Sony Macro Analysis

7/29/2019 Sony Macro Analysis

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Topic :

Sony Macro Analysis


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Table of Contents

Macroeconomics ........................................................................................................................................... 3

Goals of Macroeconomic policy ................................................................................................................... 4

Determinants of Macroeconomics ................................................................................................................ 4

Financial Sector ............................................................................................................................................ 5

Inflation, Unemployment, and Stabilization Policies ................................................................................... 6

Types of inflation .......................................................................................................................................... 6

Economic Growth and Productivity.............................................................................................................. 6

Open Economy: International Trade and Finance ........................................................................................ 6

Sony .............................................................................................................................................................. 7

History and Culture....................................................................................................................................... 7

Sony Products ............................................................................................................................................... 8Value Chain Analysis ................................................................................................................................... 8

a) In-bound Logistics ............................................................................................................................ 8

b) Operations ......................................................................................................................................... 9

c) Out-bound Logistics.......................................................................................................................... 9

d) Marketing and Sales........................................................................................................................ 10

e) Service............................................................................................................................................. 10

Challenges of Sony ..................................................................................................................................... 11

PESTL Analysis - Macro Environment................................................................................................... 11

Analysis of Competitive Forces - Porters Five Forces Analysis ............................................................... 14

Stakeholder Management ........................................................................................................................ 15

Marketing & Customer Segmentation ........................................................................................................ 16

Competitors Analysis................................................................................................................................ 17

SUGGESSTIONS/SOLUTIONS................................................................................................................ 21

a) Reduce Cost To Increase Profit Margin & Repay Debts .......................................................... 21

b) Create Project-Based Work Teams that Report to Top Management ............................................. 21

c) Centrally Manage Selected Resources ............................................................................................ 21

d) Improve Interaction and Communication ....................................................................................... 22

WHAT CAN SONY ACHIEVE BY EXPLOITING ITS STRENGTHS .................................................. 22

WHAT STRATEGIC ACTIONS SONY SHOULD TAKE....................................................................... 23

TO SUPPORT ITS BUSINESS-LEVEL DIFFERENTIATION STRATEGY .......................................... 24


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Macroeconomics

Macroeconomics studies the broader aspects of the economy and studies the behavior of an

economy as a whole. The study of which government agency has the gun, and how we can get

our hands on it. Macroeconomics (Greek makro = big) describes and explains economic

processes that concern aggregates. An aggregate is a multitude of economic subjects that share

some common features. By contrast, microeconomics treats economic processes that concern

individuals. Example: The decision of a firm to purchase a new office chair from company X is

not a macroeconomic problem. The reaction of Austrian households to an increased rate of capital

taxation is a macroeconomic problem. Why macroeconomics and not only microeconomics? The

whole is more complex than the sum of independent parts. It is not possible to de-scribe aneconomy by forming models for all firms and persons and all their cross-effects.

Macroeconomics investigates aggregate behavior by imposing simplifying assumptions (assume

there are many identical firms that pro-duce the same good) but without abstracting from the

essential features.

These assumptions are used in order to build macroeconomic models. Typically, such models

have three aspects: the story, the mathematical model, and a graphical representation.

Macroeconomics is non-experimental: like, e.g., history, macro-economic cannot conductcontrolled scientific experiments (people would complain about such experiments and with a

good reason) and focuses on pure observation. Because historical episodes allow diverse

interpretations, many conclusions of macroeconomics are not coercive. Classical motivation of

macroeconomics: politicians should be advised how to control the economy, such that specified

targets can be meeting optimally. policy targets: traditionally, the magical pentagon of good

economic growth, stable prices, full employment, external equilibrium, just distribution of

income; according to the EMU criteria, focus on inflation (around 2%),public debt, and a

balanced budget; according to Blanchard, focus on low unemployment (around 5%), good

economic growth, and inflation (03%).In all specifications, aim is meeting several convicting

targets simultaneously.


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Goals of Macroeconomic policy

1) Full employment: All the citizens of country must enjoy full employment opportunitybesides of their education level. The natives will get employment according to theirs

skills and traits on merit. There will not be any reference quota.

