PORTERS FIVE FORCES ANALYSIS OF SONY CORPORATION

a. Threats of new Entry (Low): Electronic industry needs huge amount of capitals. High scale economy and constant innovation is another barrier to a new entrant. Moreover, the government policy acts as entry barrier for a new company. [Appendix] b. Bargaining Power of Buyer (High): For Sony Corp. product the bargaining power of buyer is very high as there is almost no switching cost from one brand to another. And the information technology provides the customers with wide range of alternatives. [Appendix] c. Bargaining Power of Supplier (Low): Sony has a global band of suppliers giving the suppliers no upper hand (bargaining power) over Sony. Moreover suppliers are comparatively small entity than Sony so suppliers have weak bargaining power. Sony usually negotiates directly with its supplier to obtain high quality product in low price. [Appendix] d. Threat of Substitute Products (Low): Sonys varied range of products has no substitute or a very few that seems to be obsolete or have on foot out of the door. Thus the possibility threat of substitutes is moderately low. Considering that Sony has built a good reputation and strong customer loyalty, it effectively positions the companys products against product substitute to some extent; this is a surplus for the company. [Appendix] e. Intensity of Rivalry (High): Industry rivalry is high due to relatively intense

competition and high exit cost. It is also largely due to the numerous and equally balanced competitors in the markets, generally short product life cycle as well as high R&D, fixed and storage costs. The growth is slow and thus the intensity of competition. Sonys high rivalry is causing them to lose profitability though the suppliers give them advantage over cost. There is no threat from substitute but still buyer find alternative as they have bargaining power. And the high entry and exit barrier gives them high risky returns.

Apendix

Sony Corporation has a big band of loyal customers. But their unchanged view regarding new customers demand has cost them to lose market share as well as profitability. Sony has been facing this situation for almost three year in a row
[Stringer Theory:May 26th 2011; 1].

It is becauseSony

puts so much effort on developing a flawless product that it has lost the aim that customers need more than just a hardwere now. On the other hand the main competitor of sony, Apple was not doing good in the industry till 1998. Then Apple was a brand but not one to have loyal customers. So steve jobs returned to Apple 1998 and in 2003 they launched a brand new product iPod with creating a whole new world of music (iTunes, iTunes store etc) and not only that they braught a soophisticated sleek disigned new product, but with its virtual apeal [Nicole kennedy; 2]. Which first attacked the existing market of Sony Walkman with mere phisycal appearence as the buyers had information and high bargaining power. Supply chain of Sony are global giving them the advantage over the suppliers. And their substitute products are as well too old fashioned or not enough e.g. digital camera in case of film camera or iPhone with gaming facility in case of Playstation. So threats from substitute is comparatively low. Industry of electronics has a very short life cycle of products. That requers a high investment with high skilled labor and constant need for R&D. This narrows the threat of entry too.

Below we have tried to discuss the threats sony faces and the sources of it in details.

THREAT OF NEW
ENTRANTS

LOW

BARGANNG
POWER OF SUPPLERS

RVALRY AMONG EXSTNG

FRMS

BARGANN
G POWER OF BUYERS

LOW

High

HGH

THREAT OF
SUBSTUTE PRODUCTS

LOW

Picture Showing Porters Five Forces

Threats of New Entry: Sony Corporation is in a technology based electronic industry. To

enter this type of industry, Sony had to focus on some major criteria. These are the entry barriers for any company to enter in a technology based industry. Whether or not the entry barrier is high we tried to find some data on the following basis. Economies of Scale: Sony itself has a strong brand image. It has physical net property worth $12,342 million [Sony: property plant and equipment disclosure Mar 31, 2010; 3]. And

intangible assets are even bigger so if a new company entries to compete with Sony, it would be more vulnerable to cost of production. The threats a new company would face, a. Procurement: Sony is in the industry since 1946 [Wikipedia: Sony Corporation; 4]. So they have a very strong global supply chain. That gives them the advantage in purchasing inbound logistics with high quality and low price. That will affect the take time for the new entrants to establish. Sony does not do procurement business based on personal relationship or anything unfair. They even have a book named "Working Principles for Procurement Personnel."
Translated in Japanese Chinese and English language to help the agent all over

the world to understand their process. [Procurement Activities, Education and

Training: Aug 31 2010; 5]

b. Research & Development: In high tech electronic industry like Sony with short life cycle, the corporation needs constant extensive research & development to meet the new demand of the customers. These researches require highly skilled human resource. For a new entrant that may arise as a cost disadvantage. E.g. Sony Ericsson launches new model every year with completely advanced and different features. Walkman branded phone named
W305Named W705 for 2009 and Xperia Textpro in 2010[6].

