Sony Corporation, one of the world largest corporations also known as the world's number one consumer electronics company, its gross recorded revenue of US$72 billion with subsequent net profit of US$851 million (Sony Corporation, 2004). The company also manufactures a multitude of other products including personal computers (PC), digital cameras, walkman, stereos, gaming machines that include the world famous Play Station series consoles and semi-conductors. In order to achieve such a remarkable growth, the company has always been a firm believer in the adoption of four critical business strategies: global development, building of research and development (R&D) networks, achieving global coordination and operations, as well as improving corporate governance to strengthen the company's image in face of the public.
"Going Global" has been one of the key business strategies adopted by Sony since its inception in 1946, as both founders of the company had anticipated that the company's success would be determined by competition in the international markets as opposed to focusing solely on the domestic market in Japan. International recognition was in fact the main driver behind selecting the name "Sony" that was originated from a combination of the Latin word "sonus" meaning "sound", and the British word "sonny" meaning "little man" selected in the hope of gaining brand acknowledgment within the international business arena, as well as to alleviate the Japan's image as a producer of poor quality products during that period (Sony Corporation, 2004).
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The first step in its 'going global' quest adopted by the company in order to execute this strategy was through gaining a deep understanding of an overseas market before making any decisions on investment activities in that particular country. Akio Morita, the founder of the Sony Corporation, has been a firm believer in the philosophy of learning about the local market condition of the target country before committing the company into any actual business activities. The first country where he applied this strategy was the United States where in 1960 he set up the company's first foreign sales representative office in San Diego in the state of California, and it was not until 1971 when Sony decided to set up their own manufacturing plant with most of its parts sourced from the local market.
Conversely, Toyota Corporation which is a world renowned automotive manufacturer adopted its global strategy called the "Toyota Way" which is the standard motto followed by its employees globally used to compete in the constantly changing global market. The Toyota Way has been and will continue to be the standard guideline for every employee who works for Toyota all over the world. These guiding principles define Toyota's mission and values, and the Toyota Way defines how they work. The Toyota Way has two main pillars: continuous improvement and respect for people. They believe that respect is necessary to work with people. By 'people' it implies: employees, supply partners, and customers. "Customer first" is one of the company's core mottos. It does not only entail the end customer, but also the person working at the next workstation in any of its manufacturing plants is also their customer.
This approach leads to teamwork. Toyota believes that by adopting such principles, it will motivate their employees in analysing what they do in order to see if they are undertaking their task appropriately and in the best interest of the company, therefore they are aware that they are not putting any backward pressure on the company. That nurtures their ability to identify problems, and if activities are observed closely, it will lead to "kaizen" which is a Japanese term for "continuous improvement". The root of the Toyota Way is to be dissatisfied with the status quo, and in order to overcome this problem it is important for their employees to constantly ask more of themselves. i.e., in any work commitment they undertake it is critical for them to ask "Why are we doing this?" and employees are encouraged to apply these concepts throughout the world, not just in Japan. Therefore, a main challenge for Toyota will be to ask the question of how long it takes to train their employees to develop the Toyota mind-set (Watanabe, 2006).
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Further, adding value to the organization by developing quality people has been one of the critical principles of the Toyota way strategy, as they believe in the importance of growing leaders who thoroughly understand their work, live the philosophy and most importantly imparting the knowledge to others. In developing quality people, Toyota also sees the importance of growing its leaders from within the company rather than recruiting them from outside the organization, and the reason behind this is that Toyota wants to develop a leader who does not just see a job simply as something they need to accomplish and someone having good people-skills, but leaders who can be role models of the company's philosophy in the way they conduct business, and this can be achieved through understanding the daily work in great detail so he or she can be the best teacher in imparting the company's philosophy to its subordinates (Cho, 2001)
In developing exceptional employees whom are competent and reflect the company's philosophy, Toyota has developed four strategies which are as follows:
Promoting R&D networks:
Sony's global R&D networks which evolved over time have their roots in the company's firm belief in continuous improvement, the company has decided to established its first overseas R&D lab in San Jose in California back in 1977 and later in Basingstoke in the United Kingdom the following year. The whole objective behind the establishment of this R&D network has always been the mean to tap foreign technology, provide technological support to foreign plants as well as to modify its products to suit the needs of overseas markets. In fact until today, Sony Corporation held its global R&D meetings in Japan and once overseas on an annual basis and these meetings set priorities and attempted to promote collaboration among different regions, which enabled them to appreciate the company's, research capabilities in different areas.
