Chinese Huawei threatens Ericsson with price pressure as Ericsson tend to focus on crowded developed markets
Monday, 27 February 2012
Telecom giant Ericsson increased its market share significantly in the last year, according to CEO Hans Vestberg. But even rival Huawei is growing and the Chinese company is using price as its competiveness strategy.
It was Michael Porter the American economist in one of his theories on completion that firms could choose to compete either through price leadership or quality. This idea gave the Japanese the idea to develop their own management model known as target cost management. According to it they gave both quality and prices tat could not be matched by another other company.
Most so called Western giant have not been able to take into how to use this Japanese model but have instead stock on their cost plus system. This cost plus system has made it vary hard for them to compete with los cost producers such as the Asia who are now all adopting the Japanese system and are delivering at the expense of the western firms.
If now so, why would Ericson, a veteran in telecom network development and the force behind the current development n the three generation networks are pressed by a new comer – Chinese Huawei?
Because Huawei is cheap but do they deliver the quality which Ericsson delivers?
During his presentation at the telecom trade show in Barcelona, Vestberg said that Ericsson's market share in telecom equipment increased from 32 to 38 percent in 2011, according to the company's preliminary estimates.
"It's a pretty big increase, "said Ericsson Chief.
He pointed, among other things, the strong development of the so-called LTE technology.
"We have by far the largest market share in LTE in the world today." But Vestberg did not give a percentage figure however he only said that Ericsson's network covers 215 million of the total of 325 million subscribers currently covered by the LTE network.
He also said that Ericsson'soverall control of mobile network infrastructure is twice as many as runner-up in that market segment. And he repeated what he said in connection with the unexpectedly weak year-end report - that operators in the short term should be wary of investment and the less profitable business mix from the fourth quarter. This is something that is expected to continue for another few quarters.
Of the expected development of market share in 2012 Vestberg said that: "There are no easy wins in this business. We'll see.”
Chinese Huawei, has actually emerged as one of Ericsson's main competitors, without doubts.
Huawei will not release its figures until April, but communications director Ross Gan said the company has lived up to the forecast of growth of around 10 percent this year. On the mobile infrastructure, 2012, will go ahead with price cuts, according to Gan.
"The interest for the 4G will increase and that means good opportunities to introduce new business models, while in developing countries we’ll still be about have easier access, "he says.
This is where Huawei beats Ericsson – they have focused too much on the developed market and ignored the developing ones. Now the developed markets are getting saturated and the developing markets are not yet touched. Ericsson ignored markets such as Africa on grounds as the way the Swedish people classify Africans as on events. Now the Chinese are building good relationships with them and will surely pick up most of the contracts in the region.
Competitive strategy also is to get into new market before another other person. Since Ericsson is a rick company and will remains rick, there is no need for them to think of stretching into new market.
The effects of all this is that telecom sector have helped drag down the Stockholm stock market today. Ericsson B shares gave up ground and dropped 2.3 percent to Skr66.15 although the CEO, Vestberg announced that the company in 2011 increased its market share in the infrastructure market from 32 percent to 38 percent. That did not go dowm with investors who want to see the company breaking new grounds.
By Scancomark.se Team