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Business Strategy on Sony Ericson UK

Executive Summary The business strategy used by Sony Ericsson on its entrance into the telecommunication industry can be credited for its presence up to now. Joint venture is the business entry strategy that was employed by Sony Ericsson that brought together Ericsson and Sony in the year 2001. Successfully after entry into this market the company released its initial product in March 2002. As per statistics of 2009 Sony Ericsson is the fourth largest producer of phones across the globe with devices as phones, PC cards and other accessories. Importantly, is the manner the company has been able to capture a universal appeal on incorporation of music in the market. For instance, the company has successfully used technological communication platforms such as 2G and 3G becoming an important resource advantage to the company within this industry. Interesting because of the increased competition from other companies such as Apple and Nokia the market share for Sony Ericsson has continued to decline over years. This assignment will focus on analysing the business strategy used by focusing on the external environment using the Pestle model of analysis. Further to the objective of this assignment it will be important to analyse the five forces on external environment of Sony Ericsson before moving to the internal environment analysis. The internal analysis will be on issues such as the organisations value chain and competence analysis. The last section will entail analysis of current strategy and future strategies of the company using the Bowmans strategy clock that will illustrate the reasons leading to the company low performance and the strategies that need to be implemented into the future.

3 Table of contents

1.0 Introduction............................................................................................................5 2.0 External Environment analysis.............................................................................6 2.1PESTEL framework........................................................................................6 2.1.1political environment analysis......................................................................6 2.1.2Economic Environment................................................................................7 2.1.3Social Environment analysis........................................................................7 2.1.4Technological Environment Analysis.........................................................8 2.1.5 Legal Environment Analysis...................................................................8

2.1.6Environment Analysis.................................................................................9 2.2 Porters Five Forces Model................................................................................9 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 Competitive Rivalry......................................................................................9 Threat of new entrants..................................................................................10 Threat of substitute products.......................................................................10 The Bargaining power of consumers............................................................10 Bargaining Power of Suppliers.....................................................................11

3.0 Internal Environment Analysis..........................................................................11 3.1 Value chain analysis........................................................................................11 3.2 Competence Analysis.......................................................................................12

4 4 .0Bowmans Strategic Clock Analysis................................................................13 5.0Conclusion........................................................................................................14 6.0 appendixes ....................................................................................................16 7.0 References .....................................................................................................21

1.0Introduction This paper focuses on analysing the business strategy employed by Sony Ericsson in its industry operations. The company initial years from its start up recorded high performance with employing 9450 employees with more than 2500 contractors. The global market share for the company has dropped from 9.4 per cent to 7.9 per cent in the year 2007 last quarter. (Brown, 2006) Among the markets the company is operating of total global market share is the United Kingdom market. Therefore, with recent downturn for the company this has been also been experienced in the United Kingdom market. For example, there has been a decline of the companys phone model W910i reasons being attributed to the reduction of appeal being the compromise on the phone features such as the phone intermittent switching off freezing of the phone systems. Among other reasons this paper will discuss the performance of the company in the United Kingdom market by having a look at the external environment that will be analysed using the Pestle framework and Porters five forces. The internal environment of the firms operation in the United Kingdom will be fundamental to understanding the organsations value chain and competence analysis. In addition, there will be an analysis of the present used strategies and future organization strategy using guidance from the Bowmans Strategy clock. Afterwards, a conclusion can be determined using the discussions held above to inform of the type and nature of business strategy and whether there are any recommendations that need to be carried out by the company to improve its performance not only in global market but also the within the United Kingdom.

2.0 External Environment Analysis 2.1PESTEL framework This framework is a guide into analysing the political, economic, social, technological, environmental and legal aspects that make up the external environment of an organization. Therefore, it is important for a business stakeholder to understand these factors of the external environment so as to ensure there is sufficient performance of the organization as stipulated in its goals and objective statements. 2.1.1political environment analysis The European Union has made strides towards deregulating its markets starting from joint initiatives with member countries to the union towards creating a common market. Therefore, United Kingdom being a member state to the union there has been increased market deregulation within the United Kingdom market. As a result, this has increased market penetration by rival firms into this economy leading to competition on increasing market share and retains the already captured share. This has been further advanced by state laws on creation of more independent local authorities. Consequently, Sony Ericsson has the potential of improving its local investments from the opportunities within the local authority regions. However, with market liberalization, and challenges facing the company on quality of products manufactured this is part of the reason the rival firms have taken on the market share previously held by the company. In addition, the political environment in the United Kingdom is stable therefore the company can continue operations without fear of

7 political uncertainties that lead to poor business working environment thus companies make losses.