On the contrary, in Toyota's case the primary objective of their R&D network is to suit the needs of overseas markets, i.e. through the invention of its unique vehicle called Toyota "Kijang" meaning "deer" in the Indonesian language. Toyota's Kijang may not have the romance of the Ambassador or the cuteness of the Beetle, but the huge multi-purpose vehicle has been the heartbeat of Indonesia for decades (Suhartono, 2006). The Kijang was first launched in Indonesia in 1977, as an economical and not so attractive pick-up truck that could easily navigate the country's bumpy and often packed roads. Over the years, it has grown into a sleeker vehicle with truckloads of features such as parking sensors, Global Positioning System (GPS) navigation and leather seats, with plenty of space inside to accommodate an extended Indonesian family. Toyota's Indonesian unit has launched a coffee-table book on the Kijang to mark thirty years of what the company calls the "pride of the Indonesian family". Indonesia's best-selling car has held its own, even during the Asian financial crisis of the late 1990s and the more recent slowdown in the auto sector due to a massive hike in the fuel prices in 2005.
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The Kijang, with a starting price of around 160 million rupiah (US$17,170), has been the lifeline of Indonesia's second largest automotive distributor, Astra International Ltd., which has sold around 1.5 million units so far. It has become Indonesia's de facto national car, far better known than the ill-fated Timor car (i.e. a duplicate of the Kia vehicle from South Korea), which was launched by a former President's son in the mid-1990s.
Toyota sold nearly 32,000 Kijang vehicles in the first ten months of 2007, while none of its rivals came anywhere close to that number. In contrast to this, Nissan motors launched an assault on Toyota's bastion this year with its fuel-efficient seven-seater van, the Grand Livina. But since the launch in April 2008, only 10,186 units have been sold, while 24,000 Kijangs rolled out of showrooms in the same period. Why does Indonesians love the Kijang? It is quite simply because it's cheap and easy to run. Also, it could pack in an entire family and more, but all this due to well thought R&D planned and implemented by Toyota.
The evidence from Toyota's case study has clearly demonstrated that innovation of fuel-efficient vehicles such as the Kijang is one strategy that Toyota has adopted to gain long-term advantages via their product improvement and especially to survive during the current global economic downturn. It was clear to see that by positioning themselves as a "people's" vehicle allows them to sustain their competitive advantage gained via their product offering which are very affordable by average income earners in Indonesia.
In addition, when it comes to R&D, Toyota is continuing to focus its efforts in three key areas: environment, safety and energy. In particular, Toyota has positioned hybrid technologies as core technologies that can contribute to resolving environmental issues and it continues to undertake development with a commitment to leading the advancement of such technologies. Toyota is enhancing its hybrid vehicle line-up and also engaging in research and development for plug-in hybrids. Also, as part of its response to energy diversification, Toyota launched in Brazil a flex fuel vehicle (a vehicle capable of running on fuel that consists of any percentage of ethanol mixed with gasoline, or on ethanol alone) that can run on 100% bio-ethanol fuel (Toyota Corporation, 2008).
