Managing Globalization at Sony

Executive Summary

As a consequence of economic liberalization, free trade is rapidly becoming a reality within regional blocks, such as the EU, NAFTA, ASEAN, and Mercosur. Furthermore, the World Trade Organization is continuously reducing the remaining barriers to the free flow of capital, goods, services, and technology among countries and regional blocks. The barriers to trade and investment among countries continue to decline rapidly and are making globalization increasingly more feasible and less expensive. Secondly, technological advances continue their onward march. There has been a sharp decline in the costs of air transportation, telecommunication, and computers since 1950. The decline in transportation costs has radically shrunk the cost of shipping goods across countries. These developments in information technology have dramatically reduced the “operative distance” between companies, their customers, and their suppliers and made coordination of far-flung operations not only more feasible but also more reliable and efficient.

Owing to the development of the global economy, most of the firms are now expanding their operations across nations. Companies are not only located in their home countries, but the production centers, warehouses, distribution centers are also built up in different countries as well. This has been done increasingly to reap the benefits of cost and advantageous resources.

This research mainly focuses on certain important strategies adopted by multinational enterprises. These strategic areas of discussion are strategy for globalization, achieving global coordination and operations, building global R&D networks and improving corporate governance. The main focus will be on strategies adopted for the mentioned key issues by two multinationals: SONY and SAMSUNG. A qualitative research of these two companies is undertaken and a comparison of the strategies adopted for various key issues has been made in this paper.

1 INTRODUCTION

1.1 Research Background and Motives

In its simplest form, strategy is about getting from A to B as cost-effectively as possible. Implicit in this process are: assessing a firm’s existing situation (A), both external and internal; clarifying strategic objectives (B) and the opportunities they encompass; and determining the pathway of long-term activities (strategies) that most effectively lead from A to B. The strategic pathway must reflect not only the changing environment, but also changes called for in a firm’s capabilities. As such, strategy necessarily combines both internal and external aspects of a firm. When the environment is complex and at times volatile, as is true for the global economy, these two aspects are continuously in play and shaping each other. Firms vary considerably in the motivations and paths that guide them toward their global agendas. They begin at different points in their development, pursue different visions, and operate under different industry conditions. Firms also have a broad choice of the strategic path they take to achieve their global agendas. Some firms in the medical, biotech, and computer software fields may be viewed as “born global,” because their products have immediate widespread acceptance in an identifiable market niche around the world. But even then, like most firms, they must traverse one or more of three broadly different paths to globalize their operations-through growth, extension, or transformation. Thus, it is the foreign entry strategy that decides the mode of expanding business across nations. The research paper will focus on these strategies as adopted by Sony along with the strategy adopted for global coordination, global R&D networks and corporate governance. These strategies of Sony will be compared with those of Samsung to present a contrasting image between the two companies.

1.2 Research Methods

The purpose of qualitative research methods is to discover and explain the actual business phenomenon of operations, and CASE STUDY is one of the most popular methods of conducting such a research. This research is mainly focused on two multinational enterprises-SONY and SAMSUNG and the strategies adopted by these firms to enter foreign markets, strategies for attaining coordination in global operations and corporate governance strategies. In order to understand the strategies adopted by these two enterprises is studies. These sources include publications, annual reports and public release of case study companies and a case study provided on globalization of Sony Corporation. Afterwards, the data and information among these corporations will be compared and analyzed. Finally, the results of the case study will be tested and verified with the literature and certain recommendations for further strategies to be followed will be provided.Certain important concepts will be considered while making the analysis. These concepts are Multinational Enterprise, Globalization, Corporate Governance and Competitive advantage.

The purpose of this research is to explore various strategies adopted while going global and for managing global operations efficiently. The research will aim at discussing and comparing two multinational companies Sony and Samsung on issues relevant to global operations of any organization. The research will also analyze the impact of current economic crisis on the global strategies adopted by companies. While analyzing such impact special consideration will be given to the views of Rhodes and Stetler provided in an article ‘Seize the Advantage in a Downturn’, Harvard Business Review (2009)

2 MANAGING A GLOBAL CORPORATION: SONY

Sony is uniquely characterized with its relatively outgoing nature, flambount leadership and global mindset of its top executives. The company was founded on May 7, 1946, in Japan under the name of Tokyo Tsushin Kogyo. In 1958, the company changed its name officially to Sony Corporation. Its major products include Audio, Video, Televisions, Information and Communication, Semiconductors and Electronic Components. Sony was the first Japanese company to set up manufacturing facilities in the U.S. In 1980s Sony decided to diversify beyond consumer electronic goods and began to move production to other countries. Various strategies adopted by Sony while globalizing its operations are discussed in following topics.