2) High living standards The ultimate aim of any economy is to provide the desired goodsand services. The economy should be in a position to offer these goods and services in

ample number. To measure the output of any economy, Gross domestic product is the

most comprehensive estimate. GDP measures the market value of the entire output in a

country during a particular year.

3) Price stability: Stable prices are the third macroeconomic objective. Consumer priceindex is the most commonly used measure of overall price level in an economy. CPI is

the measure of the cost of different types of goods bought by the average customer.

Inflation donates the rise or fall in general price level in the economy. Inflation rates,

shows the rate of change in the price index. When the inflation is high, the purchasing

power of the customers reduces.

4) Rapid economic growth: Every country wishes to and strives for having a constantgrowth in its economy. There are two parameters that judge the rate of growth that an

economy achieves.

Determinants of Macroeconomics

National income accounts Circular flow

Gross domestic product Components of gross domestic product Real versus nominal gross domestic product Inflation measurement and adjustment Price indices Nominal and real values


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Costs of inflation Unemployment Definition and measurement

Types of unemployment

Natural rate of unemployment National Income and Price Determination Aggregate demand Determinants of aggregate demand Multiplier and crowding-out effects Aggregate supply Short-run and long-run analyses Sticky versus flexible wages and prices Determinants of aggregate supply Macroeconomic equilibrium Real output and price level Short and long run Actual versus full-employment output

Economic fluctuations

Financial Sector

Money, banking, and financial markets Definition of financial assets: money, stocks, bonds Time value of money (present and future value) Measures of money supply Banks and creation of money Money demand Money market Loanable funds market Central bank and control of the money supply


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Tools of central bank policy Quantity theory of money Real versus nominal interest rates

Inflation, Unemployment, and Stabilization Policies

Fiscal and monetary policies Demand-side effects Supply-side effects Policy mix Government deficits and debt Inflation and unemployment

Types of inflation

Demand-pull inflation Cost-push inflation The Phillips curve: short run versus long run Role of expectations

Economic Growth and Productivity

Investment in human capital Investment in physical capital Research and development, and technological progress

Open Economy: International Trade and Finance

Balance of payments accounts Balance of trade Current account Capital account Foreign exchange market


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Demand for and supply of foreign exchange Exchange rate determination Currency appreciation and depreciation Net exports and capital flows Links to financial and goods markets

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 Moritawere 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


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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, Sonys 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

Value Chain Analysis

The value chain analysis is used to evaluate the value of every primary and support activity that

is added to Sonys products or services.

a) In-bound Logistics

Sony engages in a series of complex in-bound logistics activities that the company either possess

or provided by 3

rd

parties. As the company expands, Sony also begin to engage 3

rd

parties suchas 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. To lower its cost of production, Sony also restructured and shut down some

manufacturing facilities. In fact, the company has shifted some of its production plants to low

cost countries such as China to take advantage on the cheaper labour cost. The ability to manage


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the complex and geographically dispersed in-bound logistics activities is certainly Sonys

strength.

b) Operations

Sonys businesses span across different continents. It production empire alone is spread from

Asia to the U.S and to Europe. The details are as follows:

(1) Almost 50% of the electronics segment's total annual production duringthe fiscal year 2002 took place in Japan (approximately 65% of the annual

production in Japan was destined for other regions).

(2) China accounted for slightly more than 10% of total annual production(approximately 70% of which was destined for other regions).

(3) Asia, excluding Japan and China, accounted for slightly more than 10% oftotal annual production (approximately 60% destined for Japan, the US

and the EU).

(4) The U.S and Europe together accounted for the remaining slightly lessthan 25% of total annual production (most of which was destined for local

distribution and sale).