One case study that could illustrate the above strategy to develop its hybrid vehicles line-up is the recent announcement by Toyota to develop Australia's first home-grown hybrid car, the Camry sedan in the early 2010 and it has been decided that the Altona plant in Victoria will the place to manufacture such vehicles, and it is expected that ten thousand vehicles to be built and sold annually in Australia. The initial idea to develop this vehicle was conveyed by the current Toyota's President, Katsuaki Watanabe directly to the Australian Prime Minister, Kevin Rudd during a meeting in the city of Nagoya in Japan, and the reason behind this development is that he sees keen awareness of Australian people with regards to environmental issues including global warming, and in fact Toyota is confident that the Hybrid Camry will be well accepted by the Australian market and community.
In order to support this development, the Australian government has decided to subsidise Toyota in order to build this new hybrid technology by $35 million and the fund will be sourced directly from the Green Car Fund initiated by the current Rudd's government. For this development, Australia will be the next country after Japan and the United States as the only countries in the world building the hybrid Camry.
Local pricing for the new vehicle is still yet to be determined, but one thing is certain, it will revolutionise the Australian car manufacturing industry and open the doors for other manufacturers to pursue hybrid vehicles. There have been recent reports that the local car manufacturer Holden is developing a hybrid car to be released sometimes around 2011, which could also take advantage of the Australian government's commitment to reducing its Carbon dioxide's (Co2) outputs by adopting locally made hybrid cars in government fleets.
If the new hybrid is like its American counterpart, the petrol engine would switch off entirely at low speeds and initiate the electric motor which can reduce fuel usage.At present the current Camry uses 9.9 litres for every one hundred kilometres travelled,this could possibly drop by forty per-cents to around six litres of fuel per one hundred kilometres travelled. At present Toyota Australia builds the four-cylinder Camry and six-cylinder Aurion in Australia at its Altona plant.Adding a hybrid Camry to the list of vehicles made in Victoria at Toyota's Altonamanufacturing plant will probably result in thereplacement of thousands ofHolden and Ford vehicles in government and private fleets therefore reduce its environmental impact.
The Australian government is also planning a number of incentives forprivate buyers at the turn of the decade to promote the adoption of hybrid cars. This could be similar in form to the current $2,000 Liquefied Petroleum Gas (LPG)'s rebate. Currently there are two affordable hybrid cars on sale in Australia, the Toyota Prius and Honda Civic Hybrid, which cost around $40,000 and $35,000 respectively on road costs. It is anticipated that Toyota Australia could offer its new Camry hybrid vehicle for around $35,000 in Australia, while offering more passenger and luggagespace than the Prius or the Civic Hybrid (Motoring Channel Staff, 2008).
Achieving global coordination and operations
The management of Sony has always believed in the concept of decentralisation or provision of local autonomy to foreign subsidiaries as an effective tool to achieve global coordination among the company's employees as the business operations grow in size. It was due to this very fact that Sony did not have well thought out management control systems in place in the past, and this has caused a lack of communication amongst its subsidiaries mainly due to each subsidiary reporting directly to the headquarters in Japan. This has resulted in a lot of expatriate managers placed in management roles in overseas subsidiaries replaced by local managers who in fact had a better understanding of local market conditions. On the other hand, the provision of local autonomy or decentralisation has created a lot of excess inventory and shortages in some locations. Therefore, this has led the management to realize the role of product divisions whose responsibility ended with shipment from the plant to subsidiaries to be changed completely. In fact this has resulted in the new structure in which global profit responsibilities were given to the product divisions while geographical territories were put under the charge of subsidiary managers.
The above method is in fact one strategy that Sony adopted to increase efficiency during this economic downturn as replacement of expatriate managers by local staffs clearly reduce staff cost by means of consolidation or even centralising key functions to local staff. In fact it is critical for companies like Sony to focus on cost-cutting and adopt a conservative strategy in order to survive during turbulent times.
Toyota's efforts under this topic is contrasting but noticeable, their creation knowledge embedded in the automotive development has changed from creating new knowledge in Japan and transferring it from the headquarters to subsidiaries and affiliates around the globe to a focus of creating knowledge directly in foreign markets by local staff. With its new strategy of 'learn local, act global' for international business development, Toyota proved successful in tapping rich local knowledge bases, thus ensuring its competitive edge and a global lead in the automotive industry. However, it is also important to note and understand the reasons and causes that induced this change in Toyota's knowledge creation and car development strategy. Different reasons can be identified and traced back to different variables and the changes in environment cycles as their trigger.
