The immediate cause of Sony’s malaise is its television manufacturing division. Numerous firms churning out flat screen TVs has resulted in a rapid decline in prices for TVs and Sony (and other Japanese firms) has been unable to cut costs faster enough (but we as consumers benefit from cheaper TVs). Japanese firms such as Sony are suffering the same fate that they inflicted on their US rivals in the 1980s when the small upstarts with lower wage costs managed to snap up a growing proportion of the market. Now it is the turn of the rise of South Korean and Chinese firms to rise to dominance.
Life at Sony was easy to begin with. There was a clear goal – to copy and improve on the products of US firms. It had a motivated and loyal workforce stemming from a consensus style of management and the group orientated nature of Japanese society. Sony also benefitted from the government providing an environment which was good for exporters and with less of the rigours of competition which meant that Sony could apply itself to a different range of products. So Sony pushed into a wide range of products and sacrificed profits while it built up a growing share of the market.
But once Sony had risen to the top, it lost its way. Japanese firms are good at playing follow the leader but struggle to innovate on their own. This is because betting on new technologies at the cutting edge of electronics is difficult with a system of consensus management. Its prior diversification proved to be a distraction to management who should have been focusing their and the firm’s efforts on core areas. And discarding of unprofitable areas is not easy when you have amassed a large corporate family that had worked to the bone previously. Sony still remains a scattered group of businesses with 6.4% of its 2011 sales coming from its music business, 8.3% from movies, and 11.1% from financial services.
So Sony ended up losing its focus and has lost out to rivals in mobile phones and tablets (Apple and Samsung) and in game consoles (Nintendo – a much smaller firm which has shown that a few Japanese firms can innovate). Further damage has been inflicted by a strong yen (which hurts Sony as an exporter from Japan) and weaker demand due to the global recession and the electronics giant is on the ropes. A recent announcement by a new president that the firm would cut 10,000 or 6% of its global workforce will probably only help a bit considering the firm requires a major overhaul.
But as much as Your Neighbourhood Economist laments the decline of Sony, the rise and fall of different companies is a fundamental part of how the system of capitalism provides consumers with what they want. Sony had its time as the favourite of consumers but firms like Samsung have managed to do a “Sony” on Sony and provide more attractive electronics at better prices. And it means we can look forward with anticipation of what comes next after Apple and Samsung!