MANAGERIAL ECONOMICS AND DECISIONS OF THE FIRM
A Look at Sony's Decline
Description and Background Setting.
Sony corporation is a Japanese multinational corporation headquartered in Tokyo, Japan. it is ranked 86th in the 2012 list of Fortune Global 500. Over the years, Sony has established the reputation of a leading manufacturer of electronic products in both the professional and consumer markets. But Sony's good name has started to erode. Recently, Sony's projected net losses for the past financial year were doubled to an expected 520 billion yen or 6.4 billion dollars; the worst loss ever recorded (Tabuchi, par. 2). While there are many contributing factors that can be cited for Sony's current predicament, such as natural disasters or a strong yen which makes Japanese exports more expensive to foreign buyers, one thing is certain; Today's Sony is not the pioneering tech giant it once was. Before the expected loss announcement made by Sony, the company had been displaying signs of trouble for quite some time. Before the announcement of expected losses, Sony's shares had already fallen 3.5 percent in Tokyo, compared to a benchmark Nikkei fall of only 0.1 percent (Tabuchi, par. 17). If we look back not much further we see that Sony's shares have lost practically half their value in a time period of little more than a year. If we take a look at recent articles and publicly available information about Sony, we see that their steady decline is due to various factors; a number of which are related to concepts that we have studied in class and that if they are more carefully studied, observed and understood, could mean the difference between another failing strategy and one that could reverse the present course of Sony's disappointing performance.
Identification and Statement of the Problem.
In a way, the great tragedy of Sony is being a victim of its own success. It is a company that in its time innovated and made the right business decisions to reach the top, but once they reached the top, they failed to recognize the changing environment they became a part of. Sony failed to indentify and understand trends that were happening around it and in resting on the laurels of success, eventually fell behind. Sony reached the pinnacle of technological prowess by amazing the world with innovative and groundbreaking products like the Walkman and the Trinitron TV. This was a time where Sony management understood the value of strategy, having a clear identity and a clear goal to effectively engage the market with. But since then, Sony has failed to consistently perform at that high level; failing to come up with products that are clearly differentiated and growing at a rate that, without a proper strategy, left them with a bloated workforce of more than 168,200 people word wide, which in turn leaves a toll on the company's fixed costs. As conditions in the economic climate gradually evolved, the Japanese Yen slowly and steadily gained strength as compared to the dollar. This made Sony's products more expensive. Couple this with emerging markets offering cheaper labor costs (such as China and South Korea) and the entry of other firms that identified the economic profit and opportunities that Sony was exploiting, and you have a more competitive environment. Sony failed to understand that in this new and changing competitive environment Japan was no longer a nation that led the competition on abundant labor or cheap capital. When this happened, they failed to understand that they would come to depend again on ideas and innovation. This is where they failed to evaluate their organizational structure, culture and create the correct incentives and working environment to foster the elements they would need to spark new ideas and create the next line of product that would keep them at the top.
Economic Dimension of the Problem and Analysis
It is difficult to pin point the exact moment it...
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