Sony Corporation Is a Global

Sony Corporation is a global leader in the consumer electronics industry. With more than a half century of experience, the company is often on the leading edge of technological developments, in this industry. Despite the troubles the consumer electronics industry has experienced in recent years, the television segment of the industry is one of the most profitable. Buyers, suppliers, new entrants, and substitutes are only a minimal threat in this industry; however, the similarity of the products makes this a very competitive industry that is highly price sensitive. Sony has three basic product lines in this market segment: LCD televisions, Internet televisions, and 3-D HDTVs. Their LCD product line is their best positioned product, with Sony third in the market for market share control and a high rate of market growth. The company's 3-D television product line is not as well positioned. Although they control a large portion of this very new product market, market growth is not expected to be as vigorous as standard LCD televisions, or Internet televisions. In a price sensitive industry, it's surprising that 3-D televisions are significantly more expensive than standard LCD sets. This is especially true when one considers that much of the components for standard and 3-D televisions are the same. However, this high price for this new technological development is partially due to a need to recoup the company's research and development costs. In addition, since Sony is one of the first entrants in the market, this early entry affords the company higher margins until more competitors emerge.

Sony Corporation Historic Overview:

Sony Corporation was founded in 1946, as Tokyo Tsushin Kogyo (Tokyo Telecommunications Engineering). In 1955, the company began to use the Sony logo. Three years later, the company officially changed their name to Sony Corporation and was listed on Tokyo Stock Exchange. In 1960, in addition to establishing Sony Overseas in Switzerland, the company also "launched the world's first direct-view portable TV, the TV8-301" ("History," 2010).

Innovation and expansion continued for Sony through the 1960s and 1970s. In 1968, the company the first Trinitron color television was introduced, while the company also expanded into the United Kingdom, which division was later reorganized as Sony UK Ltd., in 1993. Three years later, Sony launched the VP-1100, a 3/4-inch u-matic color video cassette player. The 1970s saw Sony establishing factories in San Diego, California and in Bridgend, Wales. Continued product advancements including the short-lived Betamax VCR and the revolutionary Walkman set Sony apart as a leader in the electronics industry ("History," 2010).

Three and a half-inch floppy disk drives, CD players and camcorders ushered in the 1980s for Sony Corporation. In 1988, Sony bought CBS Records and formed Sony Music Entertainment. In 1991, the purchase of Columbia Pictures saw Sony forming Sony Pictures Entertainment. As technology advanced, Sony has strove to stay at the cutting edge of developments ("History," 2010).

In 1993, Sony Computer Entertainment was formed. This was followed shortly after by Sony's launch of the home-user PC series, the VAIO. The introduction of the Cybershot DSC-F1, in 1996, and the partnership with Ericsson to for Sony Ericsson Mobile Communications, placed Sony fully into the digital camera and mobile telecommunications segment. Sony also established a foothold in the Chinese electronics market during this time frame as well ("History," 2010).

The next step in home entertainment, for Sony, was launched in 2003, with the world's first high capacity, Blu-ray Disc recorder. This new technology allowed for six times more information to be stored on a disc than previous DVDs. This significant amount of capacity was the first step in developing a 3-D television. This was further facilitated by the 2005 introduction of Sony's new BRAVIA high-definition, flat-screen television line ("History," 2010).

In 2006, Sony reached a manufacturing agreement with Samsung Electronics, to manufacture their 8th generation amorphous TFT-LCD panel line, at a joint venture facility. The next year, Sony signed a contract with FIFA, and became an official partner until 2014. 2007 also saw Sony partner with Qimonda, to design low power, high-performance DRAMs for graphic and consumer applications. As 2007 came to a close, Sony introduced the first organic light emitting diode TV, the XEL-1. A year later, "Sharp and Sony signed a non-binding memorandum of intent to establish a joint venture to produce and sell large sized LCD panels and modules" ("History," 2010).

Expansion continued in 2009 with an agreement with Epson, in which they acquired their small- and mid-sized TFT-LCD business operations. In July, 2009, Sony established a joint venture with Sharp to manufacture and sell large-sized LCD modules and panels. In September 2009, Sony formed another strategic alliance, this time with Hon Hai Precision Industry of Taiwan. This alliance was formed to produce LCD TVs for North and South America. October saw another step in the development of 3-D televisions, with Sony's development of a single lens 3-D camera technology. This camera allows for smooth and natural 3-D recording, even for fast-moving materials like sports. In January 2010, Sony formed a joint venture with IMAX and Discovery Communication. The venture is developing the first 3-D television network to provide programming 24 hours per day, seven days a week, in the United States ("History," 2010).

