Internationanl Business Essay
The organization that I have chosen is Sony Corporation. Sony Corporation is one of the most successful multinational Corporations in the world; it is also one of the best-known names in consumer electronics industry. Since it was established shortly after World War 2, Sony has introduced a stream of revolutionary products, including the transistor radio, the Trinitron television, the Betamax VCR, and the Walkman portable cassette player (FundingUniverse, 2000). Over the years Sony has successfully developed into one of the biggest player in the consumer electronics industry, producing a wide range of products including Audio system, Video cameras, Television, gaming system, Semiconductors and also electronic Components. Valued at $17.12 Billion in the market (Forbes, 2011), Sony Corporation is a great example of successful Multinational Corporation that has competitive advantage in the global market place.
Daniel Spulber’s Star Analysis is an analytical framework that helps strategy makers in gathering and processing data about global market (D.F.Spulbur, 2007). By identifying the culture, feature and structure of the business environment in different country, Spulber’s Star Analysis can assist the manager in developing a global strategy that provide their organization with the competitive advantage to succeed in the international market. Star Analysis is based around five major components, which is the features of the company’s home country, supplier countries, customers countries, partner countries and competitor countries. In this case, Star analysis will be used to evaluate the competitive strategy of Sony Corporation and how Sony Corporation improved their global competitiveness.
A company’s home country refers to the country where the business has its headquarters (D.F.Spulber, 2007). In this case, the home country for Sony Corporation is Japan. D.F.Spulber (2007) stated the features of home country are often a good guide to the company’s business practices, corporate culture, and core competencies. D.F.Spulber (2007) also stated that a company can benefit from home-country strengths by using the home country as a launching pad for international expansion, and this is the case for Sony Corporation. Benefiting from the culture and features of Japan, Sony Corporation has developed a strong foundation for their international expansion. This can be justified using the Porter’s diamond theory. M. Porter states that basic factors of endowment, such as natural resources, climate, location and demographics, can provide an initial advantage that is subsequently reinforced and extended by investment in advanced factors, examples of advanced factors are communication infrastructure, sophisticated and skilled labor, research facilities and technological know-how.
Conversely, disadvantages in basic factors can create pressure to invest in advanced factors (Charles.W.L.Hills, 2010). That is the case in Japan, where they lack arable land and mineral deposit, and yet through investment from government and organizations has built a substantial endowment of advanced factors. Japan government’s subsidies and investment in education system, has created large pool of engineers, which is vital to Japan’s success in many manufacturing industries (Charles.W.L.Hills, 2010). This environment provides Sony Corporation with sufficient workforce and skilled labor. Japanese’s constant investment on Research & Development has developed the technological know-how of the country. This practice can also be seen in Sony Corporation’s strategy, which spent approximately 6.99% of their revenue, which is $5.5 billion on R&D annually and the percentage of employees engaged in R&D is 32.49% (TechnologyReview, 2012).
This gives Sony Corporation the competitive advantage in the global technological market. Another attribute in Porter’s Diamond is demand condition; In this case, the pressure from Japan’s sophisticated and knowledgeable buyers of cameras has helped stimulate the Japanese camera industry, including Sony Corporation, to improve product quality and to introduce innovative models (Charles.W.L.Hills, 2010). This constant demand for innovative and high quality product has forced Sony Corporation to invest in R&D and hence, improved the performance of the company and therefore, gained competitive advantage in the global market. The next attribute is the presence of suppliers or related industries that are internationally competitive. In this case, most of the suppliers of Sony Corporation, for example, Dai Nippon Printing Co, Ltd are one of the top smart card vendors in Asia (Sony.Net, 2011)
.Successful electronic IT manufacturers including Hitachi Ltd., Fujitsu Ltd. and NEC Corp has contributed to the semiconductor industry in Japan, which provided the basis for Sony Corporation’s success in cameras and other technically advanced electronic products (DailyYomiuriOnline, 2012) The last attribute of Portal’s Diamond is the strategy, structure and rivalry of firms within a nation (Charles.W.L.Hills, 2010). ). In this case, there are many successful Multinational Corporation in Japan’s technological manufacturing field, such as Toyota, has come out with management philosophies like Total Quality Management, Just-in Time Philosophy and so on ( James et al, 2009). By practicing the same Sony Corporation has benefited from these practices and be more cost effective(Richard A.Gershon, 2007). Major domestic competitors such as Panasonic Corporation also induce Sony Corporation to look for ways to improve efficiency and produce more innovative products. All these factors have improved Sony Corporation’s overall global competitiveness.
