”, this was making the market more difficult to gauge, and the dominance of Nokia as the leading industry leader was affecting the share of the struggling competitors (Dunn 2001) The challenges of each company in accessing the market were also an item that must have motivated them to join hands in the venture. Ericsson produced well-functioning, high quality phones but they would never sell them as they did not cater for the tastes of the consumer, this was the biggest headache. On the other hand Sony was failing to be a competitive handset market yet it was doing great in other electronic products. This showed that the combination of the two electronic and mobile giants would potentially prove to be successful (Kietzman 2008). The year before the venture was tragic for Ericsson that had suffered several problems and a decline in market share by almost 88% despite its leadership in mobile technology infrastructure. A fire in major supply plan of the telecom chip had a devastating impact on its supplies for months. This disrupted the product launch and Ericsson was in a dire need of financial support, thus the venture rejuvenated and gave the company a new lease of life in all the key sectors (Yamanda 2001). This also implied that by the virtue of being in a joint venture Ericsson largest customer base and expansive knowledge of mobile infrastructure which operated then in more than 40 countries would be brought in. The venture would give Sony an access to Ericsson’s cutting edge technology, along with Sony’s competitive marketing campaigns, the partnership would bring in resources that are complementary and synergistic in manner (Yamanda 2001). Sony also sought to broaden the mobile communications platform that was being considered as of greater significance for its future presences in advanced electronics consumer products and systems. The venture would be of necessity as Sony was capable of targeting a mass market of low –tech handsets and would still be competitive in high-tech handsets that were provided by Ericsson (Daniels et al 2007). The growing popularity of a faster internet specifically 3G and demand of the internet technology meant that the entire world require the service, building upon the popularity of Ericsson in Europe and Sony in Japan. This was in line with some sentiments made by the chief operating officer of Sony when he predicted that the mobile phone industry would move towards a multi-media broadband based network where customers would demand phones that are able to handle movies, games pictures and view matches online without a problem. This necessitated the need for the merger. This was also supported by the fact that Sony was a world-leader in several of this area that would be in future of entertainment industry and Ericsson had the mobile phone technology thus the merger of the two giant companies. Ericsson also felt that there were synergies to be gained, which would increase sales potential beyond anything either company could achieve alone ((Hill 2007). Existence of Alternative Ventures The venture between Sony and Ericsson posed several problems than benefits in the long run. The two companies that had just had joint venture differed greatly in various issues, they differed greatly in terms of the company culture; this was based on the fact that the two companies come from two different countries, Sony was a Japanese firm and Ericsson firm was a Swedish firm. This was also criticized by many of those against joint ventures that the collaboration of the two companies required a more complex scenario for them in order to work and that it was likely to cause conflicts in business and inefficiencies in management (Daniels et al 2007). It was not that Sony and Ericsson were supposed to form a joint venture they had several other means of forging an alliance including; licensing, franchising, original equipment manufacturing (OEM) and Wholly Owned subsidiaries (WOS) (Daniels et al 2007; Hill 2007). Licensing Licensing was the option that both Ericsson and Sony had but it had some obstacles. The main motive for the joint venture was “combining Sony’s marketing savvy and Ericsson’s experience in mobile technology in order to challenge the market leader Nokia Corp’( Harris,2001). Using license as a tool of business, for instance if Sony would have been able to acquire license to some of Ericsson’s ‘mobile technology’ it would give Sony a chance to compete better against the market leader like Nokia. The challenge for this was that, Sony despite being able to gain access to Ericsson’s technology would still experience difficulty in internalizing the tacit elements of Ericsson’s capabilities and learning would be slow which is problematic given the fact pace nature of the mobile technology. Licenses would also make Ericsson be reluctant to give Sony access to their technology in order to prevent Sony engaging in opportunistic learning (Daniels et al 2007). Licensing would have helped in shortening the product development time, enhance the quality of the product and processes, build competitive advantages and expand existing business capabilities. Despite the stated advantages this would never be a valuable strategy; it would never give both companies control over the manufacturing, strategy and the way their technology is marketed. Ericsson would also lose control over the competitive advantage of their technological know-how. Licensing would never have been suitable channels in achieving Ericsson’s motivations and business objectives (Daniels et al 2007; Hill 2007). OEM contracts This was another strategy that they would have undertaken. This would provide Ericsson with easy entry into foreign market. This strategy would have also given Sony a chance to exploit the technology transfer, learn and compete directly with Ericsson. The challenge of OEM was that contracts were supposed to be established and it would be difficult in gaining the right balance that would benefit the two parties. Thus joint venture seemed more appropriate (Hill 2007). Franchising In franchising agreement the two parties would have obtained independence to operate and distribute the products of the other. Over