Case Study Notes

This case study provides an excellent example of why firms engage in technology transfer. It also
provides practical evidence to illustrate the benefits of technology transfer.
In April 2001, Ericsson, the Swedish telecommunications equipment group, and Sony of Japan
established a joint venture in mobile phones. The venture, based in London, brought together the
loss-making handset businesses of the two companies. The news was generally accepted as good
for both companies. It would combine Sonys consumer products expertise with Ericssons
extensive knowledge of mobile phone networks. Ericsson is the worlds leading maker of
wireless networks. It would give Ericsson access to Sonys multimedia technology, branding
expertise and knowledge acquired from Japans early start in third generation mobile phone
technology. Sony would gain access to Ericssons telecommunications technology and its
distribution. The two companies hoped to create a market leader to threaten the dominance of
Nokia of Finland within five years. In 2000, the two companies together shipped 50 million or
$7.2 billion worth of mobile phones, giving them a 12 per cent market share and third position
after Nokia of Finland and Motorola of the United States.
Case Study Questions
1. Ericsson is the world leader in mobile phone networks and has many years of
experience of handsets. Explain how Sonys technology portfolio has helped the joint
venture.
Ans:
The move into a new business area such as mobile phones is welcomed by investors who argue
that Sony has been too slow to move away from its traditional businesses such as music stereos,
televisions, VCRs, DVDs and camera recorders. The mobile phone market is viewed, possibly
incorrectly, as a new vibrant highly profitable market.
Moreover, the problem for Sony is that competition is fierce in many of its existing markets;
indeed prices have been falling, leading to a squeeze on margins for Sony. Certain products, such
as low-end stereos made by Aiwa, Sony's 61 per cent-owned subsidiary, are being increasingly
dominated by low-cost Chinese and South Korean manufacturers. In addition, the games
division, which accounted for 44 per cent of operating profits in 1998, has been mired in losses.
Increasing competition from Nintendos GameCube and Microsofts Xbox will put further
pressure on Sonys PlayStation2.
Sonys technology portfolio will be useful in the mobile phone handset product.
Sonys technology portfolio includes the following:
HDTVs, Flat-panel Plasma and LCD WEGA TVs, FD Trinitron WEGA CRT TVs,
CRT rear projection TVs, and Grand WEGA LCD rear projection TVs;
Hi-Fi components (AV receivers), shelf systems and speakers;
Walkman personal stereos, MiniDisc Walkman players/recorders and personal digital
music players;
Cybershot and Mavica digital still cameras;
Memory Stick flash media;
VAIO desktop and notebook computers;
Video-conferencing products;
Visual-imaging products;
Professional digital photography systems;
E-communication and digital signage;
Batteries;
Semiconductor devices.
Students need to discuss how the technologies may be helpful.
2. Explain why a mobile phone is much more like a radio than a conventional wired
telephone.
Ans:
Many innovations are applications of existing technology, in such cases this part of the
framework may not be used. In this case, the technology can be traced back to Business radio
communication devices such as those as used by Taxi firms and Emergency Services. These
allow one party to talk at a time. Few people realise that a mobile phone is much more like a
radio than a conventional wired telephone. Indeed, mobile phone technology is a development of
radio technology rather than wired telecommunications technology. That is it picks up signals
from transmitters. It seems that the technology existed for many years and was extremely slow to
develop.As with so many innovations this is where most of the technical effort takes place. If one
considers, that one-way business radio has been around for 50 years. It seems funding to
develop the technology was not forthcoming because people didnt perceive how popular cellular
radio would become nor how cheap the service would eventually be.Unquestionably since the
early 1990s, when mobile phones began to emerge the technology development has been rapid
and diverse. Initially the emphasis
was on reducing the size of the brick like products. This happened within three/four years.
Simultaneously, network coverage increased and improved. Then battery life improved
considerably. Next it was screen improvements then keyboard and cameras etc.
3. Explain why Sony and Ericsson were finding it increasingly difficult to sustain R&D
over all of their businesses.
Ans:
The increasing technological content of mobile phones, as illustrated above, has forced many
firms in the industry to search for technology partners who can provide the additional technology
required such as multimedia, digital camera, games, and so on. For these firms, to try to develop
expertise in these areas would be too expensive and too slow because of the rapid technological
changes that are occurring in the mobile phone market. Indeed, the mobile phone market is an
excellent example of the increasing complexity of technology and the increasing range of
technology found within products. This has led to a shortening of product life cycles within the
mobile phone market. Many users now change their handset after 18 months to 2 years.
Companies are also finding it increasingly difficult to sustain R&D capability over all areas of
their business as the complexity of these areas increases. Internal R&D is increasingly focused on
core competencies, while R&D in all other business activities is progressively covered by
collaborations, partnerships and strategic alliances.
4. Explain why Ericsson is maintaining a large R&D division focusing on handsets when
its joint venture with Sony is also conducting R&D and product development of
handsets.
Ans:
Notwithstanding the joint venture with Sony, Ericsson intends to retain a large research and
development division focusing on handsets, which is vital to ensure its network business stays in
touch with consumer demands.
This is an interesting strategic issue. One could argue that it suggests a lack of confidence in the
JV and that Ericsson intends to eventually go it alone. However, it is not unreasonable for a firm
that provides the infrastructure for a product to also need to be informed about the product that is
handsets themselves.
5. Many firms are outsourcing more and more of their activities and focusing on core
activities. What are the advantages for Sony Ericsson in bringing manufacturing back
under its control?
The main advantages are increased control of activities.
Sony Ericsson is planning to bring more of its mobile phone manufacturing plants under its own
control to smooth out supply-chain problems and help improve its market share. It is in talks to
raise its stake in Beijing Ericsson Putian Mobile Communication, a manufacturing facility
outside Beijing, and could consider other similar deals in the future. The company is keen to
avoid a repeat of 2002, when it failed to take full advantage of booming pre-Christmas demand
for phones because of component shortages, resulting in loss of market share. However, the
decision to bring more factories under direct control is a reversal of parent company Ericsson's
earlier policy followed in 2001 just before setting up the joint venture of outsourcing all its
handset manufacturing to companies such as Flextronics. About 30 per cent of Sony Ericsson
phones are produced in factories controlled by the company while 70 per cent of production is
outsourced. Sony-Ericsson is aiming for 50 per cent production in factories being controlled by
the company.