Generally, Sony has been able to manage its businesses well and hence is able to achieve

successes with some of its products. For instance, Sony was able to make a capture a sizable

market shares in the video, PC and television markets in just a few years after entering the

markets.

c) Out-bound LogisticsSony is well connected to the distribution networks that every country possesses. In fact, to

ensure that Sonys products and services are delivered and reached their destinations on time,

Sony has invested heavily to automate parts of the out-bound logistics function to track sales

orders, movement of products and payments. In addition, Sony also allows its music and pictures

to be distributed through the broadband networks.


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In 2002, it was also reported in prominent magazines such as InfoWorld and PC Magazine that

many customers felt that Sonys products and services were among the best in the world and

their staffs were well trained to handle the various operations and services. As such, 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 Sonys strength.

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. To achieve

these goals, the companys innovations are commonly backed by massive and zealous marketing

efforts which have had helped to create several successful sub-brands such as Trintron, Walkman

and WEGA. These successes in turn further strengthen the brand Sony.

Sony is very sensitive towards its competitors actions and reactions. 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. For instance, 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, print and on-line advertising, Internet and dealer events and promotions as

well as Grass-roots public-relations campaigns to target the Generation Y target market. The re-

launch was a great success.

e) Service

Sony has established many service related activities that are designed to enhance customer

satisfactionthat is the feeling that a product or service has met the customer expectation. Theseactivities are mostly carried out at Sony service centers and call-in stations that are manned by

friendly and knowledgeable customer service offices. At the service centers, exchanges of

defective or broken merchandise are carried out speedily. In order to meet customers

expectations, warranty and installations are provided by the company. Given that Sony is able to

provide and manage the service activities well, it helps in further enhancing the Sony brand.


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To better understand the activities through which Sony develops a competitive advantage and

creates shareholder value, the business system is separated into a series of value-generating

activities referred to as the value chain. The processes of transferring inputs into finished

products and services (operation) seem to have run into some problems that require Sonys

immediate attention. If the various operation-related issues mentioned above are not adequately

and quickly addressed, they may affect the operational efficiency and effectiveness of the

primary activities (out-bound logistics, marketing and sales as well as service) downstream. The

lack of inter-unit coordination and synergies due to the companys mix are diverse businesses are

properly the two grounds that have affected operation efficiency and effectiveness. Although

Sony has reported that it has witnessed a dramatic increase in internal cooperation between the

hardware and software managers, more work need to be done and continuous surveillance is still

required. The practice of good networking must eventually become a culture of Sony for the

company to sustain its competitive advantage.

Challenges of Sony

PESTL Analysis - Macro Environment

a) Political

Government policies are important drives for the success of almost every country in the world. In

the late 1990s, there was increase privatization and deregulation of the consumer-electronics aswell as media and technology industries globally. It was noticeable that many countries

established open trade agreements while others had lowered the entry of foreign direct

investments. However, as of mid-1990s, governments intervention and regulation remained

substantial. For instance, being a Japanese company, Sony was not allowed to set up

broadcast networks in the United States due to the policies established by the government.

In some countries such as Russia, China, Brazil and Ukraine, 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.


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b) Economics (Global-Geographic)

The era of globalisation in the 1990s has the interconnectedness of the various markets, thus

leading to emergence of worldwide production markets. Consequently, it allows a broader access

to foreign products for consumers and companies. This helps fuel demand for consumer products

globally. A study by the XXX (2002) confirmed that the U.S., China, Europe and Asia would

continue to offer attractive conditions for the consumer goods, including electronic industry. It

estimated that the demand for innovative electronics and network centric products will double by

2010. 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, it can present opportunities for consumer-electronics companies like Sony

to enlarge their markets.

The early 2000s recession although was not as bad as many predicted it would be, nonetheless it

still affects peoples buying power. Globally, Sony was severely affected by the slowdown in the

IT industry during 2000-01, which led to a decline in the demand for its computer-related

products. As a result, 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) Sonys net income dropped significantly from

121.83bn in the fiscal 1999-2000 to 16.75bn in the fiscal 2000-01. Despite the opportunities

the era of globalisation, the overall economic prospect does not look promising in the near future

as it is being dampened by the impact of recession. This is likely to affect Sonys sales and

revenues negatively.

c) Socio-cultural & Demographic

A survey by Goldman Sachs revealed that 60% of Americans played video games and 61% of

these game-buffs were adults; 43% were women and their average age was 28, implying that this

form of entertainment was now mainstream. Similar trends were observed in Europe and Japan

too. In fact, it was stated that price and 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. In addition, increasingly over the years, the more

adventurous Y-Generation is also looking to make their possession of innovative product

increase further. This presents an opportunity for all media and technology companies to increase

their revenues by offering innovative products and services at reasonable prices.


