Question

Sony

Very few companies can claim to be globally successful, but Sony, which brought us the Walkman and co-developed the CD and the DVD, has the numbers to prove it. In 2009, the company’s $76.361 billion in revenues were evenly distributed across mainly three markets: Japan, the United States, and Europe.

Headquartered in Japan, Sony is best known for its high- quality consumer electronics, which account for 61 percent of total revenues, but the firm also produces games, music, and pictures. Consumers might not own a Sony electronic system, but the movie they watched last night or the CD they listen to while jogging may be the intellectual property of a Sony company. Sony’s strategy boils down???? to product electrical gadgets?????? and controlling the content that goes through them much in the same way as its successful PlayStation 2 game console?????provides the hardware necess- ary for the firm to capture the games market.

In the 1980s, Sony’s Betamax lost the VCR war to JVC’s???????? VHS????????. Both systems had been developed in the mid- 1970s and initially Sony’s Betamax was the clear winner. Indeed, all movies were originally released in Betamax format. General wisdom argues that Betamax lost the VCR war because it failed to license its software to rival manufacturers while Matsushita licensed to all. Today, the Betamax–VHS battle is often cited to argue the benefits of licensing new technology.

Yet, how could Sony have been so reckless as to ignore the benefits of licensing? The answer is that it did not. In 1974, a year before the Betamax release, Sony approached JVC and Matsushita seeking to reach an agreement on standards for the new product. In doing so, it freely dis- closed Betamax’s patented specification and technology to its rivals. The VHS format developed by JVC used very similar technology, but, because of its different size, was incompatible with Betamax. Matsushita????was asked to choose between Sony’s and JVC’s product. Its decision came down to cost. It was cheaper to produce the VHS format because it had fewer components. With this, the players for the market were defined. The Betamax was to be manufactured by Toshiba, Sanyo Electric, NEC, Aiwa, and Pioneer. Matsushita, Hitachi, Mitsubishi Electric, Sharp, and Akai Electric manufactured JVC’s VHS.

Perhaps more important than the size of the VCR disks of the two formats was that the VHS format allowed record- ing for two hours, twice that of Betamax. This would have allowed consumers to record an entire movie while away for the night. Sony was close to integrating technology into its format that would have increased the recording time to that of the VHS. If this was what tilted????the balance, then all Sony would have needed is a bit of time. Potentially, at least, it could have bought itself some time if it owned the rights of the movies and refused to release them in anything but Betamax format. And so it is that Sony’s latest technological bets, the CD and DVD, have Sony Music Entertainment Inc????. and Sony Pictures Entertainment to back them up.

In today’s market, however, this type of vertical inte- gration can hamper???? the ability of the consumer electronics division to develop the products that consumers want. Practically every major development in the consumer elec- tronics industry in recent years has been developed by, or with the help of, Sony. Yet, very recently, Apple introduced the iPod, a very small and light device that can store up to 10,000 music files. The iPod is based on a small hard drive equipped with an audio function. Since similar memory cards are available across product lines in the industry and no other firm has Sony’s reputation in the audio market, why, then, did Sony not come up with its own version? One argument is that the conglomerate????must now weigh the benefits of developing a product in one division that may increase piracy???? of its music in another division.

If that is so, Sony is walking a fine line. Its electronics branch has ceased to produce stand-alone products and is instead integrating new products with others, which is likely to make piracy even easier than it is now. Soon, Sony hopes, your computer will be able to communicate with your television, stereo, and DVD player wirelessly, creating an integrated network of consumer electronics. And, if it all goes according to plan, Sony’s media content will flow within these networks.

With PlayStation 2, Sony’s dominance in the market for games was assured, at least in the short term, because it managed to capture most of the market and a games con- sole creates??????a barrier to other game marketers because of lack of compatibility and intellectual property owned by the firm. Other forms of entertainment, however, are not as easily monopolized. Indeed, most new products, like the iPod, are based on technology that is standardized or can be adapted to work with that of competitors. If products do not do this, they might suffer the fate of the Betamax.

1 Is Sony a multinational enterprise?

2 If the vast majority of Sony’s consumer electronics business is based and developed in Japan and the vast majority of Sony’s music and movie business is based in the United States, does Sony make decisions that are best for the entire company regardless of location?

3 Why does Sony need to license its technology to competitors?

Answer 1

1. The case talks about Sony who is leading electronics manufacturer across the globe. Sony is a multinational enterprise which has its headquarters in Konan, Minatory, Tokyo. A multinational enterprise is one where the head office is located in one country but there are multiple assembly lines or production facilities in other countries. According to a recent report, Sony has manufacturing or assembly facilities in multiple areas in these countries - (Brazil, China, UK (Wales), India, Malaysia, Singapore, South Korea, Thailand, Ireland and United States). In case of Sony, the facilities and other production lines in other counties have a centralized head office where they coordinate global management. The products which are manufactured in one country is in accordance with the global standards and the practices for manufacturing and also done with an eye on the global supply chain.

2. Most of Sony`s products are consumed worldwide. But due to production costs, logistics and supply chain optimization, Sony often takes a strategic decision to produce its electronics components in optimal locations. Most of Sony`s consumer electronics business is based in Japan where the large revenue and high market share makes it an interest proposition. The developing counties also provide a good market for Sony to produce the consumer electronics. But as of now, most of the production is based out of Japan. Similarly, most of the content they produce are based out of United States. This too is due to availability of resources – manpower, technology and talent in United States. Sony makes the strategic decision to produce locally optimized content and electronics which will always maximize the reach and profits. Even if it seems that there is no central theme to their concepts all the individuals products and content have an inter linkage which can be used by Sony. For example, most Video games are produced in US. Sony themselves help in creating the content but it`s hardware the PlayStation`s are produced in Japan due to higher availability of resources and lower setup cost and time. In this case, Sony takes these decision which will help them to lower the production cost and maximize the returns. All the decision taken by Sony are made with a view on entire company regardless of the location. Most of the times, local customization is done to products but still these decisions are made by Sony with an aim to maximize the global revenue.

3. Licensing the technology to a competitor is a strategic decisions taken by companies to get a competitive advantage in the industry. As given in the case, Sony and the usage of Betamax and VCR, if other companies and agreed to Sony`s standards and specifications, Betamax would have captured the market instead of JVC. If that standard was accepted by others, then to ensure other companies are producing compatible products it would have been necessary to provide technical and confidential data to others competitors so that they can start producing the products which will be used by end consumers. While it may seem difficult to give out ones patented rights, other companies cannot use the same without permission to create similar products on their own which could easily to legal lawsuits. In such cases, companies enter into a contract agreement that they will share the confidential data but others will not use the same to produce similar products. If we consider a global supply chain, a product which was well suited to Japan might need some customization in the US. If Sony`s core competencies do not include the customization part they may enter into such agreements with companies based in US to produce the products or compatible devices which can be used with Sony`s products. It can also be a possibility that if implemented properly, licensing strategy in overseas market can help in gain benefits from licensees and not losing the market share. Technology and Intellectual property transfer can help in gaining and increasing foothold in newer markets too. For all these reasons, Sony would choose to license its technology to its competitors.