Sony Ericssons Mobile Communications International and National Industry Strategic Analysis - Case Study Example

Sony Ericsson’s Mobile Communications International and National Industry Strategic Analysis Executive Summary A strategy is a systematic plan of action and it has to have its aims and objectives. This indicates that for a strategy to be developed, the developer has an aim to accomplish. Strategic analysis aims at finding out if the developed strategies have or can accomplish the missions set for the business or the organization to meet through them. In the analysis below therefore a strategic analysis was conducted on the model of Sony Ericsson in relation to the mobile communications industry. The aim of the analysis is to find out the company’s position in the market and its future position based o the findings. Objectives: To analyze the external environment Analyze the internal environment Analyze the strategy and provide recommendations There are so many models used in the analysis of strategies but in the case below, PEST and Porter’s forces tools were used to find out the external factors that may affect the business. This analysis revealed the opportunities and the threats of the organization. An internal analysis was also conducted which showed the weaknesses and the strengths of the company. The company is not in a stable position although it is currently in position four in the whole industry. It however shows signs of improvement and has high potential of improving if changes are made in faulty areas. The company has very many threats and a weakness that can alter its competitive position to a negative position. Its market share has also been reducing since 2008. Recommendations have been made based on the findings and indicate the need for thorough market research and adoption of appropriate strategy. Introduction Brief Outline of the Company Sony Ericsson is a mobile communications company that was established in 2001 by a joint venture between Sony Corporation, an electronic power house and Ericsson, a telecommunications leader. The two companies equally own the joint venture. Sony Ericsson deals with mobile multimedia devices with PC cards, phones and accessories included. The company produces mobile phones, wireless systems, wireless data devices, Hi-technology accessories, mobile music devices and wireless voice devices (Telford 2008) all produced for various purposes including communication, entertainment, imaging and music. These products are produced through the use of a combination of innovative applications and technology (Sony Ericsson Mobile Communications 2010). Since its establishment, the company has experienced problems such as the 2008 profit losses as indicated in the first quarter 2008 results that brought down the company’s performance as well as its competitiveness. It was in the verge of closure sometime but it pulled through in the long run. Irrespective of the losses and other problems experienced, Sony Ericsson is considered to have had first five years after formation a success (Stensgaard 2006). It is currently fourth placed after Nokia, Samsung and LG in the mobile communications industry and is accepted as world leader in innovation and design (Sony Ericsson Mobile Communications 2010). The success of this telecommunications company is attributed to its resources which according to Telford no other telecommunications company has in the market. Sony Ericsson has a combination of Sony’s entertainment properties and electronic experience, and Ericsson’s telecoms know-how and infrastructure. A combination of these talents has enabled the company grow and has created a portfolio of products and services (Stensgaard 2006). Before Sony Ericsson was formed, Ericsson was a telecommunications company that began its operations as early as the 1930s but emerged the world leader in the 1990s. The success of this company was short lived and it started experiencing problems due to competition which was from Nokia by then considered to be cheap and less advanced, and technical problems such as delay of new models which was as a result of a fire at a subcontractor, problems with circuits and lack of backup systems. In 2000, the company reported a loss of 24 million SEK. It is from then that the joint venture formation with Sony was announced in April 2001 (The History of Ericsson n.d.) and formed in October 2001 (Sony Ericsson Mobile Communications 2010). Sony Ericsson has progressed to greater achievements like the development of products such as T610 which is acclaimed globally, the K750i which received a TIPA award for being the best mobile imaging device, the V800 that was voted the best 3G phone by the GSM Association in 2004 and K800 cyber-shot phone also voted the best 3GSM phone in 2007 (Sony Ericsson Mobile Communications 2010). The company’s latest development according to 14 February 2010 news from Sony Ericsson’s press release room is composed of Xperia X10 mini and Xperia X10 mini pro. The Success of the Company is attributed to: 1) Heritage The resources from the parent companies act as an advantage to the company since Sony has the know-how on consumer electronics and branding and Ericsson has the infrastructure and telecoms know-how. It also has access to the world’s biggest entertainment companies due to the joint ownership with Sony. 2) Performance of the Company The company’s hard work on technology, innovations and brand has led to the development of products that serve as the best in the market. From its performance after developing the T610 that earned it recognition worldwide for its innovation and design, the company has developed full portfolio accessories, products and applications. Examples include the cyber shot camera phone and the walkman music phone (Stensgaard 2006). 