Strategic Analysis of Sony

Table of contents
Table of contents ......................................................................................................... I

List of Figures .............................................................................................................. I

1 Introduction .......................................................................................................... 1

2 Sony’s consumer electronics division................................................................... 1

3 External Analysis.................................................................................................. 2

3.1 PESTEL Analysis .......................................................................................... 2

3.2 Five Forces Analysis ..................................................................................... 2

4 Internal Analysis – Value Chain Analysis ............................................................. 4

5 SWOT Analysis .................................................................................................... 6

6 Conclusion ........................................................................................................... 9

List of references ........................................................................................................ II

Appendix.................................................................................................................... VI

Statement of Authorship .............................................. Error! Bookmark not defined.

List of Figures
Figure 1: 5-Forces Analysis of Sony's consumer electronics division ......................... 3

Figure 2: Value Chain Analysis of Sony's consumer electronics division ................... 4

Figure 3: SWOT Analysis of Sony's consumer electronics division ............................ 7

I
 Strategic Analysis of Sony

1 Introduction
Once Sony was seen as the centre of Japanese innovation and technology, but has
rapidly lost ground to its competitors like Apple and Samsung (New York Times,
2012). As the creator of the Walkman, the Trinitron television and the PlayStation, the
company suffers since the slowdown of the global economy in 2008 (Sony, Annual
Report 2009 - 2011).
To remain competitive and operate successfully in the future, it is vital for any
company to be aware of its status quo (Body, 2011; Allen, 2001). Thus, the purpose
of this report is to analyze Sony’s current situation within the electronics industry. The
essay tries to evaluate the present most important external and internal factors which
affect Sony’s electronics business. The macro environment is analyzed very briefly
by the PESTEL and Porter’s Five Forces analysis and the internal analysis is based
on Porter’s Value Chain. Finally the SWOT analysis is used to conclude strategic
recommendations.

2 Sony’s consumer electronics division

The Sony Group comprises three main businesses: electronics, entertainment and
financial services (Sony, 2012c). However, this paper focuses only on Sony’s
consumer electronics division including the business units television, audio and
video, digital imaging, mobile communication and games (Sony, 2012e). Nearly 50
percent of Sony’s total revenues, roughly 6.49 billion Yen, are generated through
these consumer products (see Appendix 1 and Appendix 2).

As Sony recently suffers with declining profits (Financial Times, 2012) in the
electronics segment, it aims to reposition itself together with its stakeholders (Sony,
2012c). According to Sony’s CSR report in 2012 their most important stakeholders
are customers, suppliers, employees and shareholders, as Sony is a publicly traded
company (Sony, 2012d).

1
 Strategic Analysis of Sony

3 External Analysis
The external environment of Sony includes both, general external factors analyzed by
the PESTEL analysis (see Appendix 3) and industry factors appraised by Porter’s
Five Forces. Both analyses help to identify opportunities and threats for Sony’s
electronics division (Analoui et al. 2003; Cowe et al. 2011). Only those factors which
have the most significant impact on Sony are described in the following sections.

3.1 PESTEL Analysis

In terms of economical factors the effect of changes in the exchange rates is a

significant external impact. Japan’s strong currency has been unfavourable for Sony
2007 onwards (Sony, 2010) and deters investors. Moreover, Sony is negatively
affected by the current recession which led to a decrease in consumer electronics
sales around the world and an increasing price competition (Sony, 2012c).

Another crucial external impact on Sony is the fast changing technology. A PWC
study in 2010 shows that the demand of consumer electronics is shifting from
dedicated toward multi-functional devices like smart phones. Sony’s declining sales
reflect this movement. On the other hand the 3D-technology, the trend toward linked
devices and cloud computing could be an opportunity for the Japan based company
(Teulade, 2010; PWC, 2012).

On the social and environmental side, Sony faces an ageing population and stricter
regulations on electronic trash. Sony’s largest market is Japan which accounts for
43 percent of sales (Sony, 2010). However, the average age of Japanese is 45.4
years, which is significantly higher compared to other developed countries like the
United States accounting for 37.1 years or the United Kingdom accounting for 40.2
years (Central Intelligence Agency, 2011).
Also new regulations on electronic trash (Greenpeace, 2011) require additional
procedures and certification which increase costs and affecting supply chains.

3.2 Five Forces Analysis

After analyzing the boundaries of the industry, the Porter’s Five Forces Model helps
to identify the rivalry within the electronics business. The following figure shows the
position of Sony in the consumer electronics industry and displays the power of
2
 Strategic Analysis of Sony

suppliers, buyers, competitors and newcomers (see further explanation in Appendix

4).

