MINISTRY OF EDUCATION & TRAINING

ANDREWS UNIVERSITY

BUSINESS MANAGEMENT FACULTY

INTERNATIONAL BUSINESS ADMINISTRATION

GROUP ASSIGNMENT

CASE STUDY
WELCOME TO THE WORLD OF SONY – UNLESS THE
FALLING YEN RAISES AGAIN

Instructor : Dr. Anthony Robert Sanichara

Group : AU6 – Group 2
Students :
1. Dinh Huynh Thi Nguyet
2. Huynh Dang Khoa
3. Ly Huy Hoang
4. Tu Chau Long

International Business Administration – AU6 Group 2

 TABLE OF CONTENT
EXECUTIVE SUMMARY ...................................................................................................................................... 3
CHAPTER 1: INTRODUCTION ........................................................................................................................... 3
CHAPTER 2: THE FACTORS THAT LED TO THE DROP IN SONY’S EXPORT FROM JAPAN........... 4
2.1 The major forces that affected the Japanese yen & challenges of SonyError! Bookmark not defined.
2.1.1 The first Endaka ..................................................................................... Error! Bookmark not defined.
2.1.2 A second Endaka .................................................................................... Error! Bookmark not defined.
2.1.3 Competitive pressures ............................................................................ Error! Bookmark not defined.
2.1.4 Global economic crisis ........................................................................... Error! Bookmark not defined.
2.1.5 Earthquake & tsunami devastated Japan ............................................ Error! Bookmark not defined.
2.2 What were the major factors that led to the drop in Sony’s export from Japan? ............................. 4
CHAPTER 3: APPRECIATION OF YEN .......................................................... Error! Bookmark not defined.
3.1 Causes of appreciate .............................................................................. Error! Bookmark not defined.
3.1.1 Net foreign asset position ....................................................................... Error! Bookmark not defined.
3.1.2 Carrying trade ........................................................................................ Error! Bookmark not defined.
3.2 Consequence of appreciation of Japanese Yen .................................... Error! Bookmark not defined.
3.2.1 Trading implications, loose in financial statement .............................. Error! Bookmark not defined.
3.2.2 Job reducing and low wages, competitive pressures ........................... Error! Bookmark not defined.
3.2.3 Increase purchasing power abroad ...................................................... Error! Bookmark not defined.
3.3 The strong yen and Sony’s financial results .......................................................................................... 8
3.3.1 Sony’s actions towards global crisis ....................................................................................................... 8
3.3.2 Sony’s stock price on market .................................................................................................................. 8
3.3.3 Profitability ............................................................................................................................................... 9
CHAPTER 4: SONY'S COMPETITIVENESS & ITS STRATEGY OVER THE YEARS............................ 12
4.1 Competitiveness Analysis ...................................................................................................................... 12
4.1.1 The threat of new entry (Low): ............................................................................................................. 12
4.1.2 Substitutes threat (Low): ....................................................................................................................... 13
4.1.3 Buyer’s bargaining power (High): ........................................................................................................ 13
4.1.4 Supplier’s Bargaining power (Low): .................................................................................................... 13
4.1.5 Rivalry’s Intensity (High):..................................................................................................................... 13
4.2 Strategy over the years .......................................................................................................................... 13
4.2.1 Purchasing power parity ....................................................................................................................... 13
4.2.2 Globalization strategy of manufacturing & marketing operation ..................................................... 14
CHAPTER 5: IMPORTANT FACTORS AFFECT THE SONY IN THE FUTURE AND FORECAST ..... 17
CHAPTER 6: CONCLUSION & RECOMMENDATION ................................................................................ 19
REFERENCES ....................................................................................................................................................... 21

International Business Administration – AU6 Group 2

 EXECUTIVE SUMMARY
It should be obvious about why the exchange rate is so important in the economic and financial
world. In the modern era of global trade and high currency fluctuations, changes in exchange rates
have a significant impact on the operations and profitability of companies, especially affecting the
multinational companies such as SONY.
The exchange rates play a crucial role in a nation’s level of trade and exchange rates movements
affect the trading relationship of a nation with other nations. It can be expected that a higher
exchange rate will worsen a country’s trade balance, while a lower exchange rate will improve it.
For instance, a higher value currency makes imports of a nation less expensive, its foreign market
exports more expensive.
The Japanese yen and its exchange rate with other currencies have intense fluctuations over the past
thirty years. It was disadvantageous for Japanese exporters who wanted their goods to be sold to
American consumers while the strength of yen benefited Japanese tourists and companies
operating M&A in the United States (George T. Hogan).
There have been the major forces that affected the Japanese yen & challenges of Sony
- The First Endaka hits Japan & the yen strengthens.
- The Second Endaka continues to disrupt the exchange rate.
- Competitive pressures.
- Global economic crisis.
- Earthquake & tsunami devastate Japan.
……………………

