sony

1 Global Organisational Environment

University of Gloucestershire

Global Organisational Environment

Portfolio: Sony Ericsson

Abdul Latif Sultan : s1010402

1/24/2011

This report has been submitted in partial fulfillment of the Masters in Business Administration course module ‘Global Organisational Environment.’ The report aims to introduce the organisation, its purpose and present an analysis of the organisation’s external environment by using various tools of external analysis. The report includes bringing forward the key factors affecting Sony Ericsson, its market position and segmentation strategy employed by Sony Ericsson.

Word Count: 3200Standard APA Referencing Style


Table of Contents

Introduction…………………………………………………………...…………………………………………………………... 3

Global activities of Sony Ericsson…………………………………………………………...……………………………… 3The Organisational Structure and Governance…………………………………………………………...…………. 4Corporate Governance and Financial Risk Management ……………………………………………………….. 4

Stakeholder Analysis………………………………………………………………………………………………… 5

External Environment Analysis………………………………………………………………………………….. 6

PESTEL Analysis for Sony Ericsson……………………………………………………………………………………. 6Porter’s five forces analysis…………………………………………………………………………………………….. 9

Market Share and Segmentation……………………………………………………………………………………… 10

Opportunities and Threats………………………………………………………………………………………………… 11


Introduction to Sony Ericsson

Sony Ericsson is a jointly owned venture of Japanese consumer electronics giant, Sony Corporation and Swedish Telecom player Telefonaktiebolaget LM Ericsson. Both of them hold equal stake in Sony Ericsson (50:50). After its incorporation in October, 2001 with its global head quarter in Hammersmith (London), the corporation’s presence can be felt almost all around the world and in most of the major markets [1][2].

Sony Ericsson has been working at high costs towards its vision, which in their official documents is stated as “to be the Communication Entertainment brand, enabling people to create and participate in new experiences which blur the line between communication and entertainment” [2]. Omatseye in an article calls this joint venture- a marriage rather than just a joint venture and argues, that this as a significant step in the telecom world [1]Another news article reports how Sony and Ericsson have replaced older successful research laboratories by researching on new technology such as the Bluetooth technology, standard and how this is an evolution in R&D [3]. Sony’s wide portfolio includes entertainment that encompasses of music, movies, games etc. while Ericsson is known for being highly competent in telecommunication technologies. Ericsson maintains a good relationship with a number of telecom service providers [2][3]. Drawing on the strengths of its parents Sony Ericsson is involved in manufacturing mobile phones, accessories and providing content and application services in key areas of imaging, music, design and other multimedia features to its users. Both companies ceased production of individual handsets.

Global Activities of Sony Ericsson:

Sales and marketing activities of Sony Ericsson are concentrated all across the globe and divided in these following market areas:

Western areas Central & Eastern Europe, Middle East and

North Africa Asia Pacific China Japan Americas

Their Research and development sites are located in:

Lund, Sweden Beijing, china Tokyo, Japan California, US

The production facility at Beijing , Beijing SE Potevio Mobile Communications Co., Ltd. is Sony Ericsson’s primary and only in-house manufacturing facility [2].

References:

1. Omatseye, S. (2001). Sony Ericsson phone marriage starts Oct. 1. RCR Wireless News, 20(18), 1. Retrieved from Business Source Complete database.

2. BIBLIOGRAPHY (2001). Sony Ericsson Mobile Communications established today. Cisionwire retrieved.

3. (2003). Sony Ericsson Mobile Communications AB SWOT Analysis. Sony Ericsson Mobile Communications AB SWOT Analysis, 1-8. Retrieved from Business Source Complete database.


The Organisational Structure and Governance:

Fig. 1.1 [4] shows the organisational structure at Sony Ericsson. The structure is based on its functional divisions, where different functions of the organization have been departmentalized. Each department follows its own chain of command within.

The President, Bert Nodberg at the top level plays multiple roles as the Chief executive officer and the chairman of Sony Ericsson. The post of executive vice president is shared by two competent persons, Rikko Sagakuchi and Kristian Tear. The portfolio for the chief financial officer is held by William A. Glaser Jr.

Corporate Governance and Financial Risk Management:

The Board of directors are responsible for the organization and operations of the firm. The President keeps the board and the parent companies updated regularly on new

developments, position of the organization, liquidity etc.

