Analysis of Sony Corporation and its competitors

The following analysis takes into account not only Sony Corporation, but also its competitors, businesses and the current business environment as well. The incorporated SWOT analysis is useful to identify ways to minimize the affect of Sony’s weaknesses while maximizing its strengths and recognize ways to exploit its opportunities and respond to its threats. Moreover, while examining the analysis, one should acknowledge Porter’s five-force model as a useful tool for analyzing the entire electronics and entertainment industries because the five competitive forces (i.e., supplier power, buyer power, potential entrants, substitute products, and rivalry among competitors) affects Sony’s business strategy. These forces may create threats or opportunities relative to the specific business-level strategies (i.e., differentiation, low cost, focus) being implemented. This analysis takes into account competitors’ current strategies, strategic intent, strategic mission, capabilities, and core competencies. This information is useful to Sony Corporation in formulating an appropriate strategy and in predicting competitors’ probable responses.

HISTORY AND BACKGROUND

Sony Corporation is one of the leading electronic companies which hold the power of electronic market leadership. Sony Corporation is ultimate parent company of the Sony group. Akio Morita and Masaru Ibuka are the founders of this successful company; they established this company in May of 1946 in Japan. Firstly its name was Tokyo Tsushin Kogyo Kabushiki Kisha which means Tokyo Telecommunications Engineering Corporation but later on its name changed to Sony Kabushiki Keisha which means Sony Corporation in December 1958 and they took this Sony word from “sonus”, the Latin word which is used for sound (Craft 1214).

Rice Cooker was the first product of this company for the consumer market (Craft 1213). This product wasn’t successful in the market so the founders quickly decided to toggle to the making of electronic products. They both were very strong-minded to create new market and innovate, so they made first Japanese tape recorder in 1950 (Hoover 450).

Get Help With Your Essay

If you need assistance with writing your essay, our professional essay writing service is here to help!
Find out more about our Essay Writing Service

In 1953, Sony took its first step towards the electronics revolution in Japan when Sony got its first licences from Western Electric (Hoover 450). In 1955, Ibuka and Morita founders of the Sony Corporation introduced their first radio transistor and after two years in 1957 they introduced pocket-sized radio which was the first product of Sony-Trademarked products (Craft 1214). In 1959 and 1961 Sony introduced the first tranistor TV in market and also first solid-state videotape recorder respectively (Craft 1214).

While already a giant in Tokyo, Sony wanted to expand its horizons to the United States. In 1960, Morita made a big move to New York City to oversee US expansion. He established an office in the Big Apple which marked the beginning of Sony Corporation of America. Today, Sony Corporation of America (Sony America) is one of almost 1,000 subsidiaries of Sony Corporation (Craft 1212).

Sony America

The establishment of Sony America was the beginning of a decade of explosive growth. In 1964, Sony launched the first home video recorder (Craft 1214). A year later, Sony invented the solid-state condenser microphone. The integrated circuit-based radio was introduced in 1966. The sixties ended with the introduction of the Trinitron colour TV in 1968 (Craft 1214).

Along with its much success, Sony has also encountered specific failures. In 1976, Sony thought it had produced the world’s next big thing. The Betamax VCR was the first home videocassette recorder using a 1-½ inch tape. Nonetheless, Sony introduced the Betamax VCR before standard for that technology had been set. Sony failed to cooperate with competitors to assure that the Betamax format would become the industry standard. Consequently, its competitors developed other technologies and Sony’s Betamax was made obsolete by rival Matsushita’s VHS technology (Hoover 490). Although Sony lost its investment with the Betamax, it quickly regained stability with the introduction of the highly successful Walkman personal stereo in 1979 (Hoover 490).

By 1980 Sony faced an appreciating yen and intense price and quality competition, especially from developing Far Eastern countries (Hoover 490). The company used its technology to diversify outside consumer electronics, and it began to move production to other countries to reduce the effects of currency fluctuations. Later in the 80’s Sony introduced Japan’s first 32-bit workstation and became a major producer of computer chips and floppy disk drives. It also developed compact-disc technology in partnership with Dutch electronics innovator Philips.

In 1988, Sony bought CBS Records (Hoover 490). The following year it acquired Columbia Pictures from Coca-Cola. With these purchases, Sony entered into rapidly growing entertainment industry. It could now produce films, videotapes, and recorded music. Its greatest successes in this industry came in the late 1990s with Jerry Maguire and the albums of pop superstar Celine Dion (Craft 1215). Its Columbia/TriStar division also released hit films Men in Black and My Best Friend’s Wedding (Craft 1215).

