As we all known, Sony and Matsushita are two of the largest consumer electronic makers in Japan or even in the world. And in this reading, it points out the different strategies Sony and Matsushita use when they were facing the fierce competition in China —– Matushita was accelerating its pace on stretching the supply chain in China while Sony unexpectedly decided to shift some of its manufacturing business in China back to Japan. In this article, I will discuss the reasons that lead them to make different decision as well as analysize the advantages and the disadvantages of their decision.
Differences between Matsushita and Sony
Frist of all, the differences between Matsushita and Sony’s products is one of the primary reason that makes their decision various. In the reading, it reveals that Matsuhita was focusing more on the low-tech products such as NN-MX20WF (their new model mocrowave oven), DVD player, automatic washers and 29-inch TVs. One the contrary, Sony’s product is more distinctive and it emphasizes more on developing new technology. Indeed, Sony has successfully at commercializing new technologies into innoative products such as the transistor radio, tape recorder, Beta- Max video recorder, CD, Walkman, minidisk, DVD and even camera and camcorder.
In another words, Matsushita just centrated on being customer intimate but Sony differenticated itself by innovation. Therefore, as we can notice, the functional products of Matsushita have low demand uncertainties, long product life cycle, low profit marginsm low product variety, low stockout cost and low obsolescence but the innovative products of Sony have high demand uncertainties, short product life cycle, high profit margins, high stockout cost and high obsolescence.
Besides the differences between Matsushita’s and Sony’s products, the differences between their supply priorities is another critical factor which should be considered. A good case in point is that, due to Sony’s products’ type, the main purpose for its supply chain is to minimize its stockout cost and obsoete inventory by responding quickly to the unpredictable demand. Therefore, when choosing the suppliers, Sony does not only emphasize on the cost but also the speed, quality and most importantly —– flexibility. In contrast, Matsushita, who mainly produces functional products, just need to pay attention to the suppliers’ cost and quality. Therefore, Matsushita’s main purpose is to supply predicatable demand efficiently at lower cost.
Fomer Supply Chains Misleading
After discussing the differences between Matushita’s and Sony’s products and supply priorities, we need to exmamize how their fomer supply chains mismatch their product characteristics with their supply primrities.
As the radly development in China, Matsushita has struggled competiting with its Chinese producers in the international market since 1993. Due to the lower labor cost, Chinese producers keep grabbing Matsushita’s market share. For instance, without the Chinese import the price of DVD players in U.S. market was $491 in 1997, but with Chinese imports, the price of DVD players dramatically decrease 66.4%, which was $165 in 2001. Fax machine, VHS, telephone, glass windshields had same situation as well. Thus, Matsushita had to cut down its profit margin in order to follow Chinese producers’ price. Facing this situation, the former strategics of Matsushita was to “import most of their necessary parts or materials from Japan and asseble the final products with Chinese workers”(41). By doing so, they thought they can combine the traditional advantage of Japan product —– high quality as well as make use of Chinese competitive advantage —– low labor cost and land cost. Unfortunely, their dream did not come true —– by the end of 2000, Matsushita main competitor of microwave ovens in China, Guangdong Galanz Enterprise Group Co., Ltd, produced 12 million units microwave ovens per year, beating Matsushita’s microwave ovens every individual market around the world(41).
And the reason of it was still the cost. Indeed, this former strategices failed to match their product characteristics with their supply priorities. That is, it cannot minimize their product cost. For example, using Japanese suppliers before was twenty to thirty percent more empensive than using Chinese suppliers, not to mention about the trasportation cost. In addition, their original Japanese design was still increasing the cost in China’s factories —– increase equipment cost cannot make good use of the cheaper labor cost in China; increase producing cost by designing unnecessary function in China.
According to the reading, it is true that “When digital camera and camcorder first appeared on the market in the early 1900s, Sony only had a few competitors such as Canon and Olympus”(49). Thus, it cannot be denied that Sony can gained a competitve advantage by reducing price, thus Sony placed its production in China in order to reduce the product’s assembly and manufacturing. However, when more competitors came, this strategices cannot work very well under this new circumstance, because for high value-added products like digital camera and camcorder, company cannot just focus on the manufacturing cost and minizing cycle time is also attached great importance. The short produce life cycle requires the company has more flexiable supply chain, otherwise it will increase its inventory cost. Imagine that if Sony still placed its production in China, what will happen? Because many possible candidates for cycle-time reduction such as materials planning and scheduleing, purchase order cycle, in bound transportation, material receipt, etc cannot be improved in China, cycle time of the products cannot be reduced in China.