Sony follows a policy for managing its financial risks. “Sony Ericsson’s financial risk management is governed by a policy approved by the Sony Ericsson Board. The management of risks is executed by a centralised treasury function and its principal role is to ensure appropriate financing, manage the liquidity, secure effective cash-management and conduct effective management of accounts receivables. The centralised treasury also manages and controls financial risk exposures in a manner consistent with underlying business risk and financial policy” [4].

Figure 1.1

References:

4. Sony Ericsson. (2009). Sustainability Report. United Kingdom: Sony Ericsson.http://www.sonyericsson.com/cws/download/1/823/528/1280492941/SE_Sustainability_Report_2009.pdf

5. Sony Ericsson. (2010). Executive Biographies. Retrieved November 22, 2010, from sonyericsson.com


Stakeholder Analysis

Stakeholders are those who have rights or interests in a system [6].Sony Ericsson is known for its sound corporate social responsibility (CSR) practices. In one of its CSR documents, Sony Corporation identifies the potential stakeholders of Sony Ericsson. With more Research one can identify them as follows [7]:

1. Shareholders and parent companies2. Board of Directors3. Customers4. Suppliers5. Employees6. Other organizations7. Business Partners8. Local Communities9. Government

Stakeholder analysis is used to analyse the level of interest each group of stakeholder would generally show and the power they yield that affect the organisation in one or more ways. One of the few ways of stakeholder analysis is using the power/interest matrix.

The Mendelow’s Power/Interest matrix indicates the type of relationship which organizations typically might establish with stakeholder groups in the different quadrants [8]. Based on his matrix we can map stakeholders on different quadrants.

Level of Interest

Power

Low High

Low Local Communities Customers, Suppliers, Employees,

Other Organisations, Business

Partners

High Government Shareholders, Parent co., Board

of Directors

Figure 2.1

References:

6. Mayers, J. (2005). Stakeholders power analysis. Power-tools , 3-5.

7. Sony Corporation. (2005). Corporate Social Responsibility Report. Japan: Global reporting.

8. BIBLIOGRAPHY Mendelow, A. (1991). Proceedings of the second internaitonal conference on Information Systems. Cambridge: MA.


Fig 2.1 [9] maps the various stakeholders of Sony Ericsson according to Mendelow’s Power/Interest Matrix. Local Communities would be considered as an entity with low power and low interest towards the Organisation because of the minimal effort they make.The government would be an entity which yields high power because of its ability to introduce or change laws for instance but they have a relatively low interest towards how the company fares & they have to be kept satisfied at always.SonyEricsson’s customers, product suppliers, employees, competitors, partners are entities that would look forward to be informed about the business and have relatively low power but have a high interest in the organisation and its policies. The Board of Directors, Shareholders & the Parent companies (Sony & Ericsson) would be considered as the key players of the organisation as they yield high power to change strategies and their level of interest in Sony Ericsson is high.

External Environment Analysis

Business environment is a set of political, economic, social, technological, environmental, legal, competitive forces that are largely outside the control and influence of a business and that can potentially have both a positive and a negative impact on the business [10].

Sony Ericsson would be affected by its competitors because their actions affect the ability of the business to make profits, because competitors will continually seek to gain an advantage over each other, by differentiating their product and service, and by seeking to provide better value for money [11].

The External Environment of Sony Ericsson can be much better analysed using 2 popular and highly useful analyzing tools; PESTEL ANALYSIS and PORTERS FIVE FORCES MODEL.

PESTEL Analysis for Sony Ericsson:

There are many factors in the external environment that would affect the decisions made by the management at Sony Ericsson. Changes in law, policies, government regulations, standards, tax etc. are examples of factors that would affect the organisation externally. To analyse these factors they can be categorised using the PESTEL model.

References:

9. Mendelow, A. (1991). Proceedings of the second internaitonal conference on Information Systems. Cambridge: MA.

10. Wood, R. (2000). Managing Complexity. The Economist books.

11. (2009). The External Environment. Retrieved 1 2010, from The Times 100 Website: http://www.thetimes100.co.uk/theory/theory--the-external-environment--236.php

http://www.thetimes100.co.uk/theory/theory--production-quality--339.php


Political Factors:

These factors include all the policies or other direct, indirect interventions by the government, government priorities etc. Government decisions can affect Sony Ericsson up to a high extent. Sony Ericsson is present in a number of different countries worldwide and the political scenario in each one of them would affect them in one way or the other. Political stability of existing or potential markets affects the decisions made by the management at Sony Ericsson.

