STRATEGIC ANALYSIS ON SONY CORPORATION

November 2010

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Completed By Woo Gim Chuan Marcus

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SUBJECT About Sony: History, Culture & Products Internal Analysis: Resources Value Chain Analysis Summary of Strengths & Weakness Core Competencies External Analysis: PESTL Analysis of Industry Analysis of Competitive Forces – Porters’ Five Forces Analysis Stakeholders Management Product Life Cycles – BCG Matrix, Marketing & Customer Segmentation Competitors Analysis Summary of Opportunities & Threats What can Sony do to overcome its weaknesses? What can Sony achieve by exploiting its strengths? What strategic actions should Sony take to support its businesslevel differentiation strategy? Can Sony sustain its success? What are Sony’s success factors? What are the reasons that contributed to Sony’s decline? What are Sony’s future challenges and what can it do to overcome them? What can Sony do to overcome threats? What is Sony’s corporate-level strategy and how does it help create values? Sony’s International Corporate-Level Strategy: Modes of Entry, Benefits and Challenges Additional questions to stimulate the brain before exam!!!

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SONY CORPORATION About Sony Sony is a multinational conglomerate corporation and the world's largest media conglomerate with revenue of US$72 billion (as of fiscal 2003). Its principal business operations include Sony Corporation (Sony Electronics in the U.S.), Sony Pictures Entertainment, Sony Computer Entertainment, Sony BMG Music Entertainment, Sony Ericsson and Sony Financial Holdings. Sony is also a leading manufacturer of electronics, video, communications, video game consoles and information technology products for the consumer and professional markets. These make Sony one of the most comprehensive entertainment companies in the world. The company's slogan is “Sony. Like no other”. History and Culture The current Sony Corporation has a unique culture which is firmly rooted in her history especially in relationship to her two founders, Masaru Ibuka and Akio Morita. Ibuka and Morita were both dedicated electrical engineers and geniuses above their business talents. Both gave insights and visions in what the company should make and how it should be made. Ibuka, especially, gave constant advice and suggestions to the engineers involved in projects from the earlier on transistor radios to Walkmans. This created the umbrella strategy in which Sony operates under where the top management, especially Ibuka, Morita and now Norio Ohga gave the general direction in which the lower engineers actively learned, developed and improved on the vision/idea. Therefore, although there is a planned direction, the actual product development through launching is emergent with great flexibility. Although the research and development section of Sony differs greatly from other companies with its great flexibility, Sony, in its essence is still a traditional Japanese company in many ways. There is life-time employment, with strong norms and values which in turn create strategies through their actions. Status is given (the crystal award) instead of bonuses (not significant amount) for superior achievement. There is also the strong seniority system such as the mentor and apprentice relationship that is typical of a Japanese firm. All this can be classified as the cultural school in which strategy formation is of collective behaviour. Collective vision and stress on human resource, which is typical of many Japanese, can be clearly seen in the mission statement "Management Policies". Sony Products Sony has a variety of products ranging from electronic devices, games and entertainment. Briefly, Sony’s products can be categorized in the following major product categories:
Television and Projectors Home video Home Audio Home Theatre system Digital Photography Hand cam video camera Computer Peripheral Portable Audio Game In-Car entertainment Mobile phones Storage and Recording media Batteries and Charger Other Accessories

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8bn. At the threshold of the much anticipated world of “total digital convergence”. which was comparatively higher than some consumer-electronics manufacturing companies. In fact. it was 0.01 billion earned in the same year represents a 40% deduction compared to the previous year’s figures. The debt-to-asset ratio1 in the last 2 years was high and increasing moderately too.INTERNAL ANALYSIS Sony.006 (0. based on the company’s annual reports. has become a consumer-electronics company since 1946. c) Organisational Resources (Organisation Design/Structure) 1 Debt-to-Asset = Total debt / Total asset 4 . As a matter of fact.83bn in the fiscal 1999-2000 to ¥16. This is probably a strategic competitive advantage that any new entrants to the market cannot offer. return on stockholders’ equity reflects a miserable 0. a) Accounting Ratio Analysis Sony’s 2002 operating profit margin accounting ratio is merely 0.71.31bn. the electronics maker turned media and communications giant seems to have it all – next generation Internet-aware gadgets and compelling content to pump through them. what are the possible core competencies to ensure that there is quantum leap to success in a world of digit convergence? The internal analysis on the company below will answer the question. Thus. which is the world’s largest consumer-electronics company. Being a company that is endowed with a large reserve. These poor results may indicate that the company had not been managed certain aspects of the operations well and thus is unable to achieve even average returns. However. Its net income in fiscal 2001-02 was ¥15. b) Finance Resources Sony’s net sale of US$53 billion (3% above the previous year) for 2001 is an alltime high record. in 2002.018 (0.002 (same as year 2001). the operating income of US$1. a further decline compared to 2000-01 results. Sony’s high debt-to-asset ratio shows that the company is highly leveraged (not highly liquid) and thus put itself in danger if the company’s creditors start to demand repayment of debt. The high rate of investment also does not represent corresponding growth in profitability.007 in year 2001) and return on total asset reveals only 0. Sony’s net income had dropped drastically from ¥121. This highlights that Sony’s profit margin has been eroded significantly. The end of 2002 showed that Sony had a relatively huge reserve (cash and cash equivalents) of ¥683.045 in year 2001). Sony has the necessary financial resources to continue build an extensive international infrastructure that provides its multinational customers with the diversity that is required.75bn in the fiscal 2000-01. a vibrant culture of innovation resulting from cutting-edge research and development (R&D) as well as a world-class marketing acumen that has made Sony a global megabrand.

Sony also invested substantially in the game business and entered into the industry to take on 5 . The SBU form of multidivisional structure is a proper match to Sony’s strategies as it inherent benefits allows the company to manage diversification’s many demands better. Sony is also required to evaluate its divisional managers’ performance on the basis of how well they have facilitated interdivisional cooperative efforts. Sony pursues economies of scale further by outsourcing as it allows the company to have better cost control. does not readily foster cooperation across SBUs. To ensure that the various initiatives mentioned early are successfully executed. To foster cooperation between SBUs. music. Unlike the divisions included in the cooperative structure. However. each further divided into smaller business units. game. Sony also ensures a proper match between its international strategies and organisational structure exists so the company could effectively coordinate and control its global operations. strategic business units and SBU divisions. Sony could increase the frequency of direct contacts between division managers. The divisions within each SBU are related in terms of shared products or markets or both. For example. Sony’s corporate-level strategy – the SBU form consists of 3 levels comprises the corporate headquarters. pictures. finance services and communication network). Sony is broadly divided into 6 SBUs (electronics. It allows the company to achieve economies of scope and economies of scale on a global level. Fortunately. Sony’s headquarters exercises financial and strategic controls over its SBU. there is a drawback to the SBU structure.S. they do not develop integrating devices for use. besides the outcomes achieved by individual divisions to help overcome problems associated with strategic business unit form. Sony adopted the strategic business unit (SBU) form of the multidivisional structure to implement its related linked diversification strategy. Sony’s reward systems should also emphasise on the overall company’s performance. To this end. the solutions that are meant to help overcome problems associated with strategic business unit form are also applicable to challenges of the global strategy/worldwide structure combination. similar to the competitive form. Sony faces challenges of the global strategy/worldwide structure combination such as difficulty involved with coordinating decisions/actions and the inability to quickly respond to local needs and preferences. problems arises because the SBU structure.-based CBS records in 1988 and Columbia Pictures in 1989. Sony acquired U. Atypically.With continuing growth and success. Sony still continues to invest heavily in infrastructures so that the company has sufficient capacity to meet the growing needs and demands of their customers. Sony uses the worldwide product divisional structure to implement the global strategy. The two companies were renamed to Sony Music Entertainment and Sony Pictures Entertainment respectively and eventually emerged as two of the world's largest content producers. establish liaison roles in each division and form temporary work teams or task forces around projects that also focus on extracting and sharing competencies that are embedded within several divisions – work teams/task forces should also be made to report to top management. If coordination between SBUs is needed (as is required between Sony’s SBUs). divisions that are part of the competitive structure do not share common corporate strengths. As a result. However. d) Physical Resources Despite an already extensive domestic and international industrial infrastructure. but the divisions of each SBU have little in common with the divisions of the other SBUs. and commonly named as divisions.