Sony Mid-Term Corporate Strategy for FY2018-2020

Sony will aim to create sustainable social value and high return on the three main business areas of
electronics, entertainment, and financial services.
- Initiatives of each Business Segment.
- Sony’s Long-term Vision and Creating Social Value.
- Third Mid-Range Plan - Financial Targets.

CHAPTER 1: INTRODUCTION
When looking around in our household we will probably see that the name Sony is one of the most
recognized brands on electronic entertainment devices.
Sony Corporation is a multinational, the one of the leading manufacturers of electronics, which was
founded in 1946, in Japan, under the name Tokyo Tsushin Kogyo K.K. In 1958, company name
official changed to Sony Corporation, during this year, Sony listed on the Tokyo Stock Exchange.
In 1961, Sony became the first Japanese enterprise to offer shares in the United States in the form

International Business Administration – AU6 Group 2

of American Depositary Receipts (ADRs) on the OTC market of the New York Stock Exchange
(NYSE), and later Sony shares officially listed on the New York Stock Exchange in 1970 (Sony).
In the 1980s, Sony decided to diversify consumer electronics products and began shifting
production to other nations. Different strategies adopted by Sony while globalizing its operations.
Sony Business Segments
- Game & Network Services
- Music
- Pictures
- Home Entertainment & Sound
- Imaging Products & Solutions
- Mobile Communications
- Semiconductors
- Financial Services
In its early years, Sony had the operating in a currency that the yen was intensely weak against the
dollar, thus giving the company more greatest advantages when exporting products to the United
State and European markets.
The Japanese yen and its exchange rates with other currencies have intense fluctuations over years.
The growth of yen influenced the Japan’s economy, and the sharp drop in exports from Japan was
the one major effect of the strong yen and the global slow-down.
The yen has falling against the U.S. dollar for five consecutive years, the reason was that more yen
has been converted by stronger revenue and income from oversea. Moreover, the weaker yen
helped Sony in the export market. At the beginning of 2016, however, the yen began to strengthen
against the dollar (John D. Daniels).
What will the future bring to Sony and other Japanese companies?
The case study “Welcome to the World of Sony – Unless the Falling Yen Raises (or Falls) Again”
reviews helping us understand more about the impact of the yen on Sony and other Japanese
companies as well.

CHAPTER 2: THE FACTORS THAT LED TO THE DROP IN

SONY’S EXPORT FROM JAPAN
2.1 What were the major factors that led to the drop in Sony’s export from
Japan?
The strong yen had an impact on all exports from Japan, however it made imports cheaper.
Therefore, the investors shifted money out of Japan into dollars when interest rates in the
U.S. were higher. The strong yen made Sony's products more expensive on the global
market. Sony responded by shifting their manufacturing to other nations and cutting
expenses.