Economics Factors:

These factors include more of macro-economic changes such changes in tax rates, rate of borrowings, exchange rates. It has to do with the economic scenario of the country(ies) it carries out operations in. Economic status prevailing in different countries and especially the United Kingdom would affect Sony Ericsson significantly. The Rate of borrowing in the UK where the co. is originally based in is very low is significantly high in 2010 which would affect their plans for expansion. Inflation has been provoking higher wage demands from employees. The Economic conditions in the UK and other western countries are not very good with huge economic trade deficits. Due to the credit crunchy and the ongoing recession most countries have been facing, there have been significant changes in exchange rates in 2010 which affects imports and exports made by Sony Ericsson worldwide. Sony Ericsson has had to formulate new strategies in 2010 with respect to segmentation and to work out the new prices of products being launched in different markets because of the changes in these exchange rates. Low growth in the National income of most of the countries has been resulted in low demand of the firm’s products. Because of these increasing costs and problems Sony Ericsson has had to reduce the size of its organisation in terms of its In 2010, the uncertain global economic climate

has had a negative effect on Sony Ericsson and as a direct result of this it was necessary to remould and reduce the size of the organisation around the world. Without these reductions it would have been impossible for Sony Ericsson to remain competitive and to continue to operate effectively [12].

Social Factors:

Changes in taste, trends of people affect the organisation too. It also has an impact on the demand of the firm’s products.According to Gillespie “this also has an impact on the availability and willingness of individuals to work. In the UK, for example, the population has been ageing. This has increased the costs for firms who are committed to pension payments for their employees because their staff are living longer. It also means some firms such as Asda have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on demand: for example, demand for sheltered accommodation and medicines have increased whereas demand for toys is falling. [13]”. Other components of these factors include using Ethical business practices and employee welfare. Sony Ericsson has been having drives to work towards the benefits of the society and employee welfare. Sony Ericsson protects the human rights of all its employees and complies with all the local and international regulation policies with respect to Human resources. Due to the changing social scenarios and realizing that businesses play an important part in the global community, Sony Ericsson has also been involved in other causes and fund raising programs [12].

References:

12.

13. Gilespie, (2007) Foundations of Economics, Oxford University Press Website: http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm


Technological Factors:

With new technology Sony can create or innovate products for e.g. The Walkman series, Cybershot high definition cameras embedded in cellphones etc., this was all possible due to the technological advances. Technology helps Sony Ericsson reduce costs, improve quality, and lead to innovation and new developments. These products benefit the company as well as its customers. Sony Ericsson works around technology. In order to stay ahead of its competitors they have to stay updated at all times and regularly research and develop.

Environmental Factors:

Environmental factors involve contributing towards avoiding weather and climate change and being sustainable towards the environment. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for Sony Ericsson and other firms to consider. The general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities [14]. Due to the recent environmental issues and new guidelines towards sustainability, Sony Ericsson has had to take initiatives towards being sustainable. For E.g. it has reduced its carbon footprints significantly by 2009 and aim to reduce it by 20 percent by 2015, they strive to reduce emissions in their product lifecycle, use more of renewable resources of energy, committing to recycling, reducing mobile charging and power consumptions. All this was done because of the changing environmental guidelines and more awareness because of environmental problems [15].

Legal Factors:

It refers to the legal and regulatory environment Sony Ericsson operates in locally or internationally. In 2009 and 2010 there have been there have been many significant legal changes that have affected Sony Ericsson. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively recent laws that affect an organisation's actions [14]. Legal changes can affect a firm's costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service). Other factors that have affected Sony Ericsson recently are changes in International policies and environmental acts, trade restrictions enforced on many countries for e.g. import of Chinese products in some countries e.g. Syria

References:


15.


Porter’s five forces analysis:

The Five Forces model of Porter is an outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value...) of an industry structure. The Competitive Forces analysis is made by the identification of 5 fundamental competitive forces [16].

1. Entry of Competitors: It is not very difficult for new entrants to enter the telecommunication and multimedia market. Although a few telecom regulations, high investment might be a barrier for new players, but it is not very difficult for new entrants to setup. For e.g. the launch of 3 new mobile phone companies in India offering cheap mobile phones has had a negative impact on Sony Ericsson and similarly in other countries.

2. Threat of substitutes: The degree of threat is relatively high and depends on the product and its features. Sony Ericsson has had to introduce cheap multimedia phones to avoid customers from shifting to other multiple cheap substitutes like Mp3 players, cheap tablet android computers.

