Ahmad Hussein, PhD
University researcher and lecturer/Department of Geography and Economic History
Umeå University – Sweden
E-mail: [email protected]
Paper presented at EBHA in Uppsala 22-24 August 2013 (3G. Entrepreneurs and
development Session 3, 23 August at 16.00 – 17.30, Room B 159)
The role of trade-related authorities in spreading innovations: The Swedish
company L. M. Ericsson’s (LME) telephone projects in Lebanon in 1949-1975
Abstract
Trade-related authorities’ role in helping companies to penetrate foreign markets has proven
to be important for explaining direct investments and international expansion. The Swedish
company L. M. Ericsson’s (LME) telephone projects in Lebanon in 1949-1975 is investigated
in this study. After World War II, Lebanon was the most affluent state in the Middle East and
the economic hub of the entire region. One of the major investments in Lebanon in the late
1940s was the comprehensive extension of the telephone network in the country. LME’s
attempts in achieving early penetration in Lebanon coincided with the large-scale adoption of
automatic switches and the company’s innovation of a 500-point switching system. The
Swedish trade-related authorities helped LME in solving LME’s complaints with the
Lebanese government; bribery attempts of other international companies and pressure from
their governments to win Lebanese telephone network projects. They functioned even as a
source of information and as advisory channels. The result shows that LME’s attempts to
promote business in Lebanon during the whole period took place in close cooperation with
Swedish trade-related authorities. The latter became key actor not only for the LME’s success
to promote business but also in contributing indirectly to spread the company’s subsequent
innovations between the 1950s and 1970s.
Keywords
Economic history, business history, Middle East, Lebanon, Sweden, trade, trade policy, trade promotion,
business establishment, networks, innovations, LM Ericsson.
1
Introduction
The Middle East region was characterized by decolonization and economic growth after the
years of World War II. The result was new independent states with large market potential and
investment opportunities. Lebanon became independent in 1943 followed by Syria and Jordan
in 1946. 1 During the interwar period, Lebanon and Syria had formed one trade and currency
policy and a common market and customs area with free circulation of products. However,
the French Mandatory Power administrated the so called economic union. 2 Lebanon's
independence, however, forced an economic agreement in 1943 between the Lebanese and
Syrian governments. According to the new agreement the economic issues, especially the
customs regulations, were managed by a common council, called the Supreme Economic
Council. 3
It was the French Mandatory Power, who improved economic conditions, especially the
infrastructures, in Lebanon. The communications and transport system, which linked the core
of Beirut with peripheral areas of the country, were already developed during the interwar
period. Between 1920 and 1943 the Lebanese road network was extended from 500 to over
2500 km and the construction of bridges linked the most important cities with Beirut. The
installation of communications in the form of post, telegraph and telephone, improved
railways, and the modernisation and enlargement of Beirut’s port spurred regional trade with
Europe. 4 Combined with the establishment of a commercial free zone in 1939, Lebanese trade
capacity expanded and the opening of the Beirut airport in the same year ensured rapid links
to Europe and North America. 5 In sum, this consolidated trade with new areas and regions of
the world. The returns from the new oil refinement plant in the second largest Lebanese city
of Tripoli, opened by French and Lebanese corporations in 1940, based on the IPC pipeline
and oil from Iraq 6, became an engine for Lebanese economic growth. Both French and
1
Long, Reich & Gasiorowski (2007), pp. 14, 32, 120, 232, 267, 296, and 406
During the French mandate ruling, Syria and Lebanon had formed one customs area with free circulation of
products. The Customs Union Agreement of 1930 was granted Syria a 53 percent share and Lebanon a 47 per
cent share of the Common Interest’s budget. The bulk of revenues consisted of 95 percent that came from
customs receipts each year, while the rest 5 percent was gathered from post and telegram services. Source:
Chaitani (2007), p. 19.
3
Owen & Pamuk (1999), p. 150.
4
Gates (1998), pp. 32-33
5
Yamot, (2005), p. 57.