particularly the ability to motivate and improve productivity of the staffs is certainly Sony’s strength. the MiniDisc. Sony dominated the market subsequently. Technologically. with new features like “Emotion Energy” and Graphics Synthesizer” making possible more complex effects such as facial expressions and clothes fluttering in the wind. The past and present CEOs all possessed the necessary psyche and managerial capabilities to infuse innovation and creativity. This in turn helps establish the basis of a compensation system that fairly and satisfactorily evaluates the contributions of each employee. In addition. Human Resources Management.established players like Nintendo and Sega directly. Sony also possesses the ability to identify high calibre managers to take over top management positions so that the company would continue to be well managed and the innovation culture proliferated. Sony also built a framework that promotes regular communication between employees and managers regarding work contributions. Sony went into a joint venture with Swedish telecommunications company Ericsson to form Sony Ericsson to manufacture mobile phones as well as launched Sony Bank (an Internet-based bank for middle-class Japanese investors). Sony also set industry standards for TV design and picture quality. 6 . It also has radio factories in places such as Shannon (Ireland). Sony is more advanced in producing consumer-electronics products than its competitors. In short. the Camcorder. the Betamax. Some of these Sony’s technological creations have created new markets of their own. Sony owns 55 manufacturing plants after shutting down 15 worldwide. Sony also patents its revolutionary innovations that include the trademark ‘Walkman’ and video tape ‘beta video format’. the Compact Disc. the venerable PlayStation (PS) and the robot dog Aibo. receiving awards directly from top management elevates an employee’s status in the company and as such it is something that most staff sorts after. In 2001. In short. So far. Sony’s strength is also about the ability to leverage on technologies well and ahead of its competitors to create innovative and high quality products for its customers so as to increase sales and revenues. In Japan culture. In addition. f) Human Resources Management Sony’s official website often stresses that the development and vitality of Sony's employees drives dynamic growth for Sony. e) Technological Resources Sony was first in many areas such as the Trinitron. Sony is able to provide comprehensive training programmes worldwide to train its employees to equip them with superior knowledge and skills. the company provide curriculums that are tailored to local needs for engineers and managers. Sony’s outstanding employees are recognised by receiving awards (such as the crystal and MPV awards) from the top management. For instance. By 2003. On this note. its PS2 offers a substantial jump in performance and versatility. Sony has 12 home-grown manufacturing based plants in Japan. the Walkman. it can be deduced that the physical resources that Sony possesses are likely to generate value-creating competitive advantage which is the company’s strength.

Sony was recognised as one of the world’s 100 Best Managed Companies by XXX magazine. the brand name is certainly the company's strength. the first 8mm Camcorder in 1985. especially the shareholders. Firstly. the types of risks Sony faces include: (1) pure risk. Given the positive perceptions of Sony’s reputation. Secondly. (2) price risk. for the third year in a row. the transistor radio in 1955. Sony Corporation was proclaimed as the world’s largest consumer-electronics company. Sony was ranked 21 in the XXX list of World’s 100 Most Valuable Brands with as estimated value of US$14 billion – and the 1st among its industry peers. The company’s tagline for its electronic audio and video products “It’s a Sony” simply is a stamp of quality. the Minidisk (MD) player in 1992. This pillar was put in place by the company's founders. Sony purchased insurance policies to mitigate pure risk. Price risk and credit risk are being mitigated this way. through innovation. So far. Digital Mavica camera in 1997. the world’s first all-transistor TV set in 1960. The ability to continuously innovate and come up with revolutionary innovations that boost sales and helps widen profit margins shows that Sony possesses substantial quality innovation resources (including scientific capabilities) that are hard to imitate and valuable. the Compact Disc (CD) in 1982. the world’s first colour video cassette recorder in 1971. the Walkman personal stereo in 1979. a significant player in the media industry and the fastestgrowing computer and communication equipment maker. Sony utilises several derivative instruments such as foreign exchange forward contracts.” On the same year. and the robot dog Aibo as well as Network Walkman digital music player in 1999” (Sony. Sony had produced many revolutionary products that include the first magnetic tape and tape recorder in 1950. In 2002. cutting-edge technology and reliability. In short. the “Sony” brand is one of the world’s most recognisable and trusted brands. So far. Digital Versatile Disc (DVD) player in 1998.g) Innovation Resources (Product Development) Innovation is one of the two central pillars of the Sony establishment – marketing is another. foreign currency option contracts. 7 . i) Risk Management In general. who.com/en/corporate). Sony’s holistic approach to risk management effectively is viewed favourably by its stakeholders most of the time. h) Reputation Resources In 1999. through their complementary skills and enthusiastic leadership. and (3) credit risk. XXX said that “Reputation is one of the significant intangible resources for Sony that differentiates themselves from the competitors for them to charge a premium price for their innovative products and quality. These innovations had created new markets of their own. set the foundations of a true culture of innovation at Sony. the PlayStation game system in 1995. interest rate swap agreements and currency swap agreements to hedge the potential downside risk on the cash flow from the normal course of business that caused by market fluctuation.

The ability to manage the complex and geographically dispersed in-bound logistics activities is certainly Sony’s strength. To lower its cost of production. On the other hand.S and Europe together accounted for the remaining slightly less than 25% of total annual production (most of which was destined for local distribution and sale). Sony also restructured and shut down some manufacturing facilities. PC and television markets in just a few years after entering the markets. Sony’s inability to address the inter-operative related issues is a cause of concern and therefore could possibly be the company’s weakness. advertising business and locationbased entertainment business have not been doing well. China accounted for slightly more than 10% of total annual production (approximately 70% of which was destined for other regions). In fact. In fact they had been making losses. Generally.Value Chain Analysis The value chain analysis is used to evaluate the value of every primary and support activity that is added to Sony’s products or services. excluding Japan and China. the US and the EU). As the company expands. there are also challenges that Sony somewhat cannot find better solutions to address them. accounted for slightly more than 10% of total annual production (approximately 60% destined for Japan. company’s music business.S and to Europe. Although piracy is partly responsible for the poor performance. Sony was able to make a capture a sizable market shares in the video. Asia. The details are as follows: (1) (2) (3) (4) Almost 50% of the electronics segment's total annual production during the fiscal year 2002 took place in Japan (approximately 65% of the annual production in Japan was destined for other regions). the company has shifted some of its production plants to low cost countries such as China to take advantage on the cheaper labour cost. Sony also begin to engage 3rd parties such as Flextronics and Solectron to manufacture some of its product components so that the company will continue to possess sufficient wave length to engage in its core businesses and core competencies. For instance. The U. a) In-bound Logistics Sony engages in a series of complex in-bound logistics activities that the company either possess or provided by 3rd parties. Sony has been able to manage its businesses well and hence is able to achieve successes with some of its products. It production empire alone is spread from Asia to the U. c) Out-bound Logistics 8 . the respective business units within the organisation are still not communicating and cooperating (although there were some improvements) with one another enough and this has affected inter-operative synergy and productivity. For instance. b) Operations Sony’s businesses span across different continents.

Sony has invested heavily to automate parts of the out-bound logistics function to track sales orders. At the service centres.Sony is well connected to the distribution networks that every country possesses. Internet and dealer events and promotions as well as Grass-roots public-relations campaigns to target the Generation Y target market. the Walkman brand (MiniDisc format) was re-launched in 2000 at an estimated cost of US$30 million and it was supported by massive broadcast. Given that Sony is able to provide and manage the service activities well. These activities are mostly carried out at Sony service centres and call-in stations that are manned by friendly and knowledgeable customer service offices. These successes in turn further strengthen the brand “Sony”. exchanges of defective or broken merchandise are carried out speedily. In addition. Sony is very sensitive towards its competitors’ actions and reactions. the company’s innovations are commonly backed by massive and zealous marketing efforts which have had helped to create several successful sub-brands such as Trintron. Sony’s possession of a world-class marketing acumen that has made Sony a global mega brand is certainly a strength that is hard to imitate and valuable. Sony’s marketing shrewdness had to the No. Sony also allows its music and pictures to be distributed through the broadband networks. to ensure that Sony’s products and services are delivered and reached their destinations on time. the possession of the capability to train employees and business partners to manage the complex and geographically dispersed out-bound logistics activities to enhance the various operation protocols is surely Sony’s strength. print and on-line advertising. In order to meet customers’ expectations. For instance. To achieve these goals. 1 brand rating in the United States by Harris poll (2000). warranty and installations are provided by the company. To ensure that the company solidifies its image and reputation as well as achieves the desired sales and revenues targets. it has no qualms of incurring exorbitant expenses. d) Marketing and Sales Sony's marketing strategy is to position itself as an innovator and a maker of high quality products which enable it to sell its products at a premium higher than its competitors. e) Service Sony has established many service related activities that are designed to enhance customer satisfaction – that is the feeling that a product or service has met the customer expectation. As such. In fact. movement of products and payments. it helps in further enhancing the “Sony” brand. The re-launch was a great success. Sony was also named as the world's 21 st most valuable brand in the same year. Walkman and WEGA. the business system is separated into a series of value-generating 9 . In short. To better understand the activities through which Sony develops a competitive advantage and creates shareholder value. In 2002. it was also reported in prominent magazines such as InfoWorld and PC Magazine that many customers felt that Sony’s products and services were among the best in the world and their staffs were well trained to handle the various operations and services.

