The Power and Tendency of the Sony Group - Essay Example

?Issues in Global Business case study: Sony Contents Page No. Executive summary 2 Introduction 3 Why expand to India? 4 Comparison of expansion motivations and strategies of Sony and Lenovo: Lessons to be learnt 5 Challenges in the way of expansion of Sony 7 Implications of expanding business in India for the supply chain of Sony 8 • Case study of eBay and Dell: Lessons to be learnt 9 Recommendations 10 • Manufacturing for low- and middle-end market segments 10 • Establishment of service centers’ network 11 • Advertisement strategies 11 • Innovation and creativity 11 • Expansion of the range of products 12 • Consultancy services 12 Conclusion 13 References 14 Issues in Global Business case study: Sony Executive Summary Sony’s strategic planning placed the company in the list of successful companies in a short span of time. However, due to certain inappropriate decisions and strategies, the company has been suffering losses in the past few years. India is a suitable destination for Sony to expand its business in. The large population of middle class citizens and the diversity of people on the basis of their ethnicity, socioeconomic status, and needs has a lot of room to provide Sony with to expand. Sony needs to re-define its strategic planning in order to derive optimal benefits from the emerging economy of India. There is a range of issues Sony may face as it tends to accomplish this goal with a lot of implications on its supply chain. Issues Sony may face include poor infrastructure of India posing difficulties of logistics, excise tax system, laws and regulations, and culture shock. Sony can smoothly expand its business in India by learning from the mistakes the company has made in the past and the strategies of other companies that have successfully expanded businesses in emerging economies in the past. Introduction After the redevelopment of the domestic market in Japan that was ravaged by the tsunami and earthquake in the year 2011, the Japanese companies need to quickly expand in the emerging economies, and Sony is no exception. Companies like Sony cannot succeed without rethinking their strategies and finding ways to deal with a range of challenges that include but are not limited to distaste for the market’s low- and middle-end segments, reluctance to show organizational and financial commitment in the emerging economies, failure in proper allocation of talent, and aversion to acquisitions and mergers. In other words, Sony needs to re-define its competitive strategy in the contemporary market conditions in the emerging economies it chooses to expand its business in. “Developing a competitive strategy is developing a broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals” (Porter, 1998, p. xxiv). It is, indeed a tough target to achieve, but it is not impossible as companies like Daikin and Unicharm are already on their way to achieving this target. Sony has had a lot of successes in the emerging markets in the past. Sony’s strengths in such markets primarily included a strong grasp over the retail channel that enabled the company to have highly efficient operations, programs of product planning and marketing to address the individual and collective needs of the emerging markets, and the ability of the company to leverage the entertainment assets of Sony Group to take its effectiveness in the market to the next level. This can be estimated from the fact that Sony has boasted a position in the industry as the provider of numerous channels that are publicly liked and highly rated. Two of the channels of Sony Pictures Television are included in the list of the top-rated channels of television in the market. Sony has achieved a high level of awareness by effectively leveraging as a leading entertainment company. Therefore, it assumes immense tendency to boost the sales of its products in the electronics business and gain the top brand’s position in emerging economies like India. Such success stories indicate the power and tendency of the Sony Group and serve as sources of motivation for Sony to further expand its business in the emerging economies. Why expand to India? Not considering India as a suitable emerging economy to expand its business in means overlooking one of the most promising emerging markets for many decades to come. The economic strength of India is rapidly increasing along with an equivalent expansion of its consumer class. India is on its way to becoming a goldmine of business opportunities, and has already become one to a large extent. According to the economy forecasts, by the year 2025, India will have become the fifth largest consumer market (Startup Overseas, n.d.). This makes India one of the most powerful emerging economies. Presently, the number of middle class people in India is over 300 million (Startup Overseas, n.d.). This population is comparable to the size of the whole market of the European Unions. This number will further increase provided that the economy maintains the pre-crisis trend. Having a high population of people with middle socioeconomic class and status is favorable for Sony because such consumers have a high potential to welcome and endorse new products and being the middle-class citizens, are at least rich enough to purchase the products manufactured by the company. Comparison of expansion motivations and strategies of Sony and Lenovo: Lessons to be learnt The early ventures of Sony abroad were made in order to expand its market and help the company address the needs of its foreign customers. Japan’s electronic market rapidly matured during the late 1950s bringing Sony’s patent to an end. Looking at the increasing domestic competition, the first operation of Sony was established abroad including Sony Overseas in Zurich, Switzerland, and SONAM, which was the Sony Corporation of America in the year 1960 (Nguyen, Okrend, and Tang, 2013). These locations