Business Prospects of Sony Corporation in the Emerging Economies - Case Study Example

Sony Corporation Executive Summary The framework of the essay will contemplate Sony’s commercial changes with respect to the globalization and political affairs in the budding economies. It will accentuate Sony’s international trading subdivision and the ethics abided by the company in the highlighted situation of the essay. The company’s value creation, supply chain, entry strategy, foreign direct investments strategic alliances, and value chain would also be examined in the essay in details. As a specialist, at the end of the research work, the researcher would comment on the future initiatives that would be valuable for the company in the long run. Establishing themselves long back in 1946, Sony Corporation is a Japanese Multinational publicly traded corporation. The organization operates in most of the countries worldwide for trading dissimilar electronic commodities. In the recent years, the corporation is also known to serve various types of financial services in the marketplace. Contents Introduction 3 Analysis 3 Globalisation 3 National differences in Political Economy 4 Ethics in International Business 5 International Trade Theory 6 Exporting & Importing 7 Foreign Direct Investment 7 Global Production, Outsourcing and Logistics 8 Value creation 8 Entry strategy 9 Strategic alliances and Options for International Business 10 Recommendations 11 Conclusion 12 Reference List 13 Appendix 15 Introduction Over time, the state of businesses of multinational corporations has become highly elaborate and complex. The multinational corporations of the contemporary business world operate in different economies and are subjected to various opportunities and threats. This essay will throw a light on the business of Sony Corporation in details (Morrison, 2009). It has been found that after the emergence of globalization and liberalization, the third world nations in the world have turned out to be the emerging economies. Multinational corporations like, Sony, desire to extent their business in these emerging economies. This essay will focus on the details of business affairs of Sony in the emerging economies like, India and China. The context of the essay will concentrate on Sony’s business changes with respect to globalization and political affairs in these emerging economies. It will emphasize on the company’s international trading segment and the ethics abided by the company in the given context. The company’s supply chain, value creation, entry strategy, strategic alliances, foreign direct investments and value chain would also be examined in details. As a consultant, at the end of the research work, the researcher would comment on the future initiatives that would be beneficial for the company. After its initiation in the year 1946 in Tokyo, Sony Corporation has established themselves as a Japanese Multinational publicly traded conglomerate. The organization operates in most of the countries all over the world for trading a wide range of electronic products. In the recent years, the company has also been known to serve various types of financial services in the market (Mukherjee, 2012). Analysis Globalisation After the emergence of globalization and liberalization in the world economy, the developing economies turned out to be the emerging markets. The main five booming markets in the economy scenario were clubbed together under an acronym, BRICS (Brazil, Russia, India, China and South Africa). It was found that with the benefit of the international trade after globalization, these economies had adopted high growth rates in their national income aggregates. In fact, it was estimated that by 2050, the income and the growth thresholds of these countries would be more than that of the developed countries like, United States and United Kingdom. Thus, companies like, Sony, had immediately undertaken the strategy of tapping the growing market demand in these economies. It has been found that after the phenomenon of globalization, the company had expanded its game, imaging and television business in the emerging economies in the world. The growing middle income group of customers in these economies have responded well to most of the newly launched products of the company. It has launched products of various price ranges to attract potential clients from all income groups in countries like, China and India. It is also true that the huge population in these economies has helped the multinational companies to experience a substantial market demand. The business of Sony Corporation has experienced high growth rates after it has expanded their scale of operations in these booming nations. It is stated by the analysts that India is one of the top five markets of Sony in the global economy. It is found that Sony India is a vital segment of business for the company. The company has observed India to be the best market for selling its flat televisions and digital cameras. Thus, after globalization, Sony Corporation has expanded its trading affairs in these emerging economies in the world thereby augmenting its overall turnover (Sony Corporation, 2013a). National differences in Political Economy It is known that the public authorities of the developing economies are