An Analysis on the Business Strategy of Sony - Essay Example

?From Sony Ericsson to Sony An Analysis on the Business Strategy of Sony Japan Based and Sony and Sweden based Sony Ericsson joined hands to create the Sony Ericsson mobiles in October 1, 2001. It was a billion dollar deal gone wrong. The Sony and Ericsson venture saw great leaps and bounds from the beginning of their venture. The main mistake they made was aiming the Asian market among high competition instead of targeting the Western market. However the deal closed with Sony purchasing Ericsson completely on February 16, 2012. While Sony is still trying to cope up with the huge cost paid for the merger, it is confident the current losses are temporary and the future will bring scores of profit. Strategic planning is very important for any organization to reach its goals and objectives. It actually helps them to determine how they will operate to achieve their goal and in implementing them. Sony Ericsson followed a rational model in strategy formation and implementation (Porter, 1985). It was quite useful to identify risks and make managers think innovatively. But, it lacked chances for immediate changes and the scope to avoid major errors as in incremental model because the already planned business strategy was forced to be implied no matter how adverse the marketing conditions were (Sony Ericsson’s strategy, 2008). The company aimed in creating high quality GSM and 3G handsets in China, India and other major markets initially in 2001. Their market research assured them there would be around 19,000,000 users for 3G by 2008. So their ration business plan focused on creating and selling these handsets for huge profits. Let us see how they went wrong. PESTLE Analysis Political Factors: The Chinese government rightly predicted the invasion of foreign companies in their mobile market before a decade. They introduced licence systems which severely restricted all electronic goods manufacturers and made them follow stringent green rules like Specific Absorption Rate (SAR). This increased the production cost of the 3G handsets Sony Ericsson produced. However the company official insisted in sticking to their original plan and kept producing low cost 3G handsets. Economic Factors: Even with high competition, the company managed to reach its target selling nearly 85,000,000 in 2005. But, their profit was quite short lived. Sony Ericsson mobiles produced at low cost did not deliver the expected quality, leading to mass losses from 2006. Sony Company reported nearly 77% loss for the seventh consecutive year since then, on August, 2012 (BGR.com, 2012). Social Factors: Sony Eriksson’s affordable mobiles got an image such that they were for college students. The competition from the local Chinese company produced phones and the South Korean rival, LG electronics was very high. LG was financially stronger than Sony Ericsson and it kept introducing new luxury mobiles one after another. The targeted the well earning businessmen who had high potential to spend. Technological Factors: Sony was very quick to eliminate the quality issues when it came to technology. They introduced the W800 and W810 mobiles, the first in the Sony Walkman line to tackle the competition from the LG products. Sony Ericsson continuously proved they were superior to the other brands in technology. They were the first to introduce mobiles with 1 megapixel and 2 megapixel camera. Sony Cyber-shot was the first of its kind with 45 minutes continuous video shooting. They designed the first Java based 3D gaming phones as well as the Bluetooth enabled phones. Most of the features found in modern day smart phones were first introduced only in the Sony Ericsson phones, making them one of the best MMS mobiles in the market. Legal Factors: The Company faced several legal complaints regarding their quality in the initial stages of collaboration, before they started producing technically enhanced mobiles. They made use of the stringent laws of the Chinese government to improve their technology and became one of the best companies to produce minimal electronic waste. Environmental Factors: Sony Ericson is ranked as the 6th leading Greenest electronic company among the top 15 companies who follow innovative ways to recycle their hazardous wastes. Their GreenHeart series which emits nearly 15% green house gases accompanied by an eco-charger was launched by the company in 2009. They are known for using minimum amount of chemicals in their products. The company had to undergo several problems from the period starting 2001 to 2012. They failed to implement new changes as the production cost of their handsets rose. They continued to sell them at low prices leading to massive losses. Just as the Sony Ericsson brand started to recover from losses introducing new technologies in their mobiles, the global recession came as an unexpected blow to their ideas. They were forced to lay off thousands of workers to stay in the market. From 2009, they faced stiff competition in technology from Apple iPhones, which posed a great challenge to Sony as well as all of its competitors. However Sony Ericsson kept managing each and every challenge with determination. Finally Sony decided to buy the Sweden based Ericsson groups completely as their share percentage in the company kept decreasing steadily for the past 10 years. Sony Ericsson is now legally known only as Sony. The deal was finalized in 2012. But, Sony Company had to invest a huge some in finishing the deal, resulting in loses for the current quarter in spite of $19.2 billion sales (Langeland, 2012). Sony introduced the new Sony Xperia series in various models. Their tipo series targeted the middle class people while the “ion” series serve as a direct competitor to Apple’s iPhone. Porters Five Forces Analysis Threat of New Entry: Threat from new entrants is very low as the market is already teeming with high competition. Billions of dollars are required to start and build a company as might as Sony. So threat from potential new entrants is quite low. Threat of Substitutes: The Threat for substitutes is very low as Sony Ericsson made a pact with China Mobile, the biggest carrier in the industry to launch its headsets. They started forming collaborations with small local Chinese mobile handset manufacturers instead of treating them as competitors. This eliminates huge competition for the local market and reduces the headset production cost for the Sony Company. Power of Buyers: Power of buyers is quite high as the market has very high competition. All the major smart phone companies in the world target the Asian especially Chinese market. Hence, the buyers have lots of choice. The only way to sustain in the market is to offer something new in every phone. Power of Suppliers: There are over 200 suppliers providing raw material to the Sony Company as