Supplier countries refer to those countries in which the international business transacts with its input suppliers and countries in which the international business manufactures its products (Daniel.F.Spulber, 2007). In this case, Sony Corporation previously had more than 2,500 suppliers around the globe; however after incurring heavy lost in year 2009, Sony Corporation has decided to cut down the number of suppliers (CRN, 2009). To achieve global competitiveness advantage, Sony Corporation’s strategy is to outsource, or externalize part of their value chain activities to different supplier countries, and internalize their core competence, which in this case is their innovative design and technology of their product. Their current major suppliers are companies from China and USA, for example Shenzhen LVSUN Electronics Co., Ltd, which supplied laptop batteries and Nvidia Corporation, which supplied Laptop’s graphic cards (Sony.Net, 2010). China are well-known for their low wage labor force so the cost of production for Sony will be much lower compare to their global competitors.
USA is a technology-advanced country and by buying new technologies from firms in USA, Sony Corporation’s products are much more advance and better in quality, which in turn increased their global competitiveness. The company is vertically integrated in their supplier’s countries. Sony Corporation established production facilities such as manufacturing plants in Japan, China, USA, Malaysia, Singapore and Thailand (Sony Supply Chain Solution. Inc, 2011). Country like USA and Singapore has low trade-barriers and their government policies encouraged Foreign Direct investment, which smoothen Sony’s plan to establish manufacturing plant in their land. Conversely, China and Malaysia has higher trade barriers and strict government policies that might increase the risk of recovering the cost of investment.
This strategy has both positive and negative effects on Sony Corporation. By establishing their own manufacturing plants in suppliers countries, Sony are able to protect their proprietary product technology from their competitors, this view is supported by Charles.W.L.Hills (pg 558, 2010). Besides that, majority of Sony’s manufacturing plant are located in technologically advanced countries such as Japan and USA. Therefore with the advanced infrastructure and skilled labor, Sony’s production are more cost-savings and efficient. However, on the other hand, managing and operating plants and firms in different countries has increased Sony’s organization scope, which in turn will increase the organizational complexity and hence raise the firm’s cost structure, this cost is known as cost of hierarchical governance.
This view is support by Charles W.L.Hills (pg 559, 2010). In fact, the high cost of governance in different country has been such a burden to Sony that the top management has decided to shutter some of the factories and manufacturing plants, in order to reduce overall cost (CRN, 2009). Furthermore, to overcome this issue, Sony has decided to outsource part of their production to companies in China and USA. Examples are Foxconn Technology Group for the manufacturing of Sony LCD TV and Blackboard Inc for the manufacturing of Sony’s FeliCa Card readers (Sony.Net, 2011). By outsourcing part of the manufacturing,, Sony was able to take advantage of less costly workforce in China and more efficient production facilities in USA. As a result, Sony has been able to avoid bureaucratic inefficiencies and reduce their cost of operation that arise from vertically integrate, and the resulting increased in global competitiveness. This view is supported by Charles.W.L.Hills (pg 559, 2010).