3) Design Sony’s products are not just designed to look good but consideration is given to the form of the product and the function so that the company ensures that there is a perfect balance between the product form and the function. According to Stensgaard (2006), design forms a very important part of product development in the company and because of this, Sony’s products is differentiated based on their design. As a differentiator of products, every product will have to be different from the others in its features and functions and this combined with innovation and technology, gives the company the potential to produce best products some of which have received awards considering specific functions (Stensgaard 2006). As indicated above, Sony Ericsson ensures a perfect match between the form of the product and the function. This yielded some profit to the company. Examples of phones that have received awards have been noted above and additionally, the company is recognized for its cyber shot camera phones en walkman range of music phones (Stensgaard 2006). 4) Applications, Products and Accessories The results of the efforts of the company managers, designers, employees are the products. The products include the phones, accessories and applications. The response received in the market about these products has helped make the company grow. The aim of any business is to make profit be it long term or short term although there are several aims and objectives that have to be accomplished in order to get profit. An example of an aim that leads to profit making is improvement on innovation techniques. This may be due to the current trends in the world with improved technology and consumer preferences for efficient products and so on. Because of these reasons and several that have not been mentioned, managers and other employees of an organization ensure they produce the products that meet the customers’ needs and those that they would desire to have. Such is the case of Sony Ericsson. In 2005 and 2006 the company managed to build products that captured the market (cyber shot and walkman branded phones). The company also has the touch screen Xperia X10, which is its first project into Windows Mobile (Stensgaard 2006). 5) The Brand Sony Ericsson has one of the fastest growing brands and the company ensures its brand image is promoted through activities such as consumer promotions, creative sponsorships and through advertising and marketing. An example is the Sony Ericsson WTA sponsorship (Stensgaard 2006). Strategic Issues Constant losses: According to Johnson (2010), the company has had seven quarter losses. In 2009 first quarter as reported by the Sony Ericsson first quarter results on April 17, 2009 for example, the company reported a loss of Euro 358 million before taxes excluding the restructuring charges. Restructuring was part of the company’s strategy to improve long term performance and reduce losses. In the last quarter however, that is second quarter of 2010, the company reported an income increase to Euro 63 million before taxes and excluding the restructuring charges. Reduced Market share: In 2008, the market share of the company was around 6% as indicated in the Sony Ericsson first quarter 2009 results while in 2010, the market share has reduced to 4% as reported by the Sony Ericsson second quarter 2010 results. Sandstrom (2010) also noted that the company has experienced reduced sales and market share in the past years of economic recession and was partly due to imperfect offering of high end devices. In order to improve its market share, the company has currently changed its focus to increasing profitability even though increasing market share is also among the aims (Sandstrom 2010). External Analysis of Sony Ericsson (PEST Analysis and Porter’s Five Forces) PEST Analysis (Henry 2008, 51-53) a) Political Factors In any country there are legal issues and government regulations that any type of business should abide by when operating in such a country. Sony Ericsson operates in so many countries including Australia, UK, USA, Korea, African countries and so many more all which it abides by their governments’ requirements to do business in all those countries. It therefore has no political factors that can affect business. b) Economic Factors This affects the buying power of consumers as well as the cost of business capital. The economy of each country in which Sony Ericsson operates is different and their growths are different so this may be a threat or an opportunity to the business. When the economy is down, it negatively affects business since people’s buying power is reduced. From the Economy watch information, the world economy is stable and most countries have an increase in their GDPs (Economy Watch 2010). Australia as a region of operation has a stable economy which has a record of stability for as long as 18 years back and continues to grow. It is anticipated that by 2012, the growth will peak at 3.4% (Economy Watch. 