extremely cautious about the activities of the private enterprises. Almost all the developing economies in the world are emerging markets at present and the governments of these nations often adopt the import substitution and export promotional strategies in their economies. This is undertaken by the public authorities as they desire to improve the business of their domestic companies. Rather, the strong welfare principles of the governments of these nations are seen to create obstacles for the emerging economies in the world. It was found that China had stopped trading Japanese products in its economy owing to a political dispute with Japan. The dispute was regarding the business dealing with two of the islands of China. This had frizzed up the trading of Sony products in China as the company is a Japanese organization. However, in the last three years after the dispute was over in the country, Sony had begun its trade in China once again (Reuters, 2012). Besides being an emerging nation in the global market, China is also the country with the highest population in the world. Thus, any political disputes affecting the trade of Sony in China can create large differences in the company’s gross revenue. It is found that despite being an emerging nation in the world, India is the country which bears a high level of corruption and bureaucratic turmoil in the country. Such problems often hamper the business of the multinational corporations like, Sony, in this case. It was stated that the policies undertaken by the Indian government for fostering growth in the country was disrupted due to the continuous changing election proceedings in the country (Nayak, 2012). Thus, the extensive power of the political authorities in the emerging nations often results in the disruption of business operations of Sony Corporation. However, it should not be ignored that in certain situations the public authorities in these nations also encourage the business initiatives of the foreign companies like, Sony. This is done to augment the aggregate value of domestic product and employment level in these nations. Ethics in International Business It is believed that the contemporary business organizations should not singularly concentrate on the affairs of profit generation. The primary motto of these organizations should be the achievement of economic surplus but it is also the duty of these companies to check any type of misconduct in the operations of its business affairs. Business ethics deals with various types of moral issues experienced by a business organization in its internal or external business affairs. Ethics in international business possess both normative and descriptive dimensions. However, the modern corporations follow the principles of normative ethics in their business. It has been claimed by the researchers that the code of ethics followed by a company determines the scope of its goodwill in the market. Similarly, Sony Corporation tries to carry out its business functions according to the ethical virtues in business. The company engages in many corporate social responsible (CSR) activities in its business affairs. All these initiatives taken by the company show the importance given by the organization to different types of ethical issues. Sony Corporation has its own environmental protection plan. Inclusive to this plan, the company aims to use renewable energy and manufacture the lightest form of LCD televisions. It has been found that the company promoters use renewable energy in the form of sunlight, wind or biomass. By using such types of energy, the company tries to reduce the carbon dioxide emissions in the environment. Such emissions are harmful and tend to disturb the ecological balance of the world. Thus, by taking an initiative, Sony works greatly on incorporating and promoting ethics in its business. Again, the branch of Sony in Malaysia has undertaken a challenge to reduce the overall energy consumption in the country by almost one-third of the initial. Thus, for carrying out such ethics in international business, Sony Corporation has undertaken large number of activities to promote its goodwill in the market (BBC, 2012). International Trade Theory The theory of International Trade is based on the assumption that factors of production are perfectly mobile within the boundary of a nation and are immobile between different nations. However, it should be considered that the commodities and the services produced by these factors of production are completely mobile across cross-country borders. International economies are also subdivided into both descriptive and theoretical perspectives. The Ricardian Theory of competitive advantage, the Heckscher Ohlin theory and the neo-classical theory are all parts of the international trade theory. Figure 1 in the Appendix shows the benefit of comparative cost advantage in the context of international trade. According to the view shared by David Ricardo in his theory of international trade, also as shown in the above diagram, such a trade can help in increasing the level of utility for a business entity. As stated by Ricardo, if an economic entity manufactures or produces products or services only by concentrating on its core competences, then it can easily generate greater returns. Sony Corporation