2.1 Going Global

In 1980s Japan had an image of a producer of poor quality goods. When Sony decided to go global the very first decision taken by Morita, (then chairman of Sony Corporation) was to change the company’s name from a Japanese name to ‘Sony’, which was a combination of a Latin word “sonus” meaning “sound”, and a British word “sonny” meaning, “little man”.

Sony initiated in its global operations in a properly planned way and used Transnational-market strategy to go global. Instead of just starting off the operations in all major countries, the company emphasized on setting up operations in one particular region at a time. For globalizing its operations, Sony followed a approach to understand the market and learn to sell before making any heavy investments.

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The very first effort towards globalization was setting up of a sales subsidiary in U.S. This was done in 1960 and a decision to set up a manufacturing unit was taken up only in 1971 when the company became well aware of the market trends and consumers’ choice in U.S. Also Morita decided to stay in America so as to understand the mentality and consumer behavior of the market. Such a bold decision helped Sony to better place its products in U.S. markets.

Next market which Sony decided to tap was Europe. In order to be successful in European markets, Sony decided to customize its products as per the consumers’ choice. Sony had to design a Television set that would accept any of the four prevailing standards of Europe. Although, there was strong resistance for Sony’s designs in European markets, company totally refused to leave its philosophy of being different and not an imitator.

In London also company followed the policy of starting with only sales office and that too on a small scale. This helped the company to deeply analyze and understand the market the consumer choice before going for great investments in the country.

In Germany Sony’s strategy was to concentrate on projecting an image of quality. It started selling its product sonly through some best electronic shops and this created a strong awareness about the products of the company. However, to sustain in German markets, Sony continued to persist with its expensive, high quality image even after gaining a considerable awareness and flow of orders.

Another challenge which Sony faced while globalizing was expanding operations in several Scandinavian countries. Here Sony first appointed local competing manufacturers, as its agents to enter the market. These manufacturers were those enjoying a good reputation in market and had strong sales capabilities. A worldwide economic recession of 1981-82 acted as a dampener on Sony’s sales. At this time a new strategy of setting up Strategic Business Units (SBU) was undertaken so as to manage operations on global basis.

2.2 Building a Global R&D Network

Sony had developed several breakthrough products since its inception in 1946. The company had always followed the strategy of identifying customer needs and developing products to satisfy those needs and also which can stand the ever-changing market trends. Sony has several R&D labs established in different parts of the world. These labs participate in annual meetings every year so as to set priorities and promote collaboration among different regions. The company looked at R&D facilities as a means to tap foreign technology, provide technological support to foreign plants and to modify products to suit the needs of overseas markets. The global R&D network is controlled centrally by CTO at the Japanese headquarters of the company and the system represents a Matrix system. The R&D offices of US and Europe have CTOs who coordinates their own regional R&D activities and formulate regional technology strategies. However, overseas labs are given sufficient autonomy to plan and implement their projects and local labs are managed by local subsidiary and also by the CTO.

Sony aims at non-duplication of research activities across the system and for this company organizes ‘Annual Technology Exchange Convention’ where executives from all over the world are able to exchange information and appreciate company’s research capabilities.

2.3 Global Coordination

Sony used decentralization and delegation in managing its global operations. The need for a good communication between Japanese headquarters and local businesses was also realized. To foster this Sony emphasized on relating its marketing groups with engineering, manufacturing and other headquarter functions. Also, product divisions were allotted the responsibility of participating in design, promotion and advertising along with distribution and various operational issues. Sony does have separate business units with independent management committees but all these are linked with headquarters to ensure coordination and cooperation in various functions. Along with a fair deal of decentralization of functions Sony established a Strategic Group Headquarters to oversee group operations and allocate resources efficiently. Also, there is an integration of design, production, customer service and logistics functions of factories to streamline supply chain management. Through greater use of information technology Sony aims at coordinating administrative, sales and marketing operations of Japan, U.S and Europe. The strategy is to provide a wide range of authority to business units, but with the retention of the cohesive power of headquarters. The goal of this strategy is to create an environment of strong leadership of top management and increased corporate worth.