Market Entrants Low

 Large economies of scale

 Very high capital requirement
 Expected price and production
retaliation
 Strong brand loyalty
 Barriers through patents
Bargaining Pow- Bargaining Po-
High Low
er of customers wer of suppliers
Degree of rivalry High
 Low switching costs  Low supplier concentration
 High price sensitivity  Oligopolistic markets
 Various Joint Ventures
 Increasing prices through Yen  Declining market sales growth
 In-house production of high
 No forward integration  Price competition valuable components
 Large number of customers  High innovation in the industry  Low possibility of suppliers buying
 Small number of sellers  High exit barriers forward

Medium /
Substitutes High

 Short product life-cycle

 High R&D costs
 Lack of Differentiation
 All-in-one devices (e.g. smart
phones like Iphone)

Figure 1: 5-Forces Analysis of Sony's consumer electronics division1

With various strong competitors (e.g. Samsung, Panasonic, Philips, Apple, etc.), a
generally short product life cycle, a high bargaining power of customers and a slow
industry growth, the competition within the industry is considered to be intense. The
battle for market shares across Sony’s vast range of products is mainly based on
continuously launching innovative products and on price (Bloomberg, 2012a). As
such, Nintendo’s cheaper Wii gaming console witnessed faster sales than Sony’s
PlayStation 3, even though Sony offers superior quality (Bloomberg, 2012d).
Moreover, convergent devices or rather all-in-one solutions like Apple’s Iphone are
identified as a threat of substitution (Bloomberg, 2012d). As already mentioned in the

1
Own illustration based on Porter (1985)
3
 Strategic Analysis of Sony

PESTEL Analysis this is due to the fast technological pace of the industry. However,
Sony has a significant advantage over its competitors by having the possibility to gain
synergy effects across its business units like gaming, music and films.

4 Internal Analysis – Value Chain Analysis

After focusing on Sony’s industry structure and key external activities, the Value
Chain Analysis helps to understand Sony’s key internal operations. In particular,
Porter’s Model is used to identify Sony’s capabilities in order to derive strength and
weaknesses of its electronics division (Wickramasingeh, 2007).

The subsequent illustration shows the internal drivers. Only the key activities which
are subdivided into primary and secondary functions are described in the following
paragraphs.

SUPPORT ACTIVITIES

Firm Structure

Human Resources Management M

a
Technology
r
Procurement g
i
n
Inbound Outbound Marketing
Operations Service
Logistics Logistics & Sales

PRIMARY ACTIVITIES

Figure 2: Value Chain Analysis of Sony's consumer electronics division2

Firstly Sony’s financial situation (see Appendix 5), which is a supporting activity, is
considered as a key factor for future success. However, Sony’s credit rating was
recently lowered one level by Standard & Poor’s (S&P). The rating company put the
firm’s long-term rating from BBB+ to BBB, S&P’s second-lowest investment. The
outlook is set negative because of four straight annual losses and concerns about an
earnings recovery in the electronics segment (Bloomberg, 2012e; Sony Annual
Reports 2009 - 2012). Sony’s net sale of 7.2 billion Yen in 2009 dropped to 6.49

2
Own illustration based on Porter (1985)
4
 Strategic Analysis of Sony

billion Yen in 2012 and within the same period the net loss rose from 40.8 billion to
456.7 billion Yen. In the segment of consumer electronics, which accounts for almost
50 percent of the company’s revenues, sales in 2012 dropped by 23 percent to 3.14
billion Yen compared to 2011. The electronics division reported a loss of 229.8 million
Yen, which highlights that Sony’s profit margin has been eroded significantly. 3 The
negative trend over the last few years is displayed in the stock price (see Appendix
6). On the other hand, being a relatively successful company during the last two
decades, Sony has still cash reserves (Sony, 2012c).

Secondly, Sony adopted an extensive multidivisional firm structure over the last
years. Each division is further divided into smaller, specialized business units, for
example electronics in: television, cameras, audio & video, etc. (Sony, 2012c).
Thereby, Sony tries to serve customers with a range of diversified products, specific
in its function. However, the drawback could be that cooperation and knowledge
transfer across the segments might suffer. Sony’s empire might also cause a
slowdown in innovation.

