Sony Company Analysis: SWOT, PEST, 5 Forces and SGA

Sony SWOT Analysis | Five Forces Analysis of Sony | PEST Analysis of Sony | Strategic Group Analysis of Sony

Executive Summary

The purpose of this paper is to analyse Sony’s strategy and assess various tools which give the greatest insight into that strategy. The assessment of the company is based on four tools, mainly: SWOT, PEST, Porter’s Five Forces and Strategic Group Analysis (SGA). Those tools are believed to critically evaluate Sony’s tactics with regards to its competition, external and internal environment. Furthermore, the tools critically assess Sony’s gaps in its strategy.

Introduction

Sony Corporation has been very successful over several decades and has used its innovation to create a multibillion and multinational electronic empire. With products such as: transistor radio, the Trinitron, the VTR and many more the company has changed our everyday lives. Nowadays, Japanese companies such as Sony can set a good example for other international companies to benchmark the way they implement their business strategy. However, the current slowdown of global economy, the appreciation of yen and the decline of Japanese stock market had forced Sony to re-examine its current business approach (Sony, 2009). Hence, this paper critically evaluates Sony’s business strategy. The assessment of the company is based on four tools that give the greatest insight into Sony’s strategy, mainly: SWOT, PEST, Porter’s Five Forces and Strategic Group Analysis (SGA).

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Sony Company: A brief introduction

Sony is an international corporation with major businesses in electronics, movies, video games, and finance. The Japan-based company is one of the world’s largest media conglomerates with revenue of $89.6 billion in its fiscal 2008 (Sony, 2009).

Sony is a well-recognized brand name of consumer electronics and its key products are CyberShot digital cameras, Bravia LCD TVs and VAIO computers. Those products constitute 65.1% of sales and operating revenue.

The three biggest markets for SONY are Europe with 25.7 % of operating revenue followed by Japan with 24.2 % and USA with 23.6%.

Innovation leader

Sony is an innovation leader. In fact, Sony is still among the top 10 most innovative companies in the world, according to Leberecht (2008). What is more, Sony has led the market in terms of innovative technologies and high quality items. Throughout its history, Sony has proved that the company can capture the imagination and improve people’s lives by using cutting edge technologies.

Sony’s Business Strategy

Sony’s Business Strategy is to be the leading global provider of networked consumer electronics and entertainment in the world (Sony 2008). In order to do that Sony will try to retain market shares in developed markets by introducing innovative technologies and enter new products to emerging markets to achieve higher sales growth and eventually bigger market share.

As can be seen above new user groups with great response to adoption of electronics have emerged. Those groups have been called BRIC (for Brazil, Russia, India and China). They are the world’s fastest growing economies, contributing to a great deal of the world’s explosive growth of trade. By 2020, the four biggest emerging markets’ share of world output will double to 16.1 % from 7.8% in 1992 (IDC, 2006). Consequently, Sony will aim to grab some of it.

SWOT Analysis

Why does a SWOT give the greatest insight into Sony’s strategy?

Organizations such as Sony do not exist in a vacuum but rather exist and compete and cooperate in an interrelated environment characterized by complexity. Understanding this environment is fundamental for Sony to become a leader and gain bigger market share. Therefore, SWOT analysis is a useful aid to do that. The analysis is used at the beginning of strategic decision-making where it provides the basic framework (Hamel & Prahalad 1994). SWOT creates lists of strengths, weaknesses, opportunities and threats where an organizations use these to generate strategies that fit their particular projected situation, objectives and their capabilities (Bourgeois 1996; Pearce and Robinson 2003; Thompson and Strickland 1998).Consequently, buy conducting SWOT analysis on SONY it will be visible if the company’s strategy fits projected situation. Furthermore, Valentin (2001) said that the SWOT analysis gives the greatest insights into company’s strategy as it shows the company’s conventional approach of realizing the desired alignment. As a result SWOT analysis is a valuable tool in the field of business strategy and gives the greatest insight into Sony’s strategy because it illustrates important aspects of organisation’s environment and decisions made by the management.

Sony’s SWOT

Strengths

• Ability to produce innovative, quality products
• Sony’s innovations have become part of the mainstream culture. Starting with the first magnetic tape and tape recorder in 1950, then the transistor radio in 1995 and the world’s first all-transistor TV set in 1960 and many more as shown below.
• Ability to be successful in several different markets
• Sony is successful in several different markets. The company has made an impact in the PC market, video game market and especially the television market.
• Fast growing company
• Sony ranks among ZDNet Asia’s Top 10 fastest-growing companies for 2008/2009 (ZDNet Asia 2009).
• M2M monitoring technology
• Sony has M2M Machine-to-Machine (M2M) remote monitoring technology-based service solutions. The service solution allows cost-effectively and continually monitor and manage the various components of production (Sony, 2006).