6
The first refinery in Lebanon was built in Tripoli in the early 1940s by the Economic Council of the French
Military Commission in Lebanon. This refinery was owned by joint French and Lebanese corporations. In 1945,
the French relinquished the refinery to the Lebanese government, who then sold it to the Iraq Petroleum
Company (IPC). After the nationalization of the IPC by the Iraqi government in 1972, the Lebanese government
took hold of the Tripoli refinery in 1973.The Iraq Petroleum Company (IPC) was made up in 1928 of four major
oil groups - Anglo-Persian Oil Company, Royal-Dutch Sell, Compagnie Francaises des Pétroles, and Near East
2
2
Lebanese companies, within sectors like foodstuff, textile, and glass industries, were
capitalised from these investment returns. 7
World War II partially favoured Lebanon’s economy due to the fact that the wartime
contraction of international trade, transport, and communications provided sales opportunities
for Lebanese products. Lebanese industry received an increased demand because of the
military needs for foodstuffs, textiles and garments among the Allied troops present in
Lebanon and in the region. 8 Lebanese businessmen were also successful in importing cheap
second-hand machinery from bankrupt companies in the West. This meant a significant
increase in mechanisation of Lebanese manufactures and modernisation of its industry. This,
along with improved employment opportunities, generated more revenues, particularly among
traders, entrepreneurs, and financiers. 9
Post-War Lebanon was also affected by the newly international economic system. Trade
and services gained in importance in the Lebanese economy. Influential traders, financiers,
and Lebanese migrants by their capital remittances to Lebanon played an essential role in
encouraging the government for a liberal economic system. 10 This was hardly seen anywhere
else in the region. Lebanon’s neighbouring countries were not able to implement liberal
economic systems. A succession of coups d’états and nationalisation of means of production
in several countries caused political instability. 11 In Lebanon, however, a laissez-faire system
was implemented by policies and institutions representing trade and financial interests.
In sum, it could be said that the period from the end of World War II and up to the late
1949 was a period of preparing and processing institutional and economic accommodation.
Lebanon was among the first states in the region that implemented free trade policies,
stimulated and facilitated trade, and created competition among importers. Accordingly,
Lebanon's position as a promised transit trade market shaped its way. 12 Beirut was now
promoted to play an important role as a hub for entrepreneurs and capital. 13 The construction
Development Corporation – each of which owned 23.75 per cent of the enterprise. The rest 5% was owned by
Calouste Sarkis a Turkish businessman. Source: Fitzgerald (1991), p. 441.
7
Gates, (1998), p. 37.
8
Baroudi (2000), p. 24.
9
Gaspard (2004), pp. 55 and 103.
10
Ibid, p. 55.
11
The socialist character of nationalization means that all big business was controlled by the state. Modern
manufacturing, mining, electricity and other public utilities, construction, transport and communication,
finance and wholesale trade were primarily owned by the government. Source: Deeb, Marius (2007), p. 411.
12
Chaitani, p. 63.
13
After the war and the disappearance of Palestine in 1948 many Palestinian businessmen fled to Lebanon and
other countries. The Palestinian businessman Yousef Beidas for example established in Beirut Bank Intra, a
largest financial institution in the Middle East in the 1950s and 1960s.
3
of the Beirut port’s free customs fees and tariff Zone in 1948 provided space, storage and
processing facilities before transporting goods to the entire Middle East. 14 Rapidly, the Beirut
port became the most important trade gate linked Middle East countries with the U.S. and
Europe. 15 Additionally, the planning of new oil pipelines to the Lebanese coast positively
impacted on Lebanon’s regional trade. This transformation could be explained by a number of
events in the region. After the rise of Israel in 1948 and the Arab boycott of it, Lebanon was
an acceptable alternative to play the newly- acquired role as petroleum terminal. The large
influx of Palestinian refugees also came to fill the needs of the growing Lebanese economy in
that they were employed in both the financial sector and in agriculture. 16 Economic growth
and promotion of transit trade occurred at time when various European industrialised
countries competed to enter new markets for investments or for selling their productions.
Lebanon's economic separation from Syria in 1950 improved the country's prospects for
trade with countries outside the Middle East in many respects. The Lebanese economy was
now oriented towards a more liberal economic policy, especially with regard to the country's
generous banking law, and the transit trade of goods and oil between the West and the Middle
East. Terminals and refineries were built at the Lebanese Mediterranean coast. The flow of oil
from Saudi Arabia and Iraq to the Lebanese Mediterranean coast undeniably benefited the
Lebanese economy. Starting from the end of 1950, the tankers regularly transported oil from
the Lebanese coast to refineries in France and Italy. 17 The oil transport from Lebanon gave an
important economic input to the country through regular transit fees for the crossed pipelines
through the country. 18 Moreover, Lebanon benefited as the location for the offices of several
oil companies. In addition, a growing number of multinational firms established headquarters
in Beirut from 1950 onwards. 19 The profits from oil trade increased the importance of
Lebanon’s transit trade. With increased oil revenues, demand for goods and services also
increased through the transit trade Lebanon. The transit trade and capital transfers to Lebanon
likewise increased. 20 The Lebanese economic growth supposed to be a means to encourage
foreign firms for promoting businesses and investing in giant infrastructural projects.
The
Trade
big
Lebanese
relations
between
market
potential
Swedish
14
Stewart (1961), p. 48.
Raphaeli (1967), p. 716.
16
Abou-Mosleh (2007), s. 16.
17
Ibid, p. 281.
18
Abou-Mosleh (2007), pp. 16-17.
19
Raphaeli N. (1967), p 716.