c. Marketing: Constant new production needs constant marketing and promotional activities. Sony creates a separate image for every product targeting a separate sector of customers. E.g. Xperia for ultimate gamers and Textpro who loves to stay connected to their friends 24/7 by texting [Sony Ericsson for 2010; 7]

Product Differentiation: According to Best Global Brands 2010 its brand value is worth $11356 million [Best Global Brands 2010; 8]. That indicates the strong brand image of Sony. This could never happen without a big band of loyal customers. New entrant first would have to create a brand image as near as Sony and then compete with it. But creating a brand image is a very costly and hazardous job.

Capital Requirements: Constant R&D (research & development). High tech production and expertise machinery requires a heavy amount of capital. For a new entrant it is a barrier as well. Sonys equipment, machinery and building, organization has a gross value of $27,367 and $10,984 in millions [3].

Switching Cost: In an industry like Sony the switching cost is not that high. It is an advantage for other companies in related business to switch in to compete with Sony. E.g. Microsoft a computer software corporation launches Kinect in 2010 [Wikipedia: Kinect;
9]

in the market where Sony had already product named Playstation. But still it is costly

and demands high resources regarding R&D, technology, skill etc. And as Microsoft was already in a business related to software it was easy for them. But to compete with Sony in full length still requires much more time. That is why the Chief Corporate Adviser of Sony Nobuyuki Idei commented that Microsoft is not a competition for Sony. As it is not a technology based company [Nobuyuki Idei, Sony chief corporate adviser in an interview
with BBC NEWS].

Access to distribution channel: Sony has a global distribution channel. That is why it can reach to its global customers. From Bangladesh to United States we can use Sony products. This is another entry barrier for a new entrant.

Cost Disadvantages Independent of Scale: Sony is in the industry for more than 60 years. So they have some cost advantages that is not replicable by any entrant with no matter their size or attained economies of scale. These are a. Proprietary Product technology: Sony has its products and designs patented. They can take legal action if anyone may copy or try to exploit the design characteristics of Sony. b. Favorable Access to Raw Materials: Sony has a favorable access to its raw materials. c. Favorable Location: Sony had very favorable location up until the recent tsunami affected Japan. Sony outlets and factories were largely affected by the tsunami. But in March 22, 2011 they stated that all of their employees are safe and they have started production again. [Sony news release: Mar22, 2011; 10]. This tsunami though caused them a great deal of loss. They are expecting a net loss of $3.2 billion as 42% of their revenue was Japan based [ Lance, Business Tech: May 23 2011; 11, 18]

Government Policy: The government policy is thus designed that every corporation
before formation must have the approval of the government. The process to apply and get the approval might be different for different country Company Act.

Expected Retaliation: Existing firms in the industry with Sony has intense rivalry. That
is why a new entrant will be prone to vigorous retaliation from existing firms.

 Entry Deterring Price: The price to enter in electronic industry is high. So the company
wants to enter must determine whether or not the price is higher than the existing level.

Intensity of Rivalry among Existing Competitors: Sony has a various sort of

competitors for its different range of products. But its top competitors are 1. Philips Electronics. 2. Panasonic Corporation.

3. Sanyo Elec Ltd. 4. Apple 5. Samsung 6. Nintendo 7. Canon 8. Hewlett Packard Some recent graphs showing the Sonys performance against its competitors are given below.

