This case primarily talks about the fluctuation of the Yen and U.S. Dollar over time and its impact on the global market place. It shows us the significant impact that foreign currency markets can have an effect on well diversified organizations such as Sony.
In their early years, Sony had the luxury operating in a currency that was weak against the dollar. Since the yen was so cheap, Japanese Foreign Exchange saw export levels extremely high and growing rapidly. Japanese Foreign Exchange policies favored organizations such as Sony which encouraged them to continue to expand in their export markets. First Endaka (High Yen) in 1986 became 150 yen against dollar. This led to serious problems for export companies and a potential pain for entire Japanese economy which was very dependent on international trade. Strong yen was due to strong Japanese economy, large trade surplus, and large foreign-exchange reserves in the world. However, ...view middle of the document...
Sony will lose market share to other Asian companies because of the price. The way to remedy this would be to sell more and improve profit margins. The one positive is that products that are imported into Japan for manufacturing are cheaper. This is also true for products that are manufactured outside of Japan. This will reduce the costs and improve the margins.
Sony’s biggest problem is pressure from other companies that have increased manufacturing outside Japan. Toshiba increased the manufacturing of its products outside Japan in comparison to 1995 with an increase from 17% to 30%. As well as South Korean companies such as Samsung and LG. They started to move plants oversea to produce cheaper products that also increased in quality and innovation. Sony was finding it difficult to keep a premium in the market. By building up plants offshore, especially in China, local competitors as such as Toshiba and Panasonic improved their cost advantage enough to reduce their exposure to a strong yen. Sony's production facilities are located far from its customer base, preventing them from benefiting the way other companies are.
Approximately 60% of the annual production in Japan must be distributed to other regions. Sony setting up plants offshore would lower their costs and give Sony a competitive advantage over its competitors such as Toshiba and Panasonic. Sony should also target Brazil, Russia, India and China for future growth. Since the earthquake and tsunami destroyed a number of their plants, their supply chains were disrupted and they had a dramatic dip in their domestic demand. The purchasing power of the yen rises as it strengthens compared to other currencies. Everything Sony imports into Japan or outside of Japan for its manufacturing is cheaper. Therefore, they can reduce more in the cost of production. Sony should also buy more from suppliers in other countries not just in Asia but also wherever they can receive cheaper supplies.
Sony has been ranked among the best of the consumer electronic market. If Sony take the right steps and implements the options provided, they will be moving towards securing their position in the global marketplace.