2.4 Corporate Governance

While designing a corporate governance system at Sony, it was aimed that the ability of Board to oversee operations be strengthened. Proper care was taken for delegation of greater authority and responsibility for the extension of business activities and company planned to adopt the ‘Company with Committees’ system. Such a system comprised of three committees each of which consists of a majority of outside directors. The appointment of outside directors ensures greater soundness, transparency and speed in corporate governance matters. The strategy here is was recognize the importance of a management system that believes in importance of shareholders of the company. The base of such a system of corporate governance is considered to be the innovation of Board of Directors of the company.

3 COMPARISON OF SONY’S STRATEGIES WITH THAT OF SAMSUNG.

Samsung was founded by Lee Byung-Chull as a small trading company in 1938. Today Samsung Group is a multinational conglomerate headquartered in Samsung Town, Seoul, South Korea. The globalization efforts started in Samsung in late 1980s. When Samsung decided to go global the main problem which aroused was company’s image of being “bargain junk”. CEO and management personnel of the company travelled to the US to understand the market and realized that there is a strong need to change this perception about Samsung. Like Sony, Samsung also started with setting up of sales subsidiaries mainly in developed countries but unlike Sony, Samsung did not emphasized in tapping one country at a time. Rather Samsung started with its global operations in 1980s with setting up of production facilities in Southeast Asia and Eastern Europe with an aim of gaining the benefits from roundabout export. Samsung also took the path of mergers and acquisitions to go global during the initial years of globalization. This was not the case with Sony which entered new markets independently to acquire new markets with its existing competencies and image. Despite of a strong resistance for its products’ design in European markets, Sony refused to compromise on company’s corporate philosophy. However in 1990s Samsung did follow th strategies that included manufacturing components for better known global brands and selling copycat products of microwaves or televisions such as Sanyo to consumers.

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On the part of Global Coordination, Sony followed a policy of decentralization along with a tight control from headquarters so as to ensure proper functioning, accountability, transparency, cooperation and increased corporate worth. At Samsung, global operations are managed region wise. U.S market is considered as a centre for local marketing and introduction of new technologies whereas Mexico is the base for roundabout export. While Southeast Asia and Europe are the production sites, Japan is the new export market centre for introducing new technologies and China is the second most fundamental market. All these markets are given adequate authority to perform their individual functions but are closely linked with each other as well as with Global Strategy Control Headquarters in Korea. There is an exchange of technology between US and Mexico where low to medium class products are manufactured. Also there is a supply of products from Europe to U.S and of product design and new developments from U.S to Europe. At the same time there is a constant flow of information regarding R&D initiatives, and high value-added products from the headquarters to these global business units. Thus, there is a coordination of operations among all the markets which are working as per their specializations.

Sony has set up several R&D units in various different countries to absorb the customers’ expectations from all the markets and convert this information into new innovative products to suit the needs of each specific market and its customers. Samsung also invested heavily on R&D and applied the concept of “innovation” within the organization. According to Steers, Richard (1997) Innovation for Samsung means, “develop through globalization to globalize Samsung”. However, Samsung adopted a strategy to make each and every staff member of the organization capable enough to innovate.

Ungson, Gerardo (1997) explained that a review of Samsung’s operations from 1990 to 1992 demonstrated the need to train employees as international experts, to manage difficulties, experienced with foreign local employees, and to recruit excellent employees.

Company created an atmosphere that can make each employee confident to create innovation. For this Samsung revised the concept of “Samsung man” that emphasized on the creative individual who is characterized with a wide view and high moral standards. Samsung recruited qualified people and there were a third of company’s directors aged in 40 years or younger. The company aimed at getting people with good vision about future and considered human capital as the most important element for a successful innovation leading to efficient globalization.