Firstly, the maturity and aggressiveness of the Japanese automobile market made Toyota look more intensively for new opportunities abroad. As discussed, it originally found these in North America and Europe. But due to fierce competition and the beginning of stagnation in some of these markets, Toyota - following other major carmakers - turned to developing markets such as Eastern Europe.
Secondly, with all major global players penetrating into the emerging markets, competition intensified quickly and severely. The high price-sensitiveness of the consumers in the new markets and differences in taste and buying behaviour called for a change in strategy. Finally, Toyota came up with a new strategy for global business development - 'learn local, act global', which meant learning about unique local needs and requirements and adapt to them while successfully and globally coordinating its subsidiaries for operational excellence. As a consequence, it is probably safe to say that Toyota has made the leap from simply being a global projector to a truly metanational company (Doz et al., 2001).
According to Ichijo (2006), "the creation of knowledge is not simply a compilation of facts but a uniquely human process, one that cannot be reduced or easily replicated", which among other reasons is why "effective management of knowledge, that is, knowledge creation, sharing, protection, and discarding depend on an enabling context". Companies can generate such an enabling context for knowledge management and creation by using five knowledge enablers: (1) instilling a knowledge vision, (2) managing conversations, (3) mobilizing knowledge activists, (4) creating the right context, and (5) globalizing local knowledge (Ichijo, 2004; von Krogh et al., 2000). As a matter of fact, Toyota has basically introduced all five knowledge enablers into its organization. "Instilling a knowledge vision emphasizes the necessity for moving the mechanics of business strategy to the importance of creating an overall vision of knowledge in any organization" (Ichijo, 2006). Toyota has clearly achieved this goal by implementing its 'learn local, act global' strategy, which serves as a knowledge vision at the same time. Indeed, for Liker (2004), "Toyota is a true learning organization that has been evolving and learning for most of a century" (p. 13) and thus created "one of the few examples of a genuine learning enterprise in human history" (p. 15). Dyer and Nobeoka (2000) seem to agree when they contend that "Toyota, in particular, is widely recognized as a leader in continuous learning and improvement" (p. 346).
The second enabler, managing conversations, facilitates communication among members, a very important task since conversations are an "arena" for creating and sharing social knowledge (Ichijo, 2006). Osono's (2004) pronouncements to the effect that Toyota is a master of dialogue and that "Toyota also has a strong culture of nurturing a listening attitude and building its listening capabilities" (p. 281) clearly show that Toyota also masters the second knowledge enabler.
The third enabler is about mobilizing knowledge activists. Knowledge activists are the knowledge proselytizers of the company, spreading the message to everyone and as such being essential for the cross-levelling of knowledge, since they are the people responsible for energizing and connecting knowledge-creation efforts throughout a company (Ichijo, 2006). In the case of Toyota, knowledge activists are called "coordinators" - Japanese employees from the headquarters who were sent to overseas operations to teach their counterparts of Toyota's way of doing business face-to-face (Ichijo, 2006; Liker, 2004). However, with the growing expansion and internationalization of its business, it has become difficult for Toyota to continue using this coordinator system due to the high number of coordinators required. Facing this challenge, Toyota announced the 'Toyota Way'; in 2001 and compiled its peculiar approaches to work into a brochure that was distributed worldwide, accepting that some of the knowledge would be left unarticulated like this however (Ichijo, 2006; Liker, 2004). This was actually also one of the starting points of Toyota's 'learn local, act global' strategy, which helped to overcome coordination by centralization - i.e. the reliance on direct actions and intervention of the headquarters management group - a traditionally common characteristics of Japanese companies (cf. e.g. Bartlett and Goshal, 2002).