served as the arms of distribution for the exported products of Sony. In order to be equipped with latest technology, region research and development centers were established by Sony in 1977 and 1978 in San Jose, California and Basingstoke, UK respectively. These research and development centers in their early stage were meant to modify the products to be exported for the local markets. With the passage of time, their focus locally increased and the research and development centers started to offer more advanced expertise locally as compared to in other regions. Another major reason why Sony decided to invest abroad was the growing tension of trade between other industrialized countries and Japan during the 1970s. Moving the production facilities of Sony overseas using OFDI seemed a suitable way for Sony to go. In the US, the Japanese subsidiaries recruited American workers to manufacture the Japanese goods. Sony’s Trading Corporation was created in the year 1972 to import the American goods to Japan, and Sony was the first company to achieve that. At that time, Sony was neither a transistor research laboratory funded by the government nor it was a large corporation. Although Sony was working for the Japanese government, yet it did not receive much help from the Japanese government. On the other hand, big Japanese companies like Toshiba and Matsushita were getting financial help from the Japanese government. When Sony required financial assistance in order to buy the transistor patent from the Western Electric, its request was rejected by the Ministry of International Trade and Industry (MITI) because of a lack of belief in the ability of Sony to create transistor radios by the Japanese government. The Japanese government kept itself distant from playing any substantial role in the growth of Sony. The Chinese Academy of Sciences found Lenovo using a capital outlay worth $25,000 only (Nguyen, Okrend, and Tang, 2013). This was the first major difference between the establishment of Sony and Lenovo. While Sony’s request for financial assistance to purchase the transistor patent was rejected by MITI, Lenovo got a substantial help from the research institution funded by the Chinese government. Unlike Sony, Lenovo decided to expand its business in the foreign countries to sustain its leadership of the domestic market rather than increasing exports. When domestic competition increases, companies feel more motivated to expand overseas. For Lenovo, expansion overseas was essentially a strategic initiative for the sustenance of its domestic leadership. Lenovo offered its key management positions to the Westerners. Alongside, Lenovo hired talented ethnic expatriates from China to serve in it. Lenovo used the logo and name of IBM for the marketing of its products till the year 2010 that enabled the company to obtain a quick adjustment in the foreign market. “In sum, whether Chinese companies can become the next generation of MNCs depends on how they can evolve from strictly Chinese companies to global corporations that can successfully integrate their own management philosophy with western corporate practices” (Nguyen, Okrend, and Tang, 2013, p. 10). Challenges in the way of expansion of Sony Sony faces a host of challenges directed at the failure of its strategic planning. “The failure of strategic planning is the failure of formalization – of systems to do better at such tasks than flesh and blood human beings. It is the failure of forecasting to predict discontinuities, of institutionalization to provide innovation, of hard data to substitute for soft, of lockstep schedules to respond to the dynamic factors” (Mintzberg, Ahlstrand, and Lampel, 1998, p. 73). Multinational companies in Japan like Sony have, in the past, underestimated the speed of change in the emerging economies. Smart foreign multinationals and local companies quickly respond to such changes, but the distaste for the low- and middle-end market’s segments serves as an obstacle for most Japanese corporations including Sony. Most companies that expand into emerging economies locate their sweet pots in these market segments. However, Japanese companies, in the recent years, have placed emphasis upon the high end which is a strategy to achieve success in the established markets. In spite of the fact that in developing countries, that segment is expanding, Japanese companies prefer not to make use of the premium-based strategies in order to differentiate their goods in the fierce competition. For instance, in India, the clunky and inexpensive cathode-ray-tube televisions are popular even today and accounted for as much as 70 per cent of the sales of television in India in the year 2009, but still the electronics companies of Japan place their focus on the sale of flat-screen TVs that are more expensive than the cathode-ray-tube televisions (Ichii, Hattori, and Michael, 2012). The market has been captured by India’s Videocon, Samsung, and LG by placing their emphasis upon serving the low- and middle-end segments of the market. While the share of Videocon is 19 per cent, the share of Videocon and Samsung each is 25 per cent. On the contrary, the combined share of the three largest Japanese manufacturers; Toshiba, Panasonic, and Sony is only 13 per cent (Ichii, Hattori, and Michael, 2012). Implications of expanding business in India for the supply chain of Sony Expanding a business in India has a lot of room for profitability, but achieving that is not simple with the multitude of languages and cultures existing in India, thus bringing a diversity in the needs of the consumers and having many implications for the supply chain of the company. Before expanding in India, Sony should seek as much information about the business etiquettes and the variety of communities and cultures in India as possible. One way to achieve this is by speaking to businessmen who have gone through the similar phase of business expansion in India