20
Bessos (1962), p. 32.
15
4
and
was
noticed
Lebanese
in
Sweden.
firms
emerged
and many Swedish companies strove to establish itself in Lebanon. LM Ericsson (LME) was
among the first Swedish companies that had been established there. This article investigates
the establishment of LME in Lebanon from 1949 to 1975. LME was the Swedish company
that succeeded best with an establishment in the Lebanese market. LME was also the
only Swedish company that established a legal subsidiary in the country during studied the
period.
Aims, methods and sources
The incentives for companies who wanted access to new markets characterized by
economic potential were changed after World War II. After the war, the Middle East region
was one of the regions characterized by decolonization and emerging of new independent
countries with large market potential and economic growth.
The distance between small non-colonial, western countries such as Sweden and those
distant developing countries, however, is both a matter of geography and market praxis and
culture. From a Swedish perspective, the promoting of trade relations and the establishment of
Swedish corporations in such markets has often been seen as high-risk projects.
The
study
aims
to
investigate
how
Swedish
trade-related
authorities
and
organizations supported the Swedish telephone company LME in winning important
telephone projects and in promoting business in Lebanon.
The study primarily relies on qualitative research and is based on primary sources from
LM Ericsson's archives at the archival centre for business history (Centrum för
Näringslivshistoria) in Stockholm, the archives of the General Export Association of Sweden,
and the archives of the Department of Swedish Foreign affairs, which both preserved at the
Swedish National Archive (Riksarkivet) in Stockholm. These two latter sources are only
available after a 40 year period of limitation. The archival materials include reports from the
charge d’affairs, trade commissioners and official envoyés, and other representatives of the
Swedish government as well as letters and reports from non-official Swedish actors and
private trade agents in the Middle East and Lebanon. These sources contain economicpolitical information on the Middle East region, economic reports and evaluations of the
Lebanese market, the Swedish trade policies towards Lebanon, and recommendations on trade
and investment matters.
5
LM Ericsson’s telephone projects in Lebanon 1949-1975
In the late 1940s there was information to the LME on Lebanon's plans to supply Beirut
both with telephone automatic switch stations and telephone lines. It came also to the
company's attention that a tender would be organized for this purpose. In December 1949,
LME and at least 10 international companies, like the French LMT, German and Italian
Siemens, and the Japanese Nippon in a very hard competition handed in tenders to a special
Lebanese governmental commission 21 in cooperation with the Lebanese Oriental Auction.22
The role of the latter was to evaluate and give the contract to the lowest bidder. The submitted
tenders were supposed to be open in late February 1950. 23
It appeared that the Swedish authorities' assistance was needed at an early stage. In a letter,
dated 19 January 1950, LME informed the Department of Swedish foreign affairs that it had
come to its knowledge that the bidding competitors tried to discredit the LME both at the
Lebanese Telephones Directorate and the Lebanese Ministry of Post, Telegraph and
Telephone. They had among other things said that Sweden, which was outside the Atlantic
Pact, mainly had more links to the Eastern Bloc. 24 According to the competitors, LME bid
should not be given the same serious treatment of the bids from companies in Western Europe
and the USA. In addition, competitors claimed that the LME was engaged in telephone
equipment orders to Russia and states within the Eastern Bloc, and therefore it would not be
able to fulfill any order to Beirut. In response to these accusations, LME turned to the
Swedish trade-related authorities to help the company by submitting information to the
Lebanese government for the refutation of the rumors. In this context, the company appealed
to the Department of Swedish foreign affairs for help:
"We would be grateful if the Department of Swedish foreign affairs at the earliest
opportunity could clarify for the Lebanese diplomatic representative in Stockholm Sweden's
political position in this matter and that no Swedish dependency existed towards Russia.
21
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 171, Lebanon (1960-1969), technical office in Beirut, 10 April 1962.
22
Oriental Auction was a responsible firm that held the public bid on a basis of giving it to the lowest bidder.
23
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm, Letter from LME to the Department of
Swedish foreign affairs, 19 January 1950, Stockholm.
24
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm, Letter from LME to the Department of
Swedish foreign affairs, 19 January 1950, Stockholm.
