The Sony Ericsson Joint Venture

Introduction

This paper shall discuss the rationale behind the Sony Ericsson joint venture partnership, which was finalized in 2001. The researcher wishes to review the motivations, goals and strategies adopted by the partners in order to achieve their mutual objectives, despite the dismal organizational performance that they have been showing since the start of the venture.

The current state of the global business landscape today has forced organizations to come up with more creative ways of surviving and keeping ahead of their competitors. Some of the more important aspects that most companies today are focusing on to improve their overall performance are enhancing their brand identity, connecting with customers and attracting competent and highly-skilled workers (Isidro, 2000). Moreover, today’s corporate managers are also facing a highly competitive environment “that is increasingly complex, globally centered, and technologically uncertain where there is a critical need for dynamic, flexible, and proactive responses” (Miles, Preece, and Baetz, 1999). It is no longer enough to emphasize on creating and maximizing opportunities on their own, because independence also has its drawbacks.

As a result of the various pressures that companies are facing, there is now an increased tendency among them to favor forging strategic partnerships and alliances as a viable business option. During the late 1990s and into the early years of the new millennium, most companies experienced unprecedented success in obtaining equity capital by means of venture capital financings and public offerings. The capital was also obtained at high valuations and on very favorable terms to the company.

The economic downturn, however, changed the fate of entrepreneurs as the availability of equity capital decreased dramatically. And even when it was available to them, the valuations were much lower than before and the terms more in favor of the investor. Thus, there has been a growing need to forge strategic alliances as a good alternative to survive the unfavorable economic situation, especially for information technology and life sciences companies (Hutchison and Mason, 2001).

The researcher has reviewed several news items, websites and academic papers that specifically talk about the birth and the continuing progress (or lack thereof) of the Sony Ericsson joint venture. This paper shall be divided into two further sections: the first will look at the motivations and aims behind the establishment of the partnership, the second will discuss the problems that the new company has faced with regards to achieving its performance objectives. The second section will focus likewise on the strategies adopted by Sony Ericsson to overcome their difficulties as well as an assessment of the suitability of such solutions.

The Sony Ericsson joint venture: an overview

Talks about the joint venture between the Japanese electronics company Sony Corporation and the Swedish telecommunications manufacturer L. M. Ericsson first started in April 2001, and the deal was finalized in October upon approval of the board of directors of the respective companies (Yamada 2001). Sony is one of the world’s leading manufacturers of consumer electrical goods like compact disc equipment, mobile and cordless phones, computer related devices and television systems.

On the other hand, Ericsson was then the world’s third largest producer of mobile handsets (Yamada 2001), with Nokia and Motorola taking up the top two spots (Hesseldahl 2002). Despite its seemingly robust business, Ericsson actually experienced a severe drop in its annual profits the year that the deal was being ironed out, having sustained a loss of $1.39 billion in the 2nd quarter of 2001. The company was also set to cut down on its workforce by almost 20 percent at that time, which only underscored the fact that it was in dire straits when the Sony proposal to launch a joint venture came in (Olavsrud 2001). Moreover, the company was then considering the option to outsource its handset production, which was one of the most expensive areas in its operation (Yamada 2001).

The move to enter in to a joint venture was important for Sony as it was one way for the company to expand its share of the cellular phone market dramatically by benefiting from Ericsson’s brand name and manufacturing capabilities. In 2000, Ericsson shipped above 41 million handset units while Sony was able to deliver only 7.5 million. As for Ericsson, it was in an excellent position to take advantage of Sony’s advanced mobile phone technology. For example, Sony produced a handset model that can play music through its proprietary memory card.

Most global telecommunication companies have been seeing very little marginal profit in their handset sales due to the stiff price competition with their competitors in the industry. The expectations of the consumer market have also forced telecom companies to invest more in research and development for the next-generation mobile phones, and eventually to collaborations like that of Sony and Ericsson. Prior to their joint venture, Toshiba and Siemens have also created a technological partnership for the development of next-generation handsets.

The primary motivation for entering into the joint venture can be traced back to Sony Corporation’s desire to revitalize its hold over the global mobile phone industry (Yamada 2001). At first, Ericsson only wanted to sell Sony its mobile phone division but the latter preferred a complete integration. The joint venture then seemed to be the most perfect option for both companies, thus giving rise to Sony Ericsson Mobile Telecommunications AB. The company is based in London and employs more than 4, 000 workers. Their joint venture is owned 50:50 by both partners but a former Sony top executive, Hideki Komiyama, leads the company’s management team.

To date, Sony Ericsson is one of the world’s most trusted providers of mobile multimedia devices like state-of-the-art cellular handsets, accessories and PC cards. The Sony Ericsson brand is popular for its advanced technology phones featuring top-level applications for mobile imaging, music, design and others. Their wide range of handsets is tailor-made for different entry level markets and users. Sony Ericsson envisions itself to be the world’s number one communication entertainment brand, enabling its users to do more than just communicate with one another.

