Ericsson took active steps to set up manufacturing subsidiaries in other countries in the 1960s. The reasons for establishing foreign operations in the postwar era were the same as they had been in the 1920s: overseas manufacturing operations were a prime requirement if Ericsson was to be competitive.
In other words, the company had to adapt to market forces when customers - usually public authorities - applied a national perspective to the procurement process. Customers wanted to ensure that their country would receive investment, employment or technical know-how. Furthermore, in the long run they wanted to produce their own telephone components in order to avoid a negative impact on the balance of trade. Expansion of the Finnish plant in the immediate postwar period was justified, for example, on the grounds of Finland's shortage of foreign currency, which hindered the importation of telephone equipment. As a result, Ericsson reluctantly expanded its production capacity in Finland in 1948, following protracted discussions and proposals by the Finns.
In the case of Latin America, the establishment of telephone manufacturing facilities was clearly the result of increasing pressure from national authorities to persuade Ericsson to set up local operations. There was a ban on the importation of telephone equipment in Brazil, for example, and the granting of permits was linked to a commitment to commence manufacturing in the country.
ITT already had a telephone plant in Brazil, which weakened Ericsson's position. When they visited the country in 1953 on Ericsson's behalf, Sven Ture Åberg and Olof Hult, concluded that it was "absolutely impossible to obtain an import license unless LME complied with official requests to start manufacturing telephones in Brazil. The company must either build a telephone factory there or purchase its requirements from the existing Standard (ITT) plant, at a relatively high price".
Ericsson also faced the risk of total exclusion from the Brazilian market for automatic exchanges and other equipment if it failed to establish local production. Commencing in 1954, manufacturing operations were gradually built up, starting with telephones and followed, at a later stage, by crossbar switch exchanges and transmission equipment. This process was consistently justified on the grounds that the company would otherwise be excluded from rapidly growing Brazilian market.
Ericsson moved into the Australian market very rapidly. By 1959, it was clear that the Australian authorities would adopt the Swedish crossbar switching system as a national standard, but that local manufacturing was a prerequisite. Initially, Ericsson was obliged to arrange for the manufacture of Ericsson equipment under license in local plants owned by US and British interests. Prior to major new orders in 1960-61, the Board was informed that the company had "no chance of winning this order unless the assembly of telephones, at least, takes place in Australia". As a result, Ericsson purchased an existing plant, and made substantial investments in the production of its own equipment in the course of the next few years. This manufacturing operation was relatively successful.
A similar pattern may be noted in Mexico, where local manufacturing commenced in response to explicit requests by customers. When Ericsson's interest in telephone services in Mexico was finally phased out in 1958, it was rumored that the company would no longer be able to supply equipment made in Sweden. Initially, the company tried to establish local manufacturing in cooperation with ITT, but there was increasing pressure to set up a completely independent operation. Sven Ture Åberg, Ericsson's president made an unambiguous presentation to the Board in January 1962, stating that "there are increasingly intensive demands for domestic production of telecommunications equipment, and we will probably be forced to invest in a plant in Mexico within a year or so. This will have a negative impact of profitability".
Later the same year, Åberg reported that "the Germans and the Japanese have declared that they are prepared to build telephone factories in Mexico. As a result, we will obliged to decide on the construction of a plant in the near future". The initial steps involved agreements with small local manufacturers, but by the mid-1960s Ericsson started to assume ownership, with an increasingly large number of employees engaged in the assembly, testing and production of standard components and equipment.
In Brazil, Australia and Mexico, a combination of an attractive potential market and official requirements resulted in investments in the manufacture of telephones and equipment for exchanges. The company was involved in similar discussions in a number of other countries, but ultimately decided to refrain from direct investment. In Thailand, Singapore and India, for example, plans for initiatives of this nature were scrapped at a relatively advanced stage.
Setting up local manufacturing operations may be regarded as one of the key competitive tools in the international telephone market. Comparisons between Ericsson's plants in Sweden and in other countries indicate that it was possible to achieve satisfactory standards of efficiency in overseas facilities for the assembly and testing of telephone exchange equipment. The cost of such labor-intensive operations was largely determined by wage levels, where overseas plants tended to have an advantage.
In the case of the actual manufacture of components - which involved capital-intensive production with a high degree of mechanization - the Swedish plants proved to be superior. In addition, raw materials and semi-finished parts were cheaper in Sweden, due to large-scale production requirements. The net result was that moving production overseas offered no advantages in terms of cost, and therefore, when Ericsson was forced to relocate manufacturing to other countries, the primary focus was on assembly, cable inspection and other manual and technically unsophisticated operations.
Sales trends in the key markets in which Ericsson set up operations show that output from these plants did not have a negative impact on Swedish exports. On the whole, deliveries from Sweden increased at a faster rate than local production. Due to extremely rapid technical development, the Swedish parent company and the Swedish manufacturing facilities maintained their advantage, without impairing the growth of industrial know-how and expertise in the countries in which Ericsson set up manufacturing subsidiaries.
Author: Ulf Olsson
