Rapid developments in technology

Global trends and technological development and their effect on strategy and technology on organisations, with a focus on the Sony Corporation.

Abstract

In recent years there have been rapid developments in technology which have lead to the opening up of a global market. This has brought both opportunities and challenges to enterprises. Enterprises that want to operate globally have to plan appropriate business strategies. When formulating these strategies they have to consider the importance of the domestic and global situation of the enterprise. This study examines the effect of technological progress and global changes, with a particular focus on how they have affected the Sony Corporation. There is a discussion of Sony’s business strategies and their strong points and shortcomings. The study ends with suggestions as to how Sony could resolve some of its recent problems.

Introduction

In recent years the phenomenon of globalization has taken place. This has come about because of rapid progress in technology and communications. Now the world has become one marketplace and goods and services which were available only in one place in the past can now be bought almost anywhere in the world. This has many advantages for industries as it has expanded their market, but it has also brought many challenges. Among the challenges which must be dealt with by companies wishing to enter the globalization are tariffs and international competition, particularly from newly industrializing counties (NICs) such as Malaysia, China and so forth. This has lead to many enterprises formulating global strategies and many of them have achieved success in the global market. However, to succeed in the global market it is not sufficient to have good global strategies; it is also necessary to be able to use these strategies in a balanced manner. The domestic market and the local culture are key elements which must be carefully taken into account in global strategies.

Many enterprises look to the example of Japanese companies when determining their global strategies, as it is generally considered that their global strategies have been very successful and have permitted them to enter and succeed in many international markets.

The principal focus of this study will be the Sony Corporation. There will be a discussion of Sony’s management of new technology and globalization. Examples will be given of Sony’s global strategies, and the advantages and disadvantages they have encountered due to these strategies will be presented and discussed.

Globalization

Every firm should understand the implications of globalization in order to develop a global strategy successfully. The term “globalization” signifies the increased mobility of goods, services, manpower, technology and worldwide. Globalization may be described as a process by which countries all over the world are joined in a worldwide interdependent community. This process is driven by a combination of economic, technological, socio-cultural and political factors.

Raskin (2002) defined globalization as the worldwide integration of economical, cultural, political, religious, and social systems. He added that globalization, through the increasing integration of economies and lifestyles worldwide, leads to similarities in production and consumption patterns, and hence cultural homogenization. From an economic perspective, globalization signifies the convergence of prices, products, wages, rates of interest and profits towards standards of developed countries (Ismail, 2003). Similarly, Theodore (1983) argued that the main factors driving economic globalization of the economy are movement of labour force; international trade; movement of capital; integration of financial markets; cross-border transactions; and free movement of international capital.

Basic components of globalization are the globalization of markets and the globalization of production. The former signifies a move away from a system in which national markets are separate entities, divided by trade barriers and barriers of distance, time and culture, towards the merging of national markets into a single global market. The latter, globalization of production, refers to a tendency by individual companies to spread their production processes over various locations around the world in order to benefit from differences in cost and quality of elements of production (Hill, 2007).

Drivers of globalization

The principal driving forces that facilitate or support the extension of globalization are the following.

Advances in transportation: A reduction in the cost of transporting goods and services from country to country assists in bringing prices in the country of manufacture nearer to prices in the export market. Developments in transport technology have lead to a reduction in the cost of transport as well as to an improvement in the speed and reliability of transporting both goods and people. This has meant that it has become cost-effective to access new and expanding markets, thus enabling companies to extend their business further than would have been feasible in the past.

Technological advances: The huge reduction in the cost of transmitting and communicating information in recent years has played a vital role in the global growth of enterprises. This phenomenon has been called “the death of distance”, and is particularly noticeable in the growth of trade in knowledge products through the Internet.

De-regulation of financial markets: The process of the de-regulation of financial markets has lead to the abolition of capital controls in many countries. Capital markets have opened up in both developed and developing countries, facilitating foreign direct investment and encouraging the flow of money across national borders.

Avoidance of import protection: Many enterprises seek to avoid the tariff and non-tariff barriers imposed by regional trading blocs in order to gain more competitive access to rapidly-growing economies such as those in the emerging markets.

Economies of scale: Many economists take the view that there has been a rise in the estimated minimum efficient scale (MES) related to particular industries. Technological changes, innovation and invention in various markets have been factors contributing to this increase. An increase in the MES means that the domestic market may be considered as not being large enough for the selling needs of these industries, making expansion into overseas markets essential.

