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SONY CELLPHONE.   Term Paper ID:30139 Click to get this paper

Essay Subject: Discusses Sony Electronics forming Personal Mobile Communications America (PMC America).... More...

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Paper Abstract: Discusses Sony Electronics forming Personal Mobile Communications America (PMC America). Goal of the new unit in the digital cellular & personal communication services (PCS) sectors. Describes challenges of the market. Japan's marketplace. Product. Strategy including Porter Five Forces Model. Competitors. Role of consumer demand. Future strategy of Sony cellular telephone business. Paper Introduction: SONY CELLPHONE Background In July 1982, Sony Electronics opened its Corporate Headquarters facility in Park Ridge, New Jersey. In June 1993, they opened a large operations center in Northern California. In January 1995, Sony formed Personal Mobile Communications America (PMC America), with headquarters in San Diego, California. This unit was formed (in Southern California) to pursue the strategic growth opportunities that were recognized, at the time, to be emergent in the digital cellular and personal communication services (PCS) sectors. This unit had its own captive marketing, sales, engineering, and manufacturing functions and represented a vertically integrated organization for Sony. Among the product offerings for PMC America were Sony digital cellular telephone Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. (2 , October). This unit had its own captive marketing, sales,engineering, and manufacturing functions and represented a verticallyintegrated organization for Sony. . EETimes (November 9). Whereas a few short years ago, when a cellular telephone rang in Japan,people would have to speak very loudly in order to be properly understood.Such is no longer the case. This should come as no surprise to observerssince the large consumer electronic companies are under intense competitivepressure to meet the cost and volume demands being foisted upon them by thehighly competitive wireless carriers in this region. When the buyers can use the threat to supply their own needs through vertical integration as a device for forcing down prices. Thecorporate plan was to not abandon the market. When, in order to raise prices, the suppliers use the threat of vertically integrating forward into the industry and competing directly with the company. The demand placed on thesuppliers by the carriers leaves them little software that can be re-usedthus further boosting product development costs in an arena where productlife is about six (6) months-far shorter than the nearly one year it takesto do the development. Withinthis framework, for example, a strong competitive force can be regarded asa threat since it depresses profits. This new technology would present to consumers aproduct with the normal functionality they had come to expect in regards tocellular telephones with the added feature of being able to play musicrecorded in a flash memory card. SONY CELLPHONE Background In July 1982, Sony Electronics opened its Corporate Headquartersfacility in Park Ridge, New Jersey. 4. A weak competitive force can beviewed as an opportunity because it allows a company to earn greaterprofits.Potential Competitors This classification represents companies that are not currentlycompeting in an industry, but have the capability to do so if they sochoose. A mouse-likepointing device on the front panel permits Web-page scrollingfunctionality. Since competition is sosevere, pricing becomes very critical, meaning a definite threat to pricingerosion and unfavorable margins-neither of these is the recipe for asuccessful financial picture. 72-87). In such instances the supplier's health does not depend on the company's industry and suppliers have little incentive to reduce prices or improve quality. QUALCOMM develops code division multiple access (CDMA)technology and is a highly successful company standing positively on itsown merit and record of accomplishment. Strategic management: An integratedapproach, Boston: Houghton Mifflin Company. Hill, C.W.L & Jones, G.R. (1998). Even for a company the stature of Sony, this is an opportunitythat is very long (several years) in the making. In these circumstances, buyers can use their purchasingpower as leverage to bargain for price reductions. This type of short "mayfly" product life cycle(Yoshida, 2 ) combined with the explosive volume requirements necessaryto satisfy market demand forces the suppliers to build production plansthat are at best a gamble. Their prior forecast was$435 million (Fried, 2 ). . Only time will tell if these moveswill be successful. The number of mobilephone owners is expected to increase from 53 million (worldwide) to 1.37billion by 2 7, thus representing approximately