On account of corporate Governance, Sony has a clear structure consisting of board of directors which are mainly from external sources of the company. In Samsung there is a cross shareholdings pattern representing a web of dubious cross-shareholdings among scholars, bureaucrats and NGOs. Chairman of the company, Lee Kun-hee and his family maintain a control over the group. The Samsung Everland, Samsung Life insurance, Samsung Electronics and Samsung Card are the main pillars to sustain corporate governance structure and form a ring of shareholdings in the company and exhibit an intricately entangled shareholding system.

4 CURRENT ECONOMIC CRISIS AND GLOBAL STRATEGIES

In the words of Landefeld, J.Steven (2009) ‘Globalization is an economic process that has been going on since the earliest days of trade and investment across regions and countries’. It has helped in significantly raising the standards of living, health and improvement in environment through a rise in world-wide production and income. As it is always believed that globalization is largely driven by economic gain; a common question during the situations of economic crisis is whether a company should focus on its current geographies rather than venture into expanding its global operations. In current financial crisis it has been seen that markets are good at pricing marginal risks so as to achieve short-term gains. However, Landefeld (2009) argued that markets are not good in evaluating bubbles and long-term systematic risk. The current financial crisis definitely affects the global strategies of companies. Most of the companies view the global economic downturn as the biggest challenge partnerships to be dealt with. Also, most of the agencies report that their corporate partners are finding it difficult to initiate new partnerships in current economic crisis. Despite such difficulties the current economic crisis has a positive side-effect also. It provides an opportunity of an extra incentive for finding more and more creative ways of partnerships and global engagements. The crisis also has a positive effect of encouraging innovation. According to Rhodes, D., and Stelter, D., 2009, ‘Seize the Advantage in a Downturn’, Harvard Business Review, “Inaction is the riskiest response to the uncertainties of an economic crisis. But rash or scattershot action can be nearly damaging.”

In the above mentioned article Rhodes pointed out that a planned approach towards global strategies need to be followed in times of economic crisis. The very first step in this approach is that the company should assess its own vulnerabilities, at the company level and by business unit. Company should be aware of various ways in which the current scenario can affect its business in terms of reduced demand for its products, company’s ability to secure short-term financing, effect on cost of capital, etc. Once such affects are known the impact can be quantified to closely assess the exposure. Then it is possible to determine the ways to reduce the exposure and survive and maximize the company’s performance during the downturn.

Dr, Suder, Gabriele, Professor of International Business at CERAM Business School, France clarifies that while the reduction-of-cost argument is one of the main motivations for internationalization in times of crisis, when it comes to location decisions, decision-makers will always also opt for convenient labor conditions, market opener effects and access to resources not obtainable elsewhere. “Therefore, a crisis as we know it today is unlikely to alter internationalization strategies, and it shouldn’t. Simply because this would alter the firm’s strength.” Rhodes explained that a company can capitalize on the opportunities presented by a recession. There is a need to assess and minimize the vulnerability of one’s firm. This will position a company to seize future resources of competitive advantage, whether through bold investments in product development or transformative acquisitions.

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As per the plan suggested by Rhodes, liquidity is considered as the key to survive any economic crisis. A company should monitor and maximize its cash position. This can be done through tightly managing customer credit and aggressively managing working capital. Also, there is a need to optimize one’s financial structure by reducing debt and other liabilities and securing access to lines of credit. Further, there is a need to inform investors and analysts about the company’s recession preparedness. This will help in maintaining a strong share price for the company. A company should reduce costs and increase efficiency during economic crisis. This is to be done through rooting out long-standing activities, centralize key functions, and analyze current suppliers and reviving earlier efficiency initiatives to implement them fully in better times. Next level is to revitalize customer retention initiatives during recession. There is a need to realign sales force utilization and incentives, reallocate marketing spending towards immediate revenue generation, and consider more-generous financial terms for customers. Also, during recession a company should reconsider its product mix and pricing strategies so as to offer lower-price versions of existing products, considering creative strategies such as result-based or subscription pricing, etc. Naim, Moises (2009) Globalization cannot be derailed by the world financial crisis until and unless we believe that globalization is mainly about international trade and investment.