International Business Administration – AU6 Group 2

2.1.1 Growing strength of the Yen
- The first endaka: the yen gradually strengthened from 1970 until 1985 when it really
increased in value as the dollar began to decline in the latter part of 1985 due to economic
problems in the United States. It went from trading at ¥357.65 per dollar (1970) to ¥200 per
dollar (1985) and ¥150 per dollar (1986). The Japanese call this reinforcement yen endaka,
literally meaning “high yen”. Endaka leads to serious problems for Japanese exporters.
- The second endaka: In 1995, a second endaka hit when the yen grew to ¥80.63 per dollar.
Japan's economy fell into recession, Japanese companies were negative impacted again, so
they searched for the ways to reduce costs and maintain competitiveness as they did with the
first endaka. The yen fell against the dollar, and once again supporting exporters when Bank
of Japan dropped interest rates to stimulate demand.
The reasons that why the Yen grew strong when Japan hit crisis can be attributed the safe-haven
currency status of itself. But when we consider the safe-haven currency status, it means that we
consider its strong liquidity, economic condition in the issuing country such as political system,
economic growth, and stable finance. However, this is not applicable to Japan as we are all
aware that Japan is standing at the highest government debt to GDP, but it is still safe-haven.
The answers to this are because of Japan’s net foreign asset position and carrying trade.
The large net foreign asset position and the Japan’s large current account surplus make it
become one of the world’s creditors, which is really important during the risk-aversion period.
Apparently, investors tend to move their assets back home to ride out the global market
volatility. A country with a strong net foreign assets position will encourage the inflow to yen,
especially when the markets turns risk averse because the Japanese companies and investors
repatriate their assets by selling foreign assets to earn proceeds then convert into yen and
purchase domestic assets. Therefore, this contributes to the reinforcement of Yen’s safe haven
status.
A carry trade involves borrowing funds at a low interest rate and investing in higher yielding
assets, typically overseas. With this strategy, investors and companies tend to borrow yen at low
interest rates, exchange them for higher-yielding currencies and then either hold the foreign
currency or invest the funds in overseas assets, particularly placing the money in other-
currency-denominated bonds, bills and notes of other countries to earn higher yields. When
markets become risk averse, they tend to sell the foreign assets and covert foreign currencies
back into yen, which then reinforce the safe haven status of the yen, and also results in the
appreciation of the Yen.
The high yen status can be explained by the above factors, and it is undoubted that Japanese
manufacturers, particularly in this case is Sony, may lose their price competitiveness in the
oversea markets
2.1.2 Competitive pressures
Competition began to step in since Samsung started producing cheaper products that grew
in value and create its own reputation. Samsung and other foreign rivals started setting up
offshore factories to improve their cost. Sony's Japanese competitors including Toshiba and

International Business Administration – AU6 Group 2

 Panasonic tried to decrease the exposure to a strong yen by shifting factories abroad to
nations like Indonesia and the Philippines.
2.1.3 Global economic crisis
In the context of the global economic crisis in 2008, with Japanese interest rates too low,
many investors borrowed in yen and invested money abroad to earn higher profits, money
quickly left the emerging markets and returned to Japan when the crisis happened, and the
yen’s role as a safe-haven currency during the crisis.
2.1.4 Earthquake & tsunami
The earthquake and tsunami occurred on March 11, 2011 has devastated Japan and Sony as
well as power plants damaged and supply chains disrupted. There was a huge capital inflow
from the Japanese when they invested in liquefaction with cheap Japanese money in
emerging markets where profits were high. In addition, many Japanese companies brought
their money home, so the demand for capital led to a huge cash flow, making the yen more
valuable.
Q2: In what other ways has the strong yen affected Sony’s bottom line? What would be the effect
of a weak yen?
The export supply from Japan would drop, causing cuts for order from Japanese suppliers. This
would lead to a drop in production and eventual unemployment for Japanese people.
In what ways affect the Sony bottome line?
+ Undermining Oversea earnings
+ Potential loss of investment
+ Weakened as competitor in foreign countries
+ Increase purchasing power
+ Sourcing manufacturing decisions
Effect of weak yen?
+ Trading implication : Increased exports; Higher cost of imports, and reduced consumer spendings
+ More job, higher wages ( in a low unemployment market)
+ Decrease purchase power abroad (buy domestically, good for economy)
+ Japan would stay export-oriented
Trading implications, loose in financial statement
The strong yen makes products’ price higher for overseas buyers. Also, the fact of making products
in Japan could be much more severe than oversea companies in the case of stronger yen. A strong
yen makes less profit for Japanese companies which make the product in Japan or overseas earning.
A strong yen hurts Japanese exporters because it makes their goods less competitive and erodes the
value of their overseas earnings when repatriated into yen. It is adversely affecting companies that
have to export a large production oversea.
All most Japanese companies lost due to strong yen case during the global economic crisis in 2008,
Ministry of Economy, Trade and Industry’s survey surveys Japanese companies which have

International Business Administration – AU6 Group 2

production and manufacturing bases overseas, a number of oversea. As in the manufacturing
industry was 10,425 companies at the end of fiscal 2012 which was an increase by 20%, and the
production ratio was 20.3% in actual performance in fiscal 2012 which showed an increase 2.3% as
compared to the 2011 fiscal year.
Job reducing and low wages, competitive pressures
The strong yen makes business enterprises in general are reporting worst results for the business
year and lower the stock transactions. To improve the business performance, the Japanese
companies have to decrease employment and lower their wages.
The strong yen perform the economic weakness. When Japan suffered from a stock price crash in
the early 1990s and people became very pessimistic. They reduced consumption and expanded
money holding in preparation for a sudden wage cut or job loss.