one-sixth of the world'spopulation (Fried, 2 ). This arrangementis slightly different than the context mentioned above with respect to thepairing of a supplier with a carrier, however, the synergy between the twocompanies provides for a sound platform. Whereas with a laptop computer, the user has the luxury of beingable to engage several simple keystrokes (or clicks) to access theinternet, this same action has to be performed with one keystroke on thecellular telephone. The degree of rivalry among established companies within an industry. Of late, however, the manufacturers have been moving moreand more to outsourcing their manufacturing (as well as designresponsibility) to contract manufacturing organizations. While some thought this action wasending Sony's involvement in the cellular telephone business, itrepresented instead, a retrenching for the company. Yoshida, J. com/news/ -1 4-2 -344494.html ( 4 May 2 1). In June 1993, they opened a largeoperations center in Northern California. This situation has andis being carried out in this market. Available on-line athttp://www.sandiegometro.com/1999/july/dailyupdt8.html ( 4 May 2 1). TI, for one, hasunderestimated this fundamental shift in the buying pattern of the market.This has resulted in a lag in circuit production capacity to meet the newdemand model. Nokia, their mutually largest competitor, has over thelast few years continually propelled itself to the head of the class andcurrently claims thirty (3 ) percent of the worldwide market leavingEricsson with ten (1 ) percent and Sony with much less.Rivalry Among Established Companies Generally speaking, if the rivalry is weak, companies have anopportunity to raise prices and earn greater profits. (1999, July). Sony-Ericsson to launch new phonebrand in 6 months. In this market, it is doubtful that any new players would enter thismarket. Additional arrangements may be in the offing for Mitsubishi andMotorola following the lead taken last November by Toshiba and Siemens(Gohring, 2 1).Bargaining Power of Buyers-Buyers are most powerful in those circumstanceswhen the supply industry is composed of many companies and the buyers arefew in number and large. Regardless of the prediction made by TI, the industry still exhibitedstrong growth during 2 . InteractiveWeek from ZDWire. Each of these is being exhibitedto some extent in the Sony situation. In late 1999, following a year that was characterized by a number ofdamaging product introduction delays, the residual effects of an earlierrecall of 6 , phones, reduced sales and increasing levels of intensecompetition in the marketplace, Sony closed down this operation (Sonyclosing wireless phone business, 1999). When the company's industry is not an important customer. . TheTechnology Center would continue to support Sony's telecommunicationresearch working to develop next-generation CDMA technologies. This unit was formed (in Southern California) topursue the strategic growth opportunities that were recognized, at thetime, to be emergent in the digital cellular and personal communicationservices (PCS) sectors. The joint development agreements mentioned previously, howevercould create a similar situation. 5. For the cellular telephone sector, Government regulation is notconsidered to be an obstacle on a global basis, but may be an obstacle on aregional basis where information and communication flow incoming to theregion may be closely controlled. References Carnoy, D. Sony, Ericsson join handsets. From a strategic standpoint, Sony hasrecently announced (Strupczewski, 2 1; Gohring, 2 1) an agreement withSweden's Ericsson to co-develop a new cellular telephone. The excess inventoryposition in the market was expected to be depleted in the last half of theyear. The Japanese digital cellular telephone market clearly foretells whatcell phones, service and technology will look like in the future-worldwide. Available on-line at http://cnet. (2 , November). April 25. Sony fully intended tosupport (and appears to still be doing so) their wireless business in Asia,Oceana, and Europe. In essence, at least as far as Japan is concerned, this new phonehas become the equivalent of the personal computer with wirelessconnectivity but with much more stringent design constraints (Yoshida,2 ). At this point in time, more handsets had beenmanufactured than were required by consumer demand. The only counter that companies like Sony have is to share thehigh cost of development and utilize each others capable manufacturingresources (as they are doing with Ericsson and have done in the past withQUALCOMM), or go to an outsourced model using contract manufacturingvendors. BloombergNews (July 6). If the above design constraints were not enough, the three (3) majorwireless carriers in Japan's domestic marketplace also require thetelephone handsets to be separately tailored to each of the