Collaborative Ventures Essay
The competitive nature of today’s international business world pushes the companies to find a common ground between each other. Even market giants have considerable tendency in creating collaborative arrangements with their competitors in order to keep their positions in the market. The competencies of competitor companies differ from each other often. Collaborative agreements provide companies to gain varied knowledge and specialties with less R&D costs. Also competitors can access each other’s established markets with collaborative ventures. Nevertheless, the accomplishment of an international collaborative venture depends on the harmony between national and organizational cultures of the partners. Hence, the cultural examination of the venture has a crucial role in the success. The partners should state a suitable integration method considering the cultural impacts in the negotiation period.
2.1Definition of the International Collaborative Venture
Collaborative ventures, sometimes called international partnerships or international strategic alliances, are essentially partnerships between two or more firms. They help companies overcome together the often substantial risks and costs involved in achieving international projects that might exceed the capabilities of any one firm operating alone. (Cavusgil, et al. 2011)
Cavusgil, et al. (2011) also state that there are two basic types of collaborative ventures: equity joint ventures and project based, non-equity ventures. In this essay we are going to examine an equity joint venture between Sony and Ericsson. Equity joint ventures are traditional collaborations of a type that has existed for decades. (Cavusgil, et al. 2011). According to Wallace (2004, citing in Ahmed and Pang 2009), joint ventures are usually formed on the basis of a common objectives or mutual goals of all the parties. This objective should serve the needs of the companies in a proportionate manner otherwise the success of the joint venture will be short-lived.
2.2The motives for Collaborative Ventures
Daniels, et al. (2011) state the motives for collaborative ventures as:
● Spreading and reducing costs: When the volume of business is small, or one partner has excess capacity, it may be less expensive to collaborate with another firm. Nonetheless, the costs of negotiation and technology transfer must not be overlooked.
● Specializing in competencies: The resource-based view of the firm holds that each firm has a unique combination of competencies. Thus, a firm can maximize its performance by concentrating on those activities that best fit its competencies and relying on partners to supply other products, services, or support activities.
● Avoiding or countering competition: When markets are not large enough for numerous competitors, or when firms need to confront a market leader, they may band together in ways to avoid competing with one another or combine resources to increase their market presence.
● Securing vertical and horizontal links: If a firm lacks the competence and/or resources to own and manage all of the activities of the value-added chain, a collaborative arrangement may yield greater vertical access and control. At the horizontal level, economies of scope in distribution, a better smoothing of sales and earnings through diversification and an ability to pursue projects too large for any single firm can all be realized through collaboration.
● Gaining knowledge: Many firms pursue collaborative arrangements in order to learn about their partners’ technology, operating methods, or home markets and thus broaden their own competencies and competitiveness over time.
● Gaining location-specific assets: Cultural, political, competitive, and economic differences among countries create challenges for companies that operate abroad. To overcome such barriers and gain access to location-specific assets (e.g., distribution access or competent workforce), firms may pursue collaborative arrangements.
● Minimizing exposure in risky environments: The higher the risk managers perceive with respect to a foreign operation, the greater their desire to form a collaborative arrangement.
3.0 Information and analysis
3.1Information about Sony Ericsson Joint Venture (SEJV)
3.1.1The brief history of the SEJV
Sony Ericsson, the mobile telephone company formed by Ericsson and Sony in 2001, was born of two, coincidental, serious crises. April 24, 2001, saw the announcement that the Swedish telecommunications equipment company Ericsson was merging its mobile telephone operations with Japan’s Sony, forming Sony Ericsson with each company owning 50 %.The new, mutual company was headquartered in London. Originally, the two companies were compatible partners for the joint venture. Sony was a major electronics brand with expertise in the industry and Ericsson was a leading company in the communications sector. (Nilsson undated) Finally, Sony acquired Ericsson’s share in the venture on February 16, 2012. (Sonymobile 2012)
3.1.2The main motives for the SEJV
● Spreading and reducing costs: Sony was desiring to increase its market share in the mobile phone industry. Ericsson had major financial problems due to delays in the production. Eventually, Sony made less amount of investment to the industry and Ericsson continued its business by reducing its costs.