The effect of globalization on international business

In recent years, companies have been required to deal with business issues in an international context due to the move towards globalization and internationalization as well as the nature of competition. The principal aspects of global business environments are the following.

The forces of globalization

Every aspect of the global business environment is affected by the drivers of globalization. Although globalization increases business opportunities, it also leads to an increase in competition. Companies must be aware of the basic and often sweeping changes in both society and commerce resulting from globalization (Wild, Wild and Han, 2008).

National business environment

Although globalization has initiated a process of homogenization among different cultures, political systems, economic systems, legal systems, and levels of economic development in different countries, many of these the differences remain marked and enduring. Any enterprise wishing to expand overseas must be aware of these differences, and be able to formulate and implement appropriate policies and strategies to deal with them successfully (Hill, 2006).

International business environment

The international business environment has both a direct and indirect effect on how firms carry out their operations. As can been seen by the long-term movement to less rigid national borders, no business can remain entirely isolated from occurrences in the international business environment. As globalization processes lead to the increasing interrelation of the flows of trade, investment, companies are required to seek production bases and new markets at the same time. Firms must monitor the international business environment closely to determine the impact it may have on their business activities (Wild, Wild, and Han, 2008).

Management of international companies

The management of a completely domestic firm is not at all the same as the management of a transnational one, as market rules differ and forms must take these differences into account. Thus, it is national business environments which define the context of managing an international firm (Wild, Wild and Han, 2008).

Competitive Advantage in the Global Market

In the global marketplace, it is vital for companies to sustain competitive advantage. The term competitive advantage was used first by Michael Porter of the Harvard Business School in the U.S.A. Basically, it means the place a company has in relation to its competitors in the same industry. Firms seek to obtain a competitive advantage and then to sustain it. According to Porter (1998), there are three ways that a firm can do these things. The first way is by cost leadership, which means that a firm will have cost advantage is it can offer the same goods or services as its competitors, but at less cost than them. The second way is differentiation. The differentiation advantage refers to when a company can offer better goods or services than its competitors, but for the same price. This company will then become a leader in the industry. The third way is focus. This means that a company can concentrate on a narrow part of the market, which is known as a market niche, to obtain competitive advantage. Some of them may focus on cost and some of them may focus on differentiation (Porter, 1998). However, it is not easy for a firm to gain competitive advantage and it is even more difficult to keep it (Passemard and Kleiner, 2000). This is because if a company has a differentiation competitive advantage, soon another company will find how to make the same product with the same quality. If a company has a cost competitive advantage, then other companies will look for ways to make their products as cheap (ibid).

However, there are several factors that contribute to a firm obtaining competitive advantage. One of these factors is having good resources. Another factor is having a skilled work force. Countries’ governments also can affect firms, as taxes vary much from country to country and some governments may offer tax incentives or subsidies to companies (Passemard and Kleiner, 2000).

The advent of globalization has offered companies with markets all over the world. This has offered many opportunities to expand, but it has also faced them with challenges. According to Ari (2008), globalization is “a process of increasing interconnectedness, integration and interdependence among not just economies but also societies, cultures and political institutions”. He adds that a result of globalisation is that “the borders between countries lose their significance and can no longer deter trade and communication”. Regarding business and economics, globalization means that there is liberalisation of trade and creation of world markets (ibid). However, it also means that global industries are competing with all industries in the world.

There are many strategies industries can use to obtain and keep competitive advantage in the global market. According to Porter (1998), companies should make their strategy on a basis of strong analysis of the industry’s structure and nationally or internationally there are five forces that they should consider carefully, as follows:

1. The threat from new firms in their industry.
2. The threat of products that could replace their products.
3. The bargaining power of suppliers
4. The bargaining power of customers.
5. Competition between companies in the same sector

Segal-Horn (1996) points out that companies must be very careful when they are planning global strategy because some strategies which are effective in one country are not effective in another country. Companies have to decide if they want to have one product and marketing strategy for every country or if they have to adapt their strategy for different countries. Adaptation is more necessary for some industries than for others. For example, requirements of steel are more or less the same globally, but there will be large differences for consumer products and food and drinks. Companies have to consider this very carefully. For example, if they can use the same advertisement all over the world it is much cheaper for them, but the advertisement may not be effective in some countries, so they would lose money (ibid). To make such a strategy it is necessary for companies to have very good information about the country they want to sell their products in, which is called market intelligence (ibid). They have to be careful not to miss the differentiation advantage in any country (ibid). To have such information, they must do much market research. Many companies find that it is useful to have a joint venture with a local company in the country because that company already has good information and expertise about the market there.