In the global economic crisis in 2008, Sony along with other Japanese exporters has also been hit
hard by a surging yen against the dollar and euro, which cuts into the value of its profits and makes
its products less competitive compare with rivals such as China and South Korea. Sony has
announced it will slash 16,000 jobs in total. They axed about 10 percent of its manufacturing sites,
cut investment in its electronics business by about 30 percent and downsize or withdraw from
unprofitable areas. Sony has already lowered inventories and cut production, in line with other
Japanese exporters hit by weak demand from the US and Europe, and the strength of the yen
against all other major currencies.
Increase purchasing power abroad
With strong yen, Japanese companies can buy more raw materials, equipment, labor which takes
advantages for them to enlarge their oversea business.
Q3: Why do you think it is important for Sony to manufacture more products in the United States
and Europe and to also buy more from suppliers in other countries in Asia?
Sony must do this to improve cost advantage, reduce exposure to the strong yen, build cheaper
components due to cheaper labor, and Increase the dollar-base import of parts.
+ Reduce Transportation cost
+ Operate in the same currency in US and EUR
+ Cheaper cost in other countries in Asia
Q4: What are the major forces that affected the Japanese yen over the years? What factors do you
think are important to monitor as you try to forecast what will happen to the value of the yen in the
future?
From a functional perspective, entities like business or state run authorities are used. From a
process-related perspective, organizations are viewed as entities. Japan’s shrinking economy will
definitely affect the Yen as well as its aging population. The value of the Yen will decrease in the
future due to the fall of Japan
What factors do you think are important to monitor as you try to forecast what will happen
to the value of the yen in the future?
+ Possible inflation in other countries
+ Fluctuation of interest rates

International Business Administration – AU6 Group 2

+ Possible of natural disaster
+ Preparing for & predicting how the public react in a crisis

3.1 The strong yen and Sony’s financial results

3.3.1 Sony’s actions towards global crisis
To face with global crisis, Sony did restructuring plan and progress to adjust their
production levels and cutting cost. Sony reduced more than ¥250 billion in fiscal year 2009
compared with fiscal year 2008. In 2009, the income was negative ¥98.59 billion.
In which, the 2008 annual result the Foreign currency translation adjustment was negative
248 billion Yen compared with in 2007 was ¥140 billion.
The stronger yen may widen the earnings rift between Sony and their competitors’ record
quarterly profits such as Apple Inc. of the US and Samsung Electronic from South Korea.
Sony and Panasonic, the world’s two largest makers of consumer electronics, are
eliminating more than 48,000 jobs as they struggle to compete against Samsung, Asia’s
largest maker of chips and flat screens. Suwon, South Korea-based Samsung reported
record profit in the second quarter, citing a global economic recovery that spurred a rebound
in prices.
3.3.2 Sony’s stock price on market
Sony has joined a succession of Asian exporters reporting lower earnings, including Canon,
Samsung and Honda, which all cut yearly forecasts. They have blamed drops in global and
particularly American demand, contradicting an old notion that Asian economies were
decoupling from the United States.
The Tokyo stock exchanges record that Sony’s stock price reduced 33.7% in 2008, 49.7% in
2009.

International Business Administration – AU6 Group 2

3.3.3 Profitability
The Global economic crisis happened in September 2008 combined with the pronounced
strong of the yen, significantly worsened the health of Sony. Sony’s fiscal year revenues
declined 12.9% for the quarter ending March 31, 2009, on $78.9 billion revenue, reduced
from $90.5 billion a year earlier. Sony’s net loss of $1.01 billion, which equates to $1.01 per
outstanding share, their sales were down in all key markets such as 20% down in the United
State, 17% in Europe and 14% in Japan (Hodgin 2009).

International Business Administration – AU6 Group 2

 (Source: Sony Annual Report 2009)

Foreign Exchange rate can affect Sony’s operating result and financial condition

Sony’s operating results and financial condition are sensitive from foreign exchange rate
fluctuations because of many of Sony’s products are sold in countries other than the one on
which they were develop and/or manufactured. Sales are dispersed and recorded in Japanese
yen, the U.S. dollar, euro, Chinese renminbi, and local currencies of other areas, including
emerging markets. Consequently, foreign exchange rate fluctuations have had and may have
an adverse impact on Sony’s operating results, especially when the yen strengthens
significantly against the euro, when the yen or the euro weaken significantly against the
U.S. dollar, or when the U.S. dollar strengthens against emerging market currencies.
Since Sony’s consolidated statements of income are made by translating its operating results
in the local currency of its subsidiaries around the world into yen, Sony’s operating results
may also be adversely impacted by foreign exchange rate fluctuations (STATES and
COMMISSION 2018).