2010). c) Social Factors These are factors that result due to society characteristics such as the number of people in a region, the demography of a region, the cultural practices and consumer behavior. They affect the market by determining the potential of the market to purchase certain types of products and the size of the market as well. Preferences especially determine the potential of a market. In the case of mobile communications industry, there are several market segments for example; there are those who like phones expensive phones and those that love low price phones and so on. These segments determine what a company will have in the next years of operation, that is if the company has market for its products or not. According to Johnson (2010), as a result of improved economies, the global market volumes for the mobile communications companies will increase by approximately 10% in 2010, a year which is nearly ending but this will only lead to a small growth in the low price segment of the market. This is a very big threat to the stability and expected growth of the company since most of its phones belong to the moderate and high price segment of the market (Sony Ericsson Mobile Communications 2010). The current market supports Smartphone which Sony Ericsson should have taken advantage (Jones 2009) of but the company has not exploited that opportunity and is forced to play catch up with the leaders in the mobile communications industry such as Samsung, LG, Nokia and Apple (Johnson 2010). Apple managed to take 1.1% of the mobile communications market in 2008, and the Smartphone market was expected to increase from 14% to 17% in 2009 making it an area of opportunity for mobile communication companies to increase their market shares (Jones 2009). Sony Ericsson only started exploiting the market very late as late as 2010 and the results indicate that had that move been taken earlier, the company would have gained more. In Telford’s article (2008) it is indicated that the company continued to improve because of the new smart phones launched in the first quarter of 2010 (Vivaz TM and Xperia) and the focus on market value. d) Technological Factors Sony Ericsson has the right technology and the right strategies of coping with the rapid changes of technology in the world. It has developed phones of its own design through innovation and use of new technology putting it in a stable position considering the trends of the world in the mobile communications industry (Sony Ericsson Mobile Communications 2010). The company has the opportunity to exploit the available technological resources that it has. Porter’s Five Forces (Hill & Jones 2009, 42-44) These are, Threat of substitutes, rivalry among firms in an industry, the supplier power, threats to entry and buyer power. i. Rivalry: This occurs between firms of an industry because of various reasons. An example is when the cost of exiting a business is very high, the firms will be forced to remain in such type of business and this intensifies rivalry. This however is not the case in the mobile communications industry. It however has high rivalry between the firms. Nokia, Samsung and LG the three leading companies are aware of Sony Ericsson’s potential to grow and so intensify rivalry. Sony Ericsson is also showing signs of losing its market share (It had a market share of approximately 6% in 2008 as indicated in Sony Ericsson first quarter results on April 17, 2009 and this has reduced to 4% in 2010 as depicted by Sony Ericsson second quarter 2010 results. Nokia, which is the leading company, is intensifying rivalry between the competitors through its actions. Johnson (2010) indicated that the rivalry between the companies is described as cut-throat and Nokia as of 25th January 2010, had offered free satellite navigation on its phones fighting for the high end phones market with Sony Ericsson. ii. Threats of Substitutes: Substitutes to Sony Ericsson phones do not exist because the phones have specific designs of their own as well as brand. The only threat of substitute can come from other competitors with the capability of developing phones with similar unique features as Sony Ericsson. This cannot happen unless the other company has patent right to such technology that only belongs to Sony Ericsson. Competitors however have phones with similar features as Sony Ericsson’s and so this may act as a threat to the company. Consumers may prefer the competitors’ phones to Sony Ericsson’s. iii. Buyer power; considering the competitors in the market and the variety of phones in the market and the global market, the consumer power is low. Sony Ericsson has a global market (Sony Ericsson Mobile Communications 2010). iv. Supplier power: low supplier power. The company no longer depends on one subcontractor for its suppliers as before and has expanded to have suppliers globally (Sony Ericsson Mobile Communications 2010). v. Threat of new entry: mobile communications industry is a growing company and new entrants can come in anytime. An example is Apple that entered the mobile communications market through its iphones and took 1.1% of the market (Jones 2009). Internal Analysis of Sony Ericsson This gives the company’s weaknesses and strengths. Strengths: The Company has a combination of Sony’s entertainment properties and electronic experience, and Ericsson’s telecoms know-how and infrastructure which has helped in its growth from the time it was