In this case, Sony Corporation’s major customers, or target market are the home country itself, Japan, USA and Europe countries. The Japan market is accounted for 24.2% of Sony Corporation’s revenue while USA market is accounted for 23.6%, Europe market for 25.7% and others minor customer
countries for 26.5% (Sony.Net,2010). Evaluating the Entry mode of Sony Corporation, the company has initially chosen wholly owned subsidiaries as their strategy to enter the U.S market. More specifically, Sony Corporation practices Greenfield ventures, by establishing manufacturing plants and retails stores in U.S. Sony Corporation first move was the establishment of a small television assembly plant in San Diego, California back in 1972. Sony then expanded and diversified its U.S operation by adding more production facilities in different region of U.S (Sony.com, 2011). In 1960, Sony Corporation of America (SONAM) was established in the United States to manage operation in U.S (Sony.com, 2011).Sony Corporation’s initial entry to U.S. market was facilitated by the unfavorable exchange rate between yen and dollars at that particular period of time, and also the U.S government policies that encouraged foreign investment (SonyNet-history, 2011).
Similar scenario happened in Europe, where Sony Corporation initially enter the Europe market by Greenfield ventures, establishing operating firms such as Sony (U.K.) Ltd in United Kingdom, Sony G.m.b.H.in Germany and so on. This strategy proved to be beneficial because this entry mode allowed Sony to protect their technological competence and gives Sony the ability to engage in global strategic coordination. However, the drawback is that this method of entry can be very costly. This view is supported by Charles.W.L.Hills (pg 482, 2010) After establishing firms and production facilities in foreign market, Sony Corporation further strengthen their position by joint ventures with Tektronic Inc from U.S and Ericsson in Sweden, which later on has been wholly acquired by Sony (Sony.com, 2011). Besides that, Sony Corporation has also established strong distribution network, by having retail stores and distributors throughout the U.S and Europe region.
Through the establishment of operating firms in foreign market and joint ventures with local companies, Sony Corporation has managed to get closer and understand the demand and preference of consumers in the U.S and Europe market. Consumers in the USA and EU are generally technologically savvy and have always been demanding innovative technological products; The income per capita for US is 47199 US dollars and research shows that the highest technology expenditure for households in US is at around $94 per month ( Huffingpost.com, 2011). They are certainly willing to spend more on technologically products (Accenture, 2010). By understanding these preferences and demand of consumers in USA and Europe, Sony Corporation is able to design and produce innovative products that satisfied consumers, hence achieving the global competitive advantage.
According to Daniel.F.Spulber (2007), the features of partner countries are highly useful in determining the potential contribution that the business and its partner will bring to the joint activities. One of Sony Corporation’s most beneficial and strategic alliances is their partnership with Korea’s Samsung. Sony and Samsung shared complementary technology that would benefit each other. Sony was able to utilize Samsung’s knowledge and technology to make LCD, which is critical for the large flat –panel TVs that were in high demand. Samsung’s skills were complementary to Sony’s since they were tuned to computer displays while Sony brought TV display knowledge (Daniel F.Spulber, 2007). According to Charles W.L.Hill (2010), one of the benefits of strategic alliance is the share of cost and risk. This is certainly the case for the Sony-Samsung joint venture. The Sony-Samsung Joint venture set up a manufacturing facility in Tangjung, South Korea (Daniel F.Spulber, 2007).
The joint venture helped Sony and Samsung save significant cost in R&D and manufacturing and helped the companies gain substantial economies of scale in manufacturing (Daniel F.Spulber, 2007). By sharing ideas between both companies, product innovation is enhanced, allowing Sony to boost its global sales of flat-panel TVs (Daniel F.Spulber, 2007). In order to keep up with advances in digital technologies that was driving innovations in the global market, Sony and Samsung agreed to share patents for a variety of technologies-13,000 patents from Sony and 11,000 patents from Samsung (Daniel F.Spulber, 2007). Another successful alliance for Sony Corporation is the research joint venture between IBM and Toshiba. This particular joint venture had developed the Cell chip that powered the Sony PlayStation 3 (SonyNet, 2011).
