Strategic Analysis of Sony
Strategic Analysis of Sony
Table of contents
Table of contents............................................................................................................I
List of Figures.................................................................................................................I
1 Introduction.............................................................................................................1
3 External Analysis....................................................................................................2
5 SWOT Analysis.......................................................................................................6
6 Conclusion..............................................................................................................9
List of references...........................................................................................................II
Appendix......................................................................................................................VI
Statement of Authorship..............................................................................................XI
List of Figures
I
Strategic Analysis of Sony
1 Introduction
Once Sony was seen as the centre of Japanese innovation and technology, but has
rapidly lost ground to its competitors like Apple and Samsung (New York Times,
2012). As the creator of the Walkman, the Trinitron television and the PlayStation,
the company suffers since the slowdown of the global economy in 2008 (Sony,
Annual Report 2009 - 2011).
To remain competitive and operate successfully in the future, it is vital for any
company to be aware of its status quo (Body, 2011; Allen, 2001). Thus, the purpose
of this report is to analyze Sony’s current situation within the electronics industry. The
essay tries to evaluate the present most important external and internal factors which
affect Sony’s electronics business. The macro environment is analyzed very briefly
by the PESTEL and Porter’s Five Forces analysis and the internal analysis is based
on Porter’s Value Chain. Finally the SWOT analysis is used to conclude strategic
recommendations.
As Sony recently suffers with declining profits (Financial Times, 2012) in the
electronics segment, it aims to reposition itself together with its stakeholders (Sony,
2012c). According to Sony’s CSR report in 2012 their most important stakeholders
are customers, suppliers, employees and shareholders, as Sony is a publicly traded
company (Sony, 2012d).
1
Strategic Analysis of Sony
3 External Analysis
The external environment of Sony includes both, general external factors analyzed
by the PESTEL analysis (see Appendix 3) and industry factors appraised by Porter’s
Five Forces. Both analyses help to identify opportunities and threats for Sony’s
electronics division (Analoui et al. 2003; Cowe et al. 2011). Only those factors which
have the most significant impact on Sony are described in the following sections.
Another crucial external impact on Sony is the fast changing technology. A PWC
study in 2010 shows that the demand of consumer electronics is shifting from
dedicated toward multi-functional devices like smart phones. Sony’s declining sales
reflect this movement. On the other hand the 3D-technology, the trend toward linked
devices and cloud computing could be an opportunity for the Japan based company
(Teulade, 2010; PWC, 2012).
On the social and environmental side, Sony faces an ageing population and stricter
regulations on electronic trash. Sony’s largest market is Japan which accounts for
43 percent of sales (Sony, 2010). However, the average age of Japanese is 45.4
years, which is significantly higher compared to other developed countries like the
United States accounting for 37.1 years or the United Kingdom accounting for 40.2
years (Central Intelligence Agency, 2011).
2
Strategic Analysis of Sony
After analyzing the boundaries of the industry, the Porter’s Five Forces Model helps
to identify the rivalry within the electronics business. The following figure shows the
position of Sony in the consumer electronics industry and displays the power of
suppliers, buyers, competitors and newcomers (see further explanation in Appendix
4).
Medium /
Substitutes High
With various strong competitors (e.g. Samsung, Panasonic, Philips, Apple, etc.), a
generally short product life cycle, a high bargaining power of customers and a slow
industry growth, the competition within the industry is considered to be intense . The
battle for market shares across Sony’s vast range of products is mainly based on
continuously launching innovative products and on price (Bloomberg, 2012a). As
1
Own illustration based on Porter (1985)
3
Strategic Analysis of Sony
such, Nintendo’s cheaper Wii gaming console witnessed faster sales than Sony’s
PlayStation 3, even though Sony offers superior quality (Bloomberg, 2012d).