International Business Administration – AU6 Group 2

 For the fiscal year ended March 31, 2017, sales were ¥7,603.3 billion, a decrease of ¥502.5
billion, or 6% compared to the fiscal year ended March 31, 2016. The impact of exchange
rates was mainly of this decrease. On a constant currency basis, sales were essentially flat
year-on-year, due to significant increases in Game & Network Services and Semiconductors
segment sales, substantially offset by a significant reduce in MC segment sales.

For the fiscal year ends on March 31, 2018 compared to the fiscal year ending March 31,
2017, sales and operating revenue is 44 8,544.0 billion, an increase of 940.7 billion. This
increase is due to increased sales in all segments. In addition, revenue for the fiscal year
ended March 31, 2018, including 6.7 billion yen and 2.6 billion yen recovering insurance,

International Business Administration – AU6 Group 2

 mainly loss of opportunities related to the Kumamoto earthquake in 2016 in the
Semiconductor and Image Products segment & Solutions respectively (STATES and
COMMISSION 2018).

CHAPTER 4: SONY'S COMPETITIVENESS & ITS STRATEGY

OVER THE YEARS
4.1 Competitiveness Analysis
Sony’s decision making and strategies have been analyzed by using Porter’s five forces
analysis and time series forecasting. These tools gave us some information about the internal
and external factors of Sony’s business environment. By understanding those tools, we can
find company’s competitive advantages to retain market shares both in developed and
emerging markets, but we need to take into consideration that forecast change for the future.
In this way, the company can adjust its strategy to changes in the environment in which it
operates.
It is important for Sony to produce more products in the United States and Europe as a way
to sell more and improve profit margins. To manage the exchange rate and manage the risk
effective way is to produce in countries whose exchange rates are less violated and to the
United States and Europe. It will allow Sony to produce under the same currency that the
company is selling the product. The disadvantage of this way is higher labor rates in these
countries. This explains why China is a good option since China's yuan is fixed, reducing the
changing of the exchange rate, and China had a low cost of labor.
Porter's Five Forces is a model that identifies and analyzes five competitive forces that
shaping each industry, helping to determine the weaknesses and strengths of an industry.
Porter's model can be applied to any segment of the economy to search for profitability and
attractiveness, often used to identify the structure of an industry to determine corporate
strategy.
Analysis of these elements can be used to guide business strategy in order to increase
competitive advantage.
4.1.1 The threat of new entry (Low):
A huge amount of capital needed for a new company to enter the consumer electronics
industry. Innovation and high scale economy are other barriers that make it difficult for new
companies to enter, not to forget about the ability to work with different products in order to
compete. Moreover, policies and government regulations are another barrier to enter.
Product differentiation: Sony’s value and ranking went down from being N.40 (with value
of 9,111$m) in best global brands list 2012 to N.46 (with a value of 8,408$m) 2013, it still
indicates a strong brand image. This would not happen without constant innovation, ability to
change and a strong base of loyal customers. A new entrant will need to create a brand image
in order to compete, but still very costly.
Capital requirements: Machinery, professional human resources, high tech production and
research & production requires a huge amount of capital. Because a new entrant will not only
need to spend on existing technology but also to indicate market trends, furthermore, try to
work on a much more advanced technology than the present one in order to be ready to enter
and keep up with other competitors.