3. Power of buyers: The power of buyers in some markets is very high and some its very low. Sony is affected by the power of buyers around the globe. For e.g. the power of buyers in Asia is relatively higher than the west.

4. Bargaining power of suppliers: Suppliers aren’t very strong in case of Sony Ericsson. There are a large no. of suppliers that can meet the requirements of the firm. Suppliers do not have a very high power.

5. Rivalry among existing players: There is very strong competition in this industry. There are a number of big and small players

that affect SE. Nokia is the strongest competitor and the company that is dominant. Other competitors that SE faces threat from are Blackberry, LG, and Samsung.

References:

16. Porter, M.E. (1979) How Competitive Forces Shape Strategy, Harvard business Review, March/April 1979


Market share and segmentation

The market share of Sony Ericsson by the end of 2010 was better than before. It was around 3.5% and the value market share has been somewhere around 6%. Its sales accounted for around 11,008 units in 2010 out of 325,556 that were sold totally. Nokia being the biggest player managed to sell 111,473 units [17].Sony Ericsson has employed a no. of market segmentation policies in the past. But its segmentation in 2010 has been introducing more of business and high end phones with high features for e.g. the Xperia series. Innovation in its Walkman series is also one of its segmentation. Introducing phones with multimedia features and more options like music, games, mobile social networking SE aims to capture a share of the teenage market. With the introduction of its Satio series it aims at the the other age groups and class of people. Both demand and technology for handsets with wireless internet, better storage, cameras and music capabilities are increasing. This has influenced Sony Ericsson to mould its strategies to fit into the current scenario. According to Robin Hohman from Technews world “Devices like Sony's PSP and other multimedia gaming terminals and portable media players like the iPod have shown that if kids want something they can definitely find the resources to buy it," he said. "It's all about making the devices appealing enough so that they can compete with the likes of the iPod and people will spend the extra money on that rather than on an iPod. [18]”

References:

17. Sony Ericsson. (2010, October 15). Q3 Financial Press Release. Retrieved November 20, 2010, from Sony Ericsson Website: http://www.sonyericsson.com/cws/corporate/press/pressreleases/pressreleasedetails/q32010semcfinancialspressrelease-20101015?cc=global&lc=en

18. Robin, H. (2006, September 20). Sony Ericsson to Launch M-Buzz Music Service. Tech News World .


Opportunities and threats facing SE in 2010

According to Data Monitor Reports and research the opportunities and threats in 2010 for SE can be stated as follows.

Opportunities:

Expanding Content Service Business: The company has been expanding its content services portfolio in recent times. PlayNow is Sony Ericsson's content delivery platform. In recent times, it has expanded PlayNow to offer movies and an application store, in addition to music and game downloads. Additionally, Sony Ericsson announced, in 2009, its 'Communication Entertainment' strategy, which aims to broaden and unite entertainment experiences into a single offering. In November 2009, the company launched the Xperia X10, the first phone in a family of phones with a new user experience (UX) platform. The UX platform, built on the Open OS, creates user experience by combining entertainment features with signature applications, integration of social media services and graphical user interface. In addition, the company launched Sony Ericsson Vivaz, the second installment in a new family of communication entertainment phones and also with HD video capabilities in January 2010. The company also has content licensing deal with Sony Music Entertainment. This strategy allows

Sony Ericsson to ensure its devices include the most desirable applications and features for consumers, as the mobile content services market is forecast to cross $130 billion by 2015. The company's expanding content services business will allow it to record steady revenue from these services in coming years.

New Product Launches: Sony Ericsson has been launching new products in recent times. In June 2009, the company introduced its first mobiles as part of GreenHeart portfolio strategy, C901 GreenHeart and Naite. It also launched the world’s first motion activated headphones, MH907, which enables users to listen to the music by plugging in two earphones and pause by removing one earphone, in September 2009. In December 2009, the company added the Sony Ericsson Elm phone, the Sony Ericsson Hazel phone and the Bluetooth Noise Shield Handsfree VH700 to its GreenHeart portfolio. In addition, the company introduced VH110 and VH410, new Bluetooth headsets in June 2010. The company's increasing new product portfolio will help it to gain market share and revenues in coming years.