6
Therefore, a bid submitted by whatever a company’s nationality is must be exposed to the
same serious treatment as any bid from other companies elsewhere." 25
LME explained to the Department of Swedish foreign affairs that the claim, that the
company was fully engaged with orders to Russia and other Soviet satellite states, was not
true because the LME had not operated any supply of telephone equipment to Russia over the
past 15 years. Orders to other states within the Eastern Bloc, however, accounted for only 14
percent of LME’s total orders until the end of 1949. Orders to the rest of the Eastern Bloc,
which were mainly to Poland in the years 1950-53, would not achieve 10 percent of the
LME's total supply of telephone equipment. In the event that the Department of Swedish
foreign affairs would face questions about LMEs relatively large orders from Poland, it was
according to the company important to the Department to know that this was due to a
concession for telephone service for 140 000 subscribers in Poland before the war. 26
Following the LME’s request, more precisely in late January 1950, Leif Belfrage an advisor
at the Department of Swedish foreign affairs discussed the LME-Lebanese telephone project
with Lebanon's diplomatic representative in Stockholm Khalil Takieddine. The Lebanese
representative promised to forward Belfrage’s comments to the Lebanese government in
Beirut. Meanwhile, Takieddine stressed that the Lebanese authorities in their choice between
the various bids would not take considerations other than price and quality. 27
In 12th March 1950, the commission described the tender of LME as the most attractive,
and appointed Ericsson to “Adjudicataire provisoire”. This meant a preliminary acceptance.
Before concluding a formal contract between LME Ericsson and the Lebanese government, a
French group offered, with the help of illegal hush money, a lower tender by beating down the
price from 7.8 million Swedish kronor (SEK) – a sum which was offered by LME - to 6.3
million SEK. The French group thus reduced the project cost to 6.3 million kronor. This
action was contrary to the tender rules. The provisions, however, allowed the Lebanese
government to stop the tender competition if this was in agreement with the national
interests. 28
25
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm, Letter from LME to the Department of
Swedish foreign affairs, Stockholm in 19 January 1950.
26
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm, Letter from LME to the Department of
Swedish foreign affairs, 19 January 1950, Stockholm.
27
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm, Report by the Department of Swedish
foreign affairs, 30 January 1950, Stockholm.
28
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm, Letter from LME to the Department of
Swedish foreign affairs, 15 November 1950, Stockholm.
7
LME submitted a protest to the Lebanese government and emphasized its right to return to
damages claims. The Lebanese press spoke of the obvious injustice against the Swedish LME.
They hardly criticized the government's failure to their own rules and commitments.
Accordingly, this was not acceptable because the French group would not bring an economic
benefit
to
competitor
the
Lebanese
state
in
the
long
offered
run.
supplies
LME
also
meant
of
that
the
much
poorer quality and in a technically unsuitable automatic system to be installed in Beirut. In a
letter to the Department of Swedish foreign affairs, LME wanted a formal protest by the
Department to Lebanon's diplomatic representative in Stockholm against the illegal and
unjust treatment that the company was subjected to by the Lebanese government. 29
With the support of Lebanese provisions and after pressures from the Department of foreign
affairs in Sweden, the Lebanese government was obliged to cancel the tender competition and
a new one was published. In the course of this possible Swedish LME business affair with
Lebanon the breakdown of the Syrian-Lebanese Economic Union in mid-March 1950
brought, however, changes both for Lebanon and countries that had trade relations with
Lebanon. Due to this historic event, the possible selection of LME for a telephones project in
the country was delayed for several months in 1950.
Sweden paid close attention to this economic separation. The Swedish Trade Council
(SAE) (Sveriges Allmänna Exportförening/ later: Exportrådet) explained in a report dated 4th
July 1950 to its members (among them LME) that all Lebanese-Syrian trade activities before
the economic separation occurred via Beirut and Tripoli ports. According to this report, it was
a Syrian request to end this economic union in order to move Syrian trade activities to the
Syrian Lattakia port. The strategy was aiming at cutting Beirut’s trade monopoly in the
Mediterranean region and to compete with Beirut in Lebanon and Haifa in Israel.
Accordingly, Lebanon feared a possible reduction of the Lebanese transit trade and increasing
trade deficits. SAE found that the economic future of Lebanon was uncertain. SAE found
also difficult to assess the situation because it was not clear whether the revenues could
cover the expected increase in the trade deficit. SAE gave advice to LME to be open-eyed
concerning their plans to invest in projects in Lebanon. 30
Once again LME was appointed by the Lebanese commission to “Adjudicataire provisoire”
in 9th November 1950. The company was ready to conclude a contract with Lebanon, but
29
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm, Letter from LME to the Department of
Swedish foreign affairs, 25 May 1950, Stockholm.
30
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm. Report by Olov Ternström at the Swedish
Export Council sent to the Department of Swedish Foreign Affairs, 4 July 1950, Stockholm.
8
feared that the Lebanese government probably would reject this offer due to unknown other
motives than technical and commercial intentions. Therefore the Department of Swedish
Foreign Affairs was contacted by LME to clarify this joint business. LME meant that:
“The
Department
should
officially
intervene
in
the
issue
and
indicate
to Lebanon's diplomatic representative in Stockholm and to the Lebanese government that
LME found it strange and remarkable how Lebanon acted on this question”. 31
In a letter dated 23td November 1950, sent to LME, the Department of Swedish Foreign
Affairs explained that Takieddine, Lebanon's diplomatic representative in Stockholm,
promised to contact the Lebanese authorities to work for a clear and permanently better tender
status than the first previous tender one. 32 In December 1950, the Lebanese authorities
awarded LME the contract for the supply of automatic telephone switches and telephone lines
for Beirut. In accordance with the Swedish wishes to avoid strange behaviour, the Lebanese
government obtained the approval of the Chamber of Deputies to authorise the
communication minister to negotiate with LME the purchase and installation of all necessary
equipment.