2.1.2Economic Environment United Kingdom operates within an economic set up that is highly dependent on operations of the European Union for example the effects of the single currency fluctuations to bloc members. This makes the economy of the country vulnerable to external shocks that affect the operating business environment for companies. For instance, the recent financial crunch down has seen many companies operating in United Kingdom record low performance from the economy being hit by the 20092012 recession. (Curwen & Whalley, 2010)Sony Ericsson is known for its high end priced products therefore during the recession the organisation was hit by poor performances. To illustrate this is an example of the consumers willingness and affordability of purchasing products in the economy went down from the reduced disposable income caused by the effects of recession. People in the country first sought to attending to basic commodities before purchases of mobile phones and for the buyers of phones they sought to buy a commodity that would serve them without problems in its operation as was the contrary to the model W910i Sony Ericsson model. 2.1.3 Social Environment analysis

Sony Ericsson is a brand that reckons with entertainment in the mobile phone industry. The United Kingdom population is mainly composed of the children and aged people. Therefore the social aspect for the Sony Ericsson company missed the

8 goals of target population by focusing on manufacture of mobile phones that were sources of entertainment. In this connection, the sales must not be appealing since its target population is not enormous for there to be high sales. (Curwen & Whalley, 2010) For example, the company ought to having focused on developing mobile phones for the market that would have features for the aged population. Meaning that features developed should target more of the older people compared to the youthful. 2.1.4 Technological Environment Analysis

The mobile phone industry is one of the sectors where technological advancement has taken place rapidly. There has been a fast growth in 3D technology plus companies focusing on growth of more networked products and cloud computing services. (Dunn, 2006) In this connection Sony Ericsson has a responsibility of ensuring that its products are update with recent technological features to ensure it products remain relevant within the market. This has been made easier with deregulation of the markets making it possible for technological transfers between countries. Therefore, for Sony Ericsson UK technology import from countries such as Japan can be beneficial to the organization to enable it improves on its products and solves products existing challenges.

2.1.5 Legal Environment Analysis Content access is the concern of consumer watchdogs in the United Kingdom in that the agencies are concerned with content that children get access to once they are using mobile phones. Internet connectivity makes children to content their age does not allow and this could entitle the company to legal battles in cases where there are no securities on products it manufactures. The other aspect likely to engage legal

9 obligations is concerned with driving while using mobile phones. However, these reasons have not impacted on the sales of Sony Ericsson or any other industry player in the market.

2.1.6Environment Analysis United Kingdom is member to many treaties and agreements that seek to safeguarding and conservation of the environment. To this end, there has been some by laws of production for example on electrical waste and directives on electronics that have increased procedures and requirements for operations. (Daniels et al 2007)This has affected the costs met by mobile phone manufacturers and the supply chains of the organizations. For example, to illustrate commitment to environment protection and conservation Sony Ericson has undertaken to ensure that its products have the global declaration on need for environment protection and conservation. 2.2 Porters Five Forces Model The five forces model developed by Porter analyses the nature of an industry attraction to rival companies plus the degree of competition within the industry. The model identifies the behaviour of the firm within the industry to illustrate its performance. The five forces of Porters framework are as discussed below: 2.2.1 Competitive Rivalry

Sony Ericsson UK faces competition from Nokia, Motorola and Samsung in the mobile phone industry. Competition is stiff mostly in the following two aspects the prices of the products each manufacturer produces and the features incorporated in the mobile phones. (Evans & Berman, 2007) For Sony Ericsson this force can be illustrated as that is high because these competing companies have been able to

10 manufacture more products with similar or better features to this organisation but a cheaper price. (Ghamdi, 2005) The quality of the products by Sony Erickson UK however rectified have tainted the companys products by channelling out products which do not satisfy consumers needs for example freezing of operating systems in the mobile phones. This is part of the explanation there has been gradual decrease in the sales of models such as W910i by Sony Ericson. 2.2.2 Threat of new entrants

There is high entrance of new mobile phones from various manufacturers in the United Kingdom market that indicates that there is an increased level of potential entry of new market players. The impact of such threat is that creation of more cheap and high quality phones by other market players continues to grab the potential buyers of Sony Ericson. Therefore, this depicts there is still a high level of potential threat of new entrants into the market. 2.2.3 Threat of substitute products

The mobile phone industry has seen introduction of other substitute products on both communication and entertainment that is increased level of landline telephones and internet connectivity that has seen use of video conferencing and chats. (Ryan & Jones, 2009) This has led to reduced attention of use of mobile phones affecting the sales intended by Sony Ericson. This force is at the level of medium towards affecting the position of Sony Ericson in the market. 2.2.4 The Bargaining power of consumers

Product prices are the main determinant in the bargaining power of consumers on Sony Ericson mobile phones. The recent financial crisis has left many people in the

11 UK market with reduced market power therefore there is increased purchase of low cost mobile phones.(Smith, 2009) In this connection, there is favour for the competitors product as compared to Sony Ericson products that are perceived as high end priced mobile phones. The level of bargaining power of the buyers therefore can be illustrated as being high medium. 2.2.5 Bargaining Power of Suppliers

The suppliers to Sony Ericson are effective in delivery of commodities however their potential in forming their own manufacturing outfit is limited by economies of large scale production.