established (Telford 2008). The company also has the right innovative resources that can make it advance in the market. Weakness: the company has the inability to study the market properly, or the inability to respond to market situations to exploit available opportunities as evidenced in their lack of exploitation of the Smartphone market in the mobile communications industry. Strategy Evaluation and Recommendations In a business, so many strategies can be developed depending on the aim of the business. There are different departments that aim at achieving different objectives that are all set to achieve an organizational aim. An organizational aim may be to increase its market share. Roles have to be given to each department to ensure their activities lead to increased market share. This is where strategies are developed. What strategy for example, can Sony Ericsson use in its marketing department to ensure the company’s market share is increased? It is not only one department that works to help the company achieve such an aim but the efforts of all departments. Overall strategies however exist like in Sony Ericsson, the company combines Ericsson’s telecoms know-how and infrastructure and Sony’s entertainment properties and electronic experience, to develop their phones. This is a good strategy but based on the above external and internal analysis, the strategy alone is not enough for the growth and success of the company. There are so many areas that need attention in the company’s management. Recommendations Internal Analysis Market assessment of the current trend is poor and should be improved if the company wants to progress. The company should conduct research about mobile phone market, identify opportunities and exploit them. This will improve their performance as well as help the company increase its competitive advantage. The company should also develop some effective benchmarking practices that compare its practices to Nokia, LG, Samsung and Apple to determine areas of weakness and areas that can help improve the company’s performance. Appropriate plans should be put in place implemented and assessed to determine if they are effective or not for further improvements and growth. Good leadership and decision making is also crucial. External Analysis It has three main competitors that threaten its operations and so the company should assess the market, review the company’s strategies and develop appropriate strategies for maintaining its competitive advantage as well as improving its performance. Thorough market research on consumer preferences should be done to capture the market and help in the development of strategies. In order to increase market share, the characteristics of the market have to be known so that wrong products are not produced and the opportunity of existing market exploited. This will help deal with competitors as well as new entries in the mobile communications industry. With good strategies, the company will maintain a competitive advantage, gain market share or be in a stable position irrespective of new entries and competition. The current mobile communications market has the low price segment expanding more that the other segments. The Company should therefore develop a new strategy to find ways of dealing with the expanding market of low price market segment. Exploit Virgin markets to improve market share and improve the strength of the company to fight on in the business with its competitors. Conclusion Sony Ericsson may have progressed to the fourth position in the mobile communications industry but it may improve its operations if it does not change its strategies. The trend of the market is promising and the company has exploited their strengths but it also has internal weaknesses. According to (Johnson 2010), the expected rate of growth for the company will not be as expected. The reasons given to its anticipated slow growth are due to its inability to exploit the market, competitor rivalry and constant market for their products. Nokia implements strategies that put pressure on its competitors for example, the company competes with Sony Ericsson for high end phones and in order to gain more customers and deny Sony Ericsson the customers, it developed a promotion that influences high end phone consumers. It is a clear indication that the company needs to improve a lot in its strategies both on improving performance and fighting competition. Based on the findings, the company may not be able to maintain its position in the coming future. Bibliography Economy Watch. 2010. Current Global Economy. Economy, Investment and Finance Reports. (accessed August 20, 2010). Economy Watch. 2010. Australia Economy. Economy, Investment and Finance Reports. http://www.economywatch.com/world_economy/australia/ (accessed August 20, 2010). Henry, A. 2008. Understanding Strategic Management. Oxford: Oxford University Press. Hill, C. & Jones, G. 2009. Strategic Management Theory: An Integrated Approach. 9th Ed. Connecticut: Cengage Learning. Johnson, S. 2010. Sony Ericsson sees handset market still tough in 2010. Reuters, January 25. (accessed August 20, 2010) Jones, A. 2009. Smartphone Segment Poised for 2009 Growth. Mobile Technology Newsletter. (accessed August 20, 2010) Sandstrom, G. 2010. Sony Ericsson says improved portfolio to help market share. Dow Jones Newswires, May, 06. 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