has implemented this concept in its business. It has outsourced those factors of production over which it does not possess any competitive advantage. As Japan is known for its technological extemporise, Sony Corporation introduces modern technologies while devising its electronic entertainment product lines. However, it is found that the rate of work force participation in the emerging economies of the world where the company desires to expand its trade is high. Thus, Sony Corporation appoints skilled, semi-skilled and unskilled workers from these booming economies at cheap wage rates. This helps the company to reduce its overall cost of manufacturing (BBC, 2012). Exporting & Importing While operating in the emerging economies in the world, Sony Corporation had adopted various strategies of importing certain parts of its products from other economies and will export the same from the developing nations to its other business segments worldwide. The company had undertaken this initiative to reduce its manufacturing costs in these markets. Therefore, they had imported those parts to avoid the relatively heavy expense that is needed to produce those in the emerging economies. On the other hand, it had exported those parts which could be manufactured at relatively lower costs in the emerging economies to its other business segments. For instance, the company supplies semiconductor parts for the music players manufactured by other companies in the budding economies. The company also supplies certain electronic parts to Apple Inc. Sony Corporation is one of the listed suppliers of Apple Inc. Moreover, the company outsources its accounting, operational and human resource services to IBM, Japan (BBC, 2012). Foreign Direct Investment Sony Corporation takes its business internationalization decision based on minimum transaction cost. It has undertaken the decision to blow up its business wings in the growing economies of the world because such a decision in business would help the company to minimize the extent of its asset specificity. The governments of the developing countries seem to offer various types of incentives and compensations to multinational companies like, Sony Corporation, for channelizing their investments into the respective economies of the former. It has been found that China has facilitated about 90% rise in the level of Green Field investments in its economy which in turn has helped Sony Corporation to set up its business in the nation. The public authorities in the developing countries such as, India, have created Special Economic Zones (SEZ) where the multinational companies like, Sony, have found its business at a relatively lower cost of establishment. Thus, in the last few years, Sony Corporation has made many Green Field investments in the developing economies (Cavusgil, Knight and Riesenberger, 2008). Global Production, Outsourcing and Logistics Sony Corporation is one of the leading global producers of electronic gadgets. In order to mitigate the huge production requirements, Sony has employed about 180500 individuals worldwide. As estimated in 2008, the consolidated sales of the company in the global market was Yen 8871 billion (Sony-Europe, 2013). This is simply equivalent to the company’s overall level of global production. Logistics of a company is termed as the management of flow of resources in the organization. Sony Corporation is a well established business firm. After framing the different strategies of business to enter the emerging markets, the company has also established an efficient network of logistics. This was undertaken by the company to assure an efficient flow of business in these economies. Figure 2 in the Appendix shows the logistics of Sony Corporation in the emerging countries. The company had also carried out its decision to outsource its accounting, operational and a part of its human resource services to IBM Japan in the recent years. This decision of the company to outsource reflects that it intends to enhance its business efficiency for functioning smoothly. Value creation In the contemporary economy, the competition among multinational business firms in most of the economies is highly competitive in nature. The rise in the income level of many countries after globalization has facilitated the rise of an individual’s demand for luxury and comfort products. The products by Sony mainly consist of comfort or epicurean merchandise. Thus, the rise in demand of the aggregate consumers for such products has rightly augmented the competition between companies in this business segment (Daniels, Radebaugh and Sullivan, 2009). Therefore, Sony Corporation operates in an oligopoly or monopolistic market structure and generates a high level of competition in its business environment. The company needs to constantly create value in its operations in order to position itself as the leading company in the industry and thereby augment its brand value in the market. Figure 3 in the Appendix shows the important steps that can be executed by Sony for value creation in business. The company tries to deliver excellent quality in its after sales services and good quality of products to its customers in the emerging economies. As an initiative for value creation, the company notes down the complaints of the