• Ability to leverage on technologies well and ahead of its competitors to create innovative and high quality products for its customers so as to increase sales and profit margins. • Possess capability to train employees and business partners to manage the complex and geographically outbound logistics activities to enhance operations protocol. (2) competing business units allow office politics instead of sound strategic thinking to affect its view on such matters as allocation of company resources. Although Sony has reported that it has witnessed a dramatic increase in internal cooperation between the hardware and software managers. they may affect the operational efficiency and effectiveness of the primary activities (out-bound logistics. • Ability to manage the complex and geographically dispersed in-bound and out-bound logistics activities well.activities referred to as the value chain. This in turn runs the risk of in incompatibilities of its products and services. • Possession of the necessary physical resources is likely to help Sony generate value-creating competitive advantage. If the various operation-related issues mentioned above are not adequately and quickly addressed. The lack of inter-unit coordination and synergies due to the company’s mix are diverse businesses are properly the two grounds that have affected operation efficiency and effectiveness. • Positive perceptions of Sony’s reputation that help to boost sales and revenues. The processes of transferring inputs into finished products and services (operation) seem to have run into some problems that require Sony’s immediate attention. • Ability to motivate and improve productivity of the staffs. more work need to be done and continuous surveillance is still required. • Ability to innovate and come up with revolutionary innovations that mesmerise customers into buying them. and (3) Sony’s business units allow compartmentalisation to settle in that lead to lack in communication and cooperation. marketing and sales as well as service) downstream. The summary of strengths and weaknesses of AirAsia is appended in Table 1 below: Strengths • With such huge reserves means that Sony is capable of generating internal funds to finance any expansion. • Weaknesses of divisional structure that include: (1) duplication of functions at the different "levels" that resulted in high cost in maintaining the management structure. Table 1: Summary of Sony’s Strengths and Weakness 10 . Weaknesses • Sony’s high debt ratio (highly leveraged) could put itself in danger if the company’s creditors start to demand repayment of debt. The practice of good networking must eventually become a culture of Sony for the company to sustain its competitive advantage. • Possession of a world-class marketing acumen that has made Sony a global mega brand.

The evaluation conducted on Sony’s capabilities is appended in Table 3 below: 11 . . the company’s capabilities are assessed based on the four criteria – valuable. difficult to imitate and non-substitutable. Possess the necessary physical resources to help generate value-creating competitive advantage as well as a large reserve that can be leveraged to invest in infrastructure to further lower costs. Able to integrate the various resources and functional activities to meet the needs (innovative. Staff who shows managerial potential is cultivated to take over leadership posts. rare. Technology + Human + Financial + Innovation + Infrastructure Technology + Human + Financial + Innovation + Infrastructure Technology + Human + Financial + Innovation + Infrastructure Human + Financial + Innovation Technology + Human + Financial + Innovation + Infrastructure Human + Financial + Innovation + Infrastructure Human + Financial Technology + Human + Financial + Innovation + physical Technology + Human + Financial + Innovation Table 2: Resources-Competency Model used on Sony’s Resources. Functional Activities Capabilities Bundle of Resources involved Inbound Logistics Operations Outbound Logistics Marketing & Sales Services Infrastructure & Finance Human Resources Technology Procurement Ability to conduct the various complex in-bound logistics activities well to facilitate smooth operations and productions. Possession of a world-class marketing acumen and tacit knowledge to plan and execute marketing strategies/plans extremely effectively that goes to build lasting well-known brands.Core Competencies The analysis on Sony’s resources as well as primary and support activities are evaluated using the Resources-Competency Model as shown in Table 2 below. The religious zeal to innovate coupled with tacit knowledge to build revolutionary products that mesmerise customers into buying them. quality and reliable) of global customers. Possession of a world-class marketing acumen and tacit knowledge that has made Sony a global mega brand. Possess the capability to train employees and associates to manage and perform the vast and complex out-bound logistics activities that enhance operations protocol. Primary and Support Activities To determine whether Sony has any core competencies (sustainable competitive advantages). The evaluation results so far revealed that three core competencies below: (1) (2) The religious zeal to innovation coupled with tacit knowledge to produce revolutionary products by leveraging on strong R&D and new technologies. Able to leverage on technologies well and ahead of its competitors to create innovative and high quality products Possess procurement know-how that leads to quality input at lower costs. Able to leverage on financial resources to provide competitive numeration packages and training that help to motivate and incentivise.

Possess the capability to train employees and associates to manage and perform the vast and complex out-bound logistics activities that enhance operations protocol. Able to leverage on technologies well and ahead of its competitors to create innovative and high quality products Possess procurement know-how that leads to quality input at lower costs. . Staff who shows managerial potential is cultivated to take over leadership posts. Able to leverage on financial resources to provide competitive numeration packages and training that help to motivate and incentivise. quality and reliable) of global customers. Possession of a world-class marketing acumen and tacit knowledge to plan and execute marketing strategies/plans extremely effectively that goes to build lasting well-known brands. The religious zeal to innovation coupled with tacit knowledge to produce revolutionary products by leveraging on strong R&D and new technologies. Y Y N N Temporary Competitive Advantage Sustainable Competitive Advantage Competitive Parity Sustainable Competitive Advantage Competitive Parity Temporary Competitive Advantage Average returns to Aboveaverage returns Aboveaverage returns Average returns Aboveaverage returns Average returns Average returns to Aboveaverage returns Average returns Average returns to Aboveaverage returns Average returns Y Y Y Y Y N N N Y Y Y Y Y N N N Y Y N N Y N N N Competitive Parity Y Y N N Temporary Competitive Advantage Competitive Parity Y N N N Table 3: Evaluation of Sony’s Capabilities 12 .Capability Valuable Rare Difficult to imitate Nonsubstitutable Competitive consequences Performance implications Ability to conduct the various complex inbound logistics activities well to facilitate smooth operations and productions. Possess the necessary physical resources to help generate value-creating competitive advantage as well as a large reserve that can be leveraged to invest in infrastructure to further lower costs. Able to integrate the various resources and functional activities to meet the needs (innovative.

it can present opportunities for consumer-electronics companies like Sony to enlarge their markets. the overall economic prospect does not look promising in the near future as it is being dampened by the impact of recession.S. implying that this form of entertainment was now mainstream. In the late 1990s. In some countries such as Russia. it allows a broader access to foreign products for consumers and companies. Although rapid growth and increased trade and businesses may intensify competition (entrance of other competitors) and even lead to ‘non-standard’ competitors enter into the industry to complete. Despite the opportunities the era of globalisation. However.. In fact. China. being a Japanese company. A study by the XXX (2002) confirmed that the U. Similar trends were observed in Europe and Japan too. China. nonetheless it still affects people’s buying power.75bn in the fiscal 2000-01. Consequently. Sony was severely affected by the slowdown in the IT industry during 2000-01. c) Socio-cultural & Demographic Socio-cultural. Globally. as of mid-1990s. in spite of a 9.4% increase in revenue in the fiscal 2000-01 (mainly due to the improved sales of the PS games console) Sony’s net income dropped significantly from ¥121. governments’ intervention and regulation remained substantial. It was noticeable that many countries established open trade agreements while others had lowered the entry of foreign direct investments. The early 2000s recession although was not as bad as many predicted it would be. A survey by Goldman Sachs revealed that 60% of Americans played video games and 61% of these game-buffs were adults. which led to a decline in the demand for its computer-related products. b) Economics (Global-Geographic) The era of globalisation in the 1990s has the interconnectedness of the various markets. Europe and Asia would continue to offer attractive conditions for the consumer goods. including electronic industry. there was increase privatisation and deregulation of the consumer-electronics as well as media and technology industries globally.83bn in the fiscal 1999-2000 to ¥16. it was stated that price and 13 . This is likely to affect Sony’s sales and revenues negatively. thus leading to emergence of worldwide production markets.EXTERNAL ANALYSIS PESTL Analysis .Macro Environment a) Political Government policies are important drives for the success of almost every country in the world. This helps fuel demand for consumer products globally. 43% were women and their average age was 28. the government also failed to take effective interventions to address the piracy matter and thus caused movie and music companies to lose billions of dollars a year. For instance. Sony was not allowed to set up broadcast networks in the United States due to the policies established by the government. As a result. Brazil and Ukraine. It estimated that the demand for innovative electronics and network centric products will double by 2010.

