Corporate Global Strategy Of Sony Corporation Management Essay

Sony Corporation generally known as ‘Sony’. It is Japanese Multination organization, which was founded by Masaru Ibuka and Akio Morita in 7th May, 1946.Its Headquarter is situated in Minato, Tokyo, Japan. Sony is the world’s fifth largest media institution with approximately US$ 77.20 billion (FY2010).It is also one of the leading producers of electronics products for consumer and professionals. Sony Corporation include seven functioning segments Music, Pictures, Consumer Products and Services Group, Professional Devices Solutions, Sony Ericsson, Financial Services and all Others. These segments make Sony world most entertainment company of the world.

Ericsson:

Ericsson is the Sweden’s largest firms; it was founded by Lars Magnus Ericsson in 1876.Its headquarter is located in Kista, Stockholm, Sweden. Ericsson provides telecommunication systems which cover a range of related services of telecom technologies, including mobile networks. It also plays a major role in mobile devices, IPTV systems and Cable TV. Ericsson invented world first Bluetooth technology.

Sony Ericsson:

Sony Ericsson formed a joint venture in October 1, 2001 by the Swedish telecommunication company Ericsson and Japanese consumer electronic firm Sony to manufacture mobile phones and accessories.

In 2009, Sony Ericsson become fourth largest mobile phone company in the world after giant Nokia, Samsung and LG. Sony Ericsson enormous sales increase result after the launch of Walkman and cyber shot series.

In 2010, Sony Ericsson rapidly lost its market share which affects its position. Currently Sony Ericsson is at sixth place behind ‘research in motion’ and ‘apple’.

Question Number 1: What motivated the two companies to forge the alliance?

In current competitive business environment companies need to think out of the box. They are competing with each other in one market whereas jointly working in another market, this happened only due to globalization. Now firms need to learn from their competitor as well. So if firms want to compete in present global environment they have to form joint ventures as a tool for the development of global competitiveness. Companies seek for International and global expansions for that reason they need alliance for various reasons:

Internal reasons:

Access to foreign market.

Capital requirement.

Sharing risk.

Economies of scale.

External reasons:

Developing new innovative products.

Better competition.

Strategic reasons:

Diversification.

Synergistic Reasons.

Acquiring and improving new technology.

After reading plenty of information from internet we concluded that Sony and Ericsson decided to get in to joint venture not for one reason but there are few factors which motivate them for this alliance.

Chip supply shortage:

Philips was major chip supplier of Ericsson and Nokia. In March 2000, accidently a fire at the Philips factory contaminated the sterile facility. Philips assured their major customers that production would be postponed for no more than a week but this timeline prolonged for months. Ericsson was confronted with a severe shortage. Nokia had alternative chip suppliers, but Ericsson’s production stopped which effect current models and their upcoming new models. Ericsson faced huge losses. This was largely due to this fire and its inability to produce cheaper phones like Nokia. To over come these losses, initially they thought for outsourcing production to Asian firms that could produce the mobile phones for lower costs. So they decided to form a joint venture with Sony.

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Creating synergy effects:

There is another reason which is basically in strategic sense that they indulge in to joint venture for creating significant synergy effects. As both companies had faith that by getting in to joint venture they will enjoy benefits from each other. In our point of view Sony was leading the consumer electronics, entertainment and music industry whereas Ericsson had expertises in the telecommunication, so they pooled in their expertises to come up with unique and different product which give them competitive edge over other competitors rather than produce their own separate mobile phones.

core competencies

Sony was having the core competency of the electronic equipment manufacturing while the core competency of Ericsson was in the manufacturing of the best mobiles and the telecommunications. So the aim of the joint venture was also to utilize their distinct core competencies together to dominate the mobile market.

Product portfolio expansion:

The sales of the companies were also not efficient due to the less product versions introduced. Therefore, Sony Ericsson thought that with the joint venture, their product portfolio will be expanded and diversified to compete in different types of markets.

Economies of scale:

Before the joint venture, the companies were bearing too much cost of production in their own areas of manufacturing. Therefore the aim of making the joint venture was to bring the production cost to a lower level and so achieving the economies of scale.

Risk aversion policy

The competitive environment in which the both companies were working was not such that they should just rely on risk avoiding policy. As in Joint venture both companies pooled their financial and human capital in their venture and share the risk. So the joint venture made it possible for both companies to take calculated risk.

Question Number 2: Were there any alternative ways better than forming a joint venture to achieve the same motivation?

There are various alternative ways for companies to enter in to any kind of international alliance which we studied in our corporate global strategy subject. These alternative options as follows:

Partnership

Merger and acquisition

Subsidiary

Licensing

Alliance

Teaming Agreement

Wholly owned subsidiary

Consortium

Franchise

If Sony Ericsson didn’t opt for joint venture, than According to our group they should go for ‘Merger or acquisition’. As motives behind every ‘Merger or acquisition’ are the same as for ‘Joint venture’. There are some additional benefits which result in motivation. These are as follows:

Generate Greater Value:

Usually after Mergers and acquisitions the shareholder value would be greater than the sum of the shareholder values of the separate entities.

