What strategic changes (if any) would you recommend to Sony’s Management?”
Sony main activities portfolio revenue in 2002 comes from electronics, which reach 64% of the revenue. This is followed by games segment with 12 % of the revenues in 2002 and by the music and pictures with both 8 %.
But activities who generate big turnover are not necessary activities who generate big profit. In fact, in 2002, the first activity who generate the biggest profit is games with a $939 million profit. After there is pictures with a profit of $491 million, electronics product with a profit of $445 million and financial services with a profit of $194 million.
However music segment had a lost of $72 million. (Sony.net)
Turnover and profit is two different things and both are not linked as we can see for Sony case in 2002.
Financial services don’t provide big turnover but is very profitable for Sony which is very important like that Sony can sustain investment in other segments.
Sony’s strategic position in 2002 can be analysed trough an external and an internal analysis of Sony’s environment.
In the external analysis the firm environment will be analysed, in the internal the business environment and the strategic capability will be both important to describe.
1) External analysis:
In 2002 Sony’s can be define like a global firm. Sony achieves several global strategies until 2002 to reach this position in 2002.
To have a global strategy Sony need to build a global market convergence, which will be profitable for the firm as it can gain cost advantages. But the global strategy have to face as well global competition and government influence which can be both opportunities or threats depending the policy of the host government.
The PESTEL framework can also show the environment influence on the firm. This framework create by Porter “categorises environmental influences into six main types: political, economic, social, technological, environmental and legal”. (definition find in Exploring Corporate Strategy sixth edition wrote by Johnson and Scholes)
The political factor who can be a threat for Sony are the different taxation policies in the different countries: it makes the accountancy even difficult to make and if the taxation is too much important it can be a brake for Sony to be established in . The trade policy can be an opportunity if it makes exchanges even easier.
The economical factor can be a threat for Sony because the company have to face the versatility of the Asian economy and the Yen currency.
However the social factor can be a big opportunity for Sony as people changes of lifestyle, they travel more and they need to keep contact with there business, family…
The speed of the technology transfer in electronics and entertainment is a technological factor that Sony have to deal with.
There are two legal factors who can be threats for Sony: the music privacy and monopolies legislation. In fact, Sony have contradictory interests as it have a music entertainment segment with artists and a electronic segment with the production of MP3 player who can download music for free on Internet. This contradictory interest is a problem for Sony.
Moreover Sony can’t merger with the firm they want because the government of certain countries have a strict policy on monopoly situation.
Sony position in 2002 is what it is because Sony has to be in phase with the consumer electronics industry trend. All the different trend of this industry has competition implication for Sony.
What’s the consumer electronics industry trend in 2002?
There is a shorter lifetime of products based on a shorter lifetime of a technology
(More frequent product designs, manufactures, launches, and mature cycle
There is a new trend during this period it’s a standard interface among products, which provide more product interoperability and switching cost for consumers.
The wireless is also a new trend and more interoperability among product makes wireless capabilities more valuable for consumers.
Moreover the technology advance and the specialization of the industry suppose more outsourcing, alliances, inter-company collaboration, and the use of Internet as a strategic tool.
Another trend of this industry is the globalisation of activities. Sony has use internationalisation very soon so know it takes profit of globalisation with increased opportunities and economy of scale.
2) Internal analysis:
Sony has to deal with the competitive pressure, which is in this kind of industry the survival of the fittest.
New entrants, actual competitors, buyers power, substitutes product creation by competitors, suppliers are all the things that Sony have to control to be the best and keep his leader position.
The internal analysis of Sony show that Sony has a competitive advantage through technological leadership, differentiated products, Sony brand umbrella, huge investment in R;D, strategic alliances with leading companies, core competencies.
“Core competencies are activities that underpin an organisation’s competitive advantage”. Exploring corporate strategy, Gerry Johnson and Kevan Scholes, p. 156.
In the Sony case the resources call “necessary resources” which are “same as competitors or easy to imitate” are plants, logistics, raw materials, suppliers…It’s not really contribute to create a competitive advantage for Sony.