d) Technological New services such as Internet Telephony and the increase in the use of telecommunications services (such as online shopping) provide Sony with the opportunity to leverage on new technologies to increase their sales. However. the more adventurous YGeneration is also looking to make their possession of innovative product increase further. Matsushita came up with a competitive product based on Sony's technology. The average disposable income has also increased over the last 30 years. increasingly over the years. both the VHS and Beta were developed by Sony. This spells good news for all companies as they can look forward for more opportunities to improve their sales and revenues. In addition. Better still.quality of the products were the two most important considerations that influenced consumers’ decisions and of course this included without having to compromise on quality and service. The margin for technology advancement is therefore diminishing. Based on the XXX’s records. In addition. in some instances. This presents an opportunity for all media and technology companies to increase their revenues by offering innovative products and services at reasonable prices. ecommence and internet-based activities (such as online banking and insurance purchases) are other areas where Sony can derived ancillary revenues from. Demographic. As seen in the VTR example. 14 . a product usually takes a few years to develop but the time is left to reap the results and profits may be much less. it can be anticipated that the disposable income will continue to growth. e) Legal Intellectual property and intellectual property rights creation as well as commercialisation and protection have given Sony a significant source of comparative advantage of enterprises. Typically. in a short time. technology advancements also means having opportunities to reduce operation costs such as savings on commissions for sales agents when sales are done online. Sony also needs to be cognisant with the fact that other electronic firms would be able to copy Sony's technology in a much shorter time while offering more competitive prices. With the expected increase in the working population globally. the world’s population stood at close to 5 billion as of 2002 and is expected to increase.

this presents vast opportunities to enlarge the company’s market shares. 15 . If Sony is able to apply its core competencies. there is still a silver lining in the gloomy sky.e. From the Porter’s Five Forces analysis. The former is expected to equal the total box office revenues of the firm industry and eventually catch up even with the saes of music CDs. by applying unique business models. the music and film companies are losing money as the global economy slowdown due to recession that hit many countries in 2001. Growing digital piracy also compounded the problems and these companies saw their profits further eroded. despite the economic slowdown. As an industry. Due to its recession-proof nature and lucrative prospects. business model or network well. including Sony. it is also deduced that competition in the consumer electronics industry is intense and therefore will not be attractiveness (i. However. have been able to make a return in excess of the industry average. Apprehensions of terrorist attacks and an unstable geopolitical landscape are set to test the industry as well as Sony’s resilience as a global corporation. In addition. Given Sony’s strong presence in the games industry. the company can still achieve a profit above the industry average. As a matter of fact.5 billion and consoles to be US$8. Sony needs to be cognisant with the business cycle so that it can to take full advantage of such effects especially when there are changes in discretionary income and consumer spending patterns. As such.Analysis of Industry Sony has a strong business case to support its foray into the game business. Moving forward. Goldman Sachs has predicted the global sales of games to be US$17. Sony's Pictures business still managed to record 15% increase in sales and more than sevenfold increase in operating income suggest that firm business may be a defensive industry. the gaming industry is the next big frontier for many entertainment companies. The consumer-electronics businesses are closely linked to economic activities in the world. profitability is low and yet individual companies. profitability) to potential entrants. the overall industry attractiveness does not imply that every company in the industry will return the same profitability. The sales of games are expected to overtake music CD sales in Europe in 2005.7 billion in the year 2002. A clear example of this is the airline industry.

As an industry.Analysis of Competitive Forces .e. If Sony is able to apply its core competencies. Bargaining Power of Suppliers (LOW) The suppliers do not have an upper hand (low bargaining power) due to large number of suppliers and customers. have been able to make a return in excess of the industry average. the industry is regulated that every potential entrant is required to obtain approval from the relevant authority of the particular country before the company is allowed to be operated. profitability) to potential entrants. fixed and storage costs. The industry growth is slow and thus further heightens the intensity of competition b) c) d) e) From the analysis above.g.Porter’s Five Forces Analysis a) Threat of Substitute Products (LOW) The possibility threat of substitutes is moderately low. product differentiation as well as technology and innovation knowhow. Moreover. they are also much small in size and thus normally have weak bargaining power. Intensity of Rivalry (HIGH) Industry rivalry is high due to relatively intense competition and high exit cost. The high intensity of rivalry is also largely due to the numerous and equally balanced competitors in the markets. Bargaining Power of Buyers (HIGH) The power of buyer is high due to almost no switching cost for customers to switch from one brand to another. e. Moreover. it effectively position the company’s products against product substitute to some extent. the company can still achieve a profit above the industry average. The access to the internet also allows customers to have all the information on prices charged by the different companies. On-line shopping has also increased the bargaining power of buyers. Therefore. Sony operates in big global supply chain management and its suppliers are not concentrated. economies of scale. the overall industry attractiveness does not imply that every company will return the same profitability. generally short product life cycle as well as high R&D. The possession of this information may cause price sensitive buyers to switch to buying from companies that offer cheaper prices. A clear example of this is the airline industry. since there are few substitutes from other industries (if any). 16 . it also serves as a deterring effect to potential entrant. this is a surplus for the company. Consider that Sony has built a good reputation and strong customer loyalty. Comparatively. digit camera in the place of film camera and fax machines in place of overnight mail delivery. Threat of New Entrants (LOW) Threat of new entrants is low as the entry into the industry requires high capital. profitability is low and yet individual companies. by applying unique business models. Sony usually engages in direct negotiation with its suppliers in order to secure reliable supply at lower prices. Every new entrant that infringed into the big players’ territories can expect strong retaliation from them. However. and most of them are seemed to be obsolete or have on foot out of the door. it can be deduced that competition in the consumer electronics industry is intense and therefore will not be attractiveness (i. business model or network well.

he launched a Sony’s image campaign. This helps to attract new customers as well as retain existing ones. government agencies and officials as well as society in general. Sony has had an Environmental Conference. they could retrieve them readily from the company’s website. the PlayStation gained tremendous support from customer world-wide and went on to dominate the market to become the world’s largest selling game console. 17 . shareholders. Sony was undaunted and pushed forward with PlayStation and eventually managed to convince the developers of the system’s superior design and capabilities. In order to ensure that all specific needs are met. and resources. Besides that. potential investors. In early July 2002. media. In this way the company establishes good relationship with the various government agencies and officials as well as societies and hopefully through these pro-active initiatives maintain good relationship can be maintained so as further reinforce Sony’s good image. customers. Thus far. educators. Sony satisfies its customers by offering innovative products without having to compromise to quality and reliability." This chart graded major electronics companies on their environmental work. Sony has taken steps to reduce the amount of greenhouse gases that its companies produced as well as regulating the products they get from their suppliers in a process that they call "green procurement".Stakeholder Management Through an established set of public relation protocols. This probably also explain why Sony is able to establish its businesses in the various part of the world readily. By the year 2000. Sony set up sales and marketing offices in every place that the company has businesses in. Sony’s resounding success with the PlayStation also speaks well of Sony’s ability to meet (or even exceed) the expectations of its business partners and customers. Sony ranked 11th on the Greenpeace chart "Guide to Greener Electronics. Stakeholders who need any information concerning Sony. with 70% share and 80 million units sold. Nobuyuki Idei. suppliers. However. All these efforts probably explain why Sony has always enjoyed strong support from its stakeholders and thus helped propel it to become a global megabrand. Since 1976. employees and business partners who come into contact with Sony with the opportunities to create and fulfil their dreams together. game developers were initially reluctant to support Sony’s new format. financial institutions. also played a key role in forging a closer between the company and its stakeholders. Owing to the dominant position of Sega and Ninetendo in the console market. Sony uses a broad set of communication activities that are employed to create and maintain favourable relationship with the various stakeholders that include employees. Sony's policies address their effects on global warming. including serving the wishes and demands of its customers. Sony also strives to build strong relationship with the government agencies and officials as well as society. the environment. For instance." The premise of the campaign is to provide shareholders. Sony’s CEO. "Do you dream in Sony?" and helped coin the term "digital dream kids. In this way Sony creates a common platform (touch-point) where mutual relationship with its stakeholders is facilitated.

LCD TV. Walkman and CD players fall under this category. The positions of Sony’s existing products are elaborated below: a) Dog A product becomes a dog due to low market share and a low growth rate and when the product neither produces nor uses up bulky amounts of cash. Some analysts opined that Sony’s excessive focus on the maturing consumer electronics business (profit margin below 1 per cent in 2002–03). Sony must be mindful that they also use a lot of cash because of growth market conditions. Sony also needs to be aware that market growth is not the only factor or necessarily the most important factor when assessing the attractiveness of a market as growth markets attract new entrants. these products could not make as much sales as they expected and their market shares now range between 10-14%. VAIO computer and CRT-TV. Star A star is when huge quantities of profit are produced because of the powerful market share and high growth rate. Reference to the BCG Matrix appended in Diagram 1.Products Life Cycles Analysis – BCG Matrix The market growth axis correlates with the product life cycle paradigm and predicates the cash requirement a product needs relative to the growth of that market. comparatively lower the competitors. coupled with increasing competition in the consumer electronics industry was severely affecting its profitability. although generally ‘Stars’ are leaders in high growth markets and tend to generate large amounts of cash. Sony’s digit camera. the vide-game console produced by Sony is definitely in the ‘Star’ sector since the company’s business has achieved high growth rate as well as acquired comparatively larger market share. music player. For instance. way ahead of its competitors. if capacity exceeds demand. Due to aggressive competition from its competitors such as Samsung Panasonic and Matsushita. Sony products that fall under this category include semiconductor. then a particular market may become a low margin one and therefore becomes unattractive. In addition. DVD player and play stations fall under this category. Diagram 1: BCG Matrix However. 18 c) . b) Question A product becomes a question when they have a lower market share and they do not generate much profit or cash. Their market shares range between 25 to 40%.