International Business Administration – AU6 Group 2

 Economies of scale: Sony is the strong brand and physical resources such as property and
intangible assets are significant, and for a new company to enter, it has to solve difficulties in
procurement, research & development and marketing costs.
Distribution channels: Sony has a good global distribution network, which gives it the
ability to reach its worldwide network of customers.
Government policies: because the need of government approvals, the process itself might be
a barrier, because of the different policies from one country to another, which might also
consume time and resources
4.1.2 Substitutes threat (Low):
The wide range of products, left most of other substitutes either not efficient or outdated.
However, they are still competing with Apple and Microsoft in term of gaming and apps
software. Apple had introduced a variety of games on their products iPhone and iPad with
the ability to choose and download apps and games immediately from App store, which was
a substitute for Sony’s playstation hardware. In this Sony has introduced new phone for
mobile gaming and changed playstation hardware to make it more as a computer to be able to
download and add software to it, but still targeting to develop a gaming network that can
compete with Apple App store. In addition, by that, Sony decided to outsource the service to
Gaikai.Inc, which is a US based developer that provides interactive cloud based gaming
service.
4.1.3 Buyer’s bargaining power (High):
The information technology and the internet gave the buyer a high bargaining power, since
the access to product information and prices is possible, which gives them the ability to
compare quality and prices between different companies.
4.1.4 Supplier’s Bargaining power (Low):
Sony is a huge corporation with large and different demands of suppliers, which makes it
difficult to know the power of the supplier, because the supply network is large. However,
suppliers are relatively smaller than Sony and by that have a weak bargaining power over
Sony. Sony has an advantage of negotiating of negotiating directly with suppliers due to the
large demand, and it obtains high quality products in low prices.
4.1.5 Rivalry’s Intensity (High):
Rivalry is high because the competition and high exit costs. The completion is also difficult
because it is hard to keep up with the major factors that affect companies in the global
consumer electronics industry such as continues research and development, innovation, price,
quality, brand image, services and marketing. Also, the short product life cycle and the need
to develop new products are other issues that Sony Corporation always need to work on,
especially when you have this high competitive environment; the growth rate is slow and
thus increase the intensity of the competition.
4.2 Strategy over the years
4.2.1 Purchasing power parity
Because the purchasing power of the yen rises as it strengthens compared with other
currencies, Sony should buy more from suppliers in other countries in Asia. (John D.
Daniels). So all materials Sony imports into Japan or outside of Japan for its' manufacturing
is cheaper. Sony should invest more in the US to match currency revenues at a cost. Sony

International Business Administration – AU6 Group 2

 should also invest in other countries in Asia where materials are cheaper. But that's where
Sony can invoice in dollars.
4.2.2 Globalization strategy of manufacturing & marketing operation
In the 1980s, the two important developments show how Sony began to extend its presence
as a global corporation. First, the company operated in all markets across the world and
reached as many potential consumers as possible. Second, the company reorganized
processes of production in such a way so that they would not be limited to the constraints of
the nation-state. In such a case, a particular concern was how the effectiveness and
international competitiveness of Japanese companies were constrained by the value of the
Japanese yen. It meant that goods produced in Japan were more expensive when exported
and in competition with those in other parts of the world. Therefore, Sony adopted a strategy
of globalization that involved moving their manufacturing and marketing operations to
different countries around the world and setting up ‘local’ operations in different countries
around the world.
Therefore, Sony adopted a strategy of globalization that involved moving their
manufacturing and marketing operations to different countries around the world and setting
up ‘local’ operations in different countries around the world.
One of Sony’s motives for moving its manufacturing operations was a clear attempt to follow
competitors and reduce labor costs. For example, the first Walkman’s were produced and
assembled in Japan. The company’s management could be close to operations and make any
necessary changes. Once up running and not requiring so many changes, additional assembly
factories were found in Malaysia and Taiwan.
The gradual move came to move operations so that they could respond directly to local
conditions. For example, Teletext was developed on site in the UK and Trinitron TV was
developed locally in France.
In addition, the practical consideration was that by establishing and presenting themselves as
a local company. Sony could use various nationals, regionals policies and regulations to use
the most appropriate and cost-effective environment to manufacture and produce its
products. The company could exploit cheap labor in Malaysia, take advantage of grants there
were available to attract new electronic industries in the UK.
In the 1980s – 1990s, Sony started to expand into Europe. Sony was good in international
expansion. The company chose to expand into similar markets, such as the US and Europe.
These markets had large populations, high incomes per capita and consumer culture.
Therefore, the other two regions were good markets to promote and sell Sony products.
The company’s strategy is presented in its market of distribution and it established a number
of factories to develop and distribute its products. The objective is to understand the local
market and consumer demands. Sony has a strategy of introducing products first to the local
market (Japan), testing consumer preferences and then introduces these products to its
international markets.
Sony is the multinational company. In 2016, the yen became stronger against the dollar and
started rising up. In 2015, Sony produced 27.2% of product sales in Japan, 18.6% in the U.S,
23.5% in Europe, 12.8% in Asia/Pacific, 6.7% in China, and 11.2% in different countries
around the world. Sony produced well in various locations around the world.
Sony manufactured electronics products 60% in Japan and 40% outside. The Japan
production, 35% was done in Japan, 75% of it was exported. 40% was produced in China,
75% of it was exported; 5% was produced in the U.S and Europe for the local market. And