Electronics Industry Overview:

Sony operates primarily in the consumer electronics market. This market consists of revenues from the sales of audio visual equipment and gaming consoles. Audio visual products include: televisions, DVD players/recorders, CD players, sound systems, home theater systems, portable digital audio, in-care entertainment systems, radios, and video recorders. Gaming systems include both consoles for home use and portable game consoles. Datamonitor includes North America, Western Europe, Asia-Pacific, South America, and Eastern Europe in the geographic regions that make up the global market ("Global consumer," 2010).

The global consumer electronics market has experienced decelerating growth rates since 2008, and this trend is expected to continue for 2010. This market is anticipated to grow at an erratic rate through 2014. In 2009, the global consumer electronics market posted revenues of $253.7 billion. This represented a compound annual growth rate (CAGR) of 6.1%, from 2005 through 2009. The CAGR is anticipated to decelerate to approximately 2.7%, from 2009 through 2014. This CAGR rate would drive the market value to $289.5 billion at the end of this period. Europe and Asia-Pacific are projected to be the two highest growth geographic areas for this period, with anticipated CAGRs of 4.2% and 3.4% respectively. The European market is anticipated to reach a value of $84.1 billion and the Asia-Pacific market is anticipated to reach a value of $76 billion, by 2014 ("Global consumer," 2010).

The 2005 to 2009 CAGR of 6.1% is not representative of the true slowing of growth of this market. To get a better picture, the annual CAGR for each of the years in this period should be reviewed. In 2005, revenues for the global consumer electronics market was $200.4 billion, by 2006 revenues had grown 9.4% to $219.2 billion. 2007 also saw substantial growth, with revenues reaching $239.4 billion and a CAGR of 9.2%. However, by 2008, growth slowed significantly with revenues reaching only $250.2 billion and a CAGR of just 4.5%. By 2009, growth was nearly stagnant, with revenues only increasing by $3.5 billion, to total revenues of $253.7 billion and a CAGR of 1.4% (See Table 1) ("Global consumer," 2010).

Television Market Segment:

The audio visual equipment market segment has been the most lucrative segment of the global consumer electronics market. In 2009, this segment generated $231.7 billion in revenues, or 91.3% of the global consumer electronics market overall. This is compared to only 8.7% contribution in revenues by the gaming consoles segment (See Figure 1) ("Global consumer," 2010).

This segment of the global consumer electronics market can be further segmented geographically. The Americas, both North and South America, make up 47.7% of the global market value. Europe is the second largest geographic segment, accounting for 27% of the global market value. Asia-Pacific comes in a close third, making up 25.3% of the global market ("Global consumer," 2010) (See Figure 2).

Five Forces Analysis:

Summary:

The Five Forces Analysis of the television segment of the global consumer electronics industry uses degree of rivalry, buyer power, supplier power, substitutes, and new entrants to gauge the competitiveness in the industry, for Sony. The similarity of manufacturers to one another, in the television segment of the electronics market, creates an extremely competitive environment. Manufacturers are forced to build their brand identity in the marketplace, as well as differentiate their televisions through continual improvements through research and development. These manufacturers have opportunities for organic growth, if they have sufficient enough capital outlay. To further complicate the market landscape, retailers must take consumer's needs and desires into consideration when determining which manufacturer's products they carry. However, retailers must still maintain a good working relationship even with manufacturers they aren't currently featuring, in case new product developments occur that they wish to carry in the future. In addition, retailers want to make sure they maintain relationships with manufacturers so the manufacturers don't decide to distribute their products with another retailer, or even use forward integration as an expansion strategy, and open their own retail stores, either via a bricks-and-mortar traditional store, or an increasingly popular option is an online virtual manufacturer direct store.

Buyer Power:

Retailers are the primary tier of buyers in the television segment of the global consumer electronics market. There are a variety of retailing channels used in this industry. The primary channel of distribution is through electronics retailers, like Best Buy, which comprises 65% of the total market value. Hyper and supermarkets, such as WalMart and Target, make up only 14.4% of the market. Sales via department stores, like Sears, only contributes 3.7% of the market's value. Although they typically don't sell televisions, music, video, books, and stationery retailers do contribute 3.1% of sales for the overall consumer electronics market. Lastly, a variety of other retailers make up 13.8% of the sales in this industry ("Global consumer," 2010) (See Figure 3).