In 1992, Sony penetrated into yet another booming industry. Sony allied with SEGA to develop CD video games. Soon after, Sony introduced the Play station. The Play station, and its other forms, have become the video game industry’s best selling game system.

In 1995 it entered the crowded computer market with software maker Intel to develop a line of PC desktop systems. In 1996 the company announced an agreement with electronics firm Sharp Corporation to jointly develop a 40-inch flat panel display that combines liquid crystal and plasma technologies (Hoover 490). In 1996, Sony introduced the DVD (digital video disk). The DVD player is quickly becoming the industry standard for video technology. In addition, the spring of 1998 allowed Sony to introduce the HiFD, which offers 200 megabytes of disk space, in contrast to the 1.44 megabytes available on the traditional floppy disk (Craft 1215).

Today Sony has become the leading manufacturer of audio, video, communications, and information technology products for the consumer and professional markets. Its music, motion picture, television, computer entertainment, and online businesses also make Sony one of the most comprehensive entertainment companies in the world. Sony wisely positioned itself as one the few multinational companies that both manufactured consumer electronics and produced entertainment merchandise.

With its variety of different electronic and entertainment products, Sony must maintain an overwhelming global presence to keep successful. Sony sells its electronic products in 190 countries and territories (Craft 1215). In addition to its headquarters in Tokyo and its Sony America office in New York City, Sony maintains a key office in London and manufacturing facilities in numerous countries including Australia, Austria, Brazil, Canada, France, Hong Kong, Indonesia, Malaysia, Mexico, the Netherlands, Spain, and Singapore (Craft 1215). Sony’s feature-length films produced in the US by Sony America are also distributed worldwide. With all this, it is no surprise that Sony will continue to strive to be a pioneer in the development of new technology.

SWOT ANALYSIS

INTERNAL ANALYSIS

Sony’s internal environment is similar to the electronics industry. Its strengths and weakness are vital to potential business and marketing strategies. Sony’s strengths can relate to the organization, to the environment, to public relations and perceptions, to market shares, and to people. This provides Sony a competitive edge, as well as reasons for past successes. Other elements like customer loyalty, capital investment and a strong balance sheet will be highlighted in the subsequent internal analysis. Although seldom do weaknesses occur in isolation, Sony’s strengths outweigh its weakness.

STRENGTHS

Sony has evident internal strengths, and the remainder of businesses in its industry takes notice as well. One must recall that SWOT analyses must be customer focused to gain maximum benefit, strength is really meaningful only when it is useful in satisfying the needs of a customer because the strength becomes a capability (Marketing Strategy, 1998). First of all, Sony has valuable physical assets, a clear market advantage, priceless organizational assets, good intangible assets, and low production costs in general. The following descriptions are only a small demonstration of its strengths.

In physical assets, one cannot ignore that Sony is involved in electronics, entertainment, and insurance and financing. Consider its broad contribution to digital cameras and camcorders, computers and peripherals, handhelds and PDAs, televisions, portable audio, home audio and video, games, movies and DVDs, musical artists, live and recorded music, and it myriad of online and offline services. In the market, Sony has an advantage, especially with its Sony Play station product. Sony’s organizational assets are impressive as well. In 1998, Sony showed record profits at $3.4 billion. Since then, their earnings have been noticeably steady. Other than physical and organizational asses, Sony has strength in their intangible assets. It high brand name recognition and dominate share of the market is an indispensable and invaluable facet of Sony. Besides, Sony’s clever use of CDs causes low production costs, and production costs are can typically be high in the electronics industry. Also, Sony is fast catching, especially in the area of miniaturizing technology. The Walkman is one example of Sony’s ability to make a bulky product smaller.

Another underlying strength for Sony is its history. Sony, for example, has a great deal of experience in designing, manufacturing, and selling miniaturized electronic technology (newschool.edu). Sony has used these resources to exploit numerous market opportunities, including portable tape players, portable disc players, portable televisions, and easy-to-hold 8mm video cameras. Sony’s resources-including their specific technological skills and their creative organizational cultures-made it possible for them to respond to, and even create, new environmental opportunities. Sony also has strong product development. Recollections of how often Sony was first with a type of product only proves its strong innovation and creativity traits.

