Critical Evaluation of Strategies of SONY to Enter into the Indian Market

This article critically evaluates the strategies adopted by SONY to enter the Indian market. It analyzes the macro-environmental and industry-related factors that make India an attractive market for SONY. The article also discusses SONY's vision and mission, and its business strategy to become a globalized network leader in consumer electronics and entertainment.

G Number -
Module Name - Strategy and International Management
Code Number - MD4100
Tutor Name - Dr. Nadia Zahoor
Assessment Title - Critical evaluation of strategies of SONY to enter into the
Indian market
Date of completion -
Number of Pages -
Number of words - 2910
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Critical evaluation of strategies of SONY to enter into the Indian market
Corporations undertake various internationalization strategies in order to expand beyond national
boundaries. In the current case analysis Sony’s expansion into Indian markets have been
analysed. Sony is a leader in consumer electronics around the world and India offers a huge
consumer market. India’s emerging economy and growing GDP growth rates provides
tremendous impetus to the company to establish its products and services. Sony offers various
electronics products in the Indian markets and conducts the same through importing of such
products from Japan. Sony’s success in its home market led the Company to decide upon
expanding into other economies or nations of the world, so as to make its products available to
foreign consumers. When a Company’s products or services are available to foreign consumers,
the company is said to have globalized. In case of internationalization, the company sells its
products or services outside the country. When a firm wants to expand outside in other nations
then they can do so through exporting, licensing, joint ventures or through wholly owned
subsidiary. Sony’s focus on quality control and management systems had deterred the Company
from setting up manufacturing units in India and had conducted the business through
distributorship business. In 2015 it decided to set up its manufacturing plant in Chennai, India. It
was done through a Taiwanese contract manufacturing firm Foxconn, to lower its import duty.
Eclectic theory of international production for manufacturing in India was opted by Sony as it
considers India to be a strategic market of importance. Sony continues to cater successful in the
Indian markets along with other electronic manufacturers and it need to adopt a few
recommendations to become a leading market share holder in India. Hence, according to
Dunning’s Eclectic paradigm, Sony exported its products to India before establishing its
manufacturing unit in India. Sony initially entered Western countries with its cutting-edge
technological products and in India in 1994 it formed Sony India Private Limited. With gradual
acceptance of its products in India, it decided to form a wholly owned subsidiary transiting from
export model of internal business. This unit was a Foreign Direct Investment (FDI) where the
share of revenue of Japanese corporation was 40%. The Company gradually started making good
amount of profits from 1997, with lower rates of taxes, with greater access to raw materials;
hence it finally attained break-even point in the year 1998. The Company’s revenue kept
increasing and in 2003-2004 it reached a profit figure of $ 170 million, with over 119 authorized
service centers across India.
Companies currently expand their operations in various other countries to expand their market of
operations (Tamer, 2009). Sony’s entry into India had offered the Company a profitable avenue
from its stagnation. The current scope of analysis includes discussion related Sony corporation
and its expansion mode into Indian markets. The various reasons behind establishing business in
India along with strategies that are used for expansion have been evaluated (Chen, 2008, pp. 303-
314). Sony is a Japanese multinational conglomerate corporation, which has its headquarters in
Konan, Minato, and Tokyo. The corporation was founded in 1946 and includes a diversified set
of business of professional and consumer electronics, entertainment, gaming and financial
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services. The Company has the largest music entertainment business in the whole world with
video game publishing business. The Company was founded by Masaru Ibuka and Akio Morito.
The Chairman of the Corporation is Kaz Hirai and Kenichiro Yoshida is the President and CEO.
The corporation employs over 117,300 employees. It is leading player in television and film
industry and it ranked 97th in the Fortune Global 500 list. The Corporation is present worldwide
with its various products and services. The Corporation’s revenue is almost 6.593 trillion Yen,
with operating income of over 7.12.7 billion Yen. The Corporation’s business strategy is to
become a globalized network leader in consumer electronics and entertainment. It is regarded as
one of the most innovative company amongst world’s 10 most innovative companies. Its usp is
to provide cutting edge technologies to consumers in electronics.
Sony’s highly diversified business with wide range of products aims at catering to consumers
over the world (Ekpe, Eneh and Inyang, 2015, pp. 135). The Corporation’s vision and mission
drives the business enabling it to maintain position in the industry. Vision of Sony focuses on
kando to achieve end goals of the business. Sony’s mission statement provides the ways in which
it can attain its vision and goals.
Vision: “To use passion for technology, content and services to deliver kando, in ways that Sony
can.”
Mission: “To become a company that provides customers with kando, to move them emotionally
and inspires and fulfills their curiosity” (Meyer).
Sony was established during the World War II with Masaru Ibuka starting an electronics
departmental store in Tokyo. The Company was started with 8 employees with a total of 190,000
Yen. Akio Morita then joined Ibuka to form a company called Tokyo Tsushin Kogyo, whose
name was later changed to Sony. With Sony’s radio launching in the US market, hey received an
entry into the consumer goods industry. The Company came up with various innovative products
one after the other in the market after that, though there were certain hurdles. Sony initially
offered its products to the Americans prior to gradually spreading its brand globally.
