Ericsson in the New Millennium


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Case Details:

Case Code : BSTR128
Case Length : 13 Pages
Period : 1990 - 2004
Organization : Ericsson
Pub Date : 2004
Teaching Note : Available
Countries : Global
Industry : Telecom

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"The financial crisis in certain markets and the related general economic uncertainty ... is affecting us and emphasizes with renewed strength the need for a strengthening of the ongoing rationalization programs."

- Sven Christer Nilsson, CEO Ericsson in December 1998.1

"A lot of people are looking for new jobs, the atmosphere is really bad."

- An Ericsson employee in April 2001.2

"You need someone to turn that place upside-down."

- Carl Palmstierna, head of a Stockholm private equity fund, commenting on Ericsson's condition in April 2001.3

Introduction

In December 1998, Ericsson, the Swedish telecom giant, decided to reduce its 100,000 workforce by 10,000 employees. This was just the beginning of a long series of measures that Ericsson was forced to take in order to survive in the telecom business.

Over the next three years, the company was forced to reduce its staff by more than 50,000. Initially, in 1998, the company blamed the Asian financial crisis4 for the downslide. But while many of its competitors recovered from the crisis, the downslide at Ericsson continued. By the late 1990s, Ericsson seemed to be losing its hold on the mobile-phone handset business. The handset business had been a big earner for Ericsson in the early 1990s. But Ericsson failed to respond to the demands of a changing market. Though Ericsson handsets were technologically advanced, they were no match for the Finland-based Nokia's wide range of cheaper, trendier mobile handsets, which sported many more features.

By 1999, Ericsson had slipped to the third position in the handset market, behind Nokia and the US-based Motorola. Meanwhile, in the field of internet telephony too, US-based Cisco Systems grabbed the leading position, followed by two other American telecom companies- Northern Telecom and Lucent Technologies.

Between 2001 and 2003, Ericsson's total losses had amounted to $8 billion. Ericsson's management realized the deep trouble that Ericsson was in. Its competitors were gaining in on the company rapidly while Ericsson was struggling to stay afloat.

It was time to completely restructure the company and to mark out Ericsson's core competencies and then focus on them. Ericsson was good at manufacturing mobile handsets but was poor at marketing. This realization encouraged Kurt Hellstrom, Ericsson's CEO (1999 to 2003), to look for partners who could sell Ericsson handsets in a consumer-savvy manner.

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1] "Ericsson set to axe 10,000 jobs", www.bbcnews.com, December 11, 1998.

2] Stanley Reed, Ariane Sains, "Why Ericsson Is Bleeding", BusinessWeek, April 2, 2001.

3] Stanley Reed, Ariane Sains, "Why Ericsson Is Bleeding", BusinessWeek, April 2, 2001.

4] The Asian financial crisis occurred when a shortage of foreign exchange caused the value of currencies and equity shares in Thailand, Indonesia, South Korea and other Southeast Asian currencies to fall drastically. This affected the economy of other countries as well.

 

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