The Sony Ericsson joint venture: issues and challenges

Despite the hype behind the Sony Ericsson joint venture, initial results have shown that it was not working well and the objectives that have motivated the collaboration in the first place are not being met. While both Nokia and Motorola were able to hold on to their respective positions in the global mobile phones market, Sony Ericsson had slipped behind them, landing below the South Korean firm Samsung and the German giant Siemens. These five corporations now form the top five global mobile handset manufacturers today.

Sony Ericsson has consistently shown poor profits and performance despite the infusion of high-end technology and the barrage of publicity that accompanied the joint venture. The new company’s first line of mobile phones was introduced to the market in March 2002 but received only lukewarm response from consumers. For a time, Ericsson’s chief executive officer, Kurt Hellstrom, threatened to pull out of the collaboration because the company’s profits have not been turned around, even with the involvement of Sony (Hesseldahl 2002). Moreover, job losses within the company continued to increase even after it had initially laid off some 22, 000 workers.

The joint venture was announced with much fanfare and publicity, to the point that Sony Ericsson considered having models and actresses to advertise their new handsets in public places in an effort to build up the street credential of the new phone line. Such a move was deemed sufficient to attract the attention of the young professionals who are the company’s main target-individuals whose age ranged from late 20s to early 30s (Hesseldahl 2002).

What seems to be the problem, then? The company has done all it could to work up a good amount of publicity and has pushed forward with its plans of making high-end phones that combine both fun and functionality for the users. The flaw in Sony Ericsson’s strategy is revealed when a closer study of their target demographic is made: these young professionals have controlled their spending patterns because they are either out of work or believe that they will soon be fired from their current professional position. With such a down-at-luck target market in mind, it is no wonder why Sony Ericsson’s sales have not been picked up a few months after their joint venture was launched.

The joint venture was formed with a clear and consistent vision in mind-that of making Sony Ericsson the preferred innovative brand when it comes to the mobile phone industry (Frendberg 2006), providing the best mix of mobile solutions in the form of multimedia phones. The joint venture was not seen as a hostile collaboration because of the equal profit and control sharing between the partners. It was the goal of both Sony and Ericsson to forge organizational synergies between their companies and to become the market leader in the industry. The equal utilization of their assets was meant to take advantage of each one’s assets, knowledge and possibilities, primarily by offering the most high-tech phones in the market (Frendberg 2006).

The problem does not seem to be the strategy adopted by Sony Ericsson, but rather the timing for their launch and the current situation of their target market. The company’s fate turned around in 2003 when it began to make actual profits. This also marked a turning point for the company because its efforts soon paid off and it began to create a revitalized reputation within the mobile handset industry. It was recognized as the fourth largest manufacturer of cellular phones, with the company’s global market share increasing to 9.5 percent (Schenker 2008).

The combination of communication and entertainment has paved the way for Sony Ericsson to be a strong contender again in the global mobile phone marketplace (Reardon 2009). As the company continues to create innovative mobile phone solutions ahead of its competitors like Nokia, Sony Ericsson has successfully captured the young, hip and techie consumer.

This way, the company is able to create more value for their users, something that its competitors are also trying to achieve. For example, the introduction of Apple’s iPhone has remarkably changed the dynamics and the technology that fuelled the mobile phone industry. The company has remained steadfast in its commitment to manufacturing feature-rich phones instead of joining its competitors who have chosen to produce smartphones, the newest range of mobile handsets that were more than just a wireless telephone.

The most recent financial downturn in the last quarter of 2008 has also hit Sony Ericsson terribly, breaking its cycle of good profits in the past years. Like its situation in 2002, consumers were especially concerned about the state of the economy and were unwilling to spend more on gadgets, even high-tech phones like the ones that Sony Ericsson offered. However, the company continues to bank on its ability to attract more users because of their innovative technology and the unique mix of features in their mobile phones, coining their new strategy ‘Entertainment Unlimited.’

Conclusion

This paper has discussed the evolution of the Sony Ericsson joint venture, outlining and analyzing the motivations, weaknesses and solutions that have influenced its growth in the last nine years. As we have seen throughout the paper, the joint venture proved to be the best option for both companies to take advantage of their individual strengths. Instead of opting for a limited technological collaboration, a truly joint enterprise between the two was more preferable because it streamlined their operations and integrated each one’s organizational cultures. While the company has had its share of bad business, its strategies of hype and improved technology have also paved the way for the company to succeed in the market.

In the long run, Sony Ericsson will have to rethink its current choice of shying away from the production of smartphones. If the company wishes to anchor its success on continuous technological innovations, then smartphones are the way to go. Not only do they provide entertainment and excellent communication features, but they also allow the user to do more with their handset such as email, log onto the Internet and use word processor applications, among others.