Three important decisions
Leesi says: “The most important factor was the shift of power in the market, so that now it was the customers who could pick and choose.” Three strategically important decisions were made. Ericsson was going:
1. To find a partner that could provide know-how and experience of consumer products to supplement Ericsson’s technological expertise.
2. To give priority to the high end of the market, more expensive (and more profitable) models rather than the mass market.
3. To give priority to product development and therefore outsource actual production to subcontractors.
During the course of one year, the number of employees in the consumer product division was reduced from 17,000 to fewer than 5,000, mainly because production was sold to Flextronics. Many people got the wrong idea and believed that Ericsson was withdrawing from the mobile-phone market.
The mass market for the cheapest phones was relinquished to companies such as Nokia (which did well) and Siemens (which no longer produces phones).
But the burning issue, which was also discussed in the media, was whether Ericsson could find a partner for its mobile-phone production. Its choice was Sony.
“We had a number of candidates,” says Leesi. “But it soon became clear that Sony would be the best alternative.”
The first contacts were made at the beginning of 2000; in April 2001 the partners signed a letter of intent. Expectations of the announcement of a partnership between the two were so great that when a Japanese flag was hoisted over Ericsson’s Linköping factory in the spring, Ericsson shares rocketed on the Stockholm stock exchange, as Åsa Käfling notes in her case study of the partnership.
On September 11 – the same day as the terrorist attacks in the US – the boards of Sony and Ericsson approved the partnership agreement.
More than half of all joint ventures fail to provide the intended outcomes. This is often due to the collision of cultures, a failure to cooperate effectively at a day-to-day level.
Sony was a strong global consumer brand with, for instance, products such as Walkman and Cyber-shot, and long-standing experience of the consumer market. Above all, Sony’s core skills were in video, games and music, and the company was good at getting products on to the market quickly.
The history of Sony is characterized by a large number of strategic partnerships and acquisitions. In two cases Sony had formed joint-venture companies in the field of mobile telephony – with Qualcomm and Siemens. Both had failed. One reason, Käfling writes, was that neither had been whole-hearted investments. So now Sony was urging a partnership in which both sides owned 50 percent of the company.
“Global ambitions and a similar history were seen as a formula for success for the new company. Ericsson’s origins as a family company, and the fact that it took good care of its employees, were seen by Sony as a good starting point,” writes Käfling.
Sony Ericsson Mobile Communications, owned on a 50–50 basis by Ericsson and Sony, with its head office in London, started operations on October 1, 2001 – which happened to be the day on which the world’s first 3G network opened in Japan. The two companies therefore owned equal shares, even though in the preceding year Ericsson had sold 43 million mobile phones and Sony a mere 7 million. Just under 3,000 of Ericsson’s staff and about 1,000 from Sony were transferred to Sony Ericsson when the company started.
The establishment of Sony Ericsson was well received. The first mobile phone from the new company was the T65, which had a soft, rounded design. But the T65 had in fact been developed before the creation of Sony Ericsson, and could just as well be described as Ericsson’s last telephone.
Despite all the owners’ optimism, it can be seen in Käfling’s study that getting Sony Ericsson to function as a tightly knit company was complicated and took time. When two such different cultures meet, the loyalty of the staff is put to the test in many ways, for instance in attitudes to working hours and the length of holidays.
Nils Rydbeck, who retired just as the new company was established, recalls: “Fortunately the new company got a really competent CEO in Katsumi Ihara, someone really interested in the products.”
Author: Svenolof Karlsson & Anders Lugn
Katsumi Ihara, CEO for Sony Ericsson
The last Ericsson-developed mobile phone, the T65
Store that sells 3G mobile phones through DoCoMo, the former japanese state phone operator.