LME thanked explicitly the Department of Swedish Foreign Affairs for helping the
company in connection with the Lebanese fierce competitive bidding. 33
intervention
by
the
Department
of
Swedish
Foreign
Affairs
Hereby, the
in
Swedish-
Lebanese business questions proved how important the collaboration between the Department
and LME was.
After the official selection of LME, a contract was signed with the Lebanese government on
th
5 March 1951 to execute in a first stage an order of 15.000 automatic telephone lines in
Beirut. This included a 500-point switching system (Crossbar switch system) for a cost of
4.965.000 SEK. 34
The Swedish Consulate General was established in Beirut in November 1951. Since 1947,
the mission of the consulate on Lebanese issues was accredited from Cairo. The establishment
of a Swedish consulate in Beirut was a step that followed LMEs Lebanese phone project. The
31
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm. Letter from L.M. Ericsson to the
Department of Swedish Foreign Affairs, 15 November 1950.
32
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm. Letter from the Department of Swedish
Foreign Affairs to L.M. Ericsson, 23 November 1950.
33
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 171, Lebanon (1960-1969), technical office in Beirut, 10 April 1962.
34
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 172, Lebanon (1954-1966), technical office in Beirut, 14 June 1960.
9
consulate came to help with information through contacts and financial reports. After signing
the first contract in March 1951, LME established a technical office (LME’s Beirut Office)
with responsibility for sales and installations in Beirut. The personnel at Beirut Office
composed of director, managers, supervisors, and two testing engineers. In addition, there
were some Lebanese technical and office staff members. The LME business in Lebanon
would imply up to 18 month-work for local workers and for a group of Swedes, who
gradually arrived at Beirut from the beginning of 1952. 35
This obvious successful was due to the remarkable intervention by the Department of
Swedish foreign affairs at an early stage, and also due to the close relationship between the
Department and Lebanon's diplomatic representative in Sweden and the cooperation
between the LME, SAE in Stockholm and the Swedish consulate in Beirut. The Department
of Swedish foreign affairs appointed a Commerce Secretary, who had an office within
the Swedish consulate in Beirut. While a relatively large number of Swedish companies were
prepared to promote businesses in Lebanon, the Commerce Secretary succeeded early
in linking important contacts and personal networks that stretched far in among the ministers
of the Lebanese government.
To
build
up
more
knowledge
about
the
Lebanese
market,
SAE
held
a
conference in Stockholm and invited in official and private experts on countries that had
connection to the Middle East. 36 Additionally, representatives from SAE visited
Swedish companies in their places to gather information about their experiences from
Lebanon. Invited experts could regularly provide practical views on developments in
business and also provided over-looking analysis and advice on issues relating to commerce,
trade and investments. After each meeting, SAE sent to LME and the other members,
information
on
production
conditions,
investment
opportunities,
company
formation, taxation and fair questions. 37
Submitted reports to LME from different Swedish trade-related authorities highlighted
the political issues and gave regular analyzes on the implications for business in Lebanon. All
this helped LME to have more investment in Lebanon. In July 1954, LME signed a new
35
UD:s 1920 års dossiersystem, HP, H64/XL, Vol. 2957, RA Stockholm. Report from the Swedish trade attachés
in Beirut Enegren to K. Holmgren at the Swedish Department of Trade, 19 November 1951. Report from The
Swedish trade attachés in Beirut Enegren to the Department of Swedish Foreign Affairs, 28 January 1952.
36
Experts on countries were often directors from various Swedish firms, for example Svenska Petrolum AB,
Kjellbergs Successors AB, Associated Swedish Steels AB, AB Volvo, AB LM Ericsson, Assab, Skandinaviska banken
AB, Sentab, ASEA, AB Separator, AB Stalco, Irano-Swedish Co. AB, AB Temar, Svenska Orient-Linien, AB ScaniaVabis, Theodoridis & Co. AB, och AB Transfer.
37
Sveriges Allmänna Exportförening, RA Stockholm, ref. 730323, F1k:2 (Levantbyrån:1945-1974), Report by the
SAE information Section, Stockholm, 10 April 1951.