Economies of scale:

While pooled in expertise company becomes more effective and efficient in various processes such as value chain which lowers the cost of production and operations. As the two firms become one bigger entity production starts at larger scale which results in increase in output production, then there are more chances that the cost of production per unit gets reduced. 

Tax and revenue gains:

Mergers and acquisitions also lead to tax gains and revenue enhancement through market share gain.

Competitive advantage:

Expertise in mobile technology and consumer electronics result in a gain competitive advantage in mobile phone industry.

New products by research and development:

With unique knowledge skills and abilities R&D comes up with new innovative products.

Attaining diversified human capital:

Human capital is the biggest capital for any firm so after Merger and Acquisition Company gets access to diversified knowledgeable and skilled work force.

Diversification of the products and services:

Companies with diversified products and services have extra edge over other firms because diversification reduces the risk. For example if one product is not achieving the targeted sales as per expectation this deficiency can be overcome by sale of other product.

Long term prospects for your business:

Every firm which operates in one business wants to get in to different business. Many firms are currently in different businesses which reduce the risk and open new opportunities.

New intellectual property:

It is more favourable for firm to buy new intellectual property, products or services rather than to develop because buying may be cheaper than developing it.

There are some other alternative ways better than forming joint ventures which are as follows:

Strategic alliances for research and development:

Instead of making whole the joint venture with Ericson, the both companies could just invest on making the research and development alliances that would be better for the effective forecast and the demand management and control. They could also bring about the plans that would be either difficult for them to launch their products according to the market condition.

The alliances with the suppliers:

This could be the one perfect way of reducing the costs over the long term periods because by making the alliance with the supplier such as with Phillips, will create the effective time delivery of the inventory possible thus reducing the transaction costs. This will also be helpful in making the inventory decisions perfect. The main problem in case of both companies was coming at covering the costs and managing inventory. Therefore, this risk would be reduced to a large extent while making the alliance with the supplier.

Industry specific alliance:

This alliance will be helpful for Sony Ericson to penetrate in the specific market where they are operating. It also creates the financial leverage for the companies because the cost of production and the distribution channels management will become controllable and so a source of competitive advantage.

Question Number 3: What problems the JV has encountered since the formation?

Workforce diversity and scheduling:

The problem in the joint venture also the adjustment of the proper schedules of such a workforce that was from the two different regions and companies. so , to take care of their working schedule and timing shifts according to their satisfaction was becoming difficult.

Drum buffer rope:

To have a proper control over the processing, Sony Ericson was fighting with the creation of the efficient drum buffer rope. This is the planning and the control system that regulates the flow of the work in process materials in the bottleneck of the capacity constrained resource In a productive system.

Branding strategy:

The problems started to arise In shaping a branding strategy because Sony Ericson was a combination of the two different companies, so having different branding portfolio and product launch strategies. Sony product launch system was totally different from the Ericson so arriving on a mutual final branding strategy was a problem for them.

Inventory pooling:

This was one of the biggest problems for Sony Ericson because it had closed its research and development plants at different important locations such as Chadwick, United Kingdom and the USA. Therefore the proper demand forecasts and the inventory management and planning were becoming problem for the company.

Question Number 4: What strategies Sony Ericsson has used to address the JV problems and can these strategies lead to the long term success of the alliance?

Product development:

This was one of the strategies by Sony Ericson to address the problems of the joint venture because it will create the mutual cooperation among the two companies along with introducing the new versions of the products. Untiol 2010, the most advanced versions of the products by Sony Ericson were in the market. The reason was that instead of being involved in troubles, Sony Ericson kept on focusing of the core competencies and so the product up gradation in the international market that would be automatically enhancing the cooperation among the two companies.

Cost cutting program:

The cost cutting program was implemented by Sony Ericson to reduce the manufacturing and the operating costs. For this purpose, it closed the research and development plants in the regions like USA and the United Kingdom and also cut the jobs of employees. The company lay off thousands of the employees to cut the costs.

But the problems with these strategies are that they will not b able to bring the recovery for the corporation because firstly the human capital is going to be lost and so the ideas are going to be lost and then the proper market research is affected because of closing the research plants at different locations and this means that the company is not responding to the market changes properly to launch its products. So these strategies may not be a source of the long term success for the company.

Conclusion:

The international market condition, in which Sony Ericson was operating, obviously required the joint venture to ensure the success through the mutual cooperation and the best utilization of the core competencies. But still instead of the proper implementation of the program, it is clear that Sony Ericson was not as much able to achieve the desired targets as it wanted, such as the cost reduction, the market leadership, economies of scale, profit maximization and the customer satisfaction. But instead of all these conditions, Sony Ericson is still in the market due to its some unique features of the products and effective marketing plan. Therefore, to be more successful in the international market Sony Ericson should achieve the desired targets through the best utilization of its workforce .along with the better technological innovation.

Recommendations:

Majority of the joint ventures failed due to cultural differences, as culture play very vital role in current global business environment. So companies should give extra consideration to cultural perspectives in order to achieve their mutual strategic goals and objectives.

The joint venture decision should be communicated to all employees so that they are aware of the fact that why we are doing this merger?

The employee empowerment and the communication flow at all levels of the organization are the way to success in any market in which the organizations are operating. The effective use of the technology and the respect for the workforce are the crucial factors for the success of the organizations.