The primary manufacturers in this market segment, like Sony, are often highly valued by retailers, as they provide branded products that retailers' buyers, the end consumers, have come to know and trust. Despite this desire to have these well-known brands on their shelves, retailers are not powerless in the market segment of this industry. Many retailers are large enough to exert pressure on pricing of the manufacturer. This is especially true of global retailers, such as WalMart and Target, with thousands of stores under their corporate umbrella, as well as large national electronics chains, that offer a high volume of television sales, across many states. These retailers especially can negotiate pricing with even the larger manufacturers. In addition, some retailers, such as large discount department stores like WalMart, may chose to focus their product lines on unbranded products that are offered at a lower price point ("Global consumer," 2010).

However, retailer's power in the industry is lessened by the increasing possibility that manufacturers can forward integrate their businesses and sell products directly to consumers. Factory stores have been an option for decades for manufacturers, with companies like Apple opening stores in malls and strip shopping centers around the world. This forward integration will result in higher operating costs; however, manufacturers also receive higher margins through direct sales to consumers. In addition, stores can be used as marketing tools, helping build the manufacturer's brand image ("Global consumer," 2010). Less effective in marketing, but less costly in operating costs, manufacturers can also forward integrate by offering a virtual factory direct store.

Backward integration by retailers is less of a threat in the industry. Although larger retailer may choose to offer a variety of products under their own house brand, in the consumer electronics industry, and specifically the television segment, true backward integration would be a costly venture. True backward integration would involve manufacturing costs that would mean the house brand would likely not be able to compete in this highly price sensitive industry. For this reason, it is more common for retailers to partner with a manufacture to produce their product line ("Global consumer," 2010). For these reasons, although retailers due hold some sway in the industry, it is not a significant concern for manufacturers.

Supplier Power:

Suppliers in the television segment of the consumer electronics industry include a variety of companies, including electronic components and a variety of related products, as well as manufacturing services. Sony, is one of the few exceptions in this segment, with the operation of their own manufacturing facilities that produce much of their own products. In Sony's instance, they may outsource the production of certain OEM components, such as the LCD panels for their televisions. However, in this industry, suppliers must meet stringent requirements before they are accepted by larger manufacturers. Suppliers must prove they are financially sound organizations, with a positive future outlook. Suppliers must demonstrate that their skills will merge well with the manufacturer, and that they have an adequate distribution network. Suppliers have to meet certain environmental requirements. Most significantly, suppliers must meet the product quality demanded by the manufacturer. To meet these requirements, suppliers often have to make improvements to their operations. These improvements can be expensive, as such, once a supplier has made this investment for a manufacturer, they're often eager to retain that relationship, which weakens their power ("Global consumer," 2010).

The threat of backwards integration also weakens supplier power. This is especially true for larger television manufacturers with the manufacturing capabilities already in place, such as Sony. Some substitute inputs are also possible, such as LCD and plasma screens which have a select variety of alternatives for manufacturers ("Global consumer," 2010).

Suppliers do have a small amount of power due to the cost of replacing them for manufacturers. Not only are there costs involved in the process of developing a new supplier relationship, but there is often time involved in the new supplier ramping up production. In addition, selecting a supplier that doesn't fit the requirements, especially quality requirements, the manufacturer needs could also negatively affect the brand reputation of the manufacturer. As such, there is a moderate switching cost associated with changing suppliers ("Global consumer," 2010). For these reasons, supplier power is limited in the television segment of the global consumer electronics industry.

New Entrants:

The threat of new entrants to the television segment of the consumer electronics market is a minimal concern to existing players, like Sony. "Fixed costs are fairly high, as is initial capital outlay, especially if a company proposes to set up its own production plant" ("Global consumer," 2010). In addition to this initial expense for new entrant, economies of scale are a significant factor in the television segment of the consumer electronics market. Companies that previously established economies of scale in manufacturing, in other electronics products, may have an advantage as a new entrant, over start-up organizations that have neither the experience nor the purchasing power to be competitive.

Government regulation in this industry is not particularly burdensome for new entrants, especially those doing business domestically. However, new organizations must comply with waste disposal, recycling and safe handling of chemicals regulations that apply to their particular business. In addition, because the television segment of the market is comprised of several strong brands that have garnered consumer loyalty over the years, market penetration can be especially difficult ("Global consumer," 2010).

