CSI and genetic fingerprint Case study questions

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 Sony’s consumer products expertise with Ericsson’s extensive knowledge of mobile phone networks. Ericsson is the world’s leading maker of wireless networks. It would give Ericsson access to Sony’s multimedia technology, branding expertise and knowledge acquired from Japan’s early start in third generation mobile phone technology. Sony would gain access to Ericsson’s 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

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 Nintendo’s GameCube and Microsoft’s Xbox will put further pressure on Sony’s PlayStation2.

Sony’s technology portfolio will be useful in the mobile phone handset product.

Sony’s 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.

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 didn’t 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.

Differentiated services cycle

During this phase, the technology is adapted to meet specific needs of customers. This is where there have been huge developments. The range of services developed for the mobile phone is increasing almost daily. It may soon be the device we use to pay for other products and services.

This cycle overlaps with the one above. In this case, there was a significant amount of educating and informing to be undertaken. But, also the development of networks had to be undertaken in cooperation with local governments and national governments so that mobile phone masts could be built all over the country.

Sometimes this can be a single individual. In this case it was the firm; Motorola is often credited with being one of the first firms to develop the mobile phone but there were others as well including: Siemens, Nokia, Ericsson. The role of national governments cannot be overlooked here because they also encouraged the development and building of national infrastructures of networks.

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.

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. Discuss why the mobile phone handset market seems to be more like the fashion industry.

The rapid pace of technology change and the intensity of competition in the mobile phone handset market have created a remarkably dynamic market. In addition, handset manufacturers are acutely aware that once a person has bought a mobile phone handset they may be unwilling to buy another, hence the industry has responded by ensuring there is a steady stream of updates and new features which ensures the handset market behaves in a way similar to the fashion clothing industry. Without this product obsolescence manufacturers would risk huge falls in revenue.

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.

7. What are the advantages and disadvantages of outsourcing?

The disadvantages of outsourcing are as follows:

Many students may think that a firm with a successful product should stay in the game, but as Nokia have decided some markets may not be financially profitable for the firm. Even with a good product. Also, these firms may decide they could put their money somewhere else and get a better return!

While the decision to quit is probably not realistic at this time it is nonetheless something students could consider. And what would they do if it was their money?

9. What is the market share/profitability of the Apple iPhone in this market?

The rapid ascent of Android, which now powers devices from the Verizon Droid to Samsung’s new Galaxy S, shows the power of software. The momentum, particularly at the expensive end of the market, is with iPhones and Android phones. The global market share of the Symbian platform backed by Nokia fell in 2009 while the iPhone OS rose to 15 per cent from 11 per cent in 2009. Android grew rapidly, supported by mobile operators without the iPhone, rising from 2 per cent to 10 per cent.

Finally, the network operators that subsidise and sell handsets – have a vested interest in diversity. The iPhone has been a sales success for those operators who dealt with Apple, but Apple has been able to drive a hard bargain with network operators on subsidies and other terms. For that reason, network operators have been supporting Android to regain bargaining power with Apple.