Strategic Profile and Case Analysis Purpose
Sony Corporation is a Japanese-based transnational conglomerate company oriented to manufacturing consumer electronics, gaming, and entertainment products. The purpose of this case analysis is to provide a brief overview of Sony Corporation’s current stance in the market, including industry analysis and financial statements. Overall, Sony’s core competency relies on the consumer electronics industry, deriving 68.4% of its worldwide revenues (Gershon & Kanayama, 2002). However, it aspires to lessen its dependence on this industry by diversifying into various areas of expertise. Sony’s financial performance has been fluctuating over the past several years as it struggles to differentiate itself from the increasing competition (Chatterji et al., 2012).
Nevertheless, it has several advantages over its competitors that allow Sony to stay competitive in the market. These advantages include its product quality, brand image, diversification, and loyal customer base (Shastri, 2021). Hence, despite the unstable economic performance, based on these areas, Sony has the potential to maintain a solid customer base and market confidence.
Situation Analysis
General Environmental Analysis
Demographic information includes an overview of a company’s customers’ population size, ethnic mix, age structure, geographic distribution, and income distribution (Hitt et al., 2017). Sony’s PlayStation series of consoles has approximately 104 million monthly active users as of September 2021 (Statista, 2021). Since Sony’s gaming area is one of the most profit-generating fields, it is worth paying attention to the analysis of its customer base in this area. A significant portion of its customers are 18-24 years old and of the primarily white race (Gershon & Kanayama, 2002). In terms of geographic distribution, Japan (~32%), the USA (29%), and Europe (23%) remain the primary locations that generate substantial sales revenue as of 2001 (Gershon & Kanayama, 2002).
By 2014, the share of sales to customers in the United States had declined to 16.8% of total sales, while Japan and Europe accounted for 28.3% and 22.6%, respectively (Kunz, 2016). By 2017-2018, China has joined the list of countries that constitute Sony’s gaming console (Kunnathur, 2019). In terms of the income distribution, since the majority of Sony’s customers in gaming consoles are young people (younger than 17 and 18-24), the incomes of Sony’s primary customer base are limited.
Industry Analysis (Five Forces Model)
The Threat of New Entrants
Sony Corporation faces a low level of threat of new entrants for several reasons. First, the camera and gaming industries, where Sony specializes, are capital intensive as they require investment in “infrastructure, huge economies of scale, efficiently in technology as well as innovation and know-how” (Kunnathur, 2019, p. 7; Bogner et al., n.d.). Moreover, new entrants will need to invest significantly in the marketing campaign due to the high level of existing competition (Kunnathur, 2019). Secondly, Sony was named the 10th “most loved company in the world” according to Forbes in 2017 (Kunnathur, 2019, p. 8). Hence, new entrants encounter significant barriers in terms of obtaining a customer base.
The Threat of Substitute Products
The threat of substitute products is medium or high for the Sony Corporation. In the gaming console market, the risk of substitute products is medium since consoles like PlayStation 4 provide a much more authentic experience than smartphones (Kunnathur, 2019). Nevertheless, as the gaming world is improving fastest, PCs present a substantial substitute threat due to better graphics and power. Regarding the camera industry, the primary danger of substitutes comes from improving smartphones at the fastest rate.
Bargaining Power of Buyers
As more information is available for customers, their bargaining power is high in the camera and gaming industries. Online shops also contribute to the increased bargaining power of buyers (Kunnathur, 2019). Large business customers hold more bargaining power than individual customers (Pratap, 2021). Nevertheless, Sony’s unique product quality, brand, and innovation limit the bargaining power of customers. Thus, the overall bargaining power of customers is moderate and high.
Intensity of Rivalry
The intensity of rivalry is high due to the increased competition in the electronics and gaming industry. In the latter area, Sony faces threats from much more user-friendly companies like Nintendo and financially powerful ones such as Microsoft (Bogner et al., n.d). In the digital camera sphere, Sony encounters major giants such as Nikon and Canon. Meanwhile, Sony struggles to compete with major competitors such as Apple, Samsung, Panasonic, LG Electronics, and Phillips (Chatterji et al., 2012; Pratap, 2021). Nevertheless, due to its reputation, undisputed high-quality products, and focus on innovation, Sony can survive in such intense competition.
Bargaining Power of Suppliers
The bargaining power of suppliers is shallow for Sony and hence, does not represent a considerable threat. Sony was able to build an effective supply chain “with multiple medium-low size suppliers,” allowing them to easily switch suppliers (Kunnathur, 2019, p. 7). Indeed, due to the high quantity of Sony products sold, suppliers compete to be Sony’s suppliers (Kunnathur, 2019). The fragmented nature of Sony’s suppliers also means that they do not pose a credible threat (Pratap, 2021). Hence, the bargaining power of Sony suppliers is limited.
Competitor Analysis
As Sony operates across multiple business segments, it faces several challenges from competitors in each part. As mentioned above, while in the gaming industry, it competes with Microsoft and Nintendo, Sony competes with Samsung, Panasonic, LG, Canon, and Philips (Chatterji et al., 2012). Apple’s financial and technological performance has improved significantly over the past five years and is predicted to continue in such a trend (Chatterji et al., 2012). Meanwhile, Microsoft has substantial financial resources and invests significantly in marketing (Kunnathur, 2019). Hence, each competitor has its competitive advantage either in terms of brand, quality, reliability, and loyalty.
SWOT Analysis and Financial Statements
As emphasized before, Sony’s strengths include its brand recognition, focus on innovation, diversified areas of expertise, high-quality products, and loyal customer base. Mainly the quality and authenticity of PlayStation present major strengths for Sony (Kunnathur, 2019). However, it has several weaknesses in the marketing area and a lack of affordability in prices (Shastri, 2021).
In terms of opportunities, Sony can launch more innovative products, penetrate deeper into the video gamers market, and acquire some companies (Shastri, 2021). Sony also faces significant threats due to rising technological advances of other companies, including improved cameras of smartphones, graphics, and power of PCs. Other hazards include potential cyber-attacks, competition with Nintendo Switch, Microsoft’s Xbox Live, and software piracy (Kunnathur, 2019). Hence, Sony needs to consider these economic and market indicators to improve its standing among competitors.
The financial statements of Sony as of 2021 indicate the recovering characteristics. Sony’s total assets returned 4.74, operating profit margin accounted for 12.09, and net profit margin accounted for 12.87 (Wall Street Journal, 2021). Hence, regarding return on total assets and operating profit margin, Sony falls behind the standard while demonstrating average performance in terms of net profit margin. In terms of liquidity, Sony’s current ratio is 0.92, indicating that Sony is struggling to satisfy its financial obligations (Wall Street Journal, 2021). Nevertheless, Sony recently upgraded its forecast to a full-year profit with an optimistic net profit of $6.4 billion by March 2022 (Ito, 2021). Whether Sony will fulfill the promise is yet to be seen.
References
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Ito, S. (2021). Sony upgrades profit outlook on strong Q1 performance. Tech Xplore – Technology and Engineering news. Web.
Kunnathur, U. M. (2019). Strategic analysis of Sony Inc. Technical Report, 1-19.
Kunz, W. (2016). Sony Corporation. Global Media Giants, 239–253. Web.
Pratap, A. (2021). Business Analysis of Sony Corporation. notesmatic. Web.
Shastri, A. (2021). Detailed SWOT analysis of Sony Corporation. IIDE. Web.
Sony Group Corp.. ADR financial statements. (2021). The Wall Street Journal. Web.