De Toni et al (2008) state that “In global industries, competitive advantage derives in large part from the integration and co-ordination on an international scale of various activities”. According to Ward et al (1990) companies in a global market should have five competitive priorities, which are cost; delivery performance (dependability and speed); quality; flexibility (product mix and volume); and innovativeness.

If companies are looking for cost advantage there can be many benefits to them from globalization. This is because the can choose to buy their supplies from the cheapest supplier in any country in the world and they are not limited to suppliers in their country, as they were in the past before globalization facilitated communication and transport (Ari, 2008). In addition, they can choose to produce their products in a country where labour costs are less than in their country (ibid). Moreover, they can also sell their products through the Internet and reach millions of customers that were impossible for them to reach in the past

Sony Corporation Profile

Sony was founded in Japan just after the Second World War by Ibuka and Morita and was known initially as the Tokyo Telecommunications Engineering Company. At first their business consisted of radio repairs and manufacturing voltmeters in small quantities. However, Ibuka and Morita were interested in innovative electronics products and were also aware of the importance of international markets. They developed Sony into an international brand, expanding their business first into the U.S.A. and then into Europe. The company’s name was changed to Sony Corporation in 1958.

Currently, the Sony Corporation employs more than 150,000 people worldwide. It is one of the largest media conglomerates in the world and has six operating divisions, which are electronics, games, music, films, financial services and miscellaneous. Sony Electronics is one of world’s foremost makers of electronic products for both the business and individual consumer markets, while its games division produces, among other products, Playstation, and its music division is the second largest such company in the world. Sony’s film division produces and distributes films for the cinema as well as for TV and computers and its financial services segment includes savings and loans. Under the miscellaneous division, Sony is involved in advertising and Internet-related business.

For the financial year 2007-2008, Sony reported combined annual sales of ¥8,871.4 billion with a net income of ¥369.4 billion.

Historical background

The Sony Corporation has long been in the forefront of technological innovation and has devoted a considerable portion of its budget to research and development (R&D) in order to obtain and keep its competitive advantage. Some of Sony’s main developments were the following:

In 1949 Sony developed a prototype for a magnetic tape recorder prototype in 1949 and introduced paper-based recording tape a year later. In 1955, the company introduced Japan’s first transistor radio and was listed on the Tokyo Stock Exchange. The Sony Corporation of America (SONAM) was subsequently set up in the U.S.A. and the world’s first direct-view portable TV was introduced in 1960. Also in that year, Sony Overseas S.A. was set up in Switzerland; while a year later Sony became the first Japanese company to offer shares on the New York Stock Exchange in same year. Further technological innovations followed throughout the 1960s, including world’s smallest and lightest transistor television and the Trinitron colour television. Since then, the Sony Corporation have developed and produced the world’s first personal cassette player, the Sony Walkman, which was introduced in 1979, the world’s first CD player, launched in 1982. More recent innovations include the home-use PC VAIO in 1997, Blu-ray Disc drive Notebook PC in 2006 and the OLED television in 2007. The Sony Corporation also expanded into the mobile telecommunications business in 2001 with the establishment of Sony Ericsson Mobile Communications, while a year later it acquired one of its rival companies, Aiwa, through a merger.

Sony’s Global Strategies

The World Marketplace

In the 1950s Japanese products suffered from a poor reputation. In an effort to overturn this, one of its founders, Mr. Morita, went to the United States travelled to U.S.A to learn from companies there and with a view to introducing his company’s products to the American market and beyond. In 1958, having obtained the licensing right to the transistor patent from U.S. company AT&T, they developed the world’s smallest transistor radio, which they launched in both Japan and the U.S.A. It was at this point the decision was taken to change the company’s name to Sony, as it was short, easy to pronounce and memorable. The intention was to make Sony an internationally recognised brand, and in this they have succeeded, as, according to Richard (2002), Sony has become one of the most widely recognized brands in the world (Richard, A. 2002).