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 the rest was made in different countries in Asia, 65% of it was exported to the Americas,
Japan, Europe, and China, and the rest was sold in local markets in Asia (John D. Daniels).
When Sony operates in markets where they manufacture, they not only can reduce
transportation cost but operate in the same currency. This strategy not only reduces costs but
improves margin. Other Asian suppliers also help the bottom line by sourcing components at
a cheaper cost. This will be particularly important as Sony faces tough competition from
lower-priced competitors such as Samsung.
 Sony Mid-term Corporate Strategy for Fiscal Year 2018-2020
According to Sony Mid-term Corporate strategy for fiscal year 2018-2020, Sony has
developed a strategy not only to create technology but also to develop the content that goes
into them. Sony will aim to create sustainable social value and high return on the three main
business areas of electronics, entertainment, and financial services through KANDO’s key
themes - to move people emotionally - and getting closer to people (Sony 2018).
Initiatives of each Business Segment
- Game & Network Services: increase the number of subscribers to the
PlayStation®Plus service and increase the level of user interaction with PSN as
measured by login frequency and platform time.
- Music: in addition to music IP, Sony’s animation IP, Sony will seek reinforce the
quality and quantity of its content IP catalog, while also discovering and nurturing
new artists to generate new IP.
- Pictures: to strengthen and promote Sony's IP and expand media network business,
especially in India to continue to enhance profitability.
- Branded Hardware: as sustainable and consistent cash-flow generating businesses
that enable continued investment in the Sony Group’s growth, Sony will aim to
position Branded Hardware.
- Semiconductors: expand the development of sensor applications beyond the
smartphone field, to new areas such as automotive use.
- Financial Services: Sony will aim to position itself closer to customers in order to
generate a high revenue level and maintain a stable source of profits
Sony’s Long-term Vision and Creating Social Value
- In addition to creating economic value, Sony must also create social value, including
the Earth's natural environment by giving people a sense of enrichment through
creating out a Community of interest.
- From a long-term perspective, across all levels in its supply chain, Sony will continue
to promote environmental and human rights initiatives.
- Sony will work to further develop imaging and sensor technologies, based on the
desire to contribute to safety in the era of self-driving cars.
- Furthermore, Sony also intends to contribute more to education by nurturing creators
and supplying educational tools that allow children to learn about programming, and
incubating businesses.
The financial target for fiscal years 2018 - 2020
- Operating Cash Flow 3 year total (excluding Financial Services) 2 Trillion yen or
more.
- Return on Equity (ROE) Maintain 10% or more.

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 Risks and uncertainties that might affect Sony include the global economic environment in
which Sony operates and the economic conditions in Sony's markets, certain levels of
consumer spending. The foreign exchange rates between the yen and the U.S. dollar, the euro
and other currencies in which Sony makes significant sales and incurs production costs, or in
which Sony's assets and liabilities are denominated. With all the risks can affect Sony’s
strategy that could make Sony change strategy to adapt. We also can see the important to
identify the factors affect Sony and forecast which could let Sony step ahead and manage the
risks.

International Business Administration – AU6 Group 2

 CHAPTER 5: IMPORTANT FACTORS AFFECT THE SONY IN
THE FUTURE AND FORECAST
The Japanese Yen has been strengthening from May-2019 until now. It is forecasted low down in
2020 and keeps stable from 2020 to 2021 as below chart.

Trade war between the US and China

At this moment, the Japanese yen day by day keep going stronger due to the trade war between
United State and China, potential war between United State and North Korea, since the Japanese
yen is considered as the safe havens currency and Japan is a net oversea investor, both on the retail
and institutional levels.
Japanese investors who are invested overseas, having their assets in non-yen is a risk because they
are exposed to foreign-exchange volatility. So when these geopolitical risks, or any risks, get
heightened they always want to reduce risk and that means unwinding overseas investments back to
Japan. It makes the Japanese Yen is strengthened.
United State threaten further tariffs on China makes the United State dollar fell against the Japanese
yen after U.S. President Donald Trump's threats of more tariffs on China heightened fears that an
escalating trade dispute could damage global growth. Investors bought Japanese Yen currencies as
it is considered safe havens. Currency markets in general dislike trade intervention, and previous

International Business Administration – AU6 Group 2

protectionist efforts by the U.S. government have weakened the dollar. The Yen is strengthening
during the trade war between US and China.
Japan's trade deficit for January 2019 grew from a year earlier with exports to China tumbling in
their worst decline in three years. Japan logged a trade deficit for the month of 1.41 trillion yen
($12.8 billion), 49.2 percent larger than a year before, the finance ministry said. Exports were down
for the second month in a row, with exports to China tumbling 17.4 percent, the sharpest fall since
January 2016, as shipments of plastic and electronic devices dropped sharply. Japan exports a range
of goods including electronic parts and industrial equipment to China, which has been locked in a
trade standoff with Washington.