and above licensing and OEM contracts; this would not have allowed either to access the core of the other and would never provide the base of the main motive of a joint. Through franchise agreements Sony and Ericsson would have obtained some benefits like, Sony would access the low risk entry into European market and with some careful selection could provide Sony with the local know-how and links to the wireless operators. This would just help Sony increase its market share than what it had of 1% (Dunn, 2001). Wholly Owned Subsidiaries This was another avenue for either of the party and more advantageous for Ericsson than Sony. The advantage of using this strategy is one of technological competences and Ericsson had this competence. When there is technological competence WOS reduces risk over losing control (Hill, 2007). This reduction of risks is important in maintaining Ericsson’s competitive advantage. WOS would also provide Ericsson with a firm control over operations in different countries where their subsidiary branches are. This still pose a challenge to Ericsson as it required massive capital and investment resources and the larger risk that would come along. Learning also business in any other country would be a challenge because of cultural changes and would not be a success strategy. Thus joint venture was the only better option for the two companies to be in (Daniels et al 2007). Problems that have been encountered by Sony Ericsson since its formation The joint venture initially sounded great because of the contributions from each side of the firm. Ericsson’s contribution to cellular know-how, operator contacts and Sony’s contribution of its consumer electronics and marketing experts must have been the perfect choices a joint venture would have, but it was never to be as problems arose after the formation. This included the problem of cultural deviation, saturated markets, brand portfolio, product delays, logistics problem, supply chain management problem and a model that would rationally fit the two firms (Brown 2002). SE suffered common difficulties in joint ventures such as uneven product line-up, violent competition, (Kantrow, 2003) as well as the difficulty in unifying two product lines. Overlapping of products was a problem that was never dealt with before the joint venture was agreed. This was evident when Sony which was producing digital assistance CLIE and running palm OS was not stopped by the joint venture that was planning to produce smart phones with similar functions to CLIE and running on OS, this was a case of overlapping and was an area that generated problems (Harris 2001). Management was also another problem. This is because of the different cultures that the two firms came from no any specific culture would be under the other thus respecting it was a problem. Cultural conflicts led to character-based trust problems between the managers of SE. This caused a delay in the releasing of the smart phones at the beginning of the joint venture, leading to a decline in earnings possible from the ‘first movers’ (BBC News 2008). The problems in supply chain management also caused an increase in costs for transactions, materials and service costs. This problem may have led to delay in shipping of phones leading to problems in the oversea market, inefficiencies were also observed in handset manufacturing. This caused a challenge for SE to meet the delivery schedules. The models that were used by SE were considered complex as they had only the high- end models with few products in the discount segment, SE enjoyed higher-than- average selling price but lost the market share ultimately loses in profits were recorded. The controls on the supply chain and manufacturing never worked appropriately. This still affected their production and penetration of newer regions and market like the American market, which it is reported that its phones have experienced difficulty to market (Jennifer 2007). Planning and decision making was also another factor that created enormous problems to the joint venture. This was based on the desire to have a top-bottom approach, where the management agreeing on an objective which are determined on a long term base. The time taken to complete a given decision would hurt SE as there are dynamic changes in the environment. The rational model also inhibited innovation and prediction of future mobile technology is never easy (Jennifer 2007). Sony Takeover of the Venture The desire of Sony taking over the JV and turning it to a subsidiary company is something that I support whole heartedly, because of the numerous benefits that come along with it. With a subsidiary company the number of risks involved will be from one side thus reduce the risks involved and maintain competitive advantage. The formation of the subsidiary will provide Sony with a firm control of the already established operations in different countries leading to improved efficiency and service delivery. The cultures have already been intermarried and this will reduce the costs of transactions. References BBC News UK, 2008, "Ericsson and Sony in mobile tie-up" viewed 24 April 2013 Brown, C 2002, 'Sony Ericsson inside the last-chance saloon', Financial Times Daniels, J, Radebaugh, L, and Sullivan, D 2007, International Business: Environments and Operations, 11th edn, Pearsons-Prentice Hall, New Jersey Harris, E 2001, 'Sony, Ericsson Mix Technology, Marketing Savvy --- New Mobile-Phone Brand Aims to Topple Nokia; Just the Logo Is Ready', The Wall Street Journal Hill, C.W.L 2007, International Business, 6th edn, New York: McGraw Hill Jennifer, L 2007, 'Challenges for Sony Ericsson's New Chief; After one week on the job, Hideki Komiyama is painfully aware of competition from the iPhone, Google's mobile plans, and Nokia's new wireless offerings', BusinessWeek Kantrow, B 2003, 'THE BOTTOM LINE: Sony Ericsson Fails To Live Up To Hopes', Dow Jones International News Kietzman, S 2008, "What is a Joint Venture", viewed 23 April 2013 [2 October, 2008] MobileInfo 2001, "Acquisitions, Mergers & Agreements" Viewed 25 April 2013 Yamada, M 2001, "Sony and Ericsson in joint-venture talks", IT World Canada, IDG Network Read More