Essay on Sony Ericsson from Joint Venture to Wholly Owned Subsidiary
1. Sony & Ericsson’s motivations behind the joint venture (JV)
The Swedish telecommunications company Ericsson, one of the “Big Three” mobile handset manufacturers in the 1990s, started to reach difficulty as it entered the new millennium. In 2001, Ericsson’s sales dropped by 52%, recording a $1.39 billion loss which preceded an announcement that would lay off 20% of their workforce. Ericsson found itself losing market share to “Big Three” rivals Nokia and Motorola and eventually even to Siemens. Analysts attributed this downfall to Ericsson’s stagnant phone designs, slow time to market and their inability …show more content…
One motive for the JV was for Sony to get access to foreign market to increase market share. In case of licensing, Sony could acquire Ericsson's handset technology but it does not provide the operation know-how and enter to the European market. Franchising can allow for independent operation of the product. Sony can enter the European market with lower investment and lower risks. The problem is Sony only had 1.5% of the global market share and hardly any presence in the US. It is difficult to compete within the market because "Sony had failed twice on earlier attempt to enter the global market and was under pressure to find a new hopefully successful approach". 2.4 Wholly Owned Subsidiary
Wholly Owned Subsidiaries is characterized by full control over local operation and a high level of resource commitment. This is an option for Ericsson as telecommunication technology is its core competence and competitive advantage. Ericsson can fully control the operation through WOS, reduce the risk of business secret leakage thus maintain competitive advantage. However it includes a high level of risk and resource commitment. A large of amount of capital is required and also there is a culture gap between Japan and Sweden. Culture difference has been always a vital element which affects the success of FDI.
3. Joint Venture
A joint venture was chosen considering the