Weaknesses

• Products are expensive
• Sony’s products are 20 to 30 percent higher than comparable goods (Cook, 2003). For that reason, for example, people in developing countries with minimum wage cannot afford to purchase them.
• Inefficient supply chain
• Sony is trying to close the gap with technologies companies such as Apple or Amazon which use Internet services to improve their electronics such as digital-music players. However, because of its business overload of heavy operating costs leading to inefficient supply chain Sony is missing that market gap.

Opportunities

• Complementary products and services
• Sony has opportunity to sell complementary products and Internet services in saturated markets (Japan, USA) and standard products in emerging markets (China, India, Latin America).
• Innovative design
• Sony can use user- friendly applications, innovative materials and attractive visual appearance to differentiate products.
• New technologies
• 3D TV technologies that use a single image which is split by mirrors and not as in majority of 3D set ups that use two camera systems (BBC, 2009).

Threats

• New entrants
• New companies can enter the market since the shift from analog to digital technology made it easier. This is because complicated functionality has become concentrated in semiconductors and easier to manufacture.
• Emerging markets
• Economic uncertainty and political instability in markets such as China, India, Russia is more violated than this of United States and Western Europe.

Porter’s Five Forces

Why Porter’s Five Forces would give the greatest insight into Sony’s strategy

Sony has to analyse and understand the industry context for developed markets in order to sustain its strategy which is to be an innovation leader and the world’s leading consumer brand. The model of the Five Competitive Forces developed by Porter can facilitate. Porter (1980) identified five competitive forces that shape every industry and every market. These forces determine the competition and show the attractiveness of an industry and its potential. Furthermore, Porter’s model is based on the approach that a corporate strategy should meet the opportunities and threats in the organizations external environment. Particularly, competitive strategy should focus on understanding industry structures and the way they change. Consequently, it is one of the most effective tools to give insight into Sony’s strategy.

Porter’s Five Forces Analysis

The following model illustrates Porter’s Five Forces Analysis:

Threat of New Entrants – Low

Any beginner will need economies of scale to be successful in this market. A small player will require strong relations with suppliers and efficient manufacturing processes otherwise it will not be achievable for him to produce at a low cost. This may result in incurring losses and failing to gain bigger market share. Furthermore, every company that wants to compete in this market will require sophisticated technology and well developed R&D unit.

Bargaining Power of Suppliers- Low

Due to the fact that there are so many suppliers bargaining power of them is low. Companies in the electronics industry are looking for cheaper imports from countries such as Taiwan or China (Armstrong & Kotler 2008). Many are relocating manufacturing facilities to these countries, as price competition is on the rise. Suppliers are forced to cut their prices or go bankrupt due to the price war as their customers can go to other suppliers who are offering lower price. What is more, manufacturing has shifted from brand owners to mass logistics manufacturers in order to cut the costs associated with the production (Sony, 2009). Large companies from similar industries can now enter this market and that is why bargaining power of suppliers is low.

Bargaining Power of Buyers- High

First group- buyers, who purchase from retailers: (Curry, Argos) that have long term relationships with global brands such as Sony, Canon, Kodak, Nikon, Olympus. Curry or Argos has high buying power since it offers customers great value by checking competitor’s prices and securing exclusive deals from key manufactures, and making a decision which product to choose.

Second group- individual customers even though they have limited buying power and they do not have much impact on the company directly, they are the one who buy products from Curry or Argos and they influence those retailers over which product they will choose in future.

Threat of Substitutes- High

The threat of substitutes is very high example digital cameras. Camera phones are ideal substitute for all digital cameras. According to Lyra’s research, a digital imaging research firm, mobile phones are selling faster than digital cameras. Lyra’s (2006) estimated that the camera phones reached 850 million units in 2006, and this number is expected to grow to more than 1.5 billion units in 2010.

Competitive Rivalry between Existing Players- High

There are numerous and rather equally balanced firms competing in this market with Sony the biggest ones are Panasonic, Phillips. The competition is fierce; there is a short product life cycle, high cost associated with R&D that gives low profit margins and finally high exit barriers. It is noticeable that over the years, the nature of the business has forced manufacturers such as Sony to offer innovations with enhanced models (Johnson et al 2008). Moreover, brand name is no longer as important as it used to be (Anderson, 2008). Consumers are now looking for electronic goods that offer their most wanted features at the lowest price, regardless of brand.

