Sony's financial decline and strategic challenges in competitive markets

Sony

Problem Identification

Sony Corporation is a leading manufacturer and producer of game, electronics and entertainment products. For several decades, the company has dominated the market of the electronic sector. However, in the last few years, Sony has recorded a net loss for four consecutive years. In 2010, the company recorded a net loss of 40.8 billion Japanese Yen equivalent of U.S.$347 Million. In 2011, the company also recorded a net loss of 259.5 billion Japanese Yen, which equivalent to $2.2 Billion. In 2012, the company recorded $3.8 billion net loss. In 2014, Sony secures a net loss of equivalent of $1.1 billion. (Sony Corporation, 2014). Sony has been facing both internal and external challenges. Typically, the company has faced a stiff competition from other online game companies. Moreover, the appreciation of Japanese Yen over other major currencies adversely affects the ability of consumer to purchase Sony product from outside Japan leading to overall decline of consumer demand for the Sony product. In essence, Sony has been facing challenges to retain market shares with increasing competitions on its product globally.

Moreover, Sony management is still conservative and unwilling to implement substantial changes that can improve the company market viability despite consecutive yearly losses recorded by the company. The company rarely implements a merger and acquisition and by consequence, Sony stock's price dropped drastically in 2011 by more than half making investors to lose confidence in the Sony stocks.

Objective of this paper is to carry out the strategic analysis of the Sony Corporation. The report uses the Porter Five and SWOT analysis to carry out the strategic analysis.

Sony Strategy Analysis

Internal Rivalry

Sony operates across different sectors and the company main segments include Game, Electronics, Financial Services, and Pictures. Over the years, Sony has lost market shares in the electronic segments because of the intense competition that the company is facing. The company major competitors include Apple Inc., Samsung, Microsoft, LG Electronics and Canon. Typically, Television is one of key components of the Sony products; however, the company has faced intense competition from other electronic company such as LG and Samsung, which are producing the similar products. (Porter, 1980).

Another problem of Sony is that the company targets mainly high price customer. For example, the Sony PlayStation is very attractive to many consumers however; its price is too high. Sony also lacks a consumer brand loyalty compared to other companies such Apple and LG because of the high price of its product.

Entry

The threats to entry into the industry are relative low because of the product differentiation, economies of scales, technological innovation and capital requirements involved. Sony has been able to develop economies of scale for its product, which new potential entrants might face challenging to achieve. Moreover, entrant into the industry requires a high level of technological skill, government regulation and patent protection, which are the barrier to entry for potential electronic producers.

Complements and Substitutes

Sony strategy is by differentiating its product and targeting high-end customer. Moreover, Sony uses superior technology and unique designs to differentiate its product, however, the company products still have so many complements and substitutes. Some of these substitutes are being offered at low prices, and increase in the price of Sony products is making many consumers switching to the substitutes. The increase in the price of Sony product is making the company to lose its brand loyalty compared to the Apple Inc. that is enjoying brand loyalty.

Supplier Power

Power of supply is low because Sony sources for materials from different suppliers around the world. Sony's bargaining powers with its suppliers are very high making the company to enjoy advantages over its suppliers.

Power of Buyer

In the sectors that Sony is operating, the buyers enjoy a substantial power. Several companies are offering similar products that Sony is offering making buyer to enjoy a high bargaining power over the Sony product.

SWOT Analysis

Strengths:

Good brand name because of good design and high quality.

Mature Value Chain

Intellectual Properties Holdings

Weaknesses:

Conservative Management

Lack of focus because of no intention to initiate changes.

Weak financial strengths due to low operating efficiency and consecutives yearly net loss.

Opportunities:

Market opportunities because of economic recovery

Industry Integration

Undervalued stock price might attract investors.

Threats:

Adversely affect the company from aftermath of the Japanese Earthquake.

Fluctuation of foreign exchange rates is affecting financial results.

Stiff Competition from other electronic companies.

Propose Alternative Solutions

The proposed strategy will assist the company to have edge over its competitors because Sony will be able to offer its product at low costs thereby making the company to enjoy customer brand loyalty. Despite the benefits that the company will enjoy from the proposed strategic recommendations to address the current issues that the company is facing, Sony still need to incur costs to implement the proposed recommendations. Alternative solutions that the company should employ are to outsource some of non-core business to reduce the cost of production. The strategy will assist the company to increase its market shares. (Slack, Chambers and Johnston, 2007).

Recommendations

Sony should design a new business plan in order to set up new plants to manufacture an assembly its product in China. The company should hire a consultant who will advise the management on the appropriate location to establish its factory. Since the report recommends that Sony should manufacture and assemble its product in China, the company should lease the land where the labor and land are very cheap to reduce the cost of production.

Reference

Armstrong, G. And Kotler, P. (2008) Principles of marketing 13th ed., New Jersey, Pearson Prentice Hall.

Jeanet, J.P., Hennessey, H.D. (2004) Global marketing strategies 6th ed., Boston, Houghton Mifflin pp. 41-45.

Porter M.E. (1980) Competitive Strategy Free Press, New York pp. 27-45.

Slack N., Chambers S. And Johnston R. (2007) Operations Management, Fifth Edition, Harlow, Prentice Hall.

Sony Corporation (2014). 2014 Sony Annual Report. Japan.