After reviewing Sony’s strengths and weaknesses, one should notice its relative standing and astute business efforts. Sony’s diversification into other ventures besides the electronics and video game industries has spread out its risk factors. Of course, Sony Play station clearly gives Sony the competitive edge in the video game industry because of its technological capabilities and qualities. However, the financial performance of Sony it its other product lines exemplifies the company’s strengths and it success.

WEAKNESSES

Strengths are chosen to prevent any serious environmental threat from affecting negatively the firm’s performance. Sony’s weaknesses are common, but critical. One detail in Sony’s internal analysis that cannot be ignored is its contradictory business (sheridanc.on.ca). Sony owns movies and music, yet also makes the equipment that can duplicate them illegally. Another noticeable difficult facet of Sony business is its weak financial sheets, marketing skills and narrow product line (agecon.ksu.edu). As of the mid-2001, sources show Sony’s pre-tax loss of 9.2 billion yen on sales of 343 billion yen. Although Sony is generally improving in sales, its proportion of sales losses can be advanced. Also, Sony has shown some poor marketing skills. Several years ago, Sony had a very mediocre marketing launch for its Saturn Product. Additionally, Sony’s product line seems too narrow in that it seems primarily focused on the video game industry rather than the entire electronics industry including home and commercial products.

EXTERNAL ANALYSIS

Additional to strengths and weaknesses is the analysis of the external environment. This section is especially important because changes in the external environment prohibit the firm’s ability to deliver value to its targeted customer segments. These changes can occur in the rate of overall market growth and in the competitive, economic, political/legal, technological, or socio-cultural environments (Marketing Strategy, 1998). The combined information can be extremely beneficial to the managers of Sony.

OPPORTUNITIES

Sony Electronics Company is the world’s second largest consumer electronics maker. It has a lot of opportunities ahead of them compared to some of their competitors. Unlike its competitors, Sony does not emphasize components and price as much as how its PCs can be used for digital photography and music. The company creates and bundles its PCs for digital music management and for recording television shows. The Screenblast is a relatively new product from Sony. This is a software program that lets people edit, enhance, and share digital videos, photos, or music files. These are opportunities for Sony due to the fact that their new products are in accordance with modern trends. Digital photography, for example, is an emerging trend, although the concept has been around for nearly two decades. Sony took this trend as an opportunity to sell more products.

Another opportunity for Sony is that video games are expected to be hot for Christmas. This is an opportunity for Sony because of their Play Station 2, which is a popular system right now. Sony’s high-profit Play station home video game systems account for over 10% of the electronics and entertainment giant’s sales (Sony Electronics, 2002). Another reason why Sony is in good shape for the holidays is because of its games that consumers are buying nowadays. Many people are buying the Play station 2 just to play Vice City and GTA 3. Although many video games are simultaneously released for multiple systems, Sony has an exclusive deal with GTA: Vice City Publisher Rockstar Games (Sony Electronics, 2002). This is definitely a good opportunity for Sony because this way other systems cannot use the same game and can then bring in more sales profit to the company. This is an opportunity for Sony to maintain its sales lead against aggressive competition from Microsoft’s X Box and Nintendo’s Game Cube while going into the holiday season. This also gives Sony an opportunity to sell more of its strategy guides, as well as maintains the company’s brand name.

Another opportunity for Sony regarding video games is that Blockbusters are taking more than their fair share of video games into their stores (Sony Phasing, 2002). This gives the company more places to sell their product in the market and can make their products more recognizable. Since video game consumers will many times not buy a game because they have never played it before, Sony’s sales can increase if the consumers rent the games first and decide to buy it after they like it.

Aside from Blockbusters, Sony can also advertise their products online. Sony has a number of online games coming out. Sony stands a better chance than X-Box’s online games because of its big-name title, as opposed to Microsoft’s product (Sony Electronics, 2002). Since Sony already has an already-established brand name, it has a lot of potential to rise for the holiday season opportunity as well as through the internet.

THREATS

Although the video game industry has defied economic gravity as industry sales have held up during the high-tech downturn, some observers say that the industry will have a hard time hitting its goal of 25% sales growth (Sony Phasing, 2002). This is a threat to Sony Electronics Company because it means that the market may separate the video game makers into winners and losers. The video game niche for Sony may look good now, but some are worried about it in regards to the future.