According to the new management team and the CSR report in 2012, one of the key
drivers for success is Sony’s employees. The official webpage sates that Sony offers
a variety of training programs to equip employees with superior knowledge and skills.
The Japan-based company not only provides a career-building program for engineers
and managers, but also curriculums which are tailored to local needs. In addition,
Sony established the Sony University in 2000, an educational institution designed to
cultivate global managers. In 2012, a branch of Sony University was opened in
Singapore which is specialized in developing global managers for emerging markets
(Sony, 2012c).
Besides the published facts about Sony’s good internal training programs, Sony
employees face a workforce reduction of up to 10.000 by the end of 2013 due to the
harsh situation in the electronics business (The Verge, 2012).

Technologically, Sony was first in many areas such as Trinitron, the Walkman or the
Camcorder. Some of these products have created new markets of their own and the

3
According to Sony’s annual report in 2012 this was caused due to the impact of
foreign exchange rates, the Earthquake and the floods in Thailand, and the price
competition resulting from product commoditization.
5
 Strategic Analysis of Sony

patents for those innovations are still valuable for Sony. Their R&D department is
setting industry standards for video and picture quality and is well established over
years (Sony, 2012e). However, Sony faces increasing competition from devices like
smart phones or tablets, which are seen as a threat (Bloomberg, 2012d).

Furthermore, Sony generally manages its in- and out-bound logistics well. They
select suppliers that obey laws, are financially solid, are innovative, offer competitive
prices and protect the environment. To respond on environmental customer needs,
Sony introduced a green procurement (Sony, 2012e). To lower production costs, the
company is producing in low income countries like Thailand, China and Indonesia.
Thailand was recently affected by floods which led to a shutdown of production plants
and caused delay problems for the PlayStation 3 (Bloomberg, 2012f). In addition,
Sony possesses automated out-bound logistic activities and well managed
distribution networks in every continent (Sony, 2012c).

Finally, over the years the company positioned itself as an innovator and a maker of
high quality products with good designs. Sony is recognized as one of the best
known and most valuable companies in the world with an annual advertising budget
of roughly five billion US-Dollars (Financial Times, 2009). It is ranked on the 17th
place among the top 100 brands in the world by a survey from Sync Force in 2012.
The great marketing campaigns (e.g. $50 million for PlayStation 3), the brand centres
and the established service activities (service centres, warranty, installation, etc.)
help to further improve the brand image (Sony 2012e).

5 SWOT Analysis
The following SWOT analysis examines the internal strengths and weaknesses in
light of external opportunities and threats. It is mainly based on the outcomes of the
PESTEL, Five Forces and Value Chain Analysis and the starting point for the
following strategic recommendations.

6
 Strategic Analysis of Sony

I
N
Strengths Weaknesses
T • Good supplier system • Financial situation
E
• Large sales network • Product portfolio
R
N • Great brand image • Organizational structure
A
• Technology
L

E
X
Opportunities Threats
T • New CEO • Exchange rates
E
• Strategic alliances and acquisitions • Political dispute with China
R
N • 3D technology • Hacker attacks
A
• Technical know-how • Greater competition
L

Figure 3: SWOT Analysis of Sony's consumer electronics division4

Strengths:

 According to Sony’s CSR report the company established a well managed

supplier system with suppliers acting conform to law, protect the environment
and deliver quality at a competitive price.
 Furthermore the company possesses a wide sales network with sales offices
in over 120 countries around the globe (Sony, 2012e).
 Sony’s after-sales service is a strength, too. Almost all products carry a
warranty and customer information centres are maintained in main markets
(Sony, 2012f).
 One of the most outstanding strengths of Sony is its great brand image. This is
highlighted by the fact that the company was tagged by Asian consumers as
the most valued brand in 2011, despite the losses and the network security
breach (Edge, 2011). Sony’s consumer products are best known throughout
the world and considered to have high quality and good designs.
 A great product portfolio and the know-how behind is another advantage. The
product variety minimizes the risk of failure and makes Sony simply less
dependent on a particular product or service. As a result to this, the capability

4
Own illustration based on Cowe et al. (2011)
7
 Strategic Analysis of Sony

to cross-sell or rather cross-market products is another benefit (e.g. movies,

DVDs, games, etc.).

Weaknesses:

 The current financial situation is considered to be unfavourable for the

company. Decreasing sales, slow recovering profitability and underperforming
stocks are deterring investors.
 In addition Sony’s diversified empire might operate in too many parts of the
entertainment value chain. The various product lines and the organizational
structure behind those lines not only caused the company’s innovation and
flexibility slowdown, but also impaired specialization.
 Another weakness of Sony might be the lack of cooperation between business
units, a result of the poor organizational culture. The lack of collaboration can
be seen in the products, which cannot be networked.