3.0 Internal Environment Analysis

3.1 Value chain analysis Value chain is used to locate superior skills and resources that a firm has to enable it develop products and supply them efficiently to consumers. For instance, product differentiation is an example of value chain skill that has been fully employed by Sony Ericson UK. However, it is worth noting that pursuing such a competitive skill can lead to increase in risk prevalence in the company supply chain. (Daniels et al, 2007) Therefore, it is crucial to establish tradeoffs between using the skill as competitive advantage and reduce risks in the supply chain. Sony Ericson has employed trade off by partnering with other organizations such as ATCLE in the United States of America. This has enabled the company to outsource packaging and

12 the last stages of touch on manufacturing to other firms reducing the risks within the supply chain. The company bringing other businesses in its development of products has led to creation of a competitive advantage for Sony Ericson and creation of more quality products.

3.2 Competence Analysis A company that has established its core competencies is able to attract more consumers to its line of products. Sony Ericson UK has employed this technique in the manner it has handled its attitude to complex changes. After start up through a joint venture Sony Ericson was the second largest mobile phone manufacturer in Europe with a huge share in the United Kingdom. This led to high pricing of its products and able to fully exploit its competitive advantages such as cost leadership n the mobile phone industry. (Gottfredson, et al 2005) However, from the year 2010 the company has been facing numerous challenges from its poor business strategy skills for instance poor marketing skills. This has led to losing of its market share up to the fourth place for the once almost giant in the European mobile phone industry. Consequently, management has been bold enough to take on tough complex changes and guard the market position of the company from further declining. (Jennifer, 2007)In this connection, the company has undertaken a venture into production of low priced mobile phones. This can be analysed as being directed by the market needs to consumer preference in United Kingdom of low costs mobile phones. This may be attributed to the recent recession that has seen the population focus on first meeting the needs of the essential products. Additionally, strong management team is another

13 competence that Sony Ericson has to enable it survive in the market after some few years of declining performance. (Hill, 2007) For instance, decisions on taking production of low priced mobile phones while not losing market reliability for the organization is a core competence for Sony Ericson UK company. Therefore, these competencies have led to increased level of competitive advantage used by Sony Ericson UK and gradually the company is gaining back its market share from its innovations and product differentiation abilities. 4 .0Bowmans Strategic Clock Analysis The Bowmans strategy clock has been used by companies and enterprises to analyse the position of firms in the manner the current strategies have been employed to help a firm remain relevant in the industry. (Klug, 2006) In this connection, an illustration will be drawn as to Sony Ericson current and future strategies to ensure its success in the mobile phone manufacturing business. Firstly, the current strategy being employed by Sony Ericson UK focuses on cost leadership as a business strategy to improve its competitive advantage. Sony Ericson has been able to identify this unique niche of operation of low cost production but still providing same products as competitors with similar features and of higher quality. Eventually, the company has of late been able to maintain competitive prices in the market attracting high end and low end buyers to its products. Using the clock strategy analysis pursuing this strategy Sony Ericson has been able to maintain low prices and add medium value to its products by choosing business strategy of being a cost leader. Differentiation ensures that there is high value addition to a company products still ensure allow the company to either choose either a high pricing strategy or medium commodity pricing. Sony Ericson since its start up has given strong focus on entertainment features for its products. (Parker, 2007) The company is credited to