10
contract to extend 7.500 telephone lines in Beirut for a price of 3 127 500 SEK. In a
supplementary order in March 1955, 25.000 telephone lines for a total cost of 12 575 000
SEK were intended for other Lebanese cities. 38
In the autumn of 1955 SAE sent to LME and other members a renewed overview of trade
and economic situations in the Middle East. Regarding Lebanon SAE informed that the
good economic conditions that prevailed in 1954 continued in 1955. Significant
investments were made in road and airfield works and port facilities. SAE reported further on
planning Lebanese projects to build tunnels, a major dam, and irrigation canals and
power stations. SAE reported, however, about a decline in Lebanon's transit trade as a
result of increased political instability in neighboring countries. 39 SAE’s members were
reminded of no-existence of trade agreement between Sweden and Lebanon, and that
the
acceptable
currencies
in
trade
exchanges
between
the
two
countries were Swedish kronor, U.S. dollars, pounds sterling or Lebanese pounds. The
importation of goods into Lebanon was basically free, but for a small number
of goods required import license. 40
LME Beirut Office made a great effort to get new phone project in Lebanon. While work
on existing projects to extend the telephone lines outside Beirut continued, two
further contracts was signed in March and June 1956. According to these contracts
LME would install 27 500 phone lines and four automatic telephones switches in Beirut and
other cities at a cost of around 21 million SEK. A new contract in 1957 implied purchase of
telephone equipment and an extension of 20 000 phone lines at a cost of 17.2 million
SEK. LME counted with an annual requirement of up to 10 000 telephone lines in the coming
years. 41
A Swedish embassy was opened in Beirut in the beginning of 1960. An ambassador was
appointed and his work covered even Jordan and Saudi Arabia. A commercial office headed
by a Trade Commissioner operated within the Swedish Embassy as before. The Commercial
Office stood in turn in contact with various Swedish trade-related authorities, organizations
38
LM Ericsson’s archives, Centrum för Näringslivshistoria Stockholm. Letter 62/15335 from the Technical Office
in Beirut to LM Ericsson/Direktion Section in Stockholm, 13 February 1968.
39
Sveriges Allmänna Exportförening, RA Stockholm, ref. 730323, F1k:2(Levantbyrån:1945-1974), an Overview
on Levant countries, SAE, Stockholm, September 1955.
40
Sveriges Allmänna Exportförening, RA Stockholm, ref. 730323, F1k:2(Levantbyrån: 1945-1974), an Overview
on Levant countries, SAE, Stockholm, September 1955.
41
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6b/Documents concerning
installation project abroad, Vol. 172, Lebanon (1954-1966), technical office in Beirut, 14 June 1960 and Vol.
170, Lebanon (1953-1969), technical office in Beirut, 12 March 1962.
11
and firms, and forwarded information on economic development and investment opportunities
in Lebanon. 42
In 1962, LME and the Lebanese authorities signed two contracts for the basic telephone
networks. The contracts resulted in expansion of the network with 26 500 phone lines and a
number of automatic telephone switches in both urban and rural areas. 43 In conjunction with
LME's continued expansion of the telephone network in the country, SAE sent in February
1963 a letter to both LME and the Lebanese Telephones Directorate. SAE suggested visit of
Lebanese importers to Sweden both to ventilate the problems of already bought supplies and
to discuss the attractive products that could be relevant for future exports. 44 LME appreciated
the idea and made contact with the Swedish Embassy in Beirut, the Department of Swedish
foreign affairs and SAE for the organizing of such trip to Sweden. In fact, visits by Lebanese
officials and representatives from the Lebanese Telephones Directorate occurred to Swedish
laboratories and factories. The visits were a response to the French, British and American
efforts to secure their investments in the region. 45
Until 1965, the LME installed over 98 500 telephone lines, 19 000 telephone transmissions
and four automatic telephone stations in different Lebanese regions. Only in the Beirut area
there were 82 500 telephone lines that have been installed. 16 000 telephone lines were
installed in the Mount Lebanon, in the Bekaa Valley, and in the northern and southern parts of
the country. An order worth 2 809 920 SEK was preserved in June 1965 to increase the
number of automatic telephone switches for local telephone traffic between Beirut and other
Lebanese cities. In addition, a contract was signed for 14 000 telephone lines and 24 500
telephone apparatuses for a total cost of 6 534 900 SEK in November 1965. 46
The competitions for telephone projects in Lebanon intensified between the various foreign
companies. In August 1966, the Lebanese government received an offer from the U.S
telephone company ITT. The company offered an installation of 100 000 telephone lines
in Lebanon over a period of two years. The offer also included the installation of a wireless
network across the seas, and through satellite Telstar communication between Lebanon and
42
Svensk Export, No. 7, 20 maj 1960, pp. 10-11.
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 170, Lebanon (1953-1969), technical office in Beirut, 11 November 1965.
44
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 172, Lebanon (1954-1966), technical office in Beirut, 4 February 1963.
