Reasons for Joint Ventures
According to Thompson (2011, p. 5), a joint venture is a corporate strategy that a company seeks to improve profits through increasing sales and involves entering new markets and production of new products. A joint venture can occur outside or inside the business unit. There are many reasons that can make a company adopt this form of diversification. The company seeking for a joint venture makes decisions based on the need to create economies of scale, improve financial performance, increase market power, improve profit stability, and accelerate growth. A company takes advantage of differences in geographical distances, sharing of information, improvement in technology and innovation, ability to share costs, ability to share learning and experience, and brand name to improve its performance in sales and profits.
Joint ventures have helped companies take advantage of opportunities in the market with reduced costs and with fast effectiveness in profits and sales. A joint venture can also fail to achieve business objectives. A joint venture increases risks of investing resources when the corporate strategy fails. Managers should take time to understand customers and the market before a making decision on forming a joint venture. The company must allocate managers strong enough to deal with the divaricating strategy, decide on the control over the business, and evaluate the strength of the company to engage in such a venture. It must also take time to analyze and understand the risks involved before committing time, finances, and other resources in the venture (Thompson 2011, p.9).
Introduction to Sony Ericsson Mobile Communication
A collaboration occurs when two or more partners or parties decide to work together to achieve a specific goal that would not be achieved by a party. Sony and Ericsson are two multinational companies that decided to form a collaboration to become Sony Ericsson in 2001. Sony is a multinational producer in the world of consumer electronic goods based in Japan. The company specializes in the production of entertainment, electronic, financial services, and games sector. The company has more than 180,000 employees globally. The company has a vision of exploring the opportunities created by its unique business models. Masaru Ibuka and Akio Morita founded the company in 1946. The company has a strong connection and value with the corporate and national culture creating high chances of succeeding in the target markets (Sandstrom 2009, p.16).
Ericsson is a company based in Sweden. The company is the global leader in the mobile phone company offering services and solutions to major mobile phone standards and producing telecommunication equipments. The company operates in 175 countries with more than 78,740 employees. The vision of the company is to rely on perseverance, respect, and professionalism to create a culture of value. Sony Ericsson combines innovative applications and powerful technologies to offer music, mobile imaging, entertainment, and communications. The global markets recognize the company for devices of multimedia that include accessories, phones rich in features, M2M solutions, and PC cards.
Sony Ericsson has become a strong brand with a variety of market opportunities for desirable fun user products and mobile operators. The company has undertaken major investments in product development, sales, marketing, research, customer services, and distribution. The company operates from London whereas the R&D is in France, Sweden, India, Netherlands, China, Japan, the United Kingdom, and the United States. The company operates the Creative Design Centre (CDC) from London, Sweden, Japan, Asia, and the United States (Luna 2001, p. 20).
Reasons for Sony Ericsson’s Joint Venture
The companies’ main reasons to work together were to achieve a sustainable competitive advantage and growth. The two companies wanted to penetrate into the cell phone markets and compete effectively with the rivals based on their competitive advantages on state of art design and technology. Sony and Ericsson shared the same mutual interest as they both faced difficulties in competing efficiently with their rivals in the cell phone market. The companies had high levels of interdependence as Sony had renowned designs with high levels of innovativeness and Ericsson had a strong reputation in application of the latest and finest technology in telecommunication. Sony Ericsson could easily achieve their marketing objectives because they relied on each other’s competences and expertise in technology and design, in which the fields are the key success factors in the cell phone market (Sandstrom 2009, p. 24).
Sony and Ericsson engaged in the cell phone business before deciding to form collaboration but could not compete in the competitive market. Forming the collaboration was an effort to overcome the market situation and to eliminate the monopoly enjoyed by their competitors. By them working together, they would be able to manufacture and design cell phones that attracted customers from their competitors and maintain the existing ones across the world. In the late 1990s, Ericsson invited Sony to form collaboration. The two companies had possession of valuable resources but faced difficulties in making their different cultures and working environments compatible. To overcome this challenge, the companies decided to establish their new company in a neutral location. The companies settled on the United Kingdom and contributed resources equally toward the establishment of the new business venture (Luna 2001, p. 26).
Impact of the Joint Venture to Sony Ericsson in Competing Effectively in the Marketplace
The company began operations with 3500 employees globally with 1000 from Sony and 2500 from Ericsson. The company has developed the potential of employing more than 180000 employees (Luna 2001, p. 27). Sony Ericsson invested most of its resources in product distribution, development, sales, research, customer service, and marketing to achieve its strategic goals. The combination of its expertise in technology and design build distinctive competences in the market providing the company with a strong brand image and name in the global market. This has improved the organizational and corporate culture of value enhancing the potential in meeting the goals of the joint venture.