Furthermore, because various high-tech parts found in camcorders and digital cameras were not produced in China and only Japan can posses this advance technolony, manufuctuing in China would just increase the traspotation cost since short product life cycle requires more frequently and more quickly deliveries. And most importantly, latest digital carmera on the Chinese market is almost six months behind the products in the primary market and Sony’s research and development center, critical cuppliers and customer service are concentrated in Japan, thus, if Sony insists using the former supply chain in China, it cannot develop better supply chain wide forecasting systems as well as avioding uncertainty by cutting lead times and increasing supply chain flexibility.
Advantages and Disadvantages of Manufacturing in China
For the advantages, one of the most significant factor we need to consider is the cost. Accoriding to the reading, not only the land (approximately one-thirtieth of Japanese) and the labor cost (only one-twentieth of Japanese) is much cheaper, but also the Chinese suppliers’ prices in China were twenty to thirty cheaper than in Japan. Thus, manufacturing in China can dramatically drop down the operating cost. Second, China is one of the largest potential market in the world, therefore, manufacuring in China can help the company proximite to their Chinese customers, knowing more about existing customers’ interests.
Knowing Chinese customers do not really use barbecue function of the microwave oven in a good example.What’s more, manufacturing in China can help the company have better relationship with other companies so that they could corporate together to gain a bigger market share in China, just like Matsushita and TCL who played an important role in helping Matsushita sell its products in China’s rural and inland market. Last but not least, manufacturing in China can let the companies know more about their Chinese local competitors.
As an old going says, “one coin has two sides”, disadvantages of manufacturing in China ought to be taken into account as well. First of all, the technology in China is not as advance as in Japanese, thus, it is difficult to produce high-tech products in China. Second, importing advanced equipments to China will cost a large amount of money as well. Third, manufacturing in China will inevitably transfer the core advanced technology from Japan because Chinese government requires all foreign companies seeking to manufacture in the country to train their local partners in the advanced technology. And after Chinese competitors learning about the new technology, they produce their products with their low cost advantages, which will drive down the overall price of these goods in the world eventually. And of course, languages and different culture are two factors that should not be ignored either.
Which One is Better?
After knowing about Matushita’s and Sony’s background and the disadvantages and advantages of manufacturing in China, now we have to figure out whose strategy is better and more long-term.
As far as I am considered, I think Sony’s strategy is more long term. It is true that there are some cons of this strategy, for example, operating cost will inevitably increase because it need to shift back to Japan, meaning higher land and labor cost. However, the pros of this strategy is weighted more than the pros. First, Sony can keep its core technologies by not sharing them with Chinese competitors, which can postpone product differentiation for as long as possible. Also, the advanced technology in Japan can reduce the cycle time of the production. Third, Sony can close to its critical suppliers, R&D center and customer service in Japan, in which way can make its supply chain becine more flexible and qualified. All of these reason can help Sony to maintain its product leadership role in the industry. And Sony innovation strategy can enable Sony has more differentiated products and achieve high profit margins.
For the Matsushita, their “eradicating and creating” supply-chain rebuilding project is a low-cost strategy. There is no denying that shifting more factories and build R&D center in China can reduce the operating cost, which is its main pros. However, this strategy cannot last for a long term because there is few possibility for the company’s innovation due to the backward technology in China. And without the innovation, Matsushita have to follow its competitors’ step and its customers’ demand. That is, it does not have initiative at all. Matsushita may succeed in the short-term by its “eradicating and creating” supply-chain, but it will not be a long-term strategy since Chinese local competitors can always provide a much lower price because they know more about the Chinese culture, they have better relationship with Chinese government and their head-quarter is also in China. In another words, Matsushita can never distinguish itself by adopting the low-cost strategy.
In conclusion, supply-chain management strategy is playing a prominent role in the company’s performance. In fact, supply chain management strategy is not something that unchanged and company should choose a appropriate supply-chain due to its own suitation. In my view, innovation and cost are always two important factors when companies begin to consider their supply chain.