Opportunities:

 The new CEO, Kazuo Hirai, might turn around the declining sales and bring
more focus to the company’s product lines (Sony-PlayStation, 2012).
 The harsh competition from competitors like Apple, LG or Samsung could
result in more integration within the electronics and software industry. Sony
may take this opportunity to acquire competitors and build strategic alliances
in order to gain synergy effects or rather new competitive advantages. Sony
already bought off its entire Sony Ericson joint venture to act independently in
the booming smart phone and table market (Sony, 2012g).
 Further, the company can take advantage of its excellent technological know-
how within the business units and create new products by combining the
knowledge of the different segments (e.g. 3D technology).

Threats:

 As Sony operates across the world it is more sensitive to exchange rates

which are out of Sony’s control (Sony, 2012c).

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 Strategic Analysis of Sony

 The political island spat between China and Japan might also have further
affects on Sony’s supply chain. They already had had to close factories based
in China (Bloomberg, 2012b).
 In addition Sony’s excellent reputation is threatened because of a security
breach in the PlayStation network and the Sony Online Entertainment
properties (Bloomberg, 2011).
 Finally, the company has to face an even more intense competition from firms
that may be more specialized (e.g. Canon) or have greater resources (e.g.
Samsung).

6 Conclusion
Based on the SWOT Analysis, the most important challenges for Sony’s consumer
electronics division are the harsh competition within the industry, the fast product life-
cycles, the slowdown in innovation and the macro-risks like exchange rates. The
following brief strategic recommendations aim to cope with these challenges.

Facing highly specialized competitors within each business unit, Sony need to
concentrate on certain businesses (e.g. smart phones, cameras/camcorders and
games), restructure the electronics division around the focused segments and get rid
of less profitable segments like TV. By allocating the resources from other divisions
(e.g. R&D, marketing, logistics, etc.) to the focused businesses, Sony will achieve a
competitive advantage over its rivals. This is simply because no other firm has a
comparable mix of know-how in the variety of segments in which Sony operates.

To keep up with the highly innovative and go-getting competition and the movement
towards convergent devices (all-in-one solutions e.g. IPhones), Sony should focus on
innovation and user-centred design to generate a Unique Selling Propositions (USP).
The upcoming 3D-trend and the so called “eco-prestige” of customers could be an
opportunity in this case. Green products represent added value to customers. Thus
Sony should focus on a strong sustainability strategy and create “green” products.

Once Sony has focused on certain markets, they should also start to build strategic
alliances, joint ventures or acquire within the segments. This helps Sony to have
access to new technology, enhance economies of scale and get market share.

9
 Strategic Analysis of Sony

Finally, Sony might be able to utilize their Financial Services to reduce risks of
exchange rates and overcome this external factor by financial instruments like
currency swaps.

10
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 Strategic Analysis of Sony

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 Strategic Analysis of Sony

 PWC (2012). The Future of IT Outsourcing and Cloud Computing. Available from:
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Accessed: 19.11.2012
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 Strategic Analysis of Sony

 SyncForce (2012). Ranking the Brands top 100. Available from:

http://www.rankingthebrands.com/The-Brand-Rankings.aspx?rankingID=30.
Accessed: 11.11.2012
 Teulade F. (2010). PWC - 3D Here and Now?. Available from:
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now-v2.pdf. Accessed: 09.11.2012
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 Strategic Analysis of Sony

Appendix
Appendix 1: Proportion of sales by business

Source: Sony (2012a), Business Highlights – Proportion of Sales, Available at:

http://www.sony.net/SonyInfo/IR/financial/ar/2012/financial/, Accessed: 08.11.2012

Appendix 2: Sales and Operating Income by Segment

Source: Sony (2012b), Business Highlights – Sales by Segment, Available at:

http://www.sony.net/SonyInfo/IR/financial/ar/2012/financial/page02.html, Accessed: 08.11.2012

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 Strategic Analysis of Sony

Appendix 3: PESTEL analysis of Sony’s electronics division

Japan: transition from single to double party system may have

consequences for Japan-based multinational corporations, in terms of
future legislation, government & trade policies (New York Times,
Political Factors 2012b).

Sony had to close factories in China as the island spat between

China and Japan escalated (Bloomberg, 2012b)  influence on
Supply Chain.