Moreover, convergent devices or rather all-in-one solutions like Apple’s Iphone are
identified as a threat of substitution (Bloomberg, 2012d). As already mentioned in the
PESTEL Analysis this is due to the fast technological pace of the industry. However,
Sony has a significant advantage over its competitors by having the possibility to gain
synergy effects across its business units like gaming, music and films.
The subsequent illustration shows the internal drivers. Only the key activities which
are subdivided into primary and secondary functions are described in the following
paragraphs.
SUPPORT ACTIVITIES
Firm Structure
PRIMARY ACTIVITIES
Firstly Sony’s financial situation (see Appendix 5), which is a supporting activity, is
considered as a key factor for future success. However, Sony’s credit rating was
recently lowered one level by Standard & Poor’s (S&P). The rating company put the
2
Own illustration based on Porter (1985)
4
Strategic Analysis of Sony
firm’s long-term rating from BBB+ to BBB, S&P’s second-lowest investment. The
outlook is set negative because of four straight annual losses and concerns about an
earnings recovery in the electronics segment (Bloomberg, 2012e; Sony Annual
Reports 2009 - 2012). Sony’s net sale of 7.2 billion Yen in 2009 dropped to 6.49
billion Yen in 2012 and within the same period the net loss rose from 40.8 billion to
456.7 billion Yen. In the segment of consumer electronics, which accounts for almost
50 percent of the company’s revenues, sales in 2012 dropped by 23 percent to 3.14
billion Yen compared to 2011. The electronics division reported a loss of 229.8
million Yen, which highlights that Sony’s profit margin has been eroded significantly. 3
The negative trend over the last few years is displayed in the stock price (see
Appendix 6). On the other hand, being a relatively successful company during the
last two decades, Sony has still cash reserves (Sony, 2012c).
Secondly, Sony adopted an extensive multidivisional firm structure over the last
years. Each division is further divided into smaller, specialized business units, for
example electronics in: television, cameras, audio & video, etc. (Sony, 2012c).
Thereby, Sony tries to serve customers with a range of diversified products, specific
in its function. However, the drawback could be that cooperation and knowledge
transfer across the segments might suffer. Sony’s empire might also cause a
slowdown in innovation.
According to the new management team and the CSR report in 2012, one of the key
drivers for success is Sony’s employees. The official webpage sates that Sony offers
a variety of training programs to equip employees with superior knowledge and skills.
The Japan-based company not only provides a career-building program for
engineers and managers, but also curriculums which are tailored to local needs. In
addition, Sony established the Sony University in 2000, an educational institution
designed to cultivate global managers. In 2012, a branch of Sony University was
opened in Singapore which is specialized in developing global managers for
emerging markets (Sony, 2012c).
3
According to Sony’s annual report in 2012 this was caused due to the impact of
foreign exchange rates, the Earthquake and the floods in Thailand, and the price
competition resulting from product commoditization.
5
Strategic Analysis of Sony
Besides the published facts about Sony’s good internal training programs, Sony
employees face a workforce reduction of up to 10.000 by the end of 2013 due to the
harsh situation in the electronics business (The Verge, 2012).
Technologically, Sony was first in many areas such as Trinitron, the Walkman or the
Camcorder. Some of these products have created new markets of their own and the
patents for those innovations are still valuable for Sony. Their R&D department is
setting industry standards for video and picture quality and is well established over
years (Sony, 2012e). However, Sony faces increasing competition from devices like
smart phones or tablets, which are seen as a threat (Bloomberg, 2012d).
Furthermore, Sony generally manages its in- and out-bound logistics well. They
select suppliers that obey laws, are financially solid, are innovative, offer competitive
prices and protect the environment. To respond on environmental customer needs,
Sony introduced a green procurement (Sony, 2012e). To lower production costs, the
company is producing in low income countries like Thailand, China and Indonesia.
Thailand was recently affected by floods which led to a shutdown of production plants
and caused delay problems for the PlayStation 3 (Bloomberg, 2012f). In addition,
Sony possesses automated out-bound logistic activities and well managed
distribution networks in every continent (Sony, 2012c).