Graph: Sony and its competitors performance in stock market July7, 2011 [12]

In electronic industry, major factors that affect competitors are 1. Continuous R&D 2. Pricing 3. Quality 4. Brand image 5. Service & 6. Marketing Through these factors a competitor creates unfriendly environment for its competitors. As the information technology is well developed any change or extensive proposal offered by the competitors may hamper Sonys existing market. E.g. iPod with new design and marketing came in industry in 2003 and Sony walkman lost a great deal of customers. Intense rivalry is a result of a number of interacting structural factors. These we discussed on basis of Sony below. Numerous and Equally Balanced Competitors: Sonys main competitors are about equally balanced. Brand Position
Previous Present

Name

Brand Image

Value ($Million)

11

10

Hewlett Packard

26,867(2010)

20

17

Apple Corporation

21,143 (2010)

19

19

Samsung Corporation

19,491 (2010)

33

33

Canon

11,485(2010

29

34

Sony Corporation

11,356 (2010)

39

38

Nintendo

8,990 (2010)

42

42

Philips Electronics Corporation

8,696 (2010)

75

73

Panasonic Corp

4,351 (2010)

---

---

Sanyo Elec Corp

-----------

[According To Best Global Brands: 2010; 2]

Except for Sanyo Elec Corp every other competitor has a brand value with very less difference. This indicates the firms are equally balanced and numerous posing a threat for Sony regarding completion.

High Fixed and Storage Cost: Electronic industry is very much vulnerable to the market. Onece produced as the life cycle is short, to ensure sales the products have to cut the price down. Storage cost is high that is why this may cause to lose profitability. Apples vs. Sony in the bellowed graph show the completion intensity.

[Sony Stumbles: Did Stringers Makeover Fail?; 12]

Diversified Competitors: Sony has a set of diversified Competitors. Sony is a Japanese corporation while hp is a corporation of United States and Samsung Is from South Korea. Their different countries of origin create differences in values and strategic decision. This situation generates confusions regarding understanding each others intensions.

High Strategic Stakes: As the competitors of Sony are diversified, they put different amount of importance in different strategic stakes. This leads to high strategic stakes. That is volatile for its competitors.

Exit Barriers: Sony is in technology based electronic company. This needs a. Specialized Assets: Electronic based companies specialized assets are its advanced machineries and highly skilled labors. These assets can be used only in technology based industry. It has high cost of transfer or conversion as well b. Fixed Cost of Exit: According to employment law the permanent employees cannot be resigned without any notice and cause. Otherwise has to be given lump sum money. That is a huge deal of money in case of all job termination. As the exit barrier is high, the excess capacity of company cannot get out of the industry. Thus creates high level of rivalry among competitors.

Exit Barriers and Entry Barriers: Sony is in an industry with high entry barrier and High exit barrier. This influences its returns.

Exit Barrier

Low

High

Low Stable Returns

Low

Low Risky Returns

Entry
High

High Stable Returns

Sony High Risky Returns

Barrier

Sonys situation analysis on competitors shows that, it has high threat of rivalry from the competitors. Competitors are diverse but equally balanced. This poses a threat towards Sonys overall profitability.

Pressure from Substitute Products: Sony has a big range of products with different
features. Most of Sonys substitutes are either outdated or not efficient enough. E.g. Apple iPhone brought high quality gaming facility as a substitute to Sony Playstation (PS). But still the gaming experience of Sony Playstation is sky-high to meet. That is why the Sony management team is so confident about it, they declare that first five million people will buy the PS3 even it had no games in it. [David Reeves, Sony Computer Entertainment Europe CEO;
15].

But yet Sony acts

quickly and brings their gaming mobile Xperia, to compete iPhone. In Xperia the PS games can be installed and played. Even they call the PS a computer and that no one can utilize 100% of PS [ 16, 17]. So Sony has very low or no pressure at all from substitute products. This defines the threat from substitute as low.

Bargaining Power of Buyers: Now a day with the help of internet any information
regarding any event let alone products and price is so easy to find. That is why new Product or

pricing or competitors reactions can easily be known to the customers. This gives buyers the ultimate power of bargaining. The electronic products are prone to buyers income or the level they could spend. That is why due to recession Sony, Apple, Samsung etc dropped their prices of different products to attract customers. The products are differentiated regarding secondary features [camera, music, memory for a mobile] but standard regarding the main attributes [calling capability, durability, and battery for a mobile]. So the buyer can always find alternatives or choose from variety competitors provide. The switching cost is low Buyer has full information about demand, actual market price and in some cases suppliers cost for electronic industry. This gives the buyer a greater bargaining leverage. So it can be stated that in electronic industry like Sony, the buyer has high bargaining power. This affects their profitability a great deal.