● Specializing in competencies: One of the essential objectives of the venture was to merge Ericsson’s know-how in the telecommunication
area to Sony’s wide experience in the electronics.
● Avoiding or countering competition: Ericsson desired to be the market leader. Also Sony wanted to increase its market share. So they combined their resources and knowledge to receive a bigger share.
● Securing vertical and horizontal links: Ericsson had serious problems in the value added chain due to its supplier Philips. Also, before joining, Ericsson had a problem of manufacturing their goods cheaply, which Sony’s affiliates and manufacturers solved for them. (Tharp 2009) Moreover, the brand awareness of Ericsson was an area which Sony is reputable.
● Gaining knowledge: While Sony was accessing the wide knowledge of Ericsson in the telecommunication, Ericsson also gained access to Sony’s expertise in the visual and digital technology.
3.2Examination of the SEJV from Sony’s perspective
3.2.1Examination of the main motives from Sony’s perspective One of the main purposes of a joint venture is to share the cost of building a new organization. Sony wanted to take a chance of the opportunities that were rising in the mobile phone industry in the early 2000’s. Despite that, the business environment in this industry was carrying a high risk for the new players. It would have been a great cost for Sony to form a new organization, which can challenge with top players like Nokia and Motorola. Consequently, Sony decided to enter the mobile phone market on a leading company’s coattails. (Tharp 2009) Ericsson was the 3rd big mobile phone manufacturer in the beginning of the 2000’s. Sony had hegemony in the audio, vision and chip technology for the electronic devices however; it had defects in the software and patenting in the mobile technology.
With some 33,000 granted patents, Ericsson is the largest holder of standard-essential patents for mobile communication. (Ericsson 2013) Therefore, the specialization of Ericsson in the mobile phone industry provided a major advantage for Sony. Sony was not a preferable brand in the mobile phone industry in the beginning of 2000’s with a market share of less than 1%. Sony may not have been able to counter a competition in this industry by itself. Simultaneously, Ericsson was the 3rd major player in the industry and was trying to get over its dramatic fell in the market share.
Moreover, Sony, which had virtually no presence in mobile phones outside Asia, would gain a foothold in Europe and America, where Ericsson had distribution agreements with major operators. (Kapner 2001) Thus, Ericsson would be the ideal component partner for Sony due to its situation in the market. Sony had lack of the R&D management in the mobile phone technology. Despite that, Ericsson had an experienced R&D team specialized in the mobile technologies. This team fulfilled the gap of R&D management in Sony. Sony accessed the long-term gained knowledge of Ericsson in the mobile technology area with this joint venture. Sony was planning to integrate this knowledge into its specialized know-how in the electronic devices.
3.2.2Examination of the problems in the SEJV, which Sony encountered As we examined above the main motives about SEJV that Sony had, we would have expected a compatible partnership with Ericsson. Nevertheless, the implementation was not so successful. Bryan Ma of IDC Asia-Pacific said “They originally came together to incorporate the Ericsson technology and the Sony brand, but they haven’t been able to achieve much with the combination,” (BBC 2011) Moreover, “When the joint venture was formed, mobile phone technology was simple and Ericsson’s inputs in that area suited Sony’s purposes,” said Tim Charlton of Charlton Media. (BBC 2011) Parallel to these thoughts; SEJV was not at the place in the market where they desired to be in the beginning. Charlton also stated that now things have changed.
Phones are much more advanced and Sony feels it is hampered by the fact that Ericsson doesn’t bring much to the table with regard to the smartphone segment. (BBC 2011) Analysts said the 50-50 partnership has played a role in hurting the company’s product development. Melissa Chau of IDC Asia-Pacific stated that whenever decisions are made at one end, they need approval from the other. That has hindered their ability to bring new products to the market at a fast pace. (BBC 2011) Sony expected to gain more knowledge and technology from Ericsson; however Ericsson didn’t contribute both of them enough to the partnership. The lack of R&D activities revealed phones, which were not representing an innovation. Consequently, the release of the brand new models of SEJV delayed and also disappointed the market. As a result of this, it gave a particular damage to the corporate image.