Attractiveness of the Indian markets can be determined by macro-environmental factors and
industry related factors (Nielsen and Nielsen, 2011, pp. 185-193). The macro-environmental
factors can be analysed using PESTLE factors whereas the industry related factors have been
analysed using Porter’s five forces of competition.
PESTLE is an abbreviated form for political, economic social technological legal and
environmental factors, which have been analysed.
Political Factors: India being a democratic country allows tremendous opportunity for
businesses. The process of starting business in the country is easy; however there remain
bureaucratic influences (Omar, Williams Jr and Lingelbach, 2009, pp. 177-187). However, the
recent government has undertaken special initiative of make in India drive which offers easier
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registration and set of business processes within the country. Sony was able to easily expand in
the Indian markets due to lower tax structures and government policies attractiveness on the FDI.
At the time Sony had established its operations in India, the government was offering rebates and
several benefits to foreign nationals to set up their operations in India. Sony easily started
manufacturing in India and competing with local corporations such as Sharp. India has been
considered to be one of the fastest growing BRICKS economies. The country’s robust GDP with
growth potential attracts large amounts of investments from offshore companies. The below
figure depicts FDI inflow depicting a rising trend. The country has stable markets with stable
currency and economic structure. The economic policies of the company are supportive for
international businesses. However, the import tax remains high, in order to induce companies to
start their production in the country.
Economic Factors: India has been considered to be one of the fastest growing BRICKS
economies. The country’s robust GDP with growth potential attracts large amounts of
investments from offshore companies. The below figure depicts FDI inflow depicting a rising
trend. The country has stable markets with stable currency and economic structure. The
economic policies of the company are supportive for international businesses. However, the
import tax remains high, in order to induce companies to start their production in the country.
Figure 1: FDI Influx in India
Source: Reserve Bank of India
Social Factors: The country offers potential billions of consumers. The recent raise in service
class in the country and propensity to spend offers consumer electronics a viable market in the
country. At the time Sony entered into the Indian markets, it viewed potential opportunities for
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VCR and Walkman. Sony had already been selling these products in Western countries, hence
started selling them in India too along with innovating newer products to gain competitive
advantage. Moreover, the country has a young aged population with considerably low amount of
elderly population. There are present a large number of consumer electronics brands in the
country, which offers various products such as television, smartphones, music boxes and other
products. The average Indian consumer market size is estimated to double by 2025. The figure
below depicts the increasing trend in the Indian consumer market.
Figure 2: Consumer Market for Electronic Products India
Source: https://www.grandviewresearch.com/industry-analysis/india-consumer-electronics-
market
The growing demand for electronics products in India can be attributed to changing lifestyles,
rising disposable incomes and ease of access to credit facilities (Doole & Lowe, 2008). The
Indian electronics market has attracted several investments and FDI inflows along with mergers
and acquisitions as well.
Technological Factors: India have progressed technologically significantly with introduction of
hi speed internet and rapid growth of ecommerce business. Technological laws in India have
made sure to protect and preserve privacy of individuals and corporates. This has revolutionized
the process of ecommerce business and the electronic industry (Kirkpatrick, 2016). Consumers
demand high ended electronic gadgets in the country and they are offered through retail, online
and varied other store models. International companies operating in the country need to follow
the Information Technological Act that is enforced while conducting their business.
Legal Factors: India’s has a stringent judiciary system; however the high influx of cases often
renders the system ineffective. International companies operating in India need to follow the
legislations and laws that are enacted throughout the country. The high taxation structure for
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corporates often deters international business from conducting business in the country; however
there might be available tax breaks.
Environmental Factors: The country currently does not have stringent environmental norms and
standardization in products. However there is high amount of consumer awareness while
purchasing products.
India’s electronic industry factors can be analysed through Porter’s five forces of competition as
given below.
Bargaining power of Buyers: Indian consumers have large number of electronic brands to make
choices from. The country has presence of some of the best brands from around the world. Sony
competes with LG, BOSE, Philips, Panasonic and all other prominent brands that are present
globally.
Bargaining power of suppliers: Bargaining power of suppliers is medium in India as Sony enjoys
a good brand name and position. The suppliers are eager to make tie-up with Sony to distribute
their products and then cater to services (Peng, Wang and Jiang, 2008, pp. 920-936). However,
often one supplier caters to various electronic companies, which hampers quality of Sony’s
products. Sony’s innovative products were every time accepted in the Indian markets. As Sony
was highly successful with most of the products it innovated for the Indian markets such as
Experia mobile phones, Sony Bravia and laptops. Sony Bravia had made the Company the
market leader in electronics. Sony in order to maintain its profitability in its international
business in India need to source raw materials in an affordable range. It needs to make tie-up
with suppliers of its various products so as to maintain a competitive advantage.
Industry Rivalry: Industry rivalry present in India is high in nature. Presence of global as well as
local brands impends tremendous competitive pressures. While each company has their own core
competencies, extensive discounts and offers often reduce profitability for large corporations.