The recession has had a negative effect on consumer electronics

sales worldwide  increasing price competition.
As a result of overwhelming public debt of 225.8% (Central
Intelligence agency, 2011) along with deflation and weak public
demand, Japan faces global pressure to cut public debt over recent
Economic Factors months. Ratings agencies (Fitch, S&P, etc.) deducted Japan in credit
rating (Manager Magazine, 2012).
The effect of changes in currency exchange rates has been
unfavorable for Sony from 2007 onwards (Sony, 2012c).  Billions of
yen run off. Such an unfavorable currency exchange rate is deterring
investors.

Sony’s largest market is Japan which accounts for 43% of sales (Sony,
2010). However, it is an ageing population, with an average age of
Social Factors 45.4 years (Central Intelligence Agency, 2011).

Loss of trust from customers due to security attack & failure to notify
immediately has caused a negative brand image.

Consumer’s behavior is moving toward multi-functional devices 

meaning the demand for dedicated devices is reducing (Bloomberg,
2012d).
Technological
The market for 3D related technologies is growing rapidly (Teulade,
Factors 2010).

Industry-wide movement toward networked products & services and

cloud computing (PWC, 2012).

Legal Factors Age and content restrictions from regulatory bodies (USK & PEGI).

VII

Environmental
Factors
__________________________________________________________
Source: Own illustration based on Cowe et al. (2011)
Appendix 4: Five Forces analysis of Sony’s electronics division
Bargaining Pow-
High
er of customers
 Low switching costs
 High price sensitivity
 Increasing prices through Yen
 No forward integration
 Large number of customers
 Small number of sellers
Source: Owen illustration based on Porter (1985).
Strategic Analysis of Sony
EU warnings because of privacy issues following security breach on
PSN network & Sony Online Entertainment properties. (Bloomberg,
2011)
Some of Sony’s manufacturing activities were closed after recent
tsunami, resulting in share price drop of 9% (Yahoo Finance)
Regulations on the impact of electronic trash by restriction of
hazardous substances and electronic waste (Greenpeace, 2011).
Additional procedures and certification are consequences of these
regulations  increasing costs and affect on supply chains.
Market Entrants Low
 Large economies of scale
 Very high capital requirement
 Expected price and production
retaliation
 Strong brand loyalty
 Barriers through patents
Bargaining Po-
Low
wer of suppliers
Degree of rivalry High
 Low supplier concentration
 Oligopolistic markets
 Various Joint Ventures
 Declining market sales growth
 In-house production of high
 Price competition valuable components
 High innovation in the industry  Low possibility of suppliers buying
 High exit barriers forward
Medium /
Substitutes High
 Short product life-cycle
 High R&D costs
 Lack of Differentiation
 All-in-one devices (e.g. smart
phones like Iphone)
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 Strategic Analysis of Sony

Additional outcome explanation:

 Threats of new entrants  LOW

o economies of scale– incumbent firms are producing at the lowest-cost; hard for new
entrants to compete on price
o Extremely high capital requirement – Existing firms are highly experienced and the
industry is driven by knowledge and innovative capacity; extensive investment
robotics (tools, equipment, machines, etc.) -> e.g. Sony has an extremely advanced
quality assurance, where no dust is allowed to touch the production line of its lenses
and mirror-house

 Bargaining power of buyers -> HIGH

o Switching costs are low - Information easily available with online reviews -> buyer
can switch brands without high switching or transaction costs for example in the
compact camera sector.
o Price sensitivity is high – buyers can choose a better-priced substitute. Sony tries to
separate their products with better technology. Also the ¥en causes prices to increase
for Sony -> reduced profits (Bloomberg, 2012b).

 Bargaining power of suppliers  LOW

o Low supplier concentration –low value component (plastic, chassis, etc.)
manufactures -> high competition -> low price. Sony can force suppliers to cut prices -
> best deals for Sony
o Various Joint Ventures for high value components e.g. Panasonic (3D), Olympus
(cameras) ->keep input costs to a minimum -> bundle know how/ experience -> new
core competence (Bloomberg, 2012c)

 Threat of substitutes  HIGH

o Short product life-cycle - e.g. cameras, gaming hard- & software.
o Smart phones - Smartphones with integrated high definition cameras, games to
download, video, music, etc. (Bloomberg, 2012d).

Appendix 5: Sony’s financial business highlights

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Source: Sony Annual Report 2012 (Sony, 2012c)
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 Strategic Analysis of Sony

Appendix 6: 5 years trend of Sony Corporation Common Stock

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Source: Yahoo Finance, Sony Corporation (SNE)

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Strategic Analysis of Sony

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