Through TV we have seen different advertisements of its products such as Sony TV. it’s a phone with touch sensitive music controls and 8 gigabytes of internal memory. Through posters and newspapers like Times. This means one can store up to 8000 songs.d) Cash Cow Sony Ericsson W980 from Sony walkman series is a cash cow. Sony uses some events to promote its products as well. Sony positions itself as a global media and technology company that provides total entertainment products and services (with compromise to quality and reliability) for teenagers and adults in both developed and emerging economies. We say a product is a cash cow when the product show signs of that the return on assets is better than the market growth rate. Sony advertises a wide range of products it offers to its customers. In case of Sony Ericsson W980. Sony Ericsson W980 helps to position Sony Ericsson as a market leader in the music world. Marketing & Customer Segmentation Sony invests aggressively in marketing predominantly through extensive advertisements and promotions. Unlike other consumer-electronics companies. In addition. Sony also advertises its Playstation through the English Premiere League. and makes more cash than they use. Sony also advertises its products by targeting those favourable television programs like sports series as well as its own channel called Sony channel TV. 19 .

Dell. III and IV’. based on the competitor analysis framework appended in Diagram 3 below. Samsung LG NEC AOL-Time Warner Vivendi Universal II III Motorola Kodak Fuji Cisco 3Com Nintendo Sega I IV Matsushita Toshiba Sharp Philips Apple Microsoft Nokia Dell IBM Sun Microsystems Palm Diagram 3: A Framework of Competitor Analysis Technically. Sharp and Philips modelled in ‘quadrant I’ are direct competitors of Sony. This lead to the conclusion that Matsushita. these companies do not directly pose as strong rivalry to Sony at this point in 20 . multidimensional competition is a bitter reality of the world of digital convergence. most of the competitors at this point in time do not possess completely the same tangible and intangible resources as that of Sony. With that. Apple and Palm Cisco and 3Com Microsoft and Sun Microsystems AOL-Time Warner and Vivendi Universal Nintendo Kodak and Fuji Nokia and Motorola This complex. Competition between the companies is likely to be intense as most harbour grand broadband visions and have also staked their futures on them. where boundaries between traditional industry segments have disappeared although new opportunities open up. Fortunately. As such. the other competitors modelled in ‘quadrant III’ share few markets although they all possess comparable resources. any firm or competitors in ‘quadrant I’ will use their similar resource portfolios to compete against each other. IBM. Toshiba. most of Sony’s competitors are concentrated in ‘quadrant II. Toshiba. Sharp.Competitors Analysis Sony starts facing increased competition not only from a stable set of rivals (such as Philips. LG and Samsung) but also new adversaries as follows: BUSINESS CATEGORY COMPANY Computer makers network-equipment makers software makers media companies game makers photographic-equipment makers mobile phone makers HP. In contrast. Matsushita.

amidst the challenges. Sony does need to monitor companies that modelled in ‘quadrant II’ and ‘quadrant IV’. High growth video-game industry provides presents the opportunity to increase business globally. the companies modelled in ‘quadrant IV’ may become direct competitors if they diverse their businesses in Sony’s fortes. Opportunities • • • • Globalisation trend provides opportunities such as entrance to new markets. nonetheless it posts serious challenge to Sony’s forte. New services such as Internet Telephony provide all media and technology companies with the opportunity to leverage on new technologies to increase sales. Piracy. Sony must be cognisant with the fact that competition is very intense in the game console market. Similarly. Privatisation and deregulation suggests more opportunities to expand market and increase market share. Sony’s top competitors like Nintendo and Microsoft in the gaming industry are not letting their guards down. Technology advancements provide opportunities to reduce operation costs. The companies that modelled in ‘quadrant II’ share a high degree of market commonality with Sony and if they eventually manage to acquire similar equitable resources. there are still many opportunities for Sony to explore and exploit so that it continues to lead and be the most profitable media and technology company in the world. it can be deduced that the operating environment is highly competitive and filled with many uncertainties – which means that the company has to prepare themselves well during good times. competitors. In order to cushion stiff competition. more disposable income. the profit margin of the remaining players will be compressed and the weak one may be drove out of the market (also known as the vicious cycle).time. Threats • • • • Unfavourable government policies. In the television market. any of these companies may consider lowering product prices to achieve their objectives. However. particularly from Samsung. if this happens. Sony should continue to set up alliances with the fellow electronic manufacturers/ competitor so that win-win situation can be achieved to allow the company to continue to sustain its operations. However. From the analysis of Sony. Many of these same brands also appear in the DVD player market that Sony is in. Sharp and Panasonic. the only way customers can differentiate them from their competitors would be on the product prices. Larger working age population. Prolonged global recession. although Sony excels but still faces some strong competition. Although PlayStation 2 have managed to sell well. Though it is a far second in console market share. As their products and features closely resemble that of Sony’s. Microsoft launched the Xbox in 2001 and has managed to sell 10 million units by the year 2003. A short summary on the possible opportunities and threats are appended in the table below. In order to maintain or increase market shares. • • 21 . they may become direct competitors. Aggressive competition from especially low-cost imitators. LG. Moving forward.

Sony may take the following strategic actions to help overcome its weaknesses. a disadvantage that divisional structure brings. The highly leveraged status also reflects unfavourably of Sony as it may make it more difficult to acquire addition loans. This allows Sony to utilise resources at their maximum potential. Sony must strive to increase its revenues with lower cost of production so as to achieve higher net profit margin as this allows the company the flexibility to unload more debts to lower the debt-to-equity ratio. In the long run. b) Create Project-Based Work Teams that Report to Top Management Sony’s business units operate almost autonomously. a) Reduce Cost To Increase Profit Margin & Repay Debts Sony’s high debt-to-equity ratio (highly leveraged) could put itself in danger if the company’s creditors start to demand repayment of debt at the same time. d) Improve Interaction and Communication It was deduced that generally there is lack of communication and cooperation among the Sony’s business units due to the compartmentalisation. Sony may create project-based work teams that report to the top management. Sony’s business units must be well managed by strong executive leadership which understand each business unit as well as is able to provide leadership to the business unit chiefs when introduce new strategic directions and make them partner more effectively partner. Sony faces duplication of functions at the different "levels" that resulted in high cost in maintaining the management structure. If Sony can overcome them. c) Centrally Manage Selected Resources Under a divisional structure. To overcome this shortcoming. Sony top management should support more opportunities for its business units to interact and cooperate via social interacting activities for staff to help to develop camaraderie and team spirit. This runs the risk of incompatibilities of Sony’s products and services. across the business units. Hence. At times competing business units allow office politics instead of sound strategic thinking to affect its view on such matters such as allocation of company resources and cooperation. the company will be able to acquire more profits that can be used to fund the various set-ups and operations unique to strategies. Sony should merge some resources administrative support or office equipment and centrally manage them to help reduce costs and organisational complexity. 22 . To be successful.WHAT CAN SONY DO TO OVERCOME ITS WEAKNESSES? Sony’s weaknesses are primarily related to cost and organisational structure. Sony must build creditors’ confidence by apprising them on its financial status periodically as well as paying interests and debts upon due. Hence.

brings improvement to product design and features. Leveraging on it superior innovation and marketing acumen. Using its strength in innovation and HRM. Sony can aim to deliver quality and innovative products to customers (achieving differentiation). Maintaining this competitive advantage is crucial in reinforcing the mechanism that fall under Sony’s strategies. 23 . especially where Sony's market is shrinking in Japan. The actions discussed above will in turn bring greater support to the company’s businesslevel differentiate strategy that focus primarily on achieving differentiation through innovative and quality products. quicken production of new revolutionary products as well as lowers costs and increases profits. it helps reinforce the redefined image.WHAT CAN SONY ACHIEVE BY EXPLOITING ITS STRENGTHS By exploiting Sony’ strengths. These processes are vital as the new identity allows Sony to gain better competitive advantage in future. e) Be More Profit Oriented As a mature company. a) Imprint Redefined “Sony” In Customers’ Mind Sony could leverage on its marketing know-how to better promote the redefined “Sony” – Sony faces the daunting task of selling its broadband vision and new identity. To achieve this. Sony should be able to morph its products fairly quickly to meet the changing consumers’ taste/preferences. at a level of costs that approach those of its competitors such as Samsung. Sony can impose internal cost leadership through acquiring the core competency of cost-effective service excellence that enshrined in a unique and self-reinforcing system of organizational processes and activities. Sony needs to be more coordinated in explaining what digital convergence means and how Sony’s grand vision fit into it. Sony must first shed the “customer-electronics” image and explain to users features of its new products. This helps increase sales/revenues and consequently allows Sony to chart its path back to profitable. d) Increase the Pace of Next Generation Innovations Production Sony could exploit its strong R&D and technological know-how to increase the pace in producing the next generation innovations such as the paper thin TV display and digital chopsticks concurrently. revives matured sub-brands. Secondly. Sony must do more like encapsulating the “cool” factor in its products. b) Incorporate Customer-Oriented Features To Innovative Products Encountering the aggressive strategies of its competitors that possess superiority in design and have incorporated customer-oriented features into their products. it should continue to be profit orientated and emphasise on market share. c) Revitalise Matured Sub-Brands Sony could leverage on its marketing know-how to revive its matured sub-brands by re-launching new products or products with new features using the sub-brand labels.