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Demographic. Based on the XXXs records, the worlds population stood at close to 5 billion as

of 2002 and is expected to increase. The average disposable income has also increased over the

last 30 years. With the expected increase in the working population globally, it can be anticipated

that the disposable income will continue to growth. This spells good news for all companies as

they can look forward for more opportunities to improve their sales and revenues.

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. In addition, e-commence and internet-based activities (such

as online banking and insurance purchases) are other areas where Sony can derived ancillary

revenues from. Better still, in some instances, 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 cognizant 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. Typically, a

product usually takes a few years to develop but the time is left to reap the results and profits

may be much less. As seen in the VTR example, both the VHS and Beta were developed by

Sony. However, in a short time, Matsushita came up with a competitive product based on Sony's

technology. The margin for technology advancement is therefore diminishing.

e) Legal

Intellectual property and intellectual property rights creation as well as commercialization and

protection have given Sony a significant source of comparative advantage of enterprises.


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Analysis of Competitive Forces - Porters Five Forces Analysis

a) Threat of Substitute Products (LOW)

The possibility threat of substitutes is moderately low; since there are few substitutes from other

industries (if any); and most of them are seemed to be obsolete or have on foot out of the door,

e.g. digit camera in the place of film camera and fax machines in place of overnight mail

delivery. Consider that Sony has built a good reputation and strong customer loyalty, it

effectively position the companys products against product substitute to some extent; this is a

surplus for the company.

b) 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. The access to the internet also allows customers to have all the information on

prices charged by the different companies. The possession of this information may cause price

sensitive buyers to switch to buying from companies that offer cheaper prices. On-line shopping

has also increased the bargaining power of buyers.

c) Bargaining Power of Suppliers (LOW)

The suppliers do not have an upper hand (low bargaining power) due to large number of

suppliers and customers. Moreover, Sony operates in big global supply chain management and

its suppliers are not concentrated. Comparatively, they are also much small in size and thus

normally have weak bargaining power. Sony usually engages in direct negotiation with its

suppliers in order to secure reliable supply at lower prices.

d) Threat of New Entrants (LOW)

Threat of new entrants is low as the entry into the industry requires high capital, economies of

scale, product differentiation as well as technology and innovation know-how. Moreover, 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. Every new

entrant that infringed into the big players territories can expect strong retaliation from them.

Therefore, it also serves as a deterring effect to potential entrant.


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e) 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, generally short product life cycle as well as high R&D, fixed and storage costs. The

industry growth is slow and thus further heightens the intensity of competition

From the analysis above, it can be deduced that competition in the consumer electronics industry

is intense and therefore will not be attractiveness (i.e. profitability) to potential entrants.

However, the overall industry attractiveness does not imply that every company will return the

same profitability. If Sony is able to apply its core competencies, business model or network

well, the company can still achieve a profit above the industry average. A clear example of this is

the airline industry. As an industry, profitability is low and yet individual companies, by applying

unique business models, have been able to make a return in excess of the industry average.

Stakeholder Management

Through an established set of public relation protocols, Sony uses a broad set of communication

activities that are employed to create and maintain favourable relationship with the various

stakeholders that include employees, shareholders, suppliers, media, educators, potential

investors, financial institutions, government agencies and officials as well as society in general.

Stakeholders who need any information concerning Sony, they could retrieve them readily from

the companys website. In this way Sony creates a common platform (touch-point) where mutual

relationship with its stakeholders is facilitated, including serving the wishes and demands of its

customers.

