Threats from competitors
Sweden is an ardent advocate of free trade while many countries still effectively push to protect their own industries. The telecom sector is particularly sensitive, with its links to defense. The US-owned telecom manufacturing industry, for example, has almost been eliminated and strong companies are emerging from China.
In his comments for the first quarterly report for 2009, Svanberg identified the most serious competitors: Huawei in mobile systems, Cisco for fixed networks and Alcatel-Lucent in services. He mentioned that Ericsson had grown faster than the market and that network traffic continued to increase strongly.
In fact, Ericsson’s global market share was 33 percent when Huawei began to emerge as a competitor. Today it is 43 percent. This means Ericsson has been become stronger even while Huawei has won business.
How does Ericsson expect to respond to the emergence of Huawei?
Cutting-edge technological expertise is one aspect, and there Ericsson’s 20,000 R&D technicians are expected to continue to be the best, Svanberg says. “Where the other 60,000–70,000 employees are concerned, who work with other kinds of tasks in 150 countries, the question is who is best at managing them. How can you work successfully in major projects that involve large numbers of staff? How do you get complicated things to work?”
Technological leadership has not been given lower priority, but the industry is changing radically. “If you look at it from a historical perspective, we have shifted from local standards with local approaches, to a global standard with local approaches,” Svanberg says.
Looking at future competition, between Ericsson and Huawei for instance, several questions arise:
• How are the two companies dealing with issues raised by the internet world?
• How do they cope with the change to increasingly service-based deals?
• How do they deal with network transformation?
• What is the significance of the dramatic increase in software?
When GSM was new, vendors supplied hardware, with the software thrown in, often free of charge. Now the main product is the software; the accompanying hardware, however, is not given away. Today Ericsson is the world’s fifth-largest supplier of software and 90 percent of the company’s R&D is devoted to software.
“The Chinese competitors are undeniably important. But there is just as much competition from software companies and niche enterprises,” Svanberg says.
“Huawei has had a positive impact on Ericsson. It has forced us to struggle to stay in the lead. It has always been healthy for Ericsson to feel threatened. If Huawei had not existed, there would have been many more competitors today.”
Author: Svenolof Karlsson & Anders Lugn