ubiquitous access to entertainment and information – no matter whether the content comes from cable. Sony has developed new audio-visual applications designed to personalise technology that give consumers easy. Sony continues to fuel industry growth with the sales of innovative and quality Sony products such as VAIO notebooks (that raise the bar in both form and function) and digital cameras (that allow pictures to be captured on a floppy disk). In the company’s view.. To ensure that these products possess internet-enabled capability. c) Invest in Internet-Enabled Products Sony’s strategy is focused on four gateways to the networked world. make sure the basis of your actions is increasing the value of these four letters. Sony has planned to continue to invest heavily in broadband network so as to allow an entirely new form of entertainment such as digitised movies and music as well as Internet content and games to be accessed ubiquitously. Sony innovations have become part of mainstream culture with the ability to capture the imagination and enhance people’s lives. the Internet is an "e-Playground" with new ways to enjoy Sony products and it opens up opportunities for Sony to produce new revolutionary products in future..com. a new information rich e-commerce site designed to build a closer relationship between Sony and its customers. Moving forward. I tell them. Driven by an integrated business model. Sony should continue to maintain the market leader position in product innovation and quality through strong R&D. O. packaged media or the Internet – the company’s software strategy. Sony may adopt the strategic actions as follows: a) Maintain The Leader Position in Product Innovation & Quality Sony’s approach – doing what others don’t – has paid off. once said: ".. b) Invest in Broadband Network Sony is a corporation with convergence at its very heart. in the form of great products that people covet. indigenous use of new technologies and superior marketing acumen.WHAT STRATEGIC ACTIONS SONY SHOULD TAKE TO SUPPORT ITS BUSINESS-LEVEL DIFFERENTIATION STRATEGY The construct of differentiation strategy emphasises on high quality offerings. The company also embarked on the project 24 . VAIO personal computers.. They are the digital televisions and set-top boxes. The most valuable asset of all is the four letters. In order to continue to meet these requisites. satellite. S. content and services. Throughout its history." This underscores the strong emphasis on the importance of reinforcing the brand values at Sony. terrestrial. significant investments in innovation and staff development and branding. Sony took an infant step recently by launching SonyStyle. Moving forward. software. Norio Ohga. Y. Considerable inroads have also been made in professional broadcasting such as the production of Betacam. N. mobile devices (such as the CLIE handheld devices and digital phones) and PlayStation2 game consoles. the company is well positioned to bring new benefits to consumers by combining hardware. In recent time (2003). d) Reinforce Brand Values & Promote a World Class Brand Chairman of the Board.

Sony describes profoundly on its website “We are not here to be logical or predictable. e) Encourage Dreams Sony strives to create things – thins not essential. For instance the grand MiniDisc format re-launch under the Walkman brand in 2000 was meant to communicate subtly that Sony is well connected to the world. by the Harris poll (2000).S. We allow the BRIGHTEST minds to interact freely. particularly the Y Generation. The phenomenal strength of the Sony brand worldwide is surely a testament to the company’s reputation for producing innovative products of exceptional quality and value. Sony must possess the ability to continuously produce innovative and quality products that exceed customers’ expectations and at costs that approach near its competitors. Sony celebrates brand diversity to connect with consumers across various lifestyle segments. so the UNEXPECTED can emerge” to emphasise the aspiration of creating things from imagery. We’re here to pursue INFINITE possibilities. 25 . the lifestyle that people pursue. yet hard to live without – for every kind of imagination with its products that stimulate the senses and refresh the spirit and ideas.dubbed ‘Being Sony’ to help the various stakeholders assimilate the brand values better. aiming to exceed the expectations of consumers. Sony’s top management knows that creativity is the company’s essence and thus they frequently take chances in innovation work. Sony worked hard in this area and was rated the number one brand in the U. In order to succeed using differentiation strategy.

“the demographic fundamentals of large populations that include rising middle classes with increasing disposable incomes as well as the desire for innovative electronics and network centric products. c) Obsession with Innovation Culture One of the most important requirements to sustain success in the electronic and networked service industries is to possess a genuine innovation culture. including electronic industry.. Sony is certainly poised to sustain its success. The XXX (2002) confirmed that the U. Europe and Asia would continue to offer attractive conditions for the consumer goods. paint an extremely encouraging demand picture in the long run”. Sony’s long-term financial status is stable according to credit rating that the Standard & Poor's Ratings Services Company awarded. Sony’s strong finance resource is vital for growth and ready to wrestle any economic crisis. All these innovations had created new markets of their own. Following the success. With such as an obsession with innovation. For example. Sony preached innovation with religious zeal. To further innovate. Compact Disc and PlayStation into the market. Sony has relentlessly innovated and brought an array of trend-setting electronics products such as Walkman. the company was the first to launch the first entertainment robot.8 billion. bankers had provided funds to help the company in its joint ventures and investments despite global economic slowdown and terrorist threats.CAN SONY SUSTAIN ITS SUCCESS? The large and untapped markets in some regional areas coupled with Sony’s difficult to imitate resources and capabilities would ensure its future success.S. the dog-like “Aibo”. b) Strong Finance Resource Although Sony had not been profitable. a) Conducive Environment for Growth The major macro environment factors suggest a promising environment for the growth of electronics and network service businesses amidst global slowdown. Sony was able to implement cost-focused operations in the media business fast that in turn allowed its TV-series production and movie business to achieve handsome profit margins. Unlike other electronics and networked service companies. d) Disciplined Approach Sony’s disciplined approach has assisted the company to avoid setbacks. its 2002 annual report still showed that the company possessed huge cash and cash equivalents balances of ¥683. China. It estimated that the demand for innovative electronics and network centric products will double by 2010. The ability to ensure that the central objective of achieving bigger cost advantages than the company’s rivals (by continuously implementing cost reduction measures along its value chain more effectively) allows Sony to achieve continual success. This is why between 1998 and 2002. Sony engineers are now working on intelligent humanoid robots. This in turn sustains success. According to XXX (2002). 26 . which became a runaway success.

In short. 27 . Sony’s marketing shrewdness had led the company to acquire the No. Sony must develop new ways to manage both customer relationships and suppliers or partners to optimise customer loyalty. supplier relationships. Sony was also named as the world's 21st most valuable brand in the same year.e) Prowess in Marketing Sony’s prowess in marketing will help sustain the company’s success. Moving forward. Sony is certainly well poised to sustain its success. Sony’s possession of a worldclass marketing acumen that has made Sony a global mega brand is certainly a strength that is hard to imitate and valuable. 1 brand rating in the United States by Harris poll (2000). The company possess the tacit knowledge and know-how to accompany product launches with highly effective marketing and positioning efforts and this often earns Sony handsome premiums. As the global electronics. media and networked service company in the high demanding environment. in order to continue to gain market share and sustain its competitive advantages as an electronics. and revenue. media and networked service company that constantly lead innovation and create new markets.

Subsidiaries are well established in many parts of the world which give Sony hands-on knowledge of the local market. 28 . Being an international corporation. Sony also has good access to talents and brings them into the company. Sony was also one of the early Asian brands to recognize the importance of branding. Sony also possesses the ability to sense the hidden consumer demand and create an entire product category through its innovative products. which was again supported and lead by the management team.WHAT ARE SONY’S SUCCESS FACTORS? There are four success factors that helped Sony’s ascent to global supremacy in the consumer electronics sector and they are: a) Visionary Leadership Sony is a classic case to prove the strategic importance of a visionary leader in carrying a brand to dizzying heights. In addition. the brand image was enhanced every time a competitor imitated Sony as it became an indirect way to accept Sony’s leadership position. when Walkman was introduced. b) Religious Zealous to Innovation Innovation defined the brand character of Sony. Sony’s management team along with the CEO was responsible to create an environment that nurtured experimentation and innovation. c) Pioneer Advantage Given the innovative edge. Sony grew to global prominence due to its ability to constantly create products before other companies could conceptualise them. Sony’s innovative culture will help differentiate the company from its competitors for a very long time. there was no existing market for portable music but it went ahead to became a very successful innovation. Sony has a great leeway in defining the rules of the game. d) Human Capital The greatest asset of Sony is of its human capital. Their constant innovation is crucial for a consumer electronic firm which specialises in audio-visual equipment and aim to generate higher profit margin to cover the higher cost needed for its primary and support activities. Sony emerged as the pioneer in almost every sector that it was operating in. For instance. Being the first mover (or inventor) in many cases. especially its engineers which make up the R&D department.