Finally, over the years the company positioned itself as an innovator and a maker of
high quality products with good designs. Sony is recognized as one of the best
known and most valuable companies in the world with an annual advertising budget
of roughly five billion US-Dollars (Financial Times, 2009). It is ranked on the 17 th
place among the top 100 brands in the world by a survey from Sync Force in 2012.
The great marketing campaigns (e.g. $50 million for PlayStation 3), the brand centres
and the established service activities (service centres, warranty, installation, etc.)
help to further improve the brand image (Sony 2012e).
5 SWOT Analysis
The following SWOT analysis examines the internal strengths and weaknesses in
light of external opportunities and threats. It is mainly based on the outcomes of the
PESTEL, Five Forces and Value Chain Analysis and the starting point for the
following strategic recommendations.
6
Strategic Analysis of Sony
I
N
Strengths Weaknesses
T • Good supplier system • Financial situation
E
• Large sales network • Product portfolio
R
N • Great brand image • Organizational structure
A
• Technology
L
E
X
Opportunities Threats
T • New CEO • Exchange rates
E
• Strategic alliances and acquisitions • Political dispute with China
R
N • 3D technology • Hacker attacks
A
• Technical know-how • Greater competition
L
Strengths:
4
Own illustration based on Cowe et al. (2011)
7
Strategic Analysis of Sony
Weaknesses:
Opportunities:
The new CEO, Kazuo Hirai, might turn around the declining sales and bring
more focus to the company’s product lines (Sony-PlayStation, 2012).
The harsh competition from competitors like Apple, LG or Samsung could
result in more integration within the electronics and software industry. Sony
may take this opportunity to acquire competitors and build strategic alliances
in order to gain synergy effects or rather new competitive advantages. Sony
already bought off its entire Sony Ericson joint venture to act independently in
the booming smart phone and table market (Sony, 2012g).
Further, the company can take advantage of its excellent technological know-
how within the business units and create new products by combining the
knowledge of the different segments (e.g. 3D technology).
Threats:
8
Strategic Analysis of Sony
The political island spat between China and Japan might also have further
affects on Sony’s supply chain. They already had had to close factories based
in China (Bloomberg, 2012b).
In addition Sony’s excellent reputation is threatened because of a security
breach in the PlayStation network and the Sony Online Entertainment
properties (Bloomberg, 2011).
Finally, the company has to face an even more intense competition from firms
that may be more specialized (e.g. Canon) or have greater resources (e.g.
Samsung).
6 Conclusion
Based on the SWOT Analysis, the most important challenges for Sony’s consumer
electronics division are the harsh competition within the industry, the fast product life-
cycles, the slowdown in innovation and the macro-risks like exchange rates. The
following brief strategic recommendations aim to cope with these challenges.
Facing highly specialized competitors within each business unit, Sony need to
concentrate on certain businesses (e.g. smart phones, cameras/camcorders and
games), restructure the electronics division around the focused segments and get rid
of less profitable segments like TV. By allocating the resources from other divisions
(e.g. R&D, marketing, logistics, etc.) to the focused businesses, Sony will achieve a
competitive advantage over its rivals. This is simply because no other firm has a
comparable mix of know-how in the variety of segments in which Sony operates.
To keep up with the highly innovative and go-getting competition and the movement
towards convergent devices (all-in-one solutions e.g. IPhones), Sony should focus on
innovation and user-centred design to generate a Unique Selling Propositions (USP).
The upcoming 3D-trend and the so called “eco-prestige” of customers could be an
opportunity in this case. Green products represent added value to customers. Thus
Sony should focus on a strong sustainability strategy and create “green” products.
Once Sony has focused on certain markets, they should also start to build strategic
alliances, joint ventures or acquire within the segments. This helps Sony to have
access to new technology, enhance economies of scale and get market share.