Sony currently competes with Samsung, LG, Bosch and other leading electronics players in the
market. However, Sony Bravia and its other television segment remains a market leader in the
segment. Sony’s acceptance in the Indian market is based upon the best quality television, which
also makes it a market leader in the segment.
Threat from New Entrants: Threat from new entrant is present in India as the country’s attracts a
large number of companies. Presence of high consumer market provides a lucrative factor for
companies to establish their business in the country.
Bargaining power from substitute products: There are various substitutes that are available for
most electronic products. Such as for television, smartphone apps, for calling smart watches and
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so on. But Sony’s innovativeness allows it to maintain a steady position in India’s competitive
sphere.
International business takes place across national borders such that consumers need and demands
can be achieved. Strategies are designed by companies in line with the goal and objectives of the
firm. In international management, companies generally design strategies which are suited to the
needs and demands of the host country. It might adopt a differential strategy as compared to the
strategy that it currently practices in its home country (Hill, 2008). The importance of strategy in
current business scenario is that it allows companies to establish their core competencies and
compete in the globalized highly competitive markets. In absence of companies designing
strategies it will not be able to generate a market share or attract sizable number of customers
towards its products. Prior to expanding in a particular market, the company has to understand
consumers and test the market scenario in order to prevent losses arising from it (Canabal and
White III, 2008, pp. 267-284). A firm can decide to undertake non-equity mode of entry through
export, contractual arrangements, licensing or franchising in order to understand the new
markets. In such a situation the company has its production based in its home country and only
makes tie-up with the host country counterpart for selling of its products. Once the product of the
company has been tried and tested in the host country and it emerges to be profitable, it decides
to undertake equity modes of investments such as FDI (foreign direct investments) through
partial or full acquisition, however such expansion requires expertise and knowledge (Fernhaber
and Li, 2010, pp. 1-30). Then the company can decide to produce its products in the host country
or continue production in its home country on the basis advantage arising from cost of
production. Thus, the process of internationalization includes gradual increasing commitment in
the foreign market on the basis of knowledge of the market. Globalisation is the growing
interdependence of companies on economic and locational factors in countries. Globalisation
unlike internationalization provides organized flow of goods and investments along with cultural
and technological flow change (Morschett, Schramm-Klein and Swoboda, 2010, pp. 60-77).
Sony focuses on high quality products in every world market. In India also, Sony focuses on high
quality product. The strategy that the Company uses for its Indian markets is differentiation as it
distinguishes its products from others present in the market through highest possible quality and
value for money. The Company markets its products through Indian cities as well as through
villages. It has a sizable market share for its various products especially television in Indian
households.
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Figure 3: Sony's Strategy according to Porter's Generic Strategy
Source: Author
Sony initially used to import its products and sell in Indian subcontinent, but recently it has
started its production in Chennai, India. According to John Dunning eclectic paradigm suggests
that a company will undertake activities which provide it advantages. A firm will decide to invest
in a location and increase FDI in case it receives subsequent advantages (Meyer, Estrin,
Bhaumik and Peng, 2009, pp. 61-80). Earlier it had moderate international activities in India, it
used to import. But with growing strategic importance in India the company decided to start with
its capital intensive internationalization strategy. The Company undertook this initiative after the
attractiveness of ‘Make in India’. The Company in order to do so have partnered with
competition Team Technologies Pvt Ltd in Sriperumbudur in Tamil Nadu, India. The
manufacturing partner will produce Bravia televisions with original equipment for Android
television models. The Company had already invested INR10,600 crores in 2014 for
manufacturing for televisions and is currently considering manufacturing smartphones in the
country too. Earlier in 2004 the Company had initiated manufacturing in India but had stopped
owing to inability to justify production facility, especially in consideration to India’s free trade
arrangements. With growing prominent of Indian markets, the Company decided to initiate its
production in India again as there is a rising demand for Sony’s varied products.
Sony is focused on delivering highest possible quality product with high customer services for its
products. The Company’s rapid innovation has amused and kept its brand name high amongst
consumers. The Company’s strong brand image allows it to establish a leadership in India as
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well. The above analysis of Sony reveals various possibilities prevailing in the Indian market for
the Company. However, there had been a 22% in share in Indian electronics market, which was a
cause for great concern for the Company. It needs to adopt certain recommendations in order to
become market leader in consumer electronics in India.
In conclusion, the Company needs to adopt extensive marketing in Indian markets in order to
increase visibility. With production facility being in India, the Company can significantly take
cost advantages and direct funds towards marketing efforts. With production facilities being
based locally, now the Corporation can easily offer competitive prices in consideration with
other brands. such competitive prices will allow to establish greater market share in India. The
electronics industry in India is expected to grow further. The Company needs to increase its
focus in Indian markets to gain from its growth. The Company can invest some more funds into
Indian markets to take advantages form the same. Sony’s LCD televisions are revenue drivers
and the Company does not make LCD panels, which all their competitors manufacture. The
Company needs to learn technologies and start manufacturing LCDs at cost effective rates in
India for gaining greater competitive and cost related advantages.
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