The companies split the high development costs and employed engineers around the world. Besides that, Sony Corporation’s joint venture with Ericsson from Sweden allowed Sony to enter the mobile communication industry in Europe, which later expanded to Asia with the name of Sony Ericsson. Sony’s successful alliance with global companies like Samsung, IBM and Ericsson has allowed Sony to produce and design innovative products with high quality. Besides that, joint venture with Ericsson allowed Sony to understand Europe’s market condition better which smoothen their entry to Europe market and all these have helped Sony to achieve global competitive advantage.
One of Sony Corporation’s major competitors is LG Electronics. LG Electronics is a Korean-based company that sells electronic products such as televisions, mobile phone, Air conditioners, Home appliances and a lot more. The features of LG Electronics’s Home Country, South Korea, has played an important role in the company’s business culture and global strategy. South Korea’s government has set their goal to open new opportunities for the electronics industry and this has given LG Electronics an extra boost for expanding their market internationally (Frost-Sullivan, 2007), which is a treat to Sony Corporation in the global market. However, Korean’s culture of high uncertainty avoidance might be the reason they are less innovative, since LG Electronic employed their staffs from Korea, their products might not be as innovative as Japanese companies like Sony. As for LG Electronics supplier countries, their major suppliers are Hong Kong HuiChun Co.Ltd and Veise Electronic Co.Ltd from China mainland.
Utilizing the labor of lower wages in China, the cost of production for LG electronics might be lower than other companies in the industry, which is a treat to Sony as well (GlobalSources, 2012). As for LG Electronics partner countries, LG Electronics has established strong alliance with multinational companies like Intel, Microsoft and Mozilla has given them the technological advantage to compete in the global market. These alliances have helped LG Electronics to overcome their lack of technological innovation in their home country. In order to compete with LG Electronics in the global market, Sony Corporation has initially practices the international strategy. According to Charles W.L.Hill, an enterprise pursuing an international strategy is confronted with low cost pressures and low pressures for local responsiveness. These type of enterprise tend to centralize product development at home but tend to establish manufacturing and marketing function in each major country or geographic region in which they do business (Charles W.L.Hill, 2010).
This is initially the case for Sony Corporation, who started their entry to foreign market in such pattern. By centralizing R&D in Japan, Sony entered foreign market by establishing manufacturing plant and operating firms in USA, Europe and other Asia countries. However, as the cost pressure and pressure for local responsiveness increases, Sony Corporation has change to transnational strategy. According to Charles W.L.Hill (2010), a firm that pursue a transnational strategy is trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations.
By partnering with strong suppliers in China and USA, economics of scale can be achieved. Besides that, multidirectional flow of technological skills and knowledge from different subsidiaries, such as Sony Ericsson in Sweden, and the Samsung-Sony joint venture in South Korea and so on is also happening constantly. However, such strategy is so difficult to implement that Sony Corporation has faced some negative impact, having too high cost due to differentiation of product in different market.
As a conclusion, by applying the Spulber’s Star Analysis, Sony Corporation was able to achieve global competitive advantage in the global market. By using their strong foundation in Japan, where they receive not only support from government but also the culture, knowledge and infrastructure, Sony successfully expanded their business worldwide. Economics of scale has been achieved with the help of strong suppliers from mainland China and USA. Sony was able to enter their customer’s countries easily with joint ventures with local firms and Greenfield ventures. Using the information gathered they managed to understand the demand and consumer preferences of each market.
Sony further strengthens their positions in the global market with help from their strong alliances such as IBM, Ericsson, and Samsung and so on. Evaluating the function of Star Analysis, such analysis is fairly useful for international managers to plan their strategy. By studying the features of the home, suppliers, customers, partners and competitors countries, the strength, weaknesses, opportunities and threats of a organization can be found and this information can be use to help the organization achieve global competitive advantage. For example, the SWOT of Sony has been identified after applying the Star Analysis. Therefore, international managers should practice Star Analysis before implementing their global strategy.
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University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 30 November 2016
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