James (2009) argued that present economic crisis is temporary and globalization will continue and the entire world is tied up due to increase in volume of business. Through a proper mechanism a company can very well expand during recession also. The best companies make an extra effort to not only survive in downturn but position themselves to thrive during subsequent upturn. A company should consider the fact that investments made today in areas such as product development and technology will give good results only once the recession is past. The cost of such initiatives will be lower during recession and will give huge benefits in times of growth. Also, an economic crisis like that of today is good time to invest in human capital also. Downturns can also be viewed as an opportunity to rethink the business models.

More and more analysts and practitioners are emphasizing on recognizing the importance of sustainable business practices, comprehensive risk-management, long-term performance and ethics. The current economic crisis has lead to recognition of Corporate Social Responsibility in every organization. This crisis has lead companies to pay more attention on environmental, social and governance issues which have a positive effect on company’s performance and long-term corporate value. Also, financial investors have learned to consider these key issues while making any investment decisions. Steets, Julia (2009) argued that the global economic crisis will most likely not have a negative impact on business partnerships. In the words of Thomsen, Kristina (2009) “While the crisis leads to a reduction of philanthropic giving, it also triggers innovative partnerships and may have a cathartic effect on more conventional ones, eliminating those that would not have been sustainable anyway.” Thus, companies adopting a comprehensive approach towards handling economic crisis can be better placed and be able to seize the opportunities emerging from the turbulence and will also be able to head start on the competition once the crisis is over.

CONCLUSION AND RECOMMENDATIONS

From the above discussion it can be concluded that current financial downturn supports the recognition of sustainable business practices for long-term success of an organization and its businesses. At a time when global competition is intensifying, Sony and Samsung, using different set of strategies, remain internationally competitive. Sony has continued to supply innovative products all over the world. On the other hand Samsung has emphasized on process enrichment and innovation along with good R&D investment. Samsung has concentrated on its core competency of ‘manufacturing’. Despite their different approached towards globalization and various other key issues related with the concept, both Sony and Samsung have successfully met the challenges of global competition.

Sony has been characterized with an unrelated diversification. Samsung is focused on its core competency of manufacturing but Sony seems to have stuck up in multiple businesses and such unrelated businesses can be more detrimental rather than being helpful for the company. It is recommended for Sony to regain focus and investing in enhancing the company’s core competencies. Further to survive competition from firms like Samsung and LG, the top management teams at Sony should evaluate the identity of the Sony brand to its customers and adopt a brand oriented leadership. These steps are necessary to rejuvenate Sony in the long run.

REFERENCES

 

Caves R.E. (1986), Multinational enterprise and economic analysis, Cambridge University Press, pp.1-30

Dunning J.H. (1993), Multinational Enterprises and the Global Economy, Addision-Wesley Publishing

Lindsay M. (1992), Developing Capital Markets in Eastern Europe-A Business Reference, New York University Press

Landefeld, J.Steven (2009), Un High- Level Forum on Globalization and Global Crisis: The Role of Official Statistics. United Nations Statistics Division, ECOSOC Chamber.

Kim, Samuel S. (2000), Korean Globalization, Cambridge University Press.

Parker, Barbara (2005), Introduction to Globalization & Business, Sage Publishing.

Pak Y.S. and Park Y.R. (2004), “Global Ownership Strategy of Japanese Multinational Enterprises: A Test of Internalization Theory”, Management International Review, Vol.44, No.1, pp.3-21

Steers, Richard M & Park, Seung-Ho (1997), Korean Enterprise, Harvard Business School Press.

Websites

Samsung Corporation http://www.samsung.com

Samsung in Hungary http://www.samsung.com/hu/index.htm

Samsung in Russia http://www.samsung.ru/about/

Samsung R&D expenses in 2003

http://www.samsung.com/AboutSAMSUNG/ELECTRONICSGLOBAL/CompanyProfile/InvestmentinRD/

Samsung’s Governance Remains Problematic (2009), Ohmy News http://english.ohmynews.com/articleview/article_view.asp?menu=c10400&no=274927&rel_no=1 Accessed 18 November 2009

Sony Corporation http://www.sony.net

Will globalization be derailed by the world financial crisis? (2009), McKinsey & Company http://whatmatters.mckinseydigital.com/the_debate_zone/will-globalization-be-derailed-by-the-world-financial-crisis Accessed 18 November 2009


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