Competencies call thresholds competencies do not contribute as well to create a competitive advantage for Sony (Design, distribution policies, marketing and sales strategy,
However the resources that are unique are valuable for Sony. Unique resources of Sony are machinery with robots, human resources with engineers and manager, and hardwares and softwares.
This kind of resources create a competitive advantage for Sony because is not easy to imitate by competitors.
For example in 2002 the President of Sony Corporation is Nobuyuki Idei give to Sony a competitive advantage because he is ambitious and he try to connect all Sony products to the web and make Sony more digital and less industrial.
How Sony obtains all his technology? Sony invest a lot of money in R;D to make more innovation but also make soft alliances and hard alliances.
Sony has as well competencies that are better than competitors: it is core competencies.
For Sony core competencies are: miniaturization, technological know-how, interoperability of products, and creativity and corporate branding.
The corporate branding is very important for an international firm like Sony. Most people know Sony brand, but what grants it such instant recognition? Its because all Sony products have the same umbrella brand: Sony. It’s very important in order to gain a strong global identity.
Sony’s strategic capability in 2002 :
It can be analyzed trough a SWOT analysis (strengths, weaknesses, opportunities, threats).
In 2002, Sony has a very good marketing department and can also rely on its brand recognition and its strong image. Another strength is its innovation and improvement capacity due to a strong investment in R;D.
Sony has important cost of production, these high fixed costs are partly due to the fact that most of Sony’s factory are implemented in countries were labour cost is expensive.
The strategy of the company is also unclear on music segment for example. The position of Sony in 2002 is between electronic company and a multimedia group.
The Internet development is an opportunity for Sony to have the image of network company (example: Online capabilities; distribution of digital content).
The opening of foreign market like Asia and China is also a great opportunity for Sony.
The stiff competition is one of the most important threat for Sony. In fact, competitors copy Sony product. However an important fear of Sony was the competition between its playstation2 and the Xbox from Microsoft, but Sony won the competition.
Concerning the non-electronic business the biggest source of danger is pirating of music movies and videogames.
Another threat for Sony is government policies on monopoly that mean that Sony can’t merger with the company it wants.
The first recommendation to Sony management will be to grow share with customer-focused products by reducing time to market and increasing product customisation.
Sony have to be a leader on design for ongoing revenue streams by increasing product interoperability and maintaining R;D cost. The third recommendation will be to develop and define new markets. To do that they should continue trough leadership and innovation, form strategic combination of product lines, but also make soft alliance first and move to hard one if it’s profitable.
They have to be careful about products cost because they are really high. They should have lower product cost to be more competitive by reducing cost on manufacturing.
The last recommendation will be about cost due to product lifecycle. Sony should have lower lifecycle costs by improving development efficiency and increasing design reuse.
But one of the most important thing is that Sony needs to consider if its position is fundamentally electronics or if the company really wants to become a multimedia group.
Briefly identify the capabilities and sources of competitive advantage that enabled Sony to grow in 50 years from its humble origins to a 6.7 trillion yen in 2000. As an atypical Japanese Company, were some distinctive features of its business culture a contributory factor?
To answer this question it’s important to know the external environment of the firm that will be present trough the external analysis as well as the business environment and the strategic capability that will be present through the internal analysis.
1) External analysis:
Some external opportunities and environment were favourable to Sony’s development, the company grabbed these opportunities which are also part of its success.
The more important external factors those were favourable for Sony growth were economical.
The strength of the Yen in the mid 80’s made easier Sony’s acquisition Strategy in the United States. It enabled the company to buy Columbia pictures and CBS.
It also enabled the opening of factories across South and East Asia, which provide lower labour cost.
The Japanese economical miracle was another economical factor that help Sony development. After the World War II and until the 80’s Japanese economy has been characterised by its high growth rates, its strength of the domestic market and its industry’s export success. This has been an ideal environment for Sony’s and is one of the major factors that enabled the company’s large development.