This helps established Apple as the undisputed leader in mobile music market and possibly dented Sony’s brand reputation. it might be more beneficial for the company to cooperate with some of its competitors as opposed to competing on conflicting software that supports the system. d) Lack of Cooperation With Sony entering markets such as the VTR with no standards. channelling its resources around one or two dominant businesses. Sony has not been very successful in evolving as the brand for the new masses of the twenty first century.W. Its short-term strategy is also lacking as there is little emphasis on profit and accountability of R&D efforts. success breeds corporate complacency and Sony did not follow up with any outstanding and innovative product line to sustain the initial success. 29 . As is the usual case. This sort of unrelated diversification not only drains the resources to a great extent but also diverts the brand focus from the core of the brand. The innovation dearth is probably the result of Sony’s lack of consumer oriented innovation. Samsung and a few others have hijacked that from Sony. But these companies seem to have learnt the importance of focusing on core competence and trimmed down. manufacturing and marketing are all well established but the firm lacks any formal long-term direction. Sony although possess strong components but is unable to coordinate in a coherent way to achieve its maximum potential. But Sony still seems to have stuck up in multiple businesses. Harping back on past laurels and expecting the customers to still support the brand due to its past glory will be a grave mistake as has turned out in Sony’s case. Apple came out with iPod that appealed to the younger generation worldwide. b) Innovation Dearth The case of Apples’ iPod explains this point very well. c) Lack of Brand Evolution For Sony to continue to be successful in the current ultra competitive globalised market place. e) Lack of Strategy Product development. The original mission statement of Sony is also outdated as it references to W.WHAT ARE THE REASONS THAT CONTRIBUTED TO SONY’S DECLINE? a) Unrelated Diversification Many Western and Asian companies such as GM Motor and Samsung that have become global forces to reckon with started from trimmed to become bloated conglomerates.II. As s result. Walkman made Sony the undisputed leader in portable music player category. The new entrants and existing competitors are much stronger than 20 years ago and invariably Sony’s strength will be weakened if the company would to act alone. it has to make itself very relevant to the current customer segments. Apple.

winning the standards war is vital as it can be a winner-takes-all situation. To ensure that the various initiatives mentioned early are successfully executed. Sony’s should explore joint alliances for joint standard specification. As such. The content business. In addition. In the age of convergence.S. b) Dilemma: What Sony Should Do To Counter Low-Cost Imitators Low-cost imitators also produce Sony’s mainstream products. d) Competition vs Collaboration with Conventional & Non-Conventional Competitors The world of digital convergence means that Sony has to compete with conventional and non-conventional rivalries. There is little cooperation between the content people in the U. Sony has already started outsourcing and collaborating with its competitors and it should explore if it can do more. it is unlikely that a company can do everything itself but to cooperate selectively with its competitors. c) Winning The Standards War In the age of digital convergence. The Scourge of Piracy 30 e) . to foster cooperation between SBUs. He also carried out extensive reorganisation to change organisational mindset.WHAT ARE SONY’S FUTURE CHALLENGES & WHAT CAN IT DO TO OVERCOME THEM? a) Achieving Seamless Cooperation Between Business Units The biggest challenge that Sony faces is achieving total cooperation between its business units and buy-in of its network vision. there will be fierce competitions. works tirelessly to achieve organisational integration by starting an initiative to bridge the hardware and content businesses. Idei. Sony tries to keep at the forefront of innovation by making innovative interconnected digital multimedia products. computer. already plagued by piracy. The result of using innovative interconnected digital multimedia products to counter low-cost imitators also prevents Sony in making many devices that its competitors already produced. The model that involves consumer-electronics companies in operating manufacturing plants also has to be taken by outsourcing that they can concentrate on their core businesses. To counter them. Sony should also evaluate its divisional managers’ performance on the basis of how well they have facilitated interdivisional cooperative efforts. As such. Although this helps in mitigating the situation. gaming and networking markets. is concerned about the implications these new devices for its copyrighted content. To avoid failure. establish liaison roles in each division and form temporary work teams or task forces around projects that also focus on extracting and sharing competencies that are embedded within several divisions. Sony’s reward systems should also emphasise on the overall company’s performance. Sony’s broadband dream can only be a reality if its own standards prevailed. it brings another set of problems. Sony could increase the frequency of direct contacts between division managers. besides the outcomes achieved by individual divisions to help overcome problem associated with strategic business unit form. the CEO. On the other hand it has also witnessed these very players enter Sony’s traditional fortes. and the technical wizards in Japan. On one hand Sony has entered the terrains of these companies in the media.

Sony teamed up with others to form an association to urge the U. whether it is a PC or a TV or something else. the company must convince its shareholders and employees of Sony’s grand vision through coordinated buy-in activities.The proliferation of the Internet and digital gadgets translated into easier piracy of digitised copyrighted content. not a single product from Sony has incorporated any of the next-generation features. If this trend continues. There are no elaborate broadband networks in place to support the next-generation features and products. In 2002. for which the Walkman was first launched in 1979. An example is Sony’s highly innovative product Airboard. By mid-2003. 31 . Despite an increase in demand. To accomplish this uphill task. having no relationships with telecom companies. the networks themselves remain conspicuously missing. Customers do not know what it is. global music sales paradoxically fell by 9% in 2002. Sony’s content divisions may go out of business. Sony. Sony should form alliances with some telecom companies and find ways to expedite progress. can only wait – but not forever. Secondly. In order to stop this trend. f) Technology Adoption Despite elaborate preparation for the next generation of networked entertainment. about 30% of Sony’s Walkman sales are units that still used the traditional cassette tape. Perhaps.S. Illegal copies and sales were estimated to cost movie and music companies US$7 billion a year. Dealers do not know how to sell it. government to step up antipiracy measures. g) Defining the Redefined “Sony” Sony still faces the daunting task of selling its broadband vision and new identity to the customers due to the complexities of the digital convergence industry. Sony must first shed the “customer-electronics” company image and explain to its stakeholders what digital convergence means and how the company’s product fit into it. a combination of TV and PC with and LCD screen.

Sony could supply high technology equipment and parts. More often than not.S. Sony globalised production that in turn allowed the company in exploiting a shift in demand in international markets. Against a backdrop of prolonged global recess. In the age of convergence. Sony teamed up with AOL-Time Warner and Viacom to urge the U. was not allowed to set up broadcast networks in the U. To achieve this. particularly for joint standard specification. 32 . scourge of piracy and aggressive competition. It should also explore more low-cost locations where the company can move its manufacturing plants to. being a Japanese company. To mitigate negative effects of prolonged global recessions. If this trend continues. b) Lower Costs. To stop this trend. Illegal copies and sales were estimated to cost movie and music companies US$7 billion a year. Sony then tried to make up for it by investing in satellite broadcasting in Japan (through partnership) and other countries. All these allow Sony to acquire a wider profit margin and thus help fight against sluggish demand. Sony’s content business may be badly affected. To overcome them. In addition. prolonged global recession. Given this constraint. Sony could continue to outsource its production plants. Sony must try to keep at the forefront of innovation by making innovative and revolutionary products that include interconnected digital multimedia products. This also helps Sony increase country market shares.WHAT CAN SONY DO TO OVERCOME THREATS The threats that Sony faces include unfavourable government policies. Generate Extra Revenues – Against Prolonged Global Recession Lower Cost. Sony could use its strong R&D and technological know-how in nonconsumer business (business sector and industries) to generate extra revenues. Sony should further lower cost. government to step up antipiracy measures. In short. To counter aggressive competition. Sony could also expand its product range by offering lower priced so that it can also compete head-on with lowcost imitators. it has to cooperate selectively with its competitors. Sony should work towards joining alliances with its competitors. c) Work with Local Governments Collectively – Against Scourge of Piracy The proliferation of the Internet and digital gadgets translated into easier piracy of digitised copyrighted content. especially low-cost imitators that also produce Sony’s mainstream products are threatening the company’s profits. Generate Extra Revenues. Sony. intense competition as well as the competitors are also able to copy the products in a much shorter time.S. Lastly. To ensure that the company will not encounter a major setback. Sony should continue to use globalisation as a tool to mitigate unfavourable government policies. it is unlikely that a company can do everything itself. Sony may take the actions as follows: a) Globalisation – Against Unfavourable Government Policies In the 1990s. d) Innovation & Strategic Alliances – Against Aggressive Competition Competitors. it should hasten the pace in restructuring its music business and implementing the various cost-cutting measures.