Global marketing and operations

According to Kikkawa (1995), only nine major Japanese companies Sony; Toyota; Honda, Nippon Steel; Toray; Teijin; Sumitomo Chemical; Shin-Etsu Chemical; and Matsushita. Kikkawa argued that these companies succeeded in the international marketplace by supplying products globally and/or carrying out global operations. Sony’s products have been developed to fulfil the requirements of consumers worldwide; therefore, the corporation can offer the same products all over the world. One instance of this is the Sony Playstation, which appeals to consumers in every country in the world. In its ability to anticipate and fulfil the requirements of consumers Sony has gained an advantage over its rivals.

The strategy of innovation

Masaru Ibuka, one of the founders of the Sony Corporation, stated that the key to Sony’s success was “never to follow the others”. In effect, the company’s central strategic advantage in its global strategy has always been continual innovation.

Global expansion and market selection

As far as global expansion is concerned, Sony has always given careful consideration to operating in markets they considered to be important and where they had reason to believe the company’s products would be most in demand (Richard, 2002). This lead to the initial decision to expand first to the United States, where they could market their products while at the same time learning from U.S. technology. The rationale behind this was that it would easier to expand to other markets once they had established a strong brand name in the United States. This in fact proved to be the case and expansion to European markets soon followed, as mentioned previously.

Advantages of Global Strategy

Reducing costs

Sony has used several elements global strategy to its advantage. For instance, every Sony factory is able to produce at full capacity due to Sony products being sold all over the world; this results in a reduction in production costs. In addition, although Sony has numerous product lines, they are standard worldwide. This means that Sony does not have the expense of producing several versions of a single product to suit various markets.

Worldwide recognition

As Sony’s products are known, sold and serviced all over the world, brand recognition among consumers is extremely high. This results in increased sales, as consumers feel secure about purchasing Sony products.

Enhancing competitive advantage

In addition, in recent years Sony has been an enthusiastic participant in the Sustainable Energy Europe Campaign, making efforts to produce energy-efficient products. The corporation is also involved social and environmental concerns through its active and high-profile Corporate Social Responsibility (CSR) programme. These activities have contributed greatly to Sony’s ability to increase their competitive advantage over its rivals.

Sony’s CSR programme

Sony developed their Corporate Social Responsibility (CSR) programme in the awareness that the corporation’s business has direct and indirect effects on society and the environment in which their business is conducted. The programme is concerned with the interests of all the corporation’s stakeholders, such as shareholders, customers, employees, suppliers, business partners, and local communities. This has contributed to the improvement of Sony’s corporate value.

The European Commission awarded Sony a Sustainable Energy Europe Award in early 2007, in acknowledgement of Sony’s efforts towards increasing the energy efficiency of its products and its participation in the Sustainable Energy Europe Campaign. By 2007, Sony had modified all their TV sets to consume less energy than the market average. This was a result of their research and development and lead to Sony TV sets increasing their market share. In this way, consumers can be satisfied that their television viewing is consuming a good deal less energy than previously, other stakeholders such as shareholders and suppliers are satisfied by the increase in sales of Sony TVs and electricity consumption also decreases.

Another element in Sony’s CSR programme is its improvement of its system for its employees to take leave to look after their children. Sony modified this system in the spring of 2007, with the aim establishing a working environment in which taking child care leave was facilitated. They also attempted to encourage fathers to become more involved in caring for their children. This modification has lead to an enhancement of the work-home life balance of Sony employees.

It can be seen from these examples that Sony has made use of the advantages of globalization in its CSR programme to achieve a competitive advantage over its rivals.

Disadvantages of Global Strategy

While global strategy offers many advantages for international enterprises, it also brings with it certain disadvantages. These consist mainly of costs related to greater coordination, reporting requirements, and added staff. In addition, international enterprises must be careful to avoid the pitfall of allowing over centralization to lead to a reduction in the quality of management in any country, as this can result in quality toward individual country can be reduced due to which damaging the motivation and drive of local employees. There is also a risk inherent in offering standardised products, as such products may prove to be less appropriate in some countries than in others. Similarly, use of standardised marketing strategies may not always be successful, as, without cultural adaptation, certain strategies may be inappropriate in specific countries.