International Business Administration – AU6 Group 2

 CHAPTER 6: CONCLUSION & RECOMMENDATION
 Conclusion
Sony’s business is continuously exposed to market fluctuation, such as fluctuations in currency
exchange rates, interest rates or stock prices. Although Sony seeks to reduce foreign exchange
risk by preventing a part of short-term foreign currency risk before transactions are expected to
occur, this risk prevention activity may not offset any, or only partially detrimental financial
effects of adverse movements in the exchange rate over the limited time the hedges are in place.
Sony's sales, profitability and operations are sensitive to regional and global economic trends as
well as political trends and conditions in its major markets. In the fiscal year ended March 31,
2018, 30.7%, 21.5% and 21.6% of Sony's sales and operating revenue respectively were
attributed to Japan, the United States and Europe. These markets may suffer a significant
economic downturn, leading to adverse impacts on Sony's operating results and financial
conditions.
Sony seeks, when appropriate, to localize design and manufacturing operations, material and
parts procurement in areas outside of Japan to minimize the effects of foreign exchange
fluctuations on its financial results, particularly in the Electronics segments.
To sum up, Sony is a good company, plenty of good and high quality products have been
produced by Sony. Even though, Sony, by itself, has experienced really hard time, above all, it
came up with many solutions to deal with those problems to survived through the difficulties,
such as diversified operating location, and targeted global market for sales, cut orders from
suppliers, sell more to improve profit margin, or remitted dividends back from abroad to Japan.
Due to its enormous efforts to deal with the problems, Sony did succeed, which then can be
attributed to some factors such as good products, and well-management of financial risk
Sony’s current struggles are not due to the products that they make as they are among the best
the consumers electronics market can currently offer. Their struggles come from Japan’s
inability to stop its currency from strengthening.

 Recommendation
Strategic recommendations
Based on our analysis above, the most important factors for Sony are Macroeconomic risks,
including (global economic downturn and currency) and competition. That’s why we suggest
these recommendations.
- Segment focus
Since 1946, Sony has expanded into different business segments such as Electronics,
Movies, Music, Game and financial services. While the number of production lines
increased, the more liability the company has in terms of customer service, marketing and
R&D. facing competitors who are specialized within each segment. So that Sony should
focus on segments they know they are better than others at or focus on products that are not
provided by other competitors. Sony has announced “The three primary business areas of
electronics, entertainment, and financial services.” in Sony Mid-Term Corporate Strategy
for fiscal year 2018-2020.
- Acquiring aggressively

International Business Administration – AU6 Group 2

 When Sony decided to focus on segments, Sony should start to acquire aggressively. It will
increase Sony’s market share, have economies of scale, access to new technologies and
reduce costs. “The higher the market share, the more Sony’s influence increase over prices”.
Financial recommendations
Sony must ensure stable cash flows to be able to avoid liquidity problems and focus on
increasing sales. The increasing reliance on global consumer demand causes to increase in their
operation sensitivity to exchange rates and to the global economy. They should find new
financial strategies to avoid Macroeconomic risks.
As the forecast, the world situation regarding the trade war between U.S. and China leading the
strength of the yen which is affecting to Sony’s income. To resolve the losing due to the strong
yen, Sony has to take proper planning and action as above their strategy not only in the mid-
term 2018-2020 but also 2021 onward.

International Business Administration – AU6 Group 2

 REFERENCES

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John D. Daniels, L. H. R., Daniel P. Sullivan Internation Business Environments & Operations, Pearson: 297.

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Sony. "Corporate History." Retrieved 5 May, 2019, from

https://www.sony.net/SonyInfo/CorporateInfo/History/history.html.

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Twin, A. (May 20, 2019). "6 Factors that Influence Exchange Rates." Retrieved 20 May, 2019, from
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International Business Administration – AU6 Group 2