Sony satisfies its customers by offering innovative products without having to compromise to

quality and reliability. This helps to attract new customers as well as retain existing ones. In

order to ensure that all specific needs are met, Sony set up sales and marketing offices in every

place that the company has businesses in. Sonys CEO, Nobuyuki Idei, also played a key role in

forging a closer between the company and its stakeholders. For instance, he launched a Sonys

image campaign, "Do you dream in Sony?" and helped coin the term "digital dream kids." The

premise of the campaign is to provide shareholders, customers, employees and business partners


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who come into contact with Sony with the opportunities to create and fulfil their dreams together.

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.

Sonys resounding success with the PlayStation also speaks well of Sonys ability to meet (or

even exceed) the expectations of its business partners and customers. Owing to the dominant

position of Sega and Nintendo in the console market, game developers were initially reluctant to

support Sonys new format. However, Sony was undaunted and pushed forward with PlayStation

and eventually managed to convince the developers of the systems superior design and

capabilities. By the year 2000, the PlayStation gained tremendous support from customer

world-wide and went on to dominate the market to become the worlds largest selling game

console, with 70% share and 80 million units sold.

Besides that, Sony also strives to build strong relationship with the government agencies and

officials as well as society. Since 1976, Sony has had an Environmental Conference. Sony's

policies address their effects on global warming, the environment, and resources. Thus far, 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". 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 Sonys good

image. This probably also explain why Sony is able to establish its businesses in the various part

of the world readily. In early July 2002, Sony ranked 11th on the Greenpeace chart "Guide to

Greener Electronics." This chart graded major electronics companies on their environmental

work.

Marketing & Customer Segmentation

Sony invests aggressively in marketing predominantly through extensive advertisements and

promotions. Through TV we have seen different advertisements of its products such as Sony TV.

Sony also advertises its products by targeting those favourable television programs like sports

series as well as its own channel called Sony channel TV. Sony uses some events to promote its


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products as well. Through posters and newspapers like Times, Sony advertises a wide range of

products it offers to its customers. In addition, Sony also advertises its Playstation through the

English Premiere League. Unlike other consumer-electronics companies, 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.

Competitors Analysis

Sony starts facing increased competition not only from a stable set of rivals (such as Philips,

Matsushita, Toshiba, Sharp, LG and Samsung) but also new adversaries as follows:

BUSINESS CATEGORY COMPANY

Computer makers HP, IBM, Dell, Apple and Palm

network-equipment makers Cisco and 3Com

software makers Microsoft and Sun Microsystems

media companies AOL-Time Warner and Vivendi Universal

game makers Nintendo

photographic-equipment makers Kodak and Fuji

mobile phone makers Nokia and Motorola

This complex, multidimensional competition is a bitter reality of the world of digital

convergence, where boundaries between traditional industry segments have disappeared although

new opportunities open up. Competition between the companies is likely to be intense as most

harbour grand broadband visions and have also staked their futures on them. Fortunately, 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, based on the competitor analysis framework appended in

Diagram 3 below, most of Sonys competitors are concentrated in quadrant II, III and IV.


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Samsung

LG

NEC

AOL-Time Warner

Vivendi Universal

Matsushita

Toshiba

Sharp

Philips

II I

III IV

Motorola

Kodak

Fuji

Cisco

3Com

Nintendo

Sega

Apple

Microsoft

Nokia

Dell

IBM

Sun Microsystems

Palm

Diagram 3: A Framework of Competitor Analysis

Technically, any firm or competitors in quadrant I will use their similar resource portfolios to

compete against each other. This lead to the conclusion that Matsushita, Toshiba, Sharp andPhilips modeled in quadrant I are direct competitors of Sony. In contrast, the other competitors

modeled in quadrant III share few markets although they all possess comparable resources. As

such, these companies do not directly pose as strong rivalry to Sony at this point in time. Sony

does need to monitor companies that modeled in quadrant II and quadrant IV. The companies

that modeled in quadrant II share a high degree of market commonality with Sony and if they


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eventually manage to acquire similar equitable resources, they may become direct competitors.

