Magazine article Marketing

Is Outsourcing the Way Forward for Ericsson?

Magazine article Marketing

Is Outsourcing the Way Forward for Ericsson?

Article excerpt

Ericsson has hived off the production of its mobile handsets as it tries to recover from a [pound]1bn loss in 2000. Is it enough to flourish in a saturated market?

All eyes are on Ericsson this month following its decision to outsource handset production. The telecoms company is looking to reduce costs after its mobile phone division made a loss of [pound]1.1bn last year.

But while demand for mobiles may have hit its peak -- Datamonitor predicts that mobile penetration will reach 71.2% next year -- the question is whether withdrawing from production altogether is the right move.

Ericsson says its decision will not affect the design nor the marketing of its phones and denies rumours that it plans to sell the division.

The company is the market leader in mobile phone infrastructure, but trails Nokia and Motorola as the handset of choice. Observers say it will now focus on its core technology business, which accounts for 70% of its sales.

Some expect a subsequent reduction in Ericsson's consumer advertising. Indeed, the most recent TV work for the brand hyped the technology, rather than the phone.

In October, a series of business-to-business ads created by Publicis focused on its mobile internet credentials using the character Dave and strapline 'The mobile internet revolution. It's an everyday thing'.

Last month, Ericsson hired Bartle Bogle Hegarty to its [pound]100m global consumer account, replacing Young & Rubicam, which had handled the work for almost six years.

So how will the decision to outsource production of its handsets affect the brand? We asked Duncan Bird, founding partner of Soul Advertising, who helped relaunch One 2 One in 1996 and oversaw the 'Who would you most like to have a One 2 One with?' ads until last May, and Mike Teasdale, planning director at Abbott Mead Vickers BBDO, who heads the BTCellnet account at AMV and recently pitched for Ericsson.

                                VITAL SIGNS
                 2000                   1999
Brand    Sales (000s) Share (%) Sales (000s) Share (%) Growth (%)
Nokia         126,369      30.6       76,335      26.9       65.5
Motorola       60,094      14.6       47,818      16.9       25.7
Ericsson       41,467      10.0       29,785      10.5       39.2
Siemens        26,989       6.5       17,687       6.2       52.6
Source: Gartner Dataquest (February 2001)

DIAGNOSIS

Ericsson has been struggling to make itself heard in a world where everyone from Sony to Carphone Warehouse wants us to hear them as well.

Ericsson knows that global customers vary significantly. …

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