Competitors, of course, are a major threat to Sony. Matsushita Electronic Industrial Co., Ltd. It is the world’s largest consumer electronics maker (Sony Electronics, 2002). Some of its popular brand names include Panasonic, Quasar, and JVC. Not only are its brands recognizable, but its products are sold worldwide. The other major competitor is Koninklijke Philips Electronics N.V., the worlds largest consumer electronics maker after Matsushita and Sony (Sony Electronics, 2002). Its brands include Norelco, Magnavox, and Philips. Both companies sell products such as TVs, VCRs, CD and DVD Players, and cellular phones. One of the products that Sony came out with was the Pen-tablet PC. This was a computer with a touch screen that allowed people to draw images directly onto the monitor (Sony Phasing, 2002). This was a good product, but the computer was expensive. It was several hundred dollars more than other computers.

After Panasonic was the first to sell a HDTV rear projection in the United States. This is a 34- inch direct view television that uses a cathode ray tube to display programming and resembles a traditional television set. The only exception is its price (Sony Phasing, 2002). Sony followed Panasonic in creating this product as well, although problems and threats with it existed. One threat about this product is that it was difficult to figure out how to get the HDTV signals to new, expensive digital television sets. While many consumers got their signals from a television set-top box, first generation HDTV sets do not yet have a way to receive a digital signal from those boxes. The federal government called on the consumer electronics and cable industries to ensure the transition from analog to digital technology (Sony Electronics, 2002). Getting these two industries to link up, however, is not easy. The issue is how to connect cable set-top boxes to digital televisions and receive the type of high quality images that the technology affords. This is a threat to Sony because consumers will not be very willing to buy their product because, although it is high-tech, it brings problems with it. The extra money paid for this product is not worth the problems, from the perspective of the consumers.

Another threat for Sony was its new DVD sets, costing upwards of $5,000. The DVD sets could not directly receive digital signals from the cable set-top converter boxes now found in 65% of U.S. homes. Due to this, consumers will have to rely on antennas hooked up to their television sets to get DTV signals. Again, this is a threat to Sony. Its products are not making life simple for the consumers.

SWOT SUMMARY

Strengths

Weaknesses

1. valuable physical assets

2. a clear market advantage

3. priceless organizational assets

4. good intangible assets

5. low production costs

6. experience in miniaturization

7. resources

8. diversification

1. weak financial sheets

2. specific weak product launch

3. narrow product line

Opportunities

Threats

1. software capabilities

2. upcoming holiday season

3. joint venture with Blockbuster

1. industry sales drop

2. competitors

3. necessity for expensive technology

FINANCIAL SUMMARY

The overall financial situation of Sony seems to be steady with a little of improvement from 1997 through 2002. While most ratios form the 97 and 2002 are very similar, the figures that stand out the most, are the profitability ratios. They decreased in an extreme manner. Profit margin went form 2.5% to just .22%and other profitability ratios are similar. The biggest reason for the decrease is the decrease in net income. Net income has fallen since 97 from 139,460 million yen to 15,310 million yen. People not investing largely affected this decrease. In previous years Sony received up to 40,000 million yen from sales of securities where in 2002 only received 1,398 million yen. In 2001 there were similar sales numbers as in the past, but because of an accounting change the company had to swallow a 104,473 million yen loss. Another factor that affected net income was the company’s costs and expenses were higher than previous years. While sales did increase from previous years, the rise in costs and expenses was not proportionate to the rise in sales. Sony was paying much more for goods this year than any other year. Other than the fact the company has a huge decrease in net income, Sony was holding steady of everything else. Although the current ratio was looking good holding steady at 1.3 it was slightly down form 1.41 in 97. Still, the ratio was strong. The problem came in the quick ratio. With little change from 97 the ratio was still under 1, coming above one only slightly in 2001 and 99. With the current ratio being good and the quick not being good means there is something wrong with inventory. In 2001 and 99, the two years the ratio was over 1, inventory was well below that of 940,000 million yen. A decrease in inventory will help get this ratio back to where it needs to belongs, above 1. Inventory turnover has steadily increased though. This tells us that even though Sony has had more inventory sales has gone up, which is always good. Asset turnover is close to ideal. At 86% it is able to turnover almost all its assets in a year. The only problem is it has decreased a great deal from 95%. Sony’s total debt to asset ratio is impressive. Sony does not have much debt compared to its assets and has been able to keep it that way for a number of years. With the ration only at .395, this company has nearly triple the amount of assets than debt. Along with keeping their debt down, they are able it keep the cost of interest charges down also. Not only have they kept the cost low, but they have been steadily improving since 97. In 99 it did go up to 7.21, but Sony was able to bring it down to 3.69 in 2002. Sony seems to be holding more and more cash as the years have gone on. It has rose more than 200,000 million yen in the past 5 years. The fact that it is holding more cash makes it a little more risky of a company. They may be looking to expand or buy new equipment or a number of things. That is why it is risky; you can’t tell why they are holding the money.