1) Improving corporate governance to strengthen the company's image in face of public:
In the beginning of 2003, Sony has decided to establish a new corporate structure in place that includes eight business units inclusive of four network companies. Each of these business units was given more autonomy to operate in a self-reliant manner to achieve mid-to-long term goals. The provision of autonomy, along with aggressive and effective investment by each business unit, was expected to contribute to the company's profitability. Therefore, this has led the management of the company to delegate its authorities to its different business units by appointing chief financial officers for each of the network companies, while retaining the chief financial officer for the entire group. It was expected that this would facilitate a comprehensive oversight in the operations of each network company.
Another efficient undertaken approach by the Sony Group was to strengthen its corporate structure, in a sense this was seen as an innovation of their Board of Directors, which took place in 1997 (Sano, 2001). This change caused a stir in Japan because moves to strengthen corporate governance there have traditionally paled in comparison to those undertaken in Europe and the United States. Sony's efforts were so progressive that it did more than just lead to a change in the company's overall operations, in fact it led to calls for enhancement in corporate governance measures throughout Japan. Sony Group's consolidated revenue for fiscal year 2000 has reach 7 trillion yen. Sony Group is expanding its business on a global scale in such areas as electronics, games, music, movies, finance, and other services. At present, Sony's brand is one of the most recognized in the world. Japan, the U.S., Europe, and other regions each boast a 20% to 30% share of sales. Sony is further unique in that 40% of their stock is owned by non-Japanese investors. Sony has also managed to realize substantial growth by sustaining innovation in both the technological and product development aspects of its business and management structure. They plan to continue this innovation with the hope of achieving even greater growth in the Broadband Network Era of the 21st Century.
There are currently two important business issues that Sony Corporation has dealt with and they are as follows:
1) How best to use IT, or computer and Network Technology, to revamp their existing management processes and to create a new business model, and
2) How best to manage and oversee all of Sony Group so that company can enjoy an increase in shareholder value throughout the Group.
In order to handle these two important issues, Sony has undertaken, over the last few years, various reorganization plans of its business, such as an revision in their business groups and a strengthening of its headquarters function. The CEO of the company has made it clear that "polarisation and integration" are the keywords of his vision as to how the Group should be managed. He has also introduced a decentralized management structure in which a wide range of authority is given to the business units, but one in which the headquarters function retains cohesive power. The goal of this structure is to create an environment in which top management can exert strong leadership, mobilize the resources of the entire Group when necessary, advance reform, and increase corporate worth.
The CEO has outlined the primary steps company has taken to achieve these goals in the last few years as the following, in 1994, the company has eliminated the Business Group system they had previously relied upon, introducing a Divisional Company System instead. This change caused a transfer of operational authority to its electronics business subsidiaries, and it increased the speed at which their business operates, not to mention the level of their competitiveness. The introduction of the Divisional Company System was the first attempt in achieving the future of decentralised management. In fact in 1997, Sony re-defined the purpose of their Board of Directors as contributing to an increase in the value of the entire group. They gave the Board powers to make strategic decisions regarding operational policy and it has been placed as the primary body for overseeing the subsidiary companies.
In 1999, Sony began to introduce VCM as a way to manage operations. VCM stands for Value Creation Management. Sony announced that business value creation would be the goal of its management. In order to achieve this goal, Sony introduced a system of managing operations that used EVA, or Economic Value Added, as a measure of performance. Compared with accounting profit, EVA was considered to be a more accurate measure of the creation of corporate value because it takes into account capital cost, and it is known for its close relationship to share prices. EVA is being used to set business plan goals, evaluate the results of these plans, decide whether or not to make investments, and determine the compensation of high-level executives.
EVA is applied not only by top management, but also by regular employees as the standard for all types of management decisions and activities.
