Sony's Business Strategy

9 Pages   |   1,955 Words
Table of Contents
Introduction. 2
Sony’s Business Strategy. 2
Implications of Diversification. 2
Advantages. 2
Disadvantages. 3
SWOT Analysis. 3
Strengths. 3
Weaknesses. 4
Opportunities. 4
Threats. 4
Porter’s Five Forces Model 5
Threat of New Entrants. 5
Bargaining Powers of Suppliers. 5
Bargaining Power of Buyers. 6
Threat of Substitutes. 6
Competitive Rivalry between Existing Players. 6
Conclusion. 7
Works Cited. 8
 

Introduction

Sony Corporation is one of the very successful companies in the industry of electronics. Innovation is the core competence of Sony which has played a key role in making Sony a multibillion corporation. Sony is a Japan based organization with reported sales revenue of $89.6 billion during the year 2009.The product portfolio of Sony includes many diverse consumer products such as Cyber Shot digital cameras, mobile phones, gaming consoles, VAIO computers and BRAVIA LCD TVs. The company enjoys leading market shares of 25.7%, 23.6% and 24.2% in Europe, USA and Japan respectively (Sony, Sony Website, 2009).

The case analyses the reasons of Sony’s huge success through various analytical models such as SWOT analysis and Porter’s model.
 

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Sony’s Business Strategy

Sony is considered a model company for all the embryo firms in pursuing a global strategy of leadership and innovation. To sustain its position as a global leader, it is necessary for Sony maintain the market share particularly in developed markets (Sony, Sony Annual Report 2009, 2009). For this, Sony is capitalizing on diversification as its corporate growth strategy. The reason for this strategy is to maintain the market position and to increase its overall share in the market. Sony should keep producing innovative technological produces. Furthermore, Sony may also create novel technologies to cater to developing markets to accomplish higher levels in sales growth, which would eventually lead to a bigger market share in the long run. Technology is one of the few arenas which sell it-self and consumers quickly become adaptable to it. Sony’s business strategy encompasses the need to penetrate through various international trading blocs such as BRIC which will be a source of huge lucrative business opportunities in the future.

Implications of Diversification

Advantages

The main benefit of expanding business through diversification is to increase overall clientele by attracting new customers and retaining the old ones. Sony can achieve this aim by expanding its business into new markets. Moreover, customer loyalty will lead to business stability in the long run while increasing profits. Secondly, diversification often reduces potential risks associated with the business. For instance, it is beneficial for Sony to diversify because it will reduce the overall impact on the company if one product fails to achieve its target profits.

Disadvantages

However, diversification may also bring in a few drawbacks for Sony. If a new product line fails to penetrate into the market, this might damage the brand name of Sony. Secondly, through diversification in many geographical locations may lead to loss of control by the original management. Furthermore, diversification can have a negative effect on the financial state of the business as the employment expense will increase. Therefore, Sony should have ample cash at hand or foreseeable investment opportunities before working in line with this growth strategy.

SWOT Analysis

Companies like Sony do not come out of blue. Their success lies in aggressive competing abilities and the capability to collaborate in an intricately complicated business environment. The unique ability of Sony to understand the nature of the business environment has led the company to embrace success as a global leader. Consequently, Sony managed to get highest fraction of market share.  SWOT analysis will give deepest insights into the business strategy of Sony as it explains many valuable aspects of the organization including the decision making (Thompson & Strickland, 1998).

Strengths

The biggest strength of Sony identified by business researchers is its capacity to produce creative and innovative products while maintaining high levels of quality. Traces of Sony’s innovative culture can be found when Sony created the first magnetic tape along with a tape recorder during early 1950s.
Secondly, Sony’s success lies in consistently tapping several markets, which would have high demand for its products. The company is not only successful in different geographical markets but has also made an impression in many consumer product products through diversification.
Thirdly, Sony is the fastest growing company which makes it an attractive investment for the shareholders and investors (ZD, 2009). Lastly, Sony introduced Machine-to-Machine monitoring technology which has led to effective cost reduction. M2M technology provides a modern way to monitor different elements of production.

Weaknesses

Sony exemplifies a model of great business strategy; however, the firm has many downsides. Firstly, products produced by Sony are very expensive. This implies that many potential customers in developing markets are not able to enjoy Sony’s products. Therefore, Sony is losing on a big portion of realized market share (Cook, 2003).
Secondly, Sony does not provide a very attractive model in supply chain. Many business strategists have called Sony’s model of supply chain as “inefficient”. Sony has still not been able to compete with technological giants such as Amazon or Apple due to its heavy operating costs which consequently lead to inefficient and unproductive supply chain.

Opportunities

Besides selling the main products, Sony should realize selling complementary consumer products and services such as Internet in developed markets, which have reached their saturation point. Sony should capitalize on selling standard products to increase market share in developing countries.
In addition to that, Sony should tap new markets of technology such as 3D market. To start off, Sony has the opportunity to enter into the 3D market of televisions as Sony has a concrete market standing and reputation in LCD TV market.

Threats

Like any other company, Sony faces the biggest threat of new businesses entering the market. Barriers to enter technology business have been reduced significantly because of the swing to digital technology. Moreover, emerging markets are considered a very risky business place due to political instability and economic uncertainty. These markets include China, Russia, India and Western Europe.