The company wanted to create a third generation handset with high data intensity. The company has succeeded in launching new models targeting their mission on the mid-level and entry-level segments. It uses the production facilities in the parent companies but manage the production operations under a unified brand. Sony Ericsson uses competences in technology and design to offers a variety of products that satisfy customer needs and wants in multimedia and cell phone handsets and services. The company aims to achieve what it would not achieve on their own. They supplement each other in the strength of their brand image, value, and name (Sandstrom 2009, p. 28).
Sony Ericsson will aim at maximizing profits and sales through dominating its target markets. This includes attraction of more than 12% market share in the target markets in the short run. The company achieved this goal in year 2000 where it acquired a global market share of 12% yielding approximately $7.2 billion. Sony Ericsson failed to improve and maintain the market share because of high competition from its competitors and in 2002, it lost market share to 5.6% and profits to $2.6 billion. The company decided to invest additional capital in 2003 to overcome the losses. The company reduced reliance on the mobile phones and focused on providing multimedia and digital photography. The company released a 2-megapixel, 5-megapixel, and 12-megapixel and K750i camera and W800i, UIQ 3, the P990 and Sony Ericsson C905 phones with the capability of two low-end phones with playback of 30 hours (Harper & Swenson 2010, p. 1). The company has grown in the market with the GSM color-screen camera phones and 3G handsets. The company has successful attracted and maintained customers with preference of multimedia capable phones and the joint venture has created attention for quality and unique multimedia mobile phones (Luna 2001, p. 28).
The company sponsored a variety of sports activities adding good image and reputation on the global markets. Sony Ericsson sponsors the WTA Tour leading to the renaming of the sport team to Sony Ericsson WTA Tour in 2005. Sony Ericsson established a subsidiary in India in 2007, which manufactured more than 10 million mobile phones as at 2009. The company succeeded in attracting more than 105 million customers of the GSM mobile phones. The company could take advantage of the business opportunity and compete for customers in the fast growing India markets for mobile phones. The sales volume of handsets fell in 2011 from 30.8 million to 8.1 million because of the introduction of Google’s android and Apple’s iPhone by its competitors. This was a difficult moment for the joint venture as the profits had fallen earlier in 2008 by 43% because of the launch of LG Electronics by its competitors from South Korea (Harper & Swenson 2010, p.2).
The company restructured its business because of the decline in sales and increased competition from rivals. The company discontinued approximately 5000 employees cutting about 1500 jobs in 2010. It closed down some of the underperforming R&D in the United Kingdom and the United States and UIQ centers in Budapest and London. In 2012, the joint venture ended as Sony acquired Sony Ericsson at a cost of £1.054 billion changing the name to Sony Mobile Communications. Sony Mobile Communications uses the expertise acquired from the joint venture to create smart phones. The smart phones attract a large market share and profits and the company has improved its global image in the mobile phone industry. Some of the popular smart phones are the Sony Xperia Smartphones (Harper & Swenson 2010, p. 3).
Conclusion
Joint venture is a good market strategy, and it has built the basis for Sony Ericsson’s global recognition. Sony Ericsson entered into joint ventures to increase growth and sustainability of competitive advantage in the competitive market of mobile phones. The joint venture strengthened their technological and design expertise to offer consumers with well-featured headsets. The company is at the top five global leaders in the mobile phone industry. The company is facing stiff competition but the joint venture creates potential for proving new and improved products to consumers. The efforts of the company in outperforming the mobile phone industry in the joint venture failed and led to looses. The joint venture ended in 2012 and Sony purchased Sony Ericsson to become Sony Mobile Communications. Sony Mobile Communications used the expertise acquired from the joint venture to develop. This means that joint ventures are risky concerning emulation of technology, knowledge, and expertise.
List of References
Harper, E & Swenson, T 2010, “Smartphone wars”, Novell Connection, vol.21, no.5, pp. 1-3.
Luna, L 2001, “High hopes”, Telephony, vol.240, no.18, pp. 20-28.
Sandstrom, G 2009, “Sony Ericsson bets on high end: Handset maker hopes new premium phones will revive sagging sales”, Wall Street Journal, vol.1, no.1, pp.16-34.
Thompson, A 2011, Crafting and executing strategy: the quest for competitive advantage: concepts and cases, McGraw-Hill Companies, New York.