before. One thing that is particularly important in the business expansion in India is that about 39 per cent of the people spend their life with no more than $1 a day (Startup Overseas, n.d.).Obstacles in the way of growth of the economy of India include but are not limited to ports, railroads, roads, illiteracy, telecommunications and power grid. These factors may raise challenges in the business plan of Sony while expanding in India. “The management of strategy involves coping with uncertainty, change, and complexity” (Johnson, 2008, p. 223). The policy of liberalization started in India during the early 1990s. Certain sectors especially the infrastructure area are difficult to penetrate in. The excise tax system and customs tariff in India are laden with a lot of exemptions. There is burdensome bureaucracy in India. Inefficiencies of the government in the recent past have served as disincentives for the foreign investors to establish businesses in India. Although the systems are improving, yet any foreign company in India that wants to incorporate, license, or register a business should be prepared to deal with more complicated issues than what normally exist in advanced economies. Case study of eBay and Dell: Lessons to be learnt Companies are adopting unique ways to make best use of their supply chain while expanding in the emerging economies and get competitive advantage in the contemporary age. Let’s take eBay for example. eBay creates value by providing its buyers as well as sellers with a virtual worldwide market. eBay collects tax over the transactions. eBay’s business model excessively relies over the customers since they are part of the product development team of the organization. eBay’s customers also participate in merchandizing department, security department, and the sales and marketing force. Conventionally, companies tend to spend a lot of money on understanding the needs of their customers and asking them to provide the companies with their feedback. However, getting feedback has been often free for eBay and eBay gets the feedback without any need of enticement. eBay is governed from within as well as outside. There is a source of automatic control in the eBay system through mutual transaction of the buyers and sellers, thus developing norms and rules. eBay has a system of education that provides information about how to sell on eBay. Thus helps the buyers and sellers develop valuable reputations with each other and promotes good behavior in the organization. “eBay also has developed software that recognizes patterns of behavior common to previous fraud cases, such as sellers from Romania who recently started selling large numbers of big-ticket items” (Johnson, 2008, p. 161). eBay has developed and strengthened itself as a provider of services electronically. Sony can also achieve that to a certain extent. First of all, when Sony plans to expand its business in India, it can gain the input from the consumer base in India online over its website which would save it the cost, time, and energy that is otherwise required to gather the same information. The Internet also serves as a potential means of advertisement of its products. Sony should advertise its products suitable for the consumers in India over the whole of the Internet in general and the social media websites in particular. This would substantially minimize the cost of advertisement for Sony. Finally, Sony should provide its consumers with options to purchase its products online and have those products shipped to them even in the remote areas of India. To achieve this, Sony needs to find out the most effective and yet cost effective means of shipping the products to those areas in India. Dell executed its business strategy oriented around customers using the strategy of a make-to-order supply chain or direct-sales in Russia since reliable and rapid services of home deliver were not available in the quality and capacity (Lorentz, 2008, p. 2). As a result, Dell established many brick-and-mortar stores in the Central and Eastern Europe (CEE) and Moscow that helped the company boost its poor performance of sales and have a larger market share in the emerging economies (Ewing, 2007). Recommendations Manufacturing for low- and middle-end market segments If Sony wishes to expand, it must find out deeper inroads to the emerging economy it chooses to expand in. Sony should remove its distaste for the low- and middle-end segments of the market in the emerging economies to increase its share in the sale of products. One thing that differentiates between consumption habits between the emerging economies and advanced economies is that in the former, technology is far behind that in the latter and accordingly, consumers are attuned to older models of goods. Sony should study which goods are popular in the emerging economy and do the necessary preparations to sell those goods in the market. Establishment of service centers’ network Owing to the geographically large size of India, it is imperative that Sony operates in ways that address the needs of the individual cities and region to expand in India successfully. Indian market can be classified into different categories that include large metropolitan areas to small cities. Sony should establish its network of service centers in different cities of India. The supply chain can be managed effectively by establishing warehouses nationwide since the transport in India can be a problem because of the taxes on interstate sales and the poor condition of roads. On the basis of such a strong operational structure, Sony will be able to make real efforts in order to successfully expand its marketing activities ahead of the traditional consumer base to attract the middle class citizens of the country. In addition to that, Sony should print all labels and do all sorts of correspondence with the consumers in the local language (Daniels, 2010, p. 61). Advertisement