45
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 171, Lebanon (1960-1969), technical office in Beirut, 19 August 1966.
46
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 170, Lebanon (1953-1969), technical office in Beirut, 11 November 1965.
43
12
the world could be secured. 47 Moreover, ITT promised an installation of modern
equipment that allowed traffic possible for 850 000 calls per minute. 48
In October 1966, there were also bids that the international telephone companies of OT & E
and Hughes handed in to the Lebanese telephone Directorate. These bids included technical
proposals for projects to improve the Lebanese-European telecommunications. In
conclusion, ITT-proposals meant installation of a telephone cable from Beirut to
Lisbon,
while
OT
French
Marseille.
&
Hughes
E
suggested
instead
a
cable
proposed
a
between
Beirut
solution
that
and
was
the
based
on satellites. 49 Furthermore, a conference and a fair directed by the French Department of
Commerce were organized in Beirut in October 1966. The purpose of the fair was to
demonstrate French-produced switchboards, cables and radio equipment. 50
Despite the tough competition, LME and the Lebanese Telephones Directorate signed a
contract in May in 1968. It included telephone equipment and installations of telephone lines
for about 3.5 million SEK. 51 Once again the Swedish Embassy and the Commercial Office in
Beirut played a vital role in supporting the LME work in Lebanon. In a letter in March 1970
LME addressed thanks to the Swedish ambassador in Beirut, Åke Jonsson, and to the
Department of Swedish affairs in Stockholm for the treatment and good interventions to solve
emerged problems in conviction with LME’s telephone projects in Lebanon. 52
In fact, LME managed to defend its market position by signing a new contract with the
Lebanese Telephones Directorate in July 1970. The order included the installation of 38 800
telephone lines, 16 automatic telephone Switches and equipment for an additional 60
automatic telephone switches for a cost of 42 million SEK. According to LME this contract
strengthened the LME's position as the main important supplier of telephone networks in
Lebanon. 53 Lebanon's telephone density had with this contract passed 10 automatic telephone
lines per 100 inhabitants. It meant that the country after Japan, Israel and Kuwait had the
47
Telstar var världens första kommunikationssatellit, uppskickad 1962 och ägd av AT&T.
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 172, Lebanon (1954-1966), technical office in Beirut, 17 August 1966.
49
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 172, Lebanon (1954-1966), technical office in Beirut, 28 October 1966.
50
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 172, Lebanon (1954-1966), technical office in Beirut, 28 October 1966.
51
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 153, Lebanon (1954-1966), STL in Beirut, 15 November 1975.
52
UD:s 1920 års dossiersystem, HP, H/XL, Vol. 114, RA Stockholm. Ett brev från LMEs huvudkontor i Stockholm
till UD, Stockholm den 12 mars 1970.
53
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Lebanon (1970-1972), Press Realese, LME in Stockholm, 2 July 1970.
48
13
highest penetration rate in Africa and Asia at that time. 54 As a result of increased
commitments in Lebanon a subsidiary called Société Libanaise des Telephones Ericsson
(STL) was established in Beirut in July 1970. 55 The company replaced the LME technical
Office in Beirut and performed as agent for LME in terms of marketing, installation and
repairs. A director was appointed to the head of the new company and the staff consisted of
200 Lebanese and Swedes. 56
This event was unique due to the fact that it was the first major establishment through
subsidiaries that were made by a Swedish company in Lebanon. Up to the end of 1971, there
were 137 000 telephone lines that had been installed by the LME in different Lebanese areas.
LME received from the Lebanese Telephone Directorate an additional order for extending
55000 telephone lines during the 1972. To sum up, LME and the Lebanese authorities
contracted telephone projects during the period 1951-1972 for a total cost of 147 million
SEK. 57 LME thanked both the Lebanese and the Swedish trade-related authorities for good
cooperation that was in favour for LME investment strategies. 58
Due to the increasing political instability in the country in 1973, new contracts were not
concluded between LME and the Lebanese authorities. Negotiations for a new contract
delayed for one year. 59 Despite this situation, LME extended new telephone lines in Lebanese
rural areas for a cost of 5.5 million SEK. 60 In July 1974, Hans Olsson from SLT summarized
the LME telephone projects as followed:
“The automatic telephone service was introduced in 1952. The crossbar technique
introduced in the early 1960s and modernisation of the signalling system starting by the end
of the 1960s brought the Lebanese network up to a good standard. Lebanon now was
54
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Lebanon (1970-1972), Press Realese, LME in Stockholm, 2 July 1970.
55
The name of the Lebanese telephone firm in French is Société Telephones Libanaise. That is why the
abbreviation is STL and not SLT.
56
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 153, Press cutting, Dagens Nyheter, 15 July 1970.
57
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Archive No.3, F6/Documents concerning
installation project abroad, Vol. 153, report by STL in Beirut, 13 January 1972.