Although the consumer electronics industry, and specifically the television segment of this industry, offers products that often are very similar to one another, in some instances "there is significant intellectual property embodied in an established player's products" ("Global consumer," 2010). However, retailers do typically wish to offer consumers an array of brands and price points; therefore switching costs are not very high for these retailers. These factors, coupled with the nearly stagnant market growth in recent years, means the threat of new entrants is minimal for Sony and the television segment of the consumer electronics industry.

Substitutes:

Consumer demand regarding the possibility of substitutes is a significant factor in a retailer's decision making process. Potential substitutes in the television segment may include personal computers and computer monitors, which can substitute as home entertainment centers. Smart phones, such as the Apple iPhone and Google's Android platform, are also potential product substitutes. However, for consumers desiring larger screened televisions, there are few other alternatives ("Global consumer," 2010), therefore for Sony's 3-D product line, and the television segment in general, the threat of substitutes is minimal.

Rivalry:

Rivalry is the most significant factor in the Five Forces Analysis. This rivalry is affected by the size and the number of manufacturers in the market. For new entrants, manufacturers must recover the cost of their initial investment in manufacturing equipment, as well as the acquisition and training of their staff, and the development and implementation of their logistics network. These factors significantly raise the barriers to exist the television segment of the consumer electronics market. This high exit barrier increases rivalry within the industry ("Global consumer," 2010).

Furthermore, the similarity between manufacturers, especially in the television segment, means manufacturers must rely on the strength of their brand image as well as their ability to differentiate their products from the other products in the marketplace, through continual product improvement and research and development. This is especially difficult when the underlying design of a product is very similar across the product category, such as is often found in televisions. Manufacturers often rely on promises of superior performance to build value in their particular brand ("Global consumers," 2010).

Pricing is another primary competitive factor in this market. As Datamonitor notes in their Global Consumer Electronics (2010) report, consumers in this market segment are often skeptical of very low-priced products, when compared to competitors. However, a small step-down in pricing for one player can result in a price war, with the end result being a substantial threat to margins for all manufacturers involved ("Global consumer" 2010). The nearly stagnant market growth in recent years has significantly increased rivalry, making control of market share evermore important. For these reasons, the degree of rivalry in this market is intense.

Leading Companies in the 3-D Television Segment of the Consumer Electronics Industry:

There are several primary players in the television segment of the consumer electronics industry that are in direct competition with Sony Corporation. Koninklijke Philips Electronics, known more commonly as simply Philips, is one of the leading global competitors. They have subsidiaries in more than 100 countries around the world. They have approximately 155 manufacturing facilities and seven research and development facilities at their disposal. Although Philips introduced two series of Blu-ray players with 3-D capabilities, their 8000 and 9000 series (Kruse, 2010), the company has yet to launch a 3-D capable television, to compete with Sony.

LG Electronics is another global leader in the consumer electronics industry. One of its five business segments is their home entertainment segment, through their Home Entertainment Company subsidiary. This subsidiary offers not only LCD and plasma televisions, but also a variety of other home audio and video products. In 2010, LG introduced their LX9500 model. This television's claim to fame is being billed as "the only available full LED 3D TV and that the innovative use of LED lights positioned directly behind the LCD are able to produce a contrast ratio of 10,000,000:1 which in turn translates into an amazing 3D effect" ("LG LX9500," 2010).

Samsung Electronics operates globally through four different business segments, including their liquid crystal display (LCD) segment. Samsung's LCD segment manufactures thin film transistor LCD modules, as well as others. Panels are manufactured for a variety of flat panel displays, including televisions. In January 2010, the company began mass production of their 3-D LED and LCD panels. Their initial screen sizes are 40-inch, 46-inch and 55-inch (Gonsalves, 2010).

BCG Matrix:

Using the BCG Matrix Sony Corporation can develop marketing strategies for their television product lines, as well as perform a marketing analysis. This visually represents the competitive positioning of the products in Sony's television portfolio. This positioning is based on the current market share as well as the market growth rate and each product line's current revenues. Sony offers three primary products in its television portfolio. These are:

Bravia LCD Televisions

Bravia 3-D HDTV Televisions

Sony Internet Televisions ("Televisions," 2010)

Bravia LCD Televisions Product Line:

The largest of these three product lines is the Bravia LCD television. The Bravia LCD product line is considered to be in the "star" phase of the product life cycle. Sony has a moderate level of market share in a highly competitive marketplace. In 2009, competitor Vizio took the top spot in LCD-TV shipments in the United States market, with 5.9 million units shipped, "up 92.1% from 3.1 million in 2008. This vastly exceeded the 29% growth of the overall U.S. LCD-TV market for the year and represented the strongest growth among the Top-6 brands. (Vizio's) market share rose to 18.7% for the year, up from 12.6% in 2008" (Patel, 2010). Patel notes that second in market share, in 2009, is Toshiba Corporation. They achieved 81.7% growth in shipped units for the year and ended up with 7.6% of the market share, up from 4.2% in 2008.

