Sony Corporation’s long-term success is pinned on the organization’s ability to address business issues, such as the ones shown in this Five Forces analysis. Michael Porter’s Five Forces analysis is a management tool for determining the intensities or strengths of the forces influencing the business, based on the external factors in the industry environment. In Sony’s case, these external factors are based on multiple industries, considering that the company has businesses in the electronics, gaming, entertainment and financial services markets. The dynamics of these markets affect the concerns most significant to the business. To maintain or improve its growth trajectory, Sony’s strategic decision-making must include such external factors and the issues raised in this Five Forces analysis.
A Porter’s Five Forces analysis of Sony shows that competition and the bargaining power of buyers have the highest intensities among the five forces in the industry environment. Strategic solutions are necessary to address the external factors that create such strong influences on Sony’s business.
Overview: Sony’s Five Forces Analysis
The external factors impacting the business environment of Sony are evaluated in this Five Forces analysis of the company. It is essential to address these external factors and the corresponding five forces to ensure long-term competitive advantage. The intensities of these forces relative to Sony are shown as follows:
- Competitive rivalry or competition (strong force)
- Bargaining power of buyers or customers (strong force)
- Bargaining power of suppliers (moderate force)
- Threat of substitutes or substitution (moderate force)
- Threat of new entrants or new entry (weak force)
Recommendations. In Sony’s case, competition and the bargaining power of customers have the highest intensities among the five forces. These two forces are the most significant considerations in Sony’s business decisions pertaining to the industry environment. It is recommended that the company must implement measures to increase its competitiveness. For example, rapid innovation can increase the competitiveness of Sony’s Xperia smartphones. This recommendation also addresses the bargaining power of customers by increasing product attractiveness. In addition, to ensure a holistic strategic approach to issues in the industry environment, Sony must develop measures pertaining to the bargaining power of suppliers, the threat of substitution, and the threat of new entrants. However, this Five Forces analysis puts emphasis on the bargaining power of buyers and competitive rivalry, which is also identified as a major threat in the SWOT Analysis of Sony Corporation.
Competitive Rivalry or Competition against Sony Corporation (Strong Force)
This aspect of the Five Forces analysis evaluates the impact of other firms in Sony’s industry environment. Competitive rivalry affects the company’s revenues. The following external factors are responsible for the strong intensity of the force of competition against Sony:
- High aggressiveness of firms (strong force)
- Low switching costs (strong force)
- Moderate number of firms (moderate force)
The high aggressiveness of firms is the main external factor responsible for the strong force of competition that Sony experiences. However, low switching costs are also a major contributor. With low switching costs, customers can easily transfer from one provider to another. For example, customers can easily transfer from Sony Xperia to Samsung Galaxy phones. The moderate number of firms makes a moderate contribution to the force of competitive rivalry. In this aspect of the Five Forces analysis, Sony’s management must remain cautious of the effects of competitive rivalry and low switching costs on the business and its industry environment.
Bargaining Power of Sony’s Customers/Buyers (Strong Force)
The influence of customers is covered in this aspect of the Five Forces analysis of Sony Corporation. Customers or buyers determine the market share and profitability of products. In this case, Sony must account for the following external factors that create the strong intensity of the bargaining power of customers:
- High quality of information (strong force)
- Low switching costs (strong force)
- Moderate frequency of purchases (moderate force)
The high quality of information empowers Sony’s customers in evaluating products available in the market. For example, customers are more effective in deciding whether or not to transfer from one brand to another, or from one company to another. Thus, Sony and other firms can effectively implement aggressive marketing and information campaigns to attract customers. In relation, the low switching costs enable customers to easily transfer from one company to another, thereby further intensifying the effects of the bargaining power of buyers. The moderate frequency of purchases has a limited impact on Sony’s business. A higher frequency of purchases typically corresponds to a higher intensity of the effect of customers on the industry environment. This aspect of the Five Forces analysis indicates that Sony must focus its attention on quality of information and switching costs to properly address the strong bargaining power of customers in the electronics, gaming, entertainment and financial services markets.
Bargaining Power of Sony’s Suppliers (Moderate Force)
Sony Corporation depends on suppliers to support its business. This aspect of the Five Forces analysis focuses on how suppliers influence the availability of materials that firms use. The following external factors are responsible for the moderate intensity of the bargaining power of Sony’s suppliers:
- Moderate size of individual suppliers (moderate force)
- Moderate overall supply (moderate force)
- Moderate forward integration (moderate force)
The moderate size of Sony’ suppliers correspond to their moderate and limited influence in the industry environment. For example, a strategic change in one supplier would have a moderate and limited impact on the company. In addition, the moderate overall supply has a corresponding moderate and limited impact on the availability of materials that Sony needs. Another external factor that contributes to the moderate intensity of the bargaining power of suppliers on Sony is the moderate level of forward integration. Forward integration is the degree to which suppliers own or directly control the distribution and sale of their goods and services. Based on this aspect of the Five Forces analysis, the bargaining power of suppliers is a moderately significant issue in Sony’s operations.
Threat of Substitutes or Substitution (Moderate Force)
Substitutes are threats that could hamper the growth and development of Sony Corporation. The degree to which substitutes attract customers is considered in this aspect of the Five Forces analysis. Sony must consider these external factors that lead to the moderate intensity of the threat of substitution:
- Low switching costs (strong force)
- Moderate variety of substitutes (moderate force)
- Low availability of substitutes (weak force)
The low switching costs facilitate the movement of customers from the products of established firms like Sony toward available substitutes. This external factor creates a strong force in the company’s industry environment. However, the moderate variety of substitutes limits this force. For example, customers find that they have many more gaming options through Sony PlayStation compared to traditional non-online games. The low availability of substitutes in many areas further limits the threat of substitutes that Sony experiences. For instance, non-digital gaming products are not readily available in brick-and-mortar stores in many localities. Based on this aspect of the Five Forces analysis of Sony, such combination of external factors leads to the moderate intensity of the threat of substitution.
Threat of New Entrants or New Entry (Weak Force)
Sony Corporation must address the potential growth of new entrants. This aspect of the Five Forces analysis examines how new entrants compete and reduce the company’s market share in its electronics, gaming, entertainment and financial services businesses. The following external factors are responsible for the weak intensity of the threat of new entry in Sony’s industry environment:
- Low switching costs (strong force)
- High cost of brand development (weak force)
- High cost of doing business (weak force)
The low switching costs empower new entrants to easily attract customers away from established firms like Sony. However, a major barrier to new entry is the high cost of brand development. For example, new firms must allocate sums that approach the expenditure of large established firms to create and maintain a strong brand. This external factor limits the influence of new entrants in Sony’s industry environment. Similarly, the high cost of doing business prevents new firms from readily competing head-to-head against established companies. Thus, the threat of new entry has a weak intensity in affecting Sony, as shown in this aspect of the Five Forces analysis.
References
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- Sony Corporation – Form 20-F.