PEST Analysis

Why PEST analysis would give the greatest insight into Sony’s strategy

Another strategic tool that can help to evaluate Sony’s strategy is PEST analysis. It is a valuable tool for understanding the ‘big picture’ of the environment in which an organisation is operating (Bowman & Faulkner, 1996). PEST analysis is a framework that categorises environmental influences as political, economic, social and technological forces (Jones & Hill 1992). In view of the fact it is important to identify those factors as they might have affect on Sony’s supply and demand levels and its costs especially in emerging markets. Furthermore, PEST gives the greatest insight into Sony’s strategy since it will show the market growth (emerging markets) and decline (developed markets), potential and direction for Sony’s operations. What is more, PEST analysis will show whether it was worth to enter Sony’s business operations into new markets and new countries. Consequently, PEST analysis with SWOT and Porter’s Five Forces model will help to review Sony’s strategic direction.

Political

• Tariff reduction in EU

• Tariff reduction in EU countries will affect directly import and export procedures in Sony corporation, as the price will be modified due to this policy.

• Emerging markets

• Unfavourable political factor including unforeseen legal or regulatory changes such as foreign exchange, import and export controls, political instability and potential conflicts among developing nations.

Economic

• Products

Sony’s products are rather expensive and people in developing countries with minimum wage cannot afford to purchase them.

• Uncertainty
• The economic situation in developing markets can get worse, which could result in future effects on earnings (Jeanet & Hennessey 2004).
• Foreign exchange

Foreign exchange rate fluctuations can have an effect on financial results since large portion of Sony’s sales and assets are denominated in currencies other than the yen.

Social

• Customer preferences

‘In some markets, customer needs and preferences are becoming more similar’ (Johnson et al., 2008 p. 69). Electronics goods are standardised products therefore culture no longer has a big impact. In fact, the more standardized product, the better chances to sell it worldwide. According to Slack, et al. (2007) this helps organization to have ‘transference of marketing’ across countries.

Technological

• Advanced technology

Advanced technology to be more competitive in the market is a key issue (Armstrong & Kotler, 2008). Sony knows that to manufacture very innovative products that will be hard to copy and help to lead in the market the company needs to invest and constantly improve its R&D department.

Strategic Group Analysis

Why Strategic Group Analysis gives the greatest insight

Strategic Group Analysis is useful for every company as it can be performed in a short period of time. This tool would give insight into determining different competitive positions of companies in the industry (Mintzberg et al 2003). The analysis can illustrate intensity of rivalry within and between groups and implications of competitive position (Bourgeos, 1996). This is because Strategic Group Analysis is a collect of companies in an industry. Furthermore, groups of companies are clustered around a similar competitive approach or strategic position. Finally, the companies in a group are similar to each other but different from companies in other groups. Consequently, this tool is useful in assessing Sony’s position among its rivals and provides insight into its strategy.

The diagram above shows strategic groups that are in competition with each other. These are analysed according to price and customer perceived value (branding). Strategic spaces are opportunities for companies. For example in order to fulfil those spaces Sony could lower its prices and LG could change the perception of the brand to the higher value. However, this opportunity might be a threat as Sony could lose profits and customers by lowering prices and its perceived value. In LG case, the company would have to spend a lot of money on the marketing campaign to change the perception of the products and invest in R&D to actually change the product to a higher standard. What is more, the company would have to charge more for its products and therefore it might lose customers.

Mobility barriers

The mobility barriers restrict enterprises in electronics industry to go from one strategic group to another. If Sony moved from one group to another, it could incur higher costs or threat of lowering perceived value. However, with more flexible manufacturing and fast development of new technologies in the future the barriers to mobility may be lowered and it might be easier for Sony to go from one strategic group to another.

Conclusion

Sony’s strategy has been analysed using SWOT analysis, Porter’s competitive forces model, PEST analysis and Strategic Group Analysis. Those tools gave the greatest insight into the company’s strategy. This is because they analysed the company’s competition, its competitive advantage, internal and external environment. By understanding those, the company can retain market shares in developed markets and enter new products to emerging markets to achieve higher sales growth and eventually bigger market share. Consequently, those tools are vital for assessing the company’s strategy as they take into consideration existing factors but also forecast change for the future. This way Sony can adjust its strategy to the environment in which it operates.

Furthermore, appreciate its investment into R&D by assessing its client’s needs. This further leads to Sony’s competitive gain.

References:

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• ‘Sony aims to continue being one of the world’s leading consumer brands in the 21st century, providing customers with a wide range of attractive products, content and services’ (Sony 2009 p 3). Sony will aim to achieve higher sales growth through gaining bigger market share.
• PEST analysis can help to understand risks associated with the market growth or decline, and the position, potential and direction for an individual businesses or organizations (Grant, 2005).
• PEST analysis is frequently used as a generic ‘orientation’ tool, that can help to find out where a company or a product is in the context of what is happening externally (Jones & Hill 1992). The four elements shape a structure for reviewing a situation and strategy or position.
• PEST analysis needs to be carried out on a regular basis to be effective. Companies can gain competitive advantage when they do analyses regularly and systematically as they can spot trends before others and exploit them fully. Thus, PEST is a tool that would give the greatest insight into Sony’s strategy.