Similarly, the companies modeled in quadrant IV may become direct competitors if they

diverse their businesses in Sonys fortes.

Moving forward, Sony must be cognizant with the fact that competition is very intense in the

game console market. Although PlayStation 2 have managed to sell well, Sonys top competitors

like Nintendo and Microsoft in the gaming industry are not letting their guards down. Microsoft

launched the Xbox in 2001 and has managed to sell 10 million units by the year 2003. Though it

is a far second in console market share, nonetheless it posts serious challenge to Sonys forte. In

the television market, although Sony excels but still faces some strong competition, particularly

from Samsung, LG, Sharp and Panasonic. Many of these same brands also appear in the DVD

player market that Sony is in. As their products and features closely resemble that of Sonys, the

only way customers can differentiate them from their competitors would be on the product

prices. In order to maintain or increase market shares, any of these companies may consider

lowering product prices to achieve their objectives. However, if this happens, 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). In order to cushion stiff competition, 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.

A short summary on the possible opportunities and threats are appended in the table below. From

the analysis of Sony, 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. However, amidst the challenges, 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.


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Opportunities Threats

Globalisation trend providesopportunities such as entrance to new

markets.

Privatisation and deregulation suggestsmore opportunities to expand market and

increase market share.

High growth video-game industryprovides presents the opportunity to

increase business globally. Larger working age population; more

disposable income.

New services such as Internet Telephonyprovide all media and technology

companies with the opportunity to

leverage on new technologies to increase

sales.

Technology advancements provideopportunities to reduce operation costs.

Unfavourable government policies. Prolonged global recession. Piracy. Aggressive competition from

competitors, especially low-cost

imitators.


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SUGGESSTIONS/SOLUTIONS

Sonys weaknesses are primarily related to cost and organizational structure. If Sony can

overcome them, 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 may take the following strategic actions

to help overcome its weaknesses.

a) Reduce Cost To Increase Profit Margin & Repay Debts

Sonys high debt-to-equity ratio (highly leveraged) could put itself in danger if the companys

creditors start to demand repayment of debt at the same time. The highly leveraged status also

reflects unfavorably of Sony as it may make it more difficult to acquire addition loans. Hence,

Sony must build creditors confidence by apprising them on its financial status periodically as

well as paying interests and debts upon due. In the long run, 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.

b) Create Project-Based Work Teams that Report to Top Management

Sonys business units operate almost autonomously. At times competing business units allow

office politics instead of sound strategic thinking to affect its view on such matters such asallocation of company resources and cooperation. To overcome this shortcoming, Sony may

create project-based work teams that report to the top management.

c) Centrally Manage Selected Resources

Under a divisional structure, Sony faces duplication of functions at the different "levels" that

resulted in high cost in maintaining the management structure. Sony should merge some

resources administrative support or office equipment and centrally manage them to help reduce

costs and organizational complexity. This allows Sony to utilize resources at their maximum

potential.


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d) Improve Interaction and Communication

It was deduced that generally there is lack of communication and cooperation among the Sonys

business units due to the compartmentalisation, a disadvantage that divisional structure brings.

This runs the risk of incompatibilities of Sonys products and services. Hence, 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.

To be successful, Sonys 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,

across the business units.

WHAT CAN SONY ACHIEVE BY EXPLOITING ITS STRENGTHS

By exploiting Sony strengths, it helps reinforce the redefined image, brings

improvement to product design and features, revives matured sub-brands, quicken production of

new revolutionary products as well as lowers costs and increases profits.

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.

Sony must first shed the customer-electronics image and explain to users features of its

new products. Secondly, Sony needs to be more coordinated in explaining what digital

convergence means and how Sonys grand vision fit into it. These processes are vital as

the new identity allows Sony to gain better competitive advantage in future.

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, Sony

must do more like encapsulating the cool factor in its products. Leveraging on it


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superior innovation and marketing acumen, Sony should be able to morph its products

fairly quickly to meet the changing consumers taste/preferences. This helps increase

sales/revenues and consequently allows Sony to chart its path back to profitable.

c) Revitalize 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.