Moreover the opening of the Chinese and Vietnamese markets created new investment opportunities for Sony. Especially because the Chinese market represents more than 1 billion potential customers.
Ex: The Sony /Ericsson mobile phone joint venture was implemented in Beijing.
2) Internal analysis:
Sony was founded in 1946 by Masaru Ibuka and Akio Morita with 500$ of borrowed capital.
50 Years later Sony is one of the biggest and most famous company of the world.
Different things contribute to Sony success: its core competencies in technology and marketing, and in innovation for example. Moreover its internationalisation, its culture, and its diversification enable Sony to gain a competitive advantage on its main competitors.
In fact, Sony is known as the “maverick pioneer”, proposing a continuous flow of new products to customers. This is Sony’s expenditures on research and development that made it possible (2 times more than its main competitor Matsushita). As a consequence the company has always been in advance, launching new technologies as the Walkman, the CD player, and imposing standards.
Sony develops many new technologies with specific format, but these formats are often in competition with the ones launched competitors. So, marketing is very important for Sony in order to impose its format. Moreover Sony’s marketing is very effective; one example of this effectiveness is the huge marketing campaign for the launch of the Playstation 2: it was so successful that Sony sold 980 000 Playstation 2 within 3 days.
Further more, Sony has the image of prestigious brand. In order to maintain this image, the company opens salesroom in prestigious locations (New York, Paris).
The company started its internationalisation in 1957 with a contract with an American company. Sony internationalised very quickly: by the early 90’s, Sony had 600 subsidiaries and 70 manufacturing plants all over the world (mainly in East-Asia, United States and Europe). Sony did its internationalisation through joint ventures, alliances and acquisitions. The early internationalisation and ability to expand overseas of the company has been a competitive advantage over its competitors, especially its Japanese competitors because, probably due to its business culture, Japanese companies tend to have difficulties to develop exportations. As a proof of Sony’s early internationalisation, we can notice that Sony has been the first Japanese company listed on the New York stock exchange, in 1970.
The comparison of Sony exportations percentage with those of its mains competitors show Sony’s ability to export more than competitors (Sony : 73%, Matsushita : 45%, Hitachi : 24%)
When Sony was founded, the company was exclusively in electronic business, in 2000 electronic business only represented 65.70% of its sales revenue.
Sony started its diversification in 1976 doing a joint venture with an American life insurance company. Diversification has often been risky and sometime difficult to manage for the company (ex: movie business) but it has also been a great source of competitive advantage as diversification enabled Sony to maintain performance in difficult periods (ex: the Playstation enabled Sony to maintain performance during the whole second part of the 90’s).
Furthermore Sony sees diversification as “a rethinking of traditional industry boundaries to achieve competitive advantage”.
Moreover Sony’s culture is a key element that gives to Sony a competitive advantage. In fact Sony is probably the most westernised of Japanese companies and has a business culture, which is not usual for a Japanese company.
First of all, Sony is doing well exporting whereas exporting has always been seen as a peculiar problem for Japanese firms. The company is globally orientated and has a decentralised structure, which is not traditionally part of Japanese business culture, which usually prefers centralized Structure. Also, Sony was one of the first Japanese companies, which tried to adapt to foreign markets when exporting.
The atypical business culture of Sony is also reflected in the way managers are chosen: Sony enrols non-Japanese managers and it is an unexpected man, Nobuyuki Idei, who became the CEO in 1995.
Sony’s culture is a great source of competitive advantage towards other Japanese companies, as its culture enables it to be more efficient in business, especially overseas.
Capabilities and sources of competitive advantage change through time. What was in the past a competitive advantage becomes a threshold competence that is necessary to access the market. As a consequence, an important point is how long the company can keep its competitive advantage before competitors can imitate or counterbalance it.
In 50 years, Sony’s competitive advantages have changed, but the company has also managed to maintain some of them for a very long time as its business culture and its inventiveness which are hard to imitate.