consumers and try to incorporate the changes in its products or services accordingly. The company embraces different changes in its business operations depending on the changes forecasted in the market. This in turn helps the company to augment its overall value in business. The decision of expanding in the booming economies by Sony is also an initiative undertaken by the company for creating value. The company aims at working with integrity and to empower its officials with the freedom to take efficient decisions regarding the state of business affairs. The organization tries to create its own unique position in the market by simply enlarging its innovations in business and taking worthy business risks (Sony Corporation, 2013b). Entry strategy Sony Corporations is known all over the world for delivering excellent marketing strategies. The catchphrases of the company like, “The One and the Only”, “Like No Other”, “Its a Sony” or “Make Believe” are famous in the market and help to pull a large number of potential customers for its products worldwide. In order to enter in the growing markets of the emerging economies, Sony Corporation has adopted various types of business strategies. The company has made the governments of these economies believe that it possesses the power to generate large number of employment opportunities in these nations. The emerging nations like India, China and Brazil have a large pool of young unemployed workforce. Therefore, these claims by Sony have satisfied the welfare maximizing governments of these nations with its entrance in their domestic economies (Shane, 2003). Secondly, the company has decided to provide good competition to the existing companies in the same industry in these economies. This has also allowed the public authorities of these nations to think positive about Sony’s entrance in their economies. The growth of the economies of the developing nations has helped to increase the literacy levels of these countries. This in turn has facilitated the rise in the number of internet users in these nations. It has been observed that the international businesses of companies are now expanding with the help of social media. Thus, Sony Corporation has pitched its products to the consumers of these emerging economies through the various websites by advertising its products’ features and quality. The rise in the demand for such unique product lines in the developing economies has forced the governments of these emerging nations to allow the entry of the company in their respective economies. In order to enter the prospective markets of the developing economies, Sony Corporation has adopted franchising and retailing as the two different tools of market entry. It has also adopted the policy of celebrity endorsement to launch its products in these prospective market economies. The entertainment and the sports stars originating from the developing economies are often seen to advertise the newly arrived products of Sony Corporation. Such initiatives have helped the company to enter in the prospective markets of the booming economies like, India and Russia (Baranova, Knight and Milligan, 2011). Strategic alliances and Options for International Business Sony Corporation believes in delivering the best quality products to its consumers all over the world. However, it is true that the company does not have a competitive advantage for all its business services. In order to perform the best in the industry, the company has entered in many strategic alliances with other companies and also, to serve better with cloud based products and services with modern technology like, Android, Sony Corporation has entered into a strategic alliance with Google (Sony Corporation, 2010). It is believed by the two companies that the Android based highly advanced products manufactured jointly by them, would capture more potential clients for the company in the future. The last few years show that the company has undertaken strategic alliances as an integral part of business development. This decision of the company is a strategic decision in the phase of international business. The industry for electronic goods (in terms of producers) is highly competitive in nature. Thus, while entering in these emerging economies, the decision of Sony to opt for Joint Ventures would allow the allied company to act as a natural monopolist in the market. The company would then generate a better and stronger competition to all the other manufacturers in the industry. The company right now is in a joint venture with the companies like, Sony Ericsson Mobile Communications and S-LCD Corporation. However, it should not be ignored that such strategic alliances undertaken by Sony Corporation is harmful for its gross financial performance. In order to act as a giant company in the emerging economies, Sony Corporation has entered into a special joint venture with Sharp. Olympus is another steel reeling company in Japan that is undergoing heavy losses. Sony Corporation has claimed to pay a sum of 50 billion Yen to Olympus and acquire about 11.5% of its stake (Sony Corporation, 2010). This is another strategic decision that has been adopted by Sony Corporation for a better business in emerging economies. By becoming the partial stakeholders of such companies, Sony