Porter’s Five Forces Model

It is very critical for Sony to analyze, evaluate and develop its strategy according to the changes affecting the industry. To understand these changes in the industry, it is necessary to conduct Porter’s five forces model. This model demonstrates five forces that form every industry and market. These forces define the business competition and indicate the investment attraction and business potential in an industry. Furthermore, this model also complements the SWOT analysis and other factors related to the external environment. Hence, this model is one of the most appreciated analytical tools for developing any business strategy.
The implications and analysis of the model is illustrated below.

Threat of New Entrants

Sony, like any other company, constantly thrives to achieve economies of scale to accomplish success in the market. However, unlike small and medium sized businesses, Sony has managed to maintain strong relationships with its suppliers while managing to develop output efficient and cost effective manufacturing processes. Furthermore, Sony has invested heavily in research and development unit to ensure the creation of innovative and technological advanced products. This implies that Sony has managed to protect itself from the threat of new businesses entering the technology business. However, Sony needs to capitalize on the opportunity available in the emerging markets to set even higher levels of barriers to entry for new small and medium sized businesses.
 

Bargaining Powers of Suppliers

Sony does not enjoy a high degree of bargaining power with its suppliers because suppliers involved in the technology business are high in number and easily available. Companies conducting business in electronics and technology business are finding ways for inexpensive imports from countries like China or Taiwan (Armstrong & Kotler, 2008). Furthermore, companies are shifting their manufacturing plants to less developed countries as the industry moves towards price business instead of volume business. The throat cut competition has led the suppliers to reduce their prices; otherwise the supplying business may go bankrupt because there are other suppliers available in the market who are willing to provide goods and services at lower rates.
As a result, this has led to other companies from parallel industries as well as new businesses to easily enter into this market. Therefore, it can be deduced that Sony does not enjoy the bargaining power over its suppliers. Resistance would lead to huge losses for Sony.

Bargaining Power of Buyers

Sony has a high level of bargaining power when it comes to the buyers of the company’s product. The buyers of Sony can be categorized into two distinct groups. The first group includes buyers who prefer to make their purchase directly from retailers. These retailers have established long term and strong connections with the giant brands such as Sony. These retailers have a high tendency of buying power because these retailers have managed to offer great value to end customers by scrutinizing the prices offered by customers. Also, they have been able to secure exclusive offers and limited time deals from the original manufacturers.

Second group of buyers consists of independent customers who have restricted purchasing power. Such customers do not have any direct influence on the organization. These customers mostly buy directly from the retailers. Therefore, they have more influence on the sales of the retailers than the company.

Threat of Substitutes

High degree of threat from substitutes prevails in the technology business. This can be validated by observing the trends that took place in the market of digital cameras. For instance, camera mobile phones are perfect substitutes for the digital cameras. According to the results of a research, phones with a camera have outpaced the sales growth of digital cameras. The research stated that camera phones have reached remarkable sales of 1.5 billion units during the year 2010 (Corporation, 2006).

Competitive Rivalry between Existing Players

As a global leader, Sony should not be at ease because there are several firms with an equal level of competence competing in this industry. These competitor firms include Phillips, Panasonic and many others. The degree of competition is very intense in this industry. The product life cycle is getting shorter. At the same time, research and development requires high investment at all times. This implies that the profit margins are very low, whereas there are high chances of a company to go bankrupt. Over the years, it has been observed that the essence of the business has forced Sony to offer innovative products since customers now demand technologically advanced models. Furthermore, the idea of brand name is no longer the same as it used to prevail in older days of business. Consumers expect electronic good with most demanded features at the lowest possible price from big firms irrespective of the brand name.

Conclusion

It is concluded that Sony is diversifying its business as a growth strategy. The main goal of this strategy is to increase overall market share by expanding its business in the emerging markets to enhance growth in sales. Furthermore, Sony should also increase its budget for research and development to come up with new innovative products by understanding the needs and requirements of its customers to gain competitive advantage over its competitors.

 

Works Cited

Armstrong, G., & Kotler, P. (2008). Principles of marketing. New Jersey: Pearson Prentice Hall.
Cook, B. (2003, August). Sony Powered Brand Channel. Retrieved from http://www.brandchannel.com/features_profile.asp?pr_id=128.
Corporation, L. R. (2006). Mobile Phones.
Sony, C. (2009, December). Sony Annual Report 2009. Retrieved from http://www.sony.net/SonyInfo/IR/financial/ar/8ido180000023g2o-att/SonyAR09-E.pdf.
Sony, C. (2009, December). Sony Website. Retrieved from http://www.sony.net/SonyInfo/IR/financial/ar/8ido180000023g2o-att/SonyAR09-E.pdf.
Thompson, A., & Strickland, A. J. (1998). Strategic Management. Journal of Global Management, 12-24.
ZD, N. (2009, November). Sony is a Leading Consumer Electronics and Entertainment Company Globally Top Tech Index. Retrieved from http://www.zdnetasia.com/toptech/2008/0,3800017271,62048727,00.htm.

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