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Strategic Analysis of Sony
Finally, Sony might be able to utilize their Financial Services to reduce risks of
exchange rates and overcome this external factor by financial instruments like
currency swaps.
10
List of references
Allen M. (2001). Analyzing the Organisational Environment. Select Knowledge
Limited
Analoui F., Karami A. (2003). Strategic management in small and medium
enterprises. Cengage Learning EMEA
Bloomberg (2011). Apple, Sony Face Possible Action By EU Data Privacy
Regulators. Available from: http://www.bloomberg.com/news/2011-04-29/apple-
sony-face-possible-action-by-eu-data-privacy-regulators.html. Accessed:
09.11.2012
Bloomberg (2012a). Samsung Deploys Copiers With IPhone Power to Beat
Japan. Available from: http://www.bloomberg.com/news/2012-08-29/samsung-
brings-copiers-with-iphone-s-power-to-beat-japan-tech.html. Accessed:
10.11.2012
Bloomberg (2012b). Uniqlo, Aeon Shut China Stores as Island Spat Escaltes.
Available from: http://www.bloomberg.com/news/2012-09-17/china-japan-
dispute-over-islands-risks-340-billion-trade.html. Accessed: 10.11.2012
Bloomberg (2012c). Sony Posts 7th Straight Loss as TV Sales Slump on
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posts-7th-straight-loss-as-tv-sales-slump-on-economy.html. Accessed:
10.11.2012
Bloomberg (2012d). Nintendo Cuts Forecast as Smartphone Games Hurt
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24/nintendo-cuts-forecast-on-lower-demand-for-3ds-stronger-yen.html.
Accessed: 10.11.2012
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cut-by-s-p-on-earnings-recovery-concerns.html. Accessed: 10.11.2012
Bloomberg (2012f). Thai Flood Zone Fortified to Lure Manufacturers: Southeast
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zone-fortified-to-lure-manufacturers-southeast-asia.html. Accessed: 10.11.2012
Boddy D. (2011). Management an Introduction. 5th Ed.. Harlow, Person
Education Limited
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Strategic Analysis of Sony
III
Strategic Analysis of Sony
PWC (2012). The Future of IT Outsourcing and Cloud Computing. Available from:
http://www.pwc.ru/en_GX/gx/technology/cloud-computing/methodology.jhtml.
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E.pdf. Accessed: 08.11.2012
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att/8ido18000003dl0u.pdf. Accessed: 08.11.2012
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Strategic Analysis of Sony
V
Strategic Analysis of Sony
Appendix
Appendix 1: Proportion of sales by business
VI
Strategic Analysis of Sony
Sony’s largest market is Japan which accounts for 43% of sales (Sony,
2010). However, it is an ageing population, with an average age of
Social Factors 45.4 years (Central Intelligence Agency, 2011).
Loss of trust from customers due to security attack & failure to notify
immediately has caused a negative brand image.
Age and content restrictions from regulatory bodies (USK & PEGI).
VII
Strategic Analysis of Sony
__________________________________________________________
Medium /
Substitutes High
VIII
Strategic Analysis of Sony
o Extremely high capital requirement – Existing firms are highly experienced and the
industry is driven by knowledge and innovative capacity; extensive investment
robotics (tools, equipment, machines, etc.) -> e.g. Sony has an extremely advanced
quality assurance, where no dust is allowed to touch the production line of its lenses
and mirror-house
o Price sensitivity is high – buyers can choose a better-priced substitute. Sony tries to
separate their products with better technology. Also the ¥en causes prices to increase
for Sony -> reduced profits (Bloomberg, 2012b).
o Various Joint Ventures for high value components e.g. Panasonic (3D), Olympus
(cameras) ->keep input costs to a minimum -> bundle know how/ experience -> new
core competence (Bloomberg, 2012c)
IX
Strategic Analysis of Sony
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