Sony Corporation demonstrated a strong Q4 performance in 2009, in the American LCD TV market. The company's market share rose to 13.2%, up from 7.7% in the third quarter. This growth, according to Patel (2010a), was facilitated by aggressive marketing campaigns for Christmas, including bundled packages that combined LCD TVs with PlayStation 3 video games and Blu-ray players. This helped Sony rank third overall in 2009 in market share (See Table 2).

In addition, as mentioned, this particular segment of the consumer electronics industry is growing at a reasonable rate. First quarter 2010, expected to see total shipment of 218 million units of LCD televisions, globally (McGlaun, 2009). In the United States, one of the largest markets for LCD televisions, total units shipped in 2009 were up 29% (Patel, 2010a) (See Table 2).

This moderately high market share control and high market growth potential makes this a product line Sony will want to continue to invest in. Continuing research and development in the LCD technology will help ensure Sony continues to retain their market position, plus garner more valuable market share from their competitors. With investment and effective marketing, Sony should be able to build the Bravia brand positioning so that when the LCD TV market growth rate slows, this product line will be a cash cow for the organization.

Bravia 3D HDTV Televisions Product Line:

The Bravia 3D HDTV television product line is the newest product line in Sony's television portfolio. Three-dimensional television shipments began in 2009, with only 200,000 units shipped (Wilson, 2010). In 2010, Patel (2010b) estimates this figure will rise to 4.2 million 3-D sets worldwide. It is yet to be seen what percentage of market share Sony will have in this inaugural year of sales; however, as there are only a small number of manufacturers currently offering 3-D televisions, the companies early entry into this new market is likely to pay off with a moderate market share control, right from the beginning.

Because of the newness of this particular product line segment, the Bravia 3-D HDTV product life cycle position is currently straddling the question mark and star categories on the BCG Matrix. Market growth will likely not be an issue for this product line for many years, with the initial excitement for this technology that consumers have shown, coupled with complementary technologies, such as the increasing release of 3-D movies, which can then be turned into 3-D DVDs for home viewing, and 3-D television programming. In addition, as economies of scale are achieved, competition in this segment increases, and initial research and development costs are recouped, pricing will come down and demand will further increase. Market share is the area that is most at stake for Sony. They will have to continue to innovate in this product line to retain their early entry market share, while also considering that the flat-panel television market segment, as a whole, is incredibly price sensitive. If they can position themselves as a market share leader, their 3-D HDTV product line will easily slip into the star category, and be well-positioned to become a cash cow for the organization when the product segment matures.

Sony Internet Television Product Line:

Sony Internet television offers full Internet access on the consumer's television, via built-in wireless connectivity. Through a partnership with Google, each of Sony's Internet televisions offer Google TV and the ability to download apps from the Android Market, beginning in 2011 ("Sony Internet," 2010). Like the 3-D television segment, Internet television is also a fairly recent product segment introduction. it's already seen great acceptance and Patel (2010b) anticipates that growth for Internet television will be greater than 3-D televisions, in the near future. In 2010, it is anticipated that 27.7 million Internet TV (IETV) sets will ship, more than six times the number of anticipated 3-D television sets expected to ship. This is an increase of 124.9% over the number of IETVs that shipped in 2009. Patel states, "IETV shipments will expand at rates north of 50% for the next two years, and then continue to increase at solid double-digit rates until the end of 2014. By then, global IETV shipments are anticipated to reach 148.3 million units, accounting for 54% of the total flat-panel TV market" (See Figure 5).

Despite this high expected market growth and the newness of this product segment, Sony faces tough competition for market share. Top LCD television manufacturers including Vizio and Toshiba both have Internet televisions already on the market, in addition to several other manufacturers. Currently, this places the Sony Internet television product line in the question mark category of the BCG Matrix, for the product's life cycle. However, should further marketing efforts, perhaps utilizing the bundling marketing strategy that has been so successful in the past, be successful and market share taken from their competitors, this will move into a star product for the company. Of course, there is risk involved in investment into this product line. If the company loses market share or if the market growth falters, it could negatively affect the profitability of the product line.