14 having introduced the walkman series that allowed users to switch from mobile functionality to music features. This has led the company to winning the appeal of the youthful population. For instance using the entertainment feature on its products has enabled the company to capture attention of the young population by 58 per cent leading other rival companies such as Nokia with 29 % and Samsung with 46%. (Harris, 2009) The company has been preferred by most under 25 years old as the preferred mobile phone against other competitors. However, as the company moves into the future there are certain strategies that it needs to give more attention to enable more market penetration and contribute to intended success. Using focus strategy is a recommendation for the future success of Sony Ericson UK to increasing its market share. (Steinbock, 2007) This strategy can be pursued by putting more focus on the segment of the young population and seek to provide more products that satisfy the market. For instance, noteworthy, is the fluctuation of this segment in relation to fashion trends therefore Sony Ericson needs to focus more increased value addition and use of low prices for the population identified as the main focus area. 5.0 conclusion This research has identified the business strategy employed by Sony Ericson UK in the production of mobile phones. The study has been focused on unit production of Sony Ericson model W910i that has experienced challenges after its introduction in market and using the unit to study the case study of Sony Ericson mostly the factors contributing to its decline in the market leader position. This focus has been given in understanding the external environment. This environment is discussed in detail using the PESTEL framework and the use of Porters five forces analytical tool used to draw more illustration of the external environment. Using the analytical tool it is

15 clear that there is increased level of competition in the mobile phone industry leading to the gradual decline in the global position of the company in production of mobile phones. Additionally a study has been conducted to understand the internal environment for Sony Ericson using value chain and competence analysis. In sum up, evaluation of the current strategies such as product differentiation and cost leadership has been analysed using the Bowmans strategy clock. The future strategy for Sony Ericson should focus on developing strategies that will be dependent on focused differentiation.

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6.0 Appendixes Strategy Clock

High

4 3 5

Perceived added value 2 6

1
Low Low Price

7 8
High

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PESTLE framework Political Stable political environment Deregulation of markets Economic Recent recession Reduced disposable incomes Socio/Cultural Youthful population and aged population factors

Technological 3G technology Networked products Cloud Computing Services

Environmental electrical waste and directives on electronics

Legal Age limit on content

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Industry Analysis

New Entrants high

Suppliers High-Medium

Competitive Rivalry High level

Buyers Low-Medium

Substitutes High

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Resource/Competence Framework

Same as competitors/easy to imitate

Unique/Difficult to imitate Product differentiation

Resources

Management team Cost Leadership Competences

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Value Chain Infrastructure 3G networks Joint Ventures HRM Employee Motivation

Technology Development Use of 3G and Cloud computing services Procurement Partnership with foreign firms

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Services

Internal handling

Warehouse storing

Retail outlets

advertising

Warranties and guarantees

21 References

Brown, C. (2006). 'Sony Ericsson inside the last-chance saloon', Financial Times, 16th December.

Curwen, P. J. & Whalley, J. (2010) Mobile telecommunications in a high speed world industry structure, strategic behaviour and socio-economic impact. Farnham: Gower. Daniels, J. Et al (2007) International Business: Environments and Operations. (11th ed.) Pearsons Prentice Hall. New Jersey. Dunn, D. (2006) 'Sony may take Ericsson's call- Nokia's success points to consolidation', EBN, 23 April Evans, P & Berman, V. (2007) Marketing. USA: McMillan Publishers Inc

Daniels, J. et al. (2007). International Business. Environments and Operations. (11th ed.) Pearsons Prentice Hall. New Jersey.

Ghamdi, S. M. Al (2005), The Use of Strategic Planning Tools and Techniques in Saudi Arabia: An Empirical study, International Journal of Management, Vol. 22, No. 3, p. 376-395. Gottfredson, M. et al. (2005), Strategic Sourcing From Periphery to the Core, Harvard Business Review, Vol. 83, No. 2, p. 132-139

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Harris, E. (2009). 'Sony, Ericsson Mix Technology, Marketing Savvy New MobilePhone Brand Aims to Topple Nokia; Just the Logo Is Ready', The Wall Street Journal, 9th October.

Hill, C.W.L. (2007). International Business (6th ed.). New York: McGraw Hill. Chapters 14 - 20 Jennifer, L. 2007. 'Challenges for Sony Ericsson's New Chief; After one week on the job, Hideki Komiyama is painfully aware of competition from the iPhone, Google's mobile plans, and Nokia's new wireless offerings', BusinessWeek, 12th November. Klug, M. (2006). Market entry strategies in Eastern Europe in the context of the European Union an empirical research into German firms entering the Polish market (1. Aufl. ed.). Wiesbaden: Deutscher Universitats-Verlag Parker, P. M. (2007). Executive report on strategies in the United Kingdom. Routledge: McDougal, Littell & Company

Ryan, D, & Jones, C. (2009) Understanding digital marketing: marketing strategies for engaging the digital generation. London: Kogan Page. Sony Ericsson, Annual Report 2007, London, UK

23 Smith, P. (2009) Sony Ericsson connects on the web [Online] Available at: http://www.brandrepublic.com/News/228025/Sony-Ericsson-connects-web/ [Accessed May 2013) Steinbock, D. (2007). The mobile revolution the making of mobile services worldwide. London: Kogan Page.