Cultural separation was another problem in the SEJV. As mentioned by Lane and Beamish (1990) IJV partners from different national cultures tend to experience greater difficulty in terms of communication and coordination (Lane and Beamish 1990 cited in Pothukuchi et al. 2002). If we look at the organizational culture of both the partner companies, we see that there is also a significant difference on this account. The only similarity among them is the professional orientation towards work and open system that exist within the organization. When we make this comparison with Sony Ericsson, we find out that the culture integrated at Sony Ericsson is quite similar to that of Ericsson. The reason may be due to both the companies are based in Europe and also there is very less difference in their respective national cultures. Another reason for showing similarity with Ericsson is that the ratio of Swedish employees working at Sony Ericsson is quite high, thus giving a similar notion.
It can be assumed that the culture incorporated at Sony Ericsson is partially based on some commonalities between the parent firms and partially influenced by the national culture as well. (Ahmed and Pang 2009) As a result of these facts, Sony acquired Ericsson’s share in the venture on February 16, 2012. While hailing the past decade’s partnership with Ericsson, Sony president and chief executive Howard Stringer pointed out that the market had drastically shifted since 2001 from focusing on loss-making simple mobile phones to highly profitable smartphones. The separation from the Swedish company was therefore a logical and strategic step that would enable Sony to more efficiently deliver devices that can connect to each other and open up new entertainment possibilities. By taking full control, Sony can integrate its smartphone operation with its tablet, hand-held game console and personal computer businesses to save on costs and better synchronize development of mobile devices. (Anon 2011)
3.3Examination of the SEJV from Ericsson’s perspective
3.3.1Examination of the main motives from Ericsson’s perspective As it was mentioned in the annual report 2001 of Ericsson (2002); year 2001 was a tough year in the telecom business. Like most of competitors, Ericsson incurred considerable losses for the year. Relative market position of Ericsson improved, however, and after decisive restructuring and cost control efforts, Ericsson’s objective for 2002 was to achieve an operating margin of over five percent. Ericsson was looking for a partner to share the cost of this organizational restructuring in order to stay competitive in the industry. Sony was a reliable brand for Ericsson to keep on its business. Wojtek Uzdelewicz, managing director at Bear, Stearns & Co. (2001) mentioned Sony-Ericsson deal as a perfect union. He said “Ericsson has done a poor job of building brand awareness. That’s what Sony is famous for.” Furthermore, Ericsson would also gain access to Sony’s expertise in combining audio, visual and digital technology, a skill whose importance will grow with the introduction of a new generation of phones with Internet connections and other advanced features. (Kapner 2001)
Another advantage for Ericsson was Sony’s expertise in mobile handset technology, which was a key sector Ericsson was hoping to break into at the time. (Tharp 2009) The annual report 2001 of Ericsson (2002) stated that the industry has a strong growth potential and Ericsson look forward with optimism on Ericsson’s role as the top-class vendor to top-class operators. Due to the uncertainty in the telecom market under current economic conditions, Ericsson believed a solid upturn may be a couple of years away. The long-term financial objectives of Ericsson were unchanged to grow faster than the market, which means a growth of more than 20 percent in a few years. This marketing objective was a crucial motive for Ericsson to create a joint venture. Indeed, Sony was known as a marketing genius worldwide. Both companies would benefit from each other’s established markets, making them fifth largest mobile phone producers in the world. (Tharp 2009) In 1998, Ericsson had begun to experience technical problems with its telephones.
For the next three years the company would be forced to admit to a number of problems and unexpected events, ranging from problems with circuits and new model delays to a fire at a subcontractor and lack of back-up systems. Still, the largest problem was probably the lack of skills with consumer products most clearly shown in the legendary answer to the question of why the Swedes did not try to imitate the highly successful Finnish telephone design: “If you want a phone that looks like a piece of soap, then” (Nilsson undated) In spite of that, Sony was a reputable consumer product manufacturer due to its quality management and design innovations.