carriers. Sony hasthe advantage of having an extremely stable and strong track record in thisarena and has launched many successful brand names. While this may sound likea not particularly daunting task, let us remember that good software designis today based on object-oriented design. In September, 2 , TIforecasted that sales, industry-wide, for these integrated circuits wouldfall to somewhere between $4 and $435 million. Ericsson brings to thetable a great technical strength in the radio-communications arena.Clearly the marriage of the two as described above is a marriage ofconvenience for mutual survival in this intensely competitive market. When the supply industry depends upon buyers for a large percentage of its total orders. . Industry analysts have given differing opinionson the future of the market. Each of these by itself would beconsidered a bold move, all three put together makes the strategy on thepart of Sony that much more compelling. Available on-line at http://www.xtra.co.nz/technology/ ,,82 -421318, .html. Sony has been very successful inthe launching of new brand names such as "PlayStation" and "Walkman" intothe consumer market and Ericsson has a very solid reputation in thecellular telephone space. _______. Ericsson has latelybeen losing money, and Sony has not done well with its cellular telephonesin North America. com/wireless/ -19234 1-8-2915546-1.html ( 1 May 2 1). The industry has been affected by a shift in the manufacturing policyassociated with cellular telephones. In January 1995, Sony formedPersonal Mobile Communications America (PMC America), with headquarters inSan Diego, California. 3. Eventhough they all utilize the Japanese-unique digital cellular standard(Personal Digital Communications or PCC), each carrier utilizes a differentsoftware environment for Web browsers and other applications required torun on their handsets and services. Fried, I. . When the product or service the sell (or provide) has few substitutes and is important to the company. In the past, suppliers to the industryhave sold the individual integrated circuits directly to the top-tiermanufacturers. The risk of new entry by potential competitors. In November 2 , Sony announced that it would be deliveringa new generation of handset technology to two major cellular carriers inJapan (Yoshida, 2 ). . Strictly speaking, the four main barriers to entry are: brandloyalty, absolute cost advantages, economies of scale, and governmentregulation. In the cellular telephone market, thecontrol exercised by the carriers has a similar comparison to thissituation. The stronger each of these forces, the more limited is the ability ofestablished companies to raise prices and earn greater profits. (2 1, April). Some have predicted growth through 2 1 whileothers have indicated a slow down in the market. April 3 . Some of these constraints include very severe limitations with respectto battery size and battery-life as well as more sophisticated embeddedcontrol and operating software to make the user experience pleasant andeasy. When their respective products are differentiated to such an extent that it is costly for a company to switch from one supplier to another. In the cellular market, the apparentmerging of cellular telephone technology with that of the Personal DigitalAssistant (PDA) could very well be the initial bell in an ensuing battlebetween cell phones that are multi-media (as exemplified by what will mostlikely come out of the Sony-Ericsson union) and those that are moreoriented to being an email appliance/cell phone (as exemplified in theproduct direction which appears to be taken by Nokia teaming with 3Com andproducing the cellular telephone/Palm Pilot combination).Role of the Macroenvironment-Technological, social and demographic factorsalso come into play, especially in the consumer electronics arena. Today, instead of speaking on the phones,users are reading email, checking calendars, reviewing weather forecasts(and baseball scores), playing games, downloading text and sendingmessages. WirelessInsider. Gohring, N. (1999, July). Representing another "first" for Sony in this sector, the productillustrates the ongoing development of Japan's cellular marketplace,believed by many to be the first to see the results of such leading-edgetechnology in this sector. Desperately seeking Sony. (2 1, April). Either way, the present market conditions in the cellulartelephone space are such that these are the kinds of measures that must betaken to thwart the power being exercised by carriers (buyers).Alternatively, when the buyers purchase in large quantities they becomevery powerful. It is important to note at this point that Sony did not pull out ofthe global market for these products, only out of the North American Market(Carnoy, 2 ). (2 , September). Strategy The Porter Five Forces Model focuses on the forces