Sony doe seem to be growing at quite a large rate. The number of total assets has increased by more than 50% in the last five years. The company seems to be growing very fast as far as assets are concerned. 10% a year is a very large number. Along with steady growth in liabilities is very steady growth in stockholders’ equity. It has gone up about 70% in the last five years which is remarkable.

One strange thing about Sonly is they have been deferring their taxes. Since 2000 the amount of taxes being deferred has doubled. This is most likely because they wanted to increase the cash in the company. For what reason they are doing this I do not know. But it does bring up the question again of what do they plan on doing with that extra cash.

As far as the companies ratios go when compared internally the company is not doing as well as it could be, but has held steady for the past five years in almost all aspects of the company. When compared to the industry the company is doing similar. While some ratios are outstanding compared to that of the industry norms, others are lower. While most companies are having a return on assets that is negative, every year Sonly has come out with a positive number. Return on Equity was outstanding compared to the industry norm of .12%. At 9% it was much larger. Even with the accounting change and overall loss the return on equity in 2002 is still larger at .65%. But in other instances, such as the quick and the current ratio, Sony seems to be doing worse than the industry. The current is 1.3 compared to the much higher 2.3 of the industry. The quick is no better. With Sonly at .95, the industry is way higher at 1.5. The quick ratio shows that most companies in the industry not only have less current liabilities and more current assets, but it also shows that these companies have much more inventory than Sony does. The difference between the two is greater for the industry than it is for Sony. This is a good reason why Sony’s inventory turnover is much higher at 10.48, than the industry norm at 4.51

Overall Sony is an industry leader and is very strong. Even though some of its ratios do not match up to the industry norms, the numbers are still good for a regular company. Sony has stayed steady for the past five years and will continue to stay that way in the future because of quality brand recognition. It has seen steady growth in all aspects of the company except for net income, but that is due to a large part, an accounting change. Right now Sony is in strong financial health and has no signs of getting worse any time soon.

STRATEGY FORMULATION

ACTION ITEMS AND PLAN

Sony Electronic Inc., specifically, has been around since the 1940’s, making the company a leader in history and experience in the electronics industry. Sony Electronic Inc. is very stable and has a large portion of the electronics market. They are strong in innovation and creativity, so they will persist through the coming years. But to be ready for the new millennium, Sony needs to implement a few strategies. The strategies that Sony Electronic Inc. need to implement is that they need to accelerate their net business, they need to reorganize their electronics department, and use IT technology to improve business.

To accelerate Sony’s net business for the Internet era, Sony has established SCN (Sony Communications Network) as an Internet service provider. To make SCN a success, Sony will need to emphasize flexible and speedy management, and actively pursue partnerships and investment opportunities. They will need to hire outstanding and innovative personnel for SCN and nurture strong leadership.

Sony already has several websites up that will be their driving force on the Internet. A few examples are Playstation.com, and Sonystyle.com. Playstation.com provides information on upcoming games, console sales, and customer service. This siteis a success because Playstation is the leading video game console. Sonystyle.com will create a new consumer lifestyle through a network combination of Sony products, content, and services.

To be successful in the Internet era, Sony needs to create net business through enhanced content, and entertainment of site. To achieve this Sony will establish SBE (Sony Broadband Entertainment), which will connect Sony’s music, television, movies, and other media onto Sony’s websites creating high valued content and rich entertainment.

Restructuring of electronic business is needed in the new era. This was due to poor planning on such items as HDTV and the decisions and management on pricing of several products. The reorganizing plan should include consolidation of manufacturing plants and a reduction of staff. Reorganizing also includes creating a new “Engineering Manufacturing and Customer Services” system, which will more directly link Sony to their market. This will also assist in improving productivity in the manufacturing units, and in building an effective supply chain. Using the new system Networking companies will concentrate on business planning, research & development, product planning and design, while the production part will be responsible for product design, product testing, materials, parts, production technology, quality control, orders, manufacturing, inventory management, and customer service.

Sony wants to create a new lifestyle in the net era based on their digital electronics in connection with new IT technology. This means using Sony products such as Digital TV/Set Top Boxes, VAIO Personal Computers, Mobile Terminals and Play Station2, and then connecting application and services to it. This would change the value of their electronic product.