Also, Ericsson had a problem of manufacturing their goods cheaply, which Sony’s affiliates and manufacturers solved for them. (Tharp 2009) Sony was a great information source for Ericsson to access. First of all, Sony was a global giant in the consumer electronics. The expertise of Sony in audio, visual and digital technology was fulfilling the gaps in Ericsson’s knowledge. Besides technology, Ericsson was also searching for a remedy to its marketing problems. Conveniently, Sony was famous for its branding, marketing and commercial activities.
3.3.2Examination of the problems in the SEJV, which Ericsson encountered Sony wanted to gain the market, which Ericsson already established in a long-term. Nevertheless, a deal would do little for Ericsson’s market position. Sony sold just five million phones in 2000. Adding them to Ericsson’s 43.3 million would increase Ericsson’s market share just one percentage point, to 10 percent worldwide, leaving it in third place behind Nokia of Finland (35%) and Motorola (14%). (Kapner 2001) At this point, Ericsson trusted the brand-new mobile phones, which were developed with its new partner, would have boosted their sales. In spite of that, their sales dramatically decreased in 2002 and 2003 and they even lost their position in the market share. Indeed, the average marketing management of Sony also disappointed Ericsson and caused this situation.
As we mentioned before, Ericsson had a problem of manufacturing their goods cheaply. The pricing strategy of SEJV was quite high in comparison with the market average. This caused lower profits than they aimed. Furthermore, according to Hofstede (2001) research, the national culture of Ericsson can be described as having low power distance, low uncertainty avoidance, high individualism, very low masculinity and low long-term orientation. (Ahmed and Pang 2009) On the other hand, Sony had a high power distance, very high uncertainty avoidance, low individualism, very high masculinity and high long-term orientation national culture. (Ahmed and Pang 2009) These contrasts in the national cultures lowered the performance of Ericsson’s R&D teams. Moreover, due to this lack of performance, they have started lay-offs in the R&D departments. Eventually, this chain linked to outdated products.
International collaborative ventures allow companies to reach their mutual objectives by accessing each other’s resources, knowledge, specializations and established markets. Nevertheless, an ICV can be successful as long as the partners fulfilled each other’s gaps. The motives for the companies may be seen flawless; however the problems can rise in the implementation. The motives of Sony and Ericsson were also fitting perfectly to each other in the initial negotiations. Their interests in spreading and reducing cost, benefiting from each other’s competencies, increasing their market share, having a greater control and access in vertical and horizontal levels and gaining each other’s expertise knowledge were matching excellently in the theory.
Sony was looking for a reliable partner in the mobile phone industry to increase its market share. Ericsson was under pressure due to crisis in the industry and had tendency to cut-off its production and R&D costs. Sony had competency in the electronic and digital technology, as Ericsson had the competency in the telecommunication technology. Ericsson had problems in the branding, marketing and manufacturing management. Sony had a worldwide reputation in these issues. Lastly, Sony and Ericsson had reputable expertise know-how in their areas. When we combine these assumptions, we might expect a new innovative brand in the mobile phone industry. Nevertheless, the implementation of the theory failed.
The cultural differences between these two companies revealed unforeseen conditions. Ericsson could not represent its R&D department’s skills sufficiently due to Sony’s low-individualist culture. This result caused the manufacturing of outdated products. Outdated products decreased the profits and the percentage in the market share. Besides these, Sony could not successfully implement its branding, marketing and manufacturing management due to cultural discrepancy with the Ericsson’s native personnel. The new SEJV lost its 3rd place in the mobile phone industry as a result of these management failures. Finally, Sony broke this chain by owning the JV totally. Nowadays Sony uses the advantage of know-how which gained from Ericsson in the last decade and applies its marketing and manufacturing management fully.
In the initial periods of creating an IJV, the future partners should consider the cultural impacts. Thus, cultural researches should be done and examined carefully before negotiations for following a suitable management path. Each partner also should realize the other’s competencies accurately and should leave those zones for the better one. Furthermore, partners should avoid hiding knowledge from each other because it brings only loss to the venture. In the Sony Ericsson example, if Sony had left the control of R&D department to Ericsson totally, the R&D failure would not have happened. The Sony management couldn’t able to notice the cultural differences at this point. Besides, Sony should have been focused on the marketing and branding activities more intensively.
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