58
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Vol. 153. LME telephone projects abroad.
Report by SLT, Beirut 13 January 1972.
59
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Vol. 153, F7 e/35 (1974) (LME/Lebanon:
sales, marketing and general issues), Report on a visit to STL by Jörgen Lind, Beirut 3 May 1974.
60
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Vol. F7e:30. (LME/Lebanon: sales,
marketing and general issues), Report by SLT, Beirut 15 May 1973. Vol.153, F6:175 (LME: Lebanon), 13
February 1974.
14
equipped with more than 200000 automatic telephone lines, which provided with long
distance dialling, international and intercontinental dialling possibilities”. 61
According to Olsson, the network was of a high quality. He concluded that LME
investment in Lebanon was giving satisfactory results and should remain under exploitation
for a period of 30-40 years ahead in the future. Olsson recommended for the Lebanese
networks to be extended by means of the well-established and full satisfactory crossbar
technique for the following reasons:
“Such extensions would be a most economical and less risky investment. It would provide
an optimum number of telephone lines enabling to cover the demand. New facilities can be
introduced in the existing crossbar system, while new equipment would require a tremendous
effort and extremely high costs for training a new technical staff”. 62
In the beginning of 1975, LME tried to work out an installation plan to have a contract
before the mid-1975. But, this was stopped by the outbreak of the long Civil War in Lebanon
in April 1975, which lasted until 1990. During the first phase of the war in 1975-1976
uncertain situation was dominated. This situation delayed the full function of various sectors
including the Lebanese Telephones Directorate. 63
Table 1 shows how the political unstable situation in Lebanon left negative impact on the
LME’s work in the country. LME received a total sum of over 76.6 million SEK For
contracted work in 1970-1975. LME received over 20 million SEK in 1971 compared with
6.2 million SEK in 1970. But, this high value declined to around 18 million SEK (in 1972),
12.6 million (in 1973), 7.5 million SEK (in 1974), and 4.05 million SEK (in 1975) due to
periods of war and political crises.
Table 1:1. Payments to LME based on contracted businesses 1970-1975 (in million SEK)
Years
1970
1971
1972
1973
1974
1975
Total values
6.23
20.05
18.22
12.66
7.58
4.05
Source: LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Vol. 153, F7 a/87 (1978)
No new projects were implemented in the late 1970s and throughout the 1980s. The
installation work was carried out mainly by Lebanese staff. Lebanon continued with
61
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Vol. 153, LME telephone projects abroad.
Report sent from SLT in Beirut to LME Head Office in Stockholm, 2 July 1974.
62
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Vol. 153, LME telephone projects abroad.
Report from SLT in Beirut to LME Head Office, Stockholm, 2 July 1974.
63
LM Ericsson’s archives, Centrum för Näringslivshistoria, Stockholm, Vol. 153, F7 a/87 (1978) (LME/Lebanon:
sales, marketing and general issues), Report from STL in Beirut to LME Head Office in Stockholm, 13 March
1978.
15
limited purchases of repair material from LME. The Swedish company would not return
to Lebanon for big business and telephone projects before 1991, under the name of Ericsson.
Concluding discussions
LME’s attempts in achieving early penetration in Lebanon coincided with the large-scale
adoption of automatic switches and the company’s innovation of a 500-point switching
system. This innovation came to strengthen the company’s position on international market
from the beginning of 1950s and onwards. Then, the crossbar switching technique and code
switching systems introduced in the early sixties added to the 500-point Switching and more
LME investments were made in different countries of the world.
As LME attempted to set up business in Lebanon, the Swedish trade-related authorities
helped the company when the competition was very hard and the competitors were mainly
French, U.S. and Japanese companies. Due to pressures and because of bribery attempts that
other international companies used as a means to win the bid, LME was about to lose this
telephone network business in Lebanon. Early support was important from the Swedish
authorities to help LME having this business. The result shows that the LME’s attempts to
promote business in Lebanon took place in close cooperation with Swedish trade-related
authorities.
In this study we could find many examples of cooperation between LME and different
Swedish trade-related authorities. All in all, the result shows that LME’s attempts to promote
business in Lebanon during the whole period took place in close cooperation with Swedish
trade-related authorities and organizations under the whole period. The study shows that he
trade-related authorities became key actor not only for the LME’s success to promote business
in Lebanon but also in contributing indirectly to spread the company’s subsequent innovations
between the 1950s and 1970s. The study concluded that trade-related authorities’ role in
helping companies to penetrate foreign markets and in spreading innovations has proven to be
important for explaining direct investments and international expansion. By explaining and
highlighting trade-related authorities’ role when studying direct investment and international
expansion of companies, new important perspectives could be provided and might be basic
factors for explaining theoretical frameworks used in economic and business history studies.
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18