can enlarge the efficiency in its business skills by acquiring certain technological and managerial skills from these companies. Over time, it is also decided that for developing new business plans, Sony would make a strategic alliance with Olympus by owning 51% of its stake (Sony Corporation, 2010). Recommendations The recommendations in the essay will concentrate on a few facts that would help Sony Corporation to expand its business in the developing economies in future. The proportion of lower middle class and low income group individuals in the developing economies are large in number. Thus, the company should try to launch electronic products with relatively lower prices in the developing economies to capture this section of the consumers (De Wit and Meyer, 2010). The levels of corruption in the emerging economies are very high. Thus, the company should protect its brand logo and product design through legal patents and keep a check on the issue of counterfeit products in the market. The proportions of young individuals in the emerging countries are large in number. In order to augment its brand value and business in these countries, Sony Corporation should sponsor several sports events in these nations. The company should improve its Corporate Social Responsibility in the itinerary of its business operations in the supply chain. It should ensure its stakeholders from the emerging markets that its business activities would ensure human rights, safety, health, labour welfare and environmental protection (Hill, 2012). Such measures undertaken by the company would surely help it to expand its business in the emerging markets of the world. Conclusion The essay elaborates on the business prospects of Sony Corporation in the emerging economies of the world. It has been found that Sony’s established business have realized that the developing economies in the world have turned out to be emerging economies. Thus, the company has decided to expand its business branches in these nations by increasing the level of its foreign direct investments. The company has also entered into various types of business mergers and strategic alliances to serve a strong competition to its rivals in the industry. It would be right to conclude that by improving its value chain, supply chain, enhancing its CSR activities and by taking strategic business decisions, Sony Corporation would surely be able to elongate its business in the future in these emerging markets. Reference List Accenture, 2011. Business at its best: driving sustainable value creation. [pdf] Accenture. Available at < http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Business_at_its_Best.pdf > [Accessed 6 November 2013]. Baranova, P., Knight, T. and Milligan, J., 2011. Strategy concepts and applications, customised text. New Jersey: Pearson Education. BBC, 2012. Sony and Olympus form alliance. BBC News, 28 September. Cavusgil, S., Knight, G. and Riesenberger, J., 2008. International business, strategy, management, and new realities. New Jersey: Pearson Prentice Hall. Daniels, J., Radebaugh, L. and Sullivan, D., 2009. International business, environments and operations. New Jersey: Prentice Hall. De Wit, B. and Meyer, R., 2010. Strategy: process, content, context – an international perspective. Connecticut: Cengage Learning. Grips, n.d. Current Account Models and Saving-Investment Balance. [online] Available at < http://www.grips.ac.jp/teacher/oono/hp/lecture_F/lec07.htm > [Accessed 6 November 2013]. Hill, C. W. L., 2012. International business, competing in the global marketplace. New York: McGraw-Hill Education. Morrison, J., 2009. Global business environment, meeting the challengers. Basingstoke: Palgrave Macmillion. Mukherjee, W., 2012. India to be in the league of top five markets for Sony by 2015. The Economic Times, 30 April. Nayak, D., 2012. India Minister: Political Turmoil Delaying Reforms. The Wall Street Journal, 23 August. Reuters., 2012. Sony says China business has recovered, foresees growth. Reuters, 25 December. Shane, J. S., 2003. Environmental performance of products: Benchmarks and tools for measuring improvement. Benchmarking: An International Journal, 10(2), p.137 – 152. Sony Corporation., 2010. Sony and Google establish strategic alliance to deliver compelling new cloud-based products and services with the android platform. [online] Available at < http://www.sony.net/SonyInfo/News/Press/201005/10-0521E/ > [Accessed 6 November 2013]. Sony Corporation., 2013a. Sony Corporate Strategy Meeting FY2013. [online] Available at [Accessed 6 November 2013]. Sony Corporation., 2013b. About Sony electronics. [online] Available at < http://discover.store.sony.com/sonyjobs/pages/about/life.html > [Accessed 6 November 2013]. Sony-Europe., 2013. Fact sheet. [online] Available at < http://www.sony-europe.com/article/id/1061464971856 > [Accessed 6 November 2013]. Sonyscs., 2011. International logistics. [online] Available at < http://www.sonyscs.co.jp/english/business/logistics_global.html > [Accessed 6 November 2013]. Appendix Figure 1: Rise in the level of Utility with International Trade (Source: Grips, n.d.) Figure 2: Logistics of Sony Corporation in the Emerging Economies (Source: Sonyscs, 2011) Figure 3: Recommended Steps in Value Creation (Source: Accenture, 2011) Read More