that shapecompetition within an industry (Hill & Jones, 1998, pp. Other factors contributing toexcessive "buyer control" are as follows. Theseforces are represented by the following factors: 1. In order to remain competitive, Sony took arealistic look at the market, divested itself of operations in an area(North America) where it could no longer profitably compete, took advantageof outsourcing some of its manufacturing needs by means of the vehicle ofutilizing outside contract manufacturing operations, and further reducedcosts associated with development by entering into a joint developmentagreement with Ericsson of Sweden. When the buyers can switch orders between supply companies at a low cost, thereby playing off companies against each other to force down prices. Available on-line at http://news.cnet. Strupczewski, J. This means being able to re-useportions of the software in other applications. In such cases the company depends on its suppliers and cannot play them off against each other. Conclusion The cellular telephone market is an intensely competitive environmentdriven by the cellular carriers as well as the continual consumer demandfor enhanced functionality. Sony closing wireless phone business. . It did maintain, however, its Technology Center in SanDiego that was separate from PMC America (San Diego Scene, 1999). These circumstances will allow the buyers todominate the supply companies. One way to stabilize the market environment is for the suppliers tosecure a "joint development agreement" for a new generation cellulartelephone. Another challenge facing the market is the emergence of 2.5 GHzphones that indicates a reduction in profit margin on circuits provided forthese products. Product Description In the consumer electronics arena, Sony has long been recognized as aproduct innovator in a wide range of areas from audio and televisionproducts to computers, digital cameras, display monitors, optical drives,and other computer-related products. Available on-line at http://news .cnet.com/news/ -1 6-2 -2815356.html ( 4 May 2 1). Among the product offerings for PMC America were Sony digitalcellular telephones produced in San Diego, by QUALCOMM Personal Electronics-a joint manufacturing venture founded in February 1994, between Sony andQUALCOMM. The Market Texas Instruments (TI) is the largest supplier of integrated circuittechnology used in cellular telephones today. The bargaining power of suppliers. The above joint venture between Sony and Ericsson appears to besetting itself up to heighten an already intense rivalry between the majorplayers. San Diego scene (July 8). When buying companies cannot use the threat of vertically integrating backward and supplying their own needs as a means to reduce input prices.Threat of Substitute Products-Substitute products are those of industriesthat serve consumers' needs in a way that is similar to those being servedby the industry being analyzed. In short, the carriers do this to the manufacturer's by offering to partner in these joint development scenarios.Bargaining Power of Suppliers-Suppliers are most powerful in the followingcircumstances: . If the rivalry isstrong, significant price competition-including price wars-may happen.Similarly, intense rivalry among established companies constitutes with inan industry or strategic group is a strong threat to profitability and theextent of rivalry between established companies in an industry is afunction of the following: the industry's competitive structure, demandconditions, and the height of exit barriers in the industry. Sony tucks Walkman into cell phone. The contractmanufacturers typically do not want individual integrated circuits but thecomplete package of circuits for the product. With the music-related innovation detailed above, users willsoon be able to also have the strains of their favorite music with them aswell. This requires the cellular telephonemanufacturer (the challenge is not unique to Sony) to develop differentversions of software for each cellular carrier. The bargaining power of buyers. Sony also has a good deal of positive experiencein this arena having done a somewhat similar joint venture with QUALCOMM.The new company will be called Sony Ericsson Mobile Communications but willcreate a new brand name for the resulting products. _______. More specifically, in the cellular telecommunications product arena,they have pioneered development especially in the areas of reduced size andportability. Texas Instruments cuts estimates for cellphone market. 2. The threat of substitute products. From a purely technical perspective, the product features asupertwisted-nematic color LCD with a screen size measuring two (2) incheson the diagonal and housed in a very small enclosure. Available on-line at http:// www.eetimes.com/story ( 1May 2 1). 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