of now. As the production rules in China started getting stricter, the company moved its productions centres to India, Japan and Sweden slowly. They still have a major plan operating in Beijing, China. The bargaining power of the suppliers is quite low as many mobile companies including Nokia, Motorola are moving their destination out of China. Competitive rivalry: The rivalry between the existing competitors is absolutely high. Nokia, Motorola and LG electronics are the key competitors. Internal Analysis Their human resource system is one of the best in the market even after massive job cuts. Their offices in India, China, the US and Japan provide ample facilities to their staff, acknowledging their skills and motivating them to perform better constantly. They always gave ample importance to train them properly to overcome cultural barriers when the factories where shifted constantly from one place to other. They took all steps necessary to assure the workers they were doing their best during the mass layoffs. They gave importance to consonance acting like the locals in each market to understand the workforce requirement there. Consonance or adapting to the new environment quickly is very important to sustain in any industry for a long time (Rumelt, 1980). The first five years of the Sony-Ericsson deal served utterly successful mainly because of this strong employee motivation. The company was able to introduce cutting edge technologies which revolutionized the mobile world and generate total revenue over 104,143,298 Euro's in 2005. The profit they obtained was stocked properly instead of blocking them on any unwise investment, which helped them to sustain the continuous losses that followed in the ensuing years. Their infrastructure and salary remains the best in the industry in spite of growing losses. They have the best labs and give their employees access to every new technology prior to their competitors. The Boston Matrix Analysis Stars: The past Walkman series phones starting from W550 to W830 is a smash hit till date. The new Sony Xperia and Bravia series also contribute significantly to the company’s profits. Cash Cows: Sony Xperia J series, tipo and miro phones targetting the middle class market fetch good profits. Question Marks: The traditional Xperia music phones and Xperia ion and Xperial SL series which serve as direct competitors to Motrola Razor and Droid phones as well as Apple iPhones. They might or not fetch great profits to the company. Dogs: The traditional Xperia music phones in bulky designs. Though the production of most of the phones have ceased, the remaining models doesn’t seem to fetch much profit. SWOT Analysis Strengths Sony Ericsson established itself as the best multimedia phone and music phones in the market. Their technological superiority is their major strength. Weaknesses Sony targeted the Asian market when the competition from other brands like LG was very high. They entered the Chinese market, their major target at a wrong time where political pressures for the foreign companies were very high. The global recession came as an unexpected blow to the company plans. They had to cut down thousands of jobs to stabilize themselves in the market. It created a negative image for the company. Opportunities Sony’s advanced technology and its strong uprooting in the various consumer goods markets allow it to gather money from various branches other than mobile production. The company generates good profit selling various consumer electronics goods all over the world starting from Camera to walkman. They invest the profits earned in other fields here with the sole aim of making it big in the forthcoming years. Threats Sony’s competitors like Nokia reduced their other involvements in consumer products industry and stared concentration only on the Smart phone market. Nearly 72% of Nokia’s employees are associated with Mobile production. Only 3% are directly employed in other electronic goods production. This enables them to give superior mobiles at a cost lower than Sony. This is the main threat. Sony’s Repercussion Strategies Sony started using Social media as an effective tool in promoting in new products. This helped them reduce their advertisement costs and still gain more customers. Their Facebook page has over 300000 fans. They were the official sponsors of several important events like the UEFA champions League. They regained their brand image which was quite damaged by laying off quite a lot of workers through these moves and their green initiatives. Though the company is reporting perpetual loses still, its repercussion measures assures its stakeholders it will recover soon from loses and emerge as successful as before. Sony Ericsson’s deal with the China telecom corporation enabled them to bring down operation costs while still providing low cost mobile to the customers. They constantly keep shifting their factories to areas with cheap labour to reduce the cost further. When Sony Ericsson mobiles faced an issue with quality they bought about double-check tests and dynamic changes in their logistics system which helped them produce high quality products and repair the faulty ones in a very short time. Sony Ericsson always placed their customers in front of others. They were ready to incur minor losses in order to give their customers the best. They strongly believe this ethical policy will help them regain their lost glory in the current fiscal year or in the near future very soon. Conclusion Sony Ericsson, though unsuccessful at the last, served quite profitable for nearly 6 years. The current Sony Company strongly believes it had lost nothing, compared to their initial profits. They are planning to form collaborations with new financial institutions to boost their brand. Sony Xperia, their latest series have already created the buzz they expected. Its sales are skyrocketing as expected, but just not enough to meet the companies massive loses. However, experts predict Sony will make it a successful product in the next quarter due its strong position in the global consumer electronics market. We can only wait and see whether their repercussion strategies are as effective as expected. References 1. Langeland, T. "Sony Shares Rise After Maintaining Profit Forecast: Tokyo Mover". Bloomber.com. 2 November, 2012. 16, December 2012. 2. Porter, M.E. “How Competitive Forces Shape Strategy”. Harvard Business Review.(1979).Harvard Massachusetts: Business School Press. 3. Porter, M.E. “Competitive Strategy” (1985), New York: Simon and Schuster. 4. "Sony Q1 Profit Plummets 77% Despite $19.2 Billion In Sales". BGR.com. 2 August, 2012. 16, December 2012. 5. "Sony Ericsson's Business Strategy". StudyMode.com. May 2008. 16, December 2012. 6. Rumelt, R. "The Evaluation of Business Strategy’, Business Policy and Strategic Management, (1980), New York: McGraw-Hill Read More