Analysis Into the Vertical Integration Across the Value Chain of Sony

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“The greater a firm‟s ownership extends over successive stages of the value chain for its product, the greater the degree of vertical integration” (Grant, 2010, pp354). The consumer electronics industry value chain is depicted below:

Thus a firm can be said to be vertically integrated if it owns and operates each of these stages of the value chain. The consumer electronics industry has many players who produce goods for purposes such as entertainment, communication and work. There are many determinants of success, including technical innovation, price competitiveness and brand awareness. The degree of integration in the value chain can influence success within the industry. Examples of firms who manage the value chain differently include Apple, who integrates their product design and retailing, but outsources the manufacturing & assembly of their products, whereas Dell keeps its product design and assembly in-house, whilst using market contracts for component manufacturing and retailing. This report focuses on the consumer electronics division of Sony, a well-known brand in the industry, whose five different stages of the value chain (same as above chart) is analysed in more depth below. 1. Product Design The first stage of the value chain is Product Design, which Sony keeps in-house. The company emphasises on “building high-performance, easy-to-use and beautiful products with a distinctive Sony flair” (Sony, 20111). Within the consumer electronics value chain, there are numerous benefits of the vertical integration of product design. Evidence suggests there is strong correlation between the launch of new products and market performance (Souder and Sherman, 2004). Consequently, new designs and products can capture and retain market shares and increase profitability (Tidd et al., 2001). Thus by having ownership over the product design and innovation stage, Sony can maintain complete control in creating its own competitive advantages to have an edge in the...
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