strategies A very effective strategy for Sony to gain popularity in an emerging economy is to use its popular things in its advertisements and as the basis of its advertisements. These popular things can range from celebrities to sports. In the case of India, cricket happens to be the most popular sport. Sony should include famous cricketers in India in its advertisements, and preferably select one of the popular cricketers as its brand ambassador for India. Sony can also sponsor cricket matches. The more its products come in the public eye with people and things people value, the easier and sooner Sony achieves success. Innovation and creativity Unlike Sony, Chinese companies like Lenovo have relied on the economies of scale to obtain competitive advantage internationally. Sony should adopt the same approach along with bringing an improvement in its level of innovation and quality of products to gain competitive advantage in the emerging economies like India. In addition to that, Sony should take measures to reduce its reluctance toward displaying organizational and financial commitment in the emerging economies, failure in proper allocation of talent, and aversion to acquisitions and mergers. While re-defining its strategy in the context of the contemporary business environment, it is imperative that Sony avoids using the rote bureaucratic mechanisms because they have huge tendency to crush or sideline the important aspects of learning, creating new insights, gaining political support, innovation, and entrepreneurship (Wit and Meyer, 2010, p. 113). Expansion of the range of products Sony also needs to expand the range of products that it offers. One of the major fields in which Sony has started to perform in the past few years is medical business that presently comprises monitors, recorders, printers, cameras, and different kinds of peripherals of the medical use. Although the businesses of Sony related to the medical field were before scattered along different units of business, yet these different businesses have now been interlinked that has resulted in the development of a medical business group. Sony should enter the business of medical equipment components in which it can gain substantial level of competitive advantage using its core strengths of digital imaging technologies in applications like endoscopes. In addition to that, Sony should target the business of life science in which it can leverage its expertise in things like image sensors, microfabrication, and semiconductor lasers. Consultancy services To prepare itself to deal with issues like the excise tax system and customs tariff in India, Sony should seek help from the Indian agencies whose function is to provide the foreign investors with indispensable local information as well as guidance. They are appropriate for consultancy in such matters because these agencies are better plugged in with the economic leaders and the local businesses as compared to the foreign investors. In addition to that, Sony must not consider India as a single entity while expanding its business in it. Instead, Sony should consider regional plans, thus placing its emphasis upon different markets and locations in India. This will also help Sony find suitable agents and partners within the different cities and regions in India. Conclusion Sony does not really need to re-think its strategy. Indeed, it is the same strategy that the company has been using for the last four decades or slightly more. Sony has developed a strong position in many emerging economies across the world to date. Sony has achieved this through meticulously planned and performed marketing programs and global sales. Although there are certain flaws in the existing strategy of Sony because of which the company has incurred huge losses in the past few years, yet if Sony re-designs its strategy, it is likely to fall further. What Sony really needs to do in the emerging economies like India, as a matter of fact today, is to re-define itself, its goals, aims, mission, and vision in the context of the contemporary business environment. Sony needs to rediscover its goals and aims in the 21st century. It does not necessarily have to be a new strategy for growth. References: Daniels 2010, International Business: Environments And Operations, 12/e (New Edition), Pearson Prentice Hall. Ewing, J 2007, Where Dell Sell with Brick and Mortar, Business Week, [Online] Available at http://www.businessweek.com/stories/2007-09-27/where-dell-sells-with-brick-and-mortarbusinessweek-business-news-stock-market-and-financial-advice [accessed: 7 May 2013]. Ichii, S, Hattori, S, and Michael, D 2012, How to Win in Emerging Markets: Lessons from Japan, Harvard Business Review, [Online] Available at http://hbr.org/2012/05/how-to-win-in-emerging-markets-lessons-from-japan/ [accessed: 7 May 2013]. Johnson 2008, Exploring Corporate Strategy: Text & Cases, 7th ed., Pearson Education India. Lorentz, H 2008, Supply chain management in emerging markets – Implications of contextual constraints for internationalisation and strategy, [Online] Available at http://www2.ifm.eng.cam.ac.uk/cim/symposium2008/08proceedings/14%20-%20Harrri%20Lorentz.pdf [accessed: 8 May 2013]. Mintzberg, H, Ahlstrand, B, and Lampel, J 1998, Strategy Safari: A Guided Tour Through The Wilds of Strategic Management, The Free Press. Nguyen, K, Okrend, M, and Tang, L 2013, Are Chinese Companies the Next Generation of Multinational Corporations? Lenovo vs. Sony in the Global PC Industry, American International Journal of Contemporary Research, Vol. 3, No. 2, pp. 1-10. Porter, ME 1998, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press. Startup Oversease n.d., Why expand to India? [Online] Available at http://www.startupoverseas.co.uk/expanding-a-business-in-india [accessed: 7 May 2013]. Wit, B, and Meyer, R 2010, Strategy: Process, Content, Context, An International Perspective, South-Western Cengage Learning. Read More