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. Maintaining this competitive advantage is crucial in

reinforcing the mechanism that fall under Sonys strategies.

e) Be More Profit Oriented

As a mature company, it should continue to be profit orientated and emphasise on

market share, especially where Sony's market is shrinking in Japan. Using its strength in

innovation and HRM, Sony can aim to deliver quality and innovative products to

customers (achieving differentiation); at a level of costs that approach those of its

competitors such as Samsung. To achieve this, 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.

The actions discussed above will in turn bring greater support to the companys business -

level differentiate strategy that focus primarily on achieving differentiation through innovative

and quality products.

WHAT STRATEGIC ACTIONS SONY SHOULD TAKE


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TO SUPPORT ITS BUSINESS-LEVEL DIFFERENTIATION STRATEGY

The construct of differentiation strategy emphasises on high quality offerings, significant

investments in innovation and staff development and branding. In order to continue to meet these

requisites, Sony may adopt the strategic actions as follows:

a) Maintain The Leader Position in Product Innovation& Quality

Sonys approach doing what others dont has paid off, in the form of great products

that people covet. Throughout its history, Sony innovations have become part of

mainstream culture with the ability to capture the imagination and enhance peoples lives.

In recent time (2003), 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).

Considerable inroads have also been made in professional broadcasting such as the

production of Betacam. Moving forward, Sony should continue to maintain the market

leader position in product innovation and quality through strong R&D, indigenous use of

new technologies and superior marketing acumen.

b) Invest in Broadband Network

Sony is a corporation with convergence at its very heart. Driven by an integrated business

model, the company is well positioned to bring new benefits to consumers by combining

hardware, software, content and services. In the companys view, 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. Moving forward, 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 took an infant step recently by launching

SonyStyle.com, a new information rich e-commerce site designed to build a closer

relationship between Sony and its customers.


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c) Invest in Internet-Enabled Products

Sonys strategy is focused on four gateways to the networked world. They are the digital

televisions and set-top boxes, VAIO personal computers, mobile devices (such as the

CLIE handheld devices and digital phones) and PlayStation2 game consoles. To ensure

that these products possess internet-enabled capability, Sony has developed new audio-

visual applications designed to personalise technology that give consumers easy,

ubiquitous access to entertainment and information no matter whether the content

comes from cable, satellite, terrestrial, packaged media or the Internet the companys

software strategy.

d) Reinforce Brand Values & Promote a World Class Brand

Chairman of the Board, Norio Ohga, once said: "... The most valuable asset of all is the

four letters, S, O, N, Y. I tell them, make sure the basis of your actions is increasing the

value of these four letters..."This underscores the strong emphasis on the importance of

reinforcing the brand values at Sony. The company also embarked on the project dubbed

Being Sony to help the various stakeholders assimilate the brand values better. Sony

worked hard in this area and was rated the number one brand in the U.S. by the Harris

poll (2000).

The phenomenal strength of the Sony brand worldwide is surely a testament to the

companys reputation for producing innovative products of exceptional quality and value.

Sony celebrates brand diversity to connect with consumers across various lifestyle

segments. 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, the

lifestyle that people pursue, particularly the Y Generation.

e) Encourage Dreams


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Sony strives to create thingsthins not essential, yet hard to live withoutfor every kind

of imagination with its products that stimulate the senses and refresh the spirit and ideas.

Sony describes profoundly on its website We are not here to be logicalor predictable.

Were here to pursue INFINITE possibilities. We allow the BRIGHTEST minds to

interact freely, so the UNEXPECTED can emerge to emphasise the aspiration of

creating things from imagery. Sonys top management knows that creativity is the

companys essence and thus they frequently take chances in innovation work, aiming to

exceed the expectations of consumers.

In order to succeed using differentiation strategy, Sony must possess the ability to continuously

produce innovative and quality products that exceed customers expectations and at costs that

approach near its competitors.

Documents

Sony Macro Analysis