Finally, the over-use of global strategies may also result in unnecessary or inefficient expenditure. In the case of Sony, a considerable portion of the corporation’s budget is spent on in R&D to fulfil international requirements and this may have led Sony to over-diversify. In order to compete with global competitors, Sony has ‘a finger in every pie’, so to speak, and this may have led the corporation to stray too far from its core competency which is electronics product expertise. Moreover, the possibility exists that over-diversification may result in clouding consumers’ perceptions of the brand.

Currently, Sony is facing a challenge to its market supremacy from the Samsung Company. In contrast to Sony, Samsung’s global strategy consists of limiting its diversification and focusing its resources on a small number of dominant businesses. This strategy has so far proved very successful for Samsung.

Recommendations

Although the Sony Corporation has succeeded in building one of the most widely recognised brand names in the world, its market dominance appears to be based on increasingly unsteady ground. This is indicated by the fact that Sony’s net profit for the third quarter of 2006 fell by 94% to ¥1.7 billion, compared to ¥28.5 billion for the same period in 2005 (Benson, 2006). This dramatic fall in profits may be attributed to the crucial strategic concerns confronting Sony.

Sony’s manufacturing process is in need of restructuring, as the quality of some Sony products has declined. This has resulted in damage to their reputation and a consequent decrease in the competitiveness of their products. For instance, Forbes magazine reported in October 2006 that 9.6 million Sony laptop batteries has had to be recalled as they were prone to overheating and were therefore dangerous. In addition, Japanese consumers expressed their dissatisfaction with the new system of the Sony PS3 (Wonova, 2006). It would appear from these examples that Sony’s quality control system is not always as efficient as it should be.

Apart from quality control issues, Sony has shown itself unable to respond rapidly and effectively to changes in market demand and its competitive advantage is therefore compromised. One example of this is the delay in the European launch of PS3 because of manufacturing problems (BBC, 2006). Sony was unable to satisfy the market demand, leaving the way open for rivals in the field such as Nintendo and Microsoft to increase their market share. Moreover, Sony did not respond as quickly as certain other television manufacturers to the increasing demand fro plasma television and therefore allowed their competitors to gain a head start on them in this market. Mintzberg et al. (1999) pointed out that “the first mover may gain advantages in building distribution channels, in tying up specialized suppliers or in gaining the attention of customers”, adding that “the first product of a class to engage in mass advertising tends to impress itself more deeply in people’s minds than the second, third or fourth”. Hence, Sony forfeited its competitive advantage and a considerable part of the market share in the games and television market. It is evident that Sony’s operational strategy is deficient and requires improvement.

In order to address these issues, Sony is putting into practice strategies from both the “inside out” resource-based perspective (Hamel and Prahalad, 1990; Barney, 1991) and “outside in” positioning perspective (Porter, 1980; Mintzberg et al., 1998), also known as the market-based perspective (Finlay, 2000). It has been suggested that combining these perspectives can optimise an enterprise’s capabilities and result in achieving and maintaining greater competitive advantages (Finlay, 2000; Thompson and Strickland, 2003; Johnson et al. 2005; Lynch, 2006). According to Hatch (1997) competitive strategy necessitates the exploitation of a company’s existing internal and external firm specific capabilities and the cultivation of new capabilities. Sony should determine appropriate methods for managing external changes in the constantly shifting business environment, and also determine how to make full use of their existing capabilities and resources to respond effectively to this environment. Moreover, Sony must be attentive to potential threats in the future and put in place the mechanisms required to neutralise these.

Conclusion

It can be seen that globalization brings both advantages and disadvantages for businesses. On one hand, they can sell their products in almost any country in the world, while progress in communication and transport means that they can choose cheaper suppliers and make their products in countries where labour costs are lower. On the other hand, it brings disadvantages in that they also have competitors from all over the world.

Appropriate planning and implementation of global strategies within the constantly evolving environment of technology can provide enterprises with opportunities for survival and expansion in an increasingly competitive market. However, inappropriate global strategies which are not well-conceived or well-implemented can result in losses. Several factors could contribute to such losses including increased costs due to additional staff and insufficient attention to the requirements of the local market. It is vital that enterprises find an appropriate balance between over-globalisation and under-globalisation, although there are no precise guidelines for determining such a balance. Among the keys to obtaining and sustaining competitive advantage in a global market is careful planning and strategy, which includes obtaining detailed information about the target country and focusing on cost or differentiation advantage

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