In January 2001, Sony took over all three of its subsidiaries that had gone public. These subsidiaries were Sony Music Entertainment, Sony Chemical, and Sony Precision Technology. It is often the case in Japan that both a parent company and its subsidiaries are listed in the stock exchange. In these cases, subsidiaries take full responsibility for their business activities and can expand the value of the entire group as a result. On the other hand, when a parent company tries to alter management practices throughout its group of companies, or when it tries to raise the value of the entire group, the existence of publicly traded subsidiaries can be an obstacle. By returning these three companies, in which each of them manage important parts of its business, to fully owned companies, Sony was able to increase the sense of unity within other companies in its group. On top of that, they were able to create an environment in which the values of these three companies contribute to the value of the group as a whole.
In the 55 years since its founding in 1946, one of the primary elements that caused Sony's business to flourish was the existence of an international spirit that caused them to conduct business with an eye on the world. Beginning with the establishment of Sony Corporation of America in 1960, Sony implemented a strategy of "global localisation" by setting up sales companies and factories in numerous countries. They were also an actively sought out business on a global scale in the entertainment sector, by purchasing first CBS Records in 1988, and then Columbia Pictures in 1989. This is in fact an opportunistic activity that the company has undertaken to cope with the recession that has been changing the long-standing rules of the game in many industries including its own. In fact what Sony did was to exploit their competitors' vulnerabilities to redefine their industry via the means of consolidation via Mergers and Acquisitions (M&A) activities that are likely generate more value to the company and its direct stakeholders.
Rhodes and Stelter (2009) argues that historically best M&A deals are made during recession periods where downturn mergers are likely to generate approximately fifteen percent increase in shareholder's value of the company, as compared to the boom period. Therefore, it is important to capitalise on these opportunities by closely monitoring the financial and operational health of the company's competitors as during downturn periods many companies lacking strong financials are usually considered easy bait and seem to await advances from stronger positioned companies such as Sony in order to strengthen their overall position through the creation of M & A.
Sony moved early into the American financial capital market by issuing American Depository Receipts (ADRs) in 1961, compiling consolidated financial statements, and making management of the entire Sony Group the core of our business strategy. Wikipedia (2009) defines American Depositary Receipt (or ADR) as the ownership in the shares of a foreign company trading on US financial markets. ADRs enable US investors to buy shares in foreign companies without undertaking cross-border transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies. In 1970, Sony listed its ADRs on the New York Stock Exchange (NYSE), and they have engaged in reforms such as introducing outside Directors to our Board, disclosing quarterly consolidated reports on performance, and limiting the term of Board members to one year, with election based on approval at the annual meeting of shareholders. Since then, no matter whether results are good or bad, top executives communicate regularly with institutional investors such as those in the U.S., and the utmost effort is made to provide timely disclosure to shareholders.
Due to their experience conducting business abroad, Sony has accumulated a wealth of knowledge regarding the way in which companies are managed and corporate governance is regarded in different countries. In fact these experiences led them to implement the innovation of the Board of Directors in 1997.
In contrast to this, in further promoting localisation based on the principle of producing vehicles in countries or regions where demand exists, Toyota Corporation has began production at new plants in Thailand and China, as well as North American production base of Fuji Heavy Industries Ltd. that began in April 2007 for production of Toyota Camry at Indiana Automotive Inc. (SIA). In Japan, Toyota equipped Takaoka Plant with a completely upgraded production line, positioning it as a model of innovative manufacturing that employs the company's most-advanced technologies. Furthermore, in line with the expansion of its business worldwide, Toyota is carrying out human resources development from a global perspective and strengthening its localization efforts with greater autonomy for its local subsidiaries (Toyota Corporation, 2008).
In conclusion, it has clearly been seen from the above discussions that much of success of the global organisations such as Sony and Toyota Corporations are owed to the effective implementation of business strategies in place. This has in fact led to the improvement in the company's performance especially via reduction in cost as well as increasing efficiencies during this global financial crisis. Therefore, it is necessary for these companies to implement an effective business strategies as well as strong management systems in place to ensure the companies are be able to be sustained and ascertained that their financials remained in the strong ground.