Bargaining Power of Suppliers: Sony is a big corporation with global supply chain. So it
has suppliers from all over the. And to determine whether or not the suppliers bargaining power is high, we have assessed our information on basis of criteria stated below. If the suppliers of Sony were a dominant company and more concentrated than Sony Corporation, it might pose a threat. But Sony procures from all over the world. Even they publish a book to help the supply agent to learn about Sony named "Working Principles for
Procurement Personnel." Translated in Japanese Chinese and English [5]

Basic Supply Chain of Sony [5]. Sony is a large corporation with large demands of supplies. So Sony is a very important customer for its suppliers. This states the low intensity of bargaining power of suppliers. Sony is in a favorable position regarding suppliers. Sony is in a situation where two of Porters five forces pose a threat. And other three forces for Sony are in favorable position. Though only two pose a threat, it still hampers Sonys overall profitability or market share. Though no threats of new entrant, intense rivalry among competitors causes Sony Corp vulnerable to vigorous retaliation. And thus competing against each other with price, new product etc. constantly. And as the buyer has high bargaining power, they take the advantage of the situation. And in the result Sony either loses profitability or customer loyalty. The cause of Sonys net losses for recent several years is related with their intense rivalry with the competitors and the buyers exploiting the situation.

Reference [Retrieved on Year 2011]: 1. Stringer Theory(2011), The Economist, May 26th . Retrived on June 12, http://www.economist.com/node/18745381 2. Kennedy, N.D, From geek to style icon. Retrieved on

June12,http://www.brandz.com/upload/brandz_Apple_01_06%281%29.pdf 3. Sony Property Plant and Equipment Disclosure. Retrieved on June 12,

Dhttp://www.stock-analysis-on.net/NYSE/Company/Sony-Corp/Analysis/Property-Plantand-Equipment 4. Wikipedia, Sony. Retrieved on June 12, http://en.wikipedia.org/wiki/Sony 5. Sony Supply Chain Management. Retrieved on June 12,

http://www.sony.net/SonyInfo/csr/quality/code/index.html 6. Rob (2008), Sony Ericsson 2009 Phone List. October 20, Retrieved on June 20, http://mobileroar.com/2008/10/20/sony-ericsson-2009-phone-list 7. Sony Ericsson For 2010, Retrieved on June 20, http://www.squidoo.com/sonye 8. Interbrand (2010), Best Global Brands2010, Retrieved on June 25,

http://www.interbrand.com/en/best-global-brands/best-global-brands-2008/best-globalbrands-2010.aspx 9. Kinect(2010), Wikipedia. Retrieved on June 29,http://en.wikipedia.org/wiki/Kinect 10. News Release(2011)n Status of Sony Group Manufacturing Operations March 22, Retrieved on June 30, http://www.sony.net/SonyInfo/News/Press/201103/11-

0322E/index.html 11. Business Tech(2011) Sony now expects 3.2 billion loss, May 23, Retrieved on July 3, 2011 http://news.cnet.com/8301-1001_3-20065339-92.html 12. Daily Finance (2011) Sony Corp Top Competitors June 7, Retrieved on June 7,http://www.dailyfinance.com/company/sony-corporation/sne/nys/top-competitors 13. Sony Stumbles: Did Stringers Makeover Fail? 14. "The first five million are going to buy it (PS3), whatever it is, even [if] it didn't have games." - David Reeves, Sony Computer Entertainment Europe CEO

15. "Nobody

will

ever

use

100%

of

PS3's

capability"

- Phil Harrison, president of Sony Computer Entertainment's Worldwide Studios speaking with MTV news. 16. "The PlayStation 3 is a computer. We do not need the PC."

- Phil Harrison, president of Sony Worldwide Studios, in an interview with GameSpot