Growth of smart Phones: The global smartphone market is expected to grow in the coming years. According to the industry sources, the smartphones are forecast to grow at an annual rate of 32% between 2010 and 2014. More than 50% of this growth in handsets is forecast to come from the developing markets of Asia-Pacific, including China and India, and Central and Latin American states. Also, the smart phones are expected to represent 26% of all handsets in 2014, compared to 14% in 2009. The company also offers smartphones to its customers as part of its portfolio. In addition, in June 2010, Sony Ericsson launched Xperia X10, X10 mini and X10 mini pro smartphones. Growth of smart phones presents an opportunity for the company to enhance its revenues in the coming years. [19]

Opportunities

• Expanding content service business

• New product launches

• Growth of Smartphones

Threat

• Intense competition

• Environmental Regulations

References:

19. DATAMONITOR: Sony Ericsson Mobile Communications AB. (2010). Sony Ericsson Mobile Communications AB SWOT Analysis, 1-9. Retrieved from EBSCOhost.


Threats:

Intense Competition: The company faces severe competition in the mobile phones market. In the low end mobile devices segment, the company has been facing competition from South Korean mobile device companies such as LG and Samsung, while it continues to compete with Nokia and Motorola, among others. In the high end mobile devices/smartphones segment, the company is facing intense competition from Apple, RIM, HTC, Nokia, HP and Samsung. Additionally, it is also facing competition from mobile network operators offering mobile phones under their own brand. The company's market share and revenues have been significantly affected by intense competition in recent times. Intense competition will continue to affect the company's operating performance and market share in coming years.

Environmental Regulations: Sony Ericsson is subject to a broad range of environmental, including laws and regulations relating to air pollution, water pollution, the management, elimination or reduction of the use of hazardous substances, decreases in the level of standby power of certain products, waste management, and recycling of products, batteries and packaging materials. For instance, the company is required to comply with a number of environmental regulations enacted by the European Union such as the Restriction of Hazardous Substances (RoHS) Directive, restricts some heavy metals and two types of brominated flame retardants (BFR). Some public interest organizations are advocating for strengthening of the RoHS directive by imposing restrictions on all BFR as well as polyvinyl chloride (PVC) in electronics put on the market. Similar regulations are being formulated in other parts of the world, including China and South American countries. The company may incur substantial costs in complying with the above-mentioned

regulations and other similar programs that might be enacted in the future. Non compliance with these regulations may result in penalties or suspension of the company’s operations thereby adversely affecting its brand image.


BIBLIOGRAGHY

1. Omatseye, S. (2001). Sony Ericsson phone marriage starts Oct. 1. RCR Wireless News, 20(18), 1. Retrieved from Business Source Complete database.

2. BIBLIOGRAPHY (2001). Sony Ericsson Mobile Communications established today. Cisionwire retrieved.

3. (2003). Sony Ericsson Mobile Communications AB SWOT Analysis. Sony Ericsson Mobile Communications AB SWOT Analysis, 1-8. Retrieved from Business Source Complete database.

4. Sony Ericsson. (2009). Sustainability Report. United Kingdom: Sony Ericsson.http://www.sonyericsson.com/cws/download/1/823/528/1280492941/SE_Sustainability_Report_2009.pdf

5. Sony Ericsson. (2010). Executive Biographies. Retrieved November 22, 2010, from sonyericsson.com

6. Mayers, J. (2005). Stakeholders power analysis. Power-tools , 3-5.

7. Sony Corporation. (2005). Corporate Social Responsibility Report. Japan: Global reporting.

8. BIBLIOGRAPHY Mendelow, A. (1991). Proceedings of the second internaitonal conference on Information Systems. Cambridge: MA.

9.

10. Wood, R. (2000). Managing Complexity. The Economist books.

11. (2009). The External Environment. Retrieved 1 2010, from The Times 100 Website:

http://www.thetimes100.co.uk/theory/theory--the-external-environment--236.php


13. Porter, M.E. (1979) How Competitive Forces Shape Strategy, Harvard business Review, March/April 1979

14. Sony Ericsson. (2010, October 15). Q3 Financial Press Release. Retrieved November 20, 2010, from Sony Ericsson Website: http://www.sonyericsson.com/cws/corporate/press/pressreleases/pressreleasedetails/q32010semcfinancialspressrelease-20101015?cc=global&lc=en

15. Robin, H. (2006, September 20). Sony Ericsson to

Launch M-Buzz Music Service. Tech News World .

16. DATAMONITOR: Sony Ericsson Mobile Communications AB. (2010). Sony Ericsson Mobile Communications AB SWOT Analysis, 1-9. Retrieved from EBSCOhost.

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