If Sony is able to sell its product with higher prices at a cost comparable to its competitors. For instance.WHAT IS SONY’S CORPORATE-LEVEL STRATEGY & HOW DOES IT HELP CREATE VALUES? Sony’s corporate strategy uses related linked diversification strategy. For example. SONY’S INTERNATIONAL CORPORATE-LEVEL STRATEGY 33 . a young executive. As we know. In view of the difficulty. intangible resources are difficult for competitors to understand and imitate. In this way Sony has avoided duplication in resource allocation which in turn helps lower cost. He then outlined the transfer of corporate-level core competencies so that the company’s standalone products could be transformed to being network-enabled devices. because the expense of developing a core competence has been incurred in one of the firm’s businesses. The various business units thus gained competitive advantage from Idei’s knowledge and foresight that are hard for others to understand and imitate. the business unit that receive a transferred corporate-level competence often gains competitive advantage over its rivals immediately. to be CEO of the corporation. transferring it to a second business eliminate the need for that second business to allocate resources to develop it. b) Allow Business Units To Gain Competitive Advantage Secondly. in 1995 Sony appointed Nobuyuki Idei. This brings value to the company and shareholders. The company’s revenues distribution (see table below) shows that more than 30% of its revenue comes from outside its dominant electronics business. it would translate to higher profit margin. Sony electronics business could transfer its competence in design and manufacturing to video game consoles and information-technology products. resource intangibility is another source of value creation through corporate relatedness. Sony’s businesses are also found to be related (or linked) to each other in some manners such as transfer of knowledge and core competencies between the business units to develop and exploit economies of scope. In this way it helps create value. the related linked diversification strategy helps Sony create values as follows: a) Avoid Duplication in Resource Allocation Firstly. Electronics 64% Games 12% Music 8% Pictures 8% Others 8% In at least 2 ways.

Nonetheless. b) Returns on Investment 34 . mobile phone business with Ericsson. the creation of the compact disc with Philips. Sony has managed to extend some of its products’ life cycles (e. acquiring a foreign firm and establishing a new subsidiary. These alliances have provided Sony an alternative to Microsoft products and thus helps keep the company’s licensing costs down which in turn improve financial performance. CLIE operating system with Palm Corporation. This allows Sony to focus on developing its next-generation gadgets. the rationale for the merger wave in the late 1990s was the convergence of content and distribution. BENEFITS & CHALLENGES Introduction Sony uses global strategy to offer standardised products across country markets. to ensure that the company has a strong footing in networked entertainment. online distribution site with Universal Music Group.MODES OF ENTRY. VCR and Walkman). Moreover. Modes of Entry Primarily Sony adopts multiple modes of entry that include exporting. International expansion also helps Sony to achieve lower cost production costs (as portions of its operations could be re-located to low-cost foreign locations).g. internet access with AOL as well as cell microprocessors with IBM and HP. provide incentives for more innovation and produce above-average returns. This allows the company to achieve economies of scale and offers greater opportunities to take innovations developed at the corporate level or in one country and utilise them in other markets. From that near-death incident onwards. international expansion has allowed Sony to derive the following benefits and in turn create values for its stakeholder: a) Increased Market Size Increased market size has allowed Sony to achieve both economies of scale and economies of scope. In addition. it has intended to use its own networked devices as the distribution channels for its content. In additional. Sony actively engages in growing itself larger through strategic alliances. it has allowed the company to produce valuecreating processes in countries that are strong in science knowledge and with abundant talents. Sony has avoided any mergers and acquisitions. forming joint ventures with international partners. Benefits Through international diversification. The development of the PlayStation itself was aided by alliances forged between hardware designers and creative game-software developers. Sony nearly went bankrupt. mitigate the risk associated with currency fluctuation as well as lower economic and politic risks. In Sony’s plan. It particularly favours joint ventures as the company has a very bad experience after the acquisition of the movie and music businesses in 1988/89. with competitive strategy being dictated by the home office.

In addition. Sony’s CEO worked relentlessly to achieve organisational integration. unable to get permit to establish a broadcast station in the U. Sony headquarters have to ensure that its business units share resources and facilitate coordination and cooperation across country boundaries.g.) and economic (e. d) Location Advantages Sony relocated some manufacturing plants to countries that offer lower-cost labour to take advantage of location. 35 . This sharing of knowledge generates synergy. Sony also is able to exploit core competencies in international markets through resource and knowledge sharing between the business units and network partners across country borders. particularly in manufacturing operations. the benefits that Sony has enjoyed may be tempered by political (e. working across international markets has provided Sony with new learning opportunities. Sony witnessed a dramatic increase in internal cooperation.g.S. prolonged recession in some countries in early 2000s) risks and the problems of managing a complex international firm with operations in multiple countries (e. Sony is able to enjoy economies of scale. In addition. His efforts such as the establishment of the Network Application and Content Service Sector that aim at bridging the hardware and content businesses and extensive reorganisation to change mindset had showed promising results.Investing in international markets has allowed Sony to generate returns the company’s significant investments such as plants. lack of cooperation between Sony’s divisions). which helps Sony to produce higher-quality products/services at lower cost. Challenges However.g. to achieve efficient operations. c) Economies of Scale and Learning By expanding the company’s markets. capital equipment and R&D. On this note.

The probable reasons of Sony for strategic alliances by market are as follows: Market Slow-Cycle Fast-Cycle • • • • • • • • Gain access to a restricted market Reason • • • • • • • Maintain market stability (e. the joint venture with Ericsson allows Sony to improve the company’s ability to compete in an uncertain competitive environment. For instance. “CoCoon” set-up box Internet services Next-generation “cell microprocessor” technology “Blu-Ray” DVD recording standard (over a rival standard from NEC and Toshiba) Sony is likely to succeed in its alliances as the company has proven itself to be active in solving problems. Sony is able to leverage its core competencies to grow and improve its performance. In addition. establishing standards Form an industry technology standard Share risky R&D expenses Overcome uncertainty Overcome trade barriers Meet competitive challenges from other competitors Pool resources for very large capital projects Standard-Cycle Speed up development of products and services Speed up new market entry Maintain market leadership Gain market power (reduce industry overcapacity) Gain access to complementary resources Establish better economies of scale Learn new business techniques 36 . Year Mid-1990s Mid-1990s 1996 2001 2001 2001 2001 2001 2001 2001 Company Rupert Murdoch’s News Corp Games developers Intel Ericsson Universal Music Group Palm Corporation Linux America Online (AOL) IBM and Toshiba Consortium of 9 companies Business Satellite broadcasting PlayStation Notebook-PC Mobile communication – Sony Ericsson (Joint Venture) Online-music distribution – PressPlay CLIE handheld computer Operating system – devices eg. The joint venture has allowed both companies to establish long-term relationships and transfer tacit knowledge. In particular. For instance. mergers and acquisitions and cooperative strategies.g. Sony also engages in a non-equity strategic alliance with a consortium of 9 companies to push for the adoption of “Blu-Ray” DVD recording standard over a rival standard from NEC and Toshiba. Sony and Ericsson have both pledged more resources into the venture. strategic alliance is a primary type of cooperative strategy that Sony uses it very often to create competitive advantage. although Sony Ericsson was still making losses as of 2003. being trustworthy and consistently pursuing ways to combine partners’ resources and capabilities to create value. Sony enlists business-level cooperative strategy (vertical complementary) and partners with IBM and Toshiba. thus creating more value for its stake holders. to accelerate the development of the nextgeneration “cell microprocessor” technology. By cooperating with other companies. Sony’s corporate-level cooperative strategy with AOL in 2001 seeks to leverage on Internet technologies and services in ways that maximise customer value while improving the company’s position relative to its game console competitors. which in turn helps enhance the company’s marketplace success.USING COOPERATIVE STRATEGIES AT SONY Sony uses 3 means to grow – internal developments (primarily through innovation). Having never really been successful in capturing any substantial market share.

An example of opportunistic behaviour is an attempt to acquire as much of Sony’s tacit knowledge as possible without offering much in return. Although this approach is less costly and provides more flexibility. Thirdly.There are 4 cooperative strategy risks that Sony must be cognisant with. Sony has to trust its partners in executing the agreements properly. Secondly. Sony may make investments that are specific to the alliance while its partner does not. There are 2 ways in which Sony can carry out cooperative strategies. This may be caused by different cultures and languages. Firstly. its partners may exhibit opportunistic behaviour. one might expect that Sony will continue to use cooperative strategies as a path toward growth and enhanced performance. leaving the alliance objectives unfulfilled. its partners may misrepresent or exaggerate its competencies to lure Sony into strategic alliances. Lastly. Firstly. 37 . Secondly. the company can develop formal contracts with its potential partners and put in place an effective monitoring system to reduce risks. they may fail to bring promised resources and capabilities to the alliances. Given the challenges associated with achieving and maintaining superior performance and in light of its general success with cooperative relationships. this approach is costly and can be stifling. However. the output from the alliance may be inferior. As a result. the company may also adopt less formal contracts and impose fewer constraints on partners’ behaviour.

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