Introduction
Sony Corporation is a Japanese multinational conglomerate corporation, It is also one of the worlds largest media conglomerate based in Minato, Tokyo. Sony is also one of the leading manufacturers of electronics consumer goods, video, communications, video game consoles and information technology products for both the consumer and professional markets.
The company was founded by 2 Japanese Mr.Masaru Ibuka and Mr.Akio Morita after the WWII and it was originally called the Tokyo Tsushin. The company firstly created the radio tape which became very valuable commodity after WW2, after that they were looking for a Romanized name so that they can bring their brand to the international field which becomes Sony which means Whiz Kids in Japanese. The company has revenue exceeding $77.20 billion U.S. (FY2010), Sony's current CEO, president and chairman of Sony Corporation is Sir Howard Stinger.
Mission Statement of Sony Corporation: To become a leading global provider of networked consumer electronics, entertainment and services.
This Mission Statement shows that other than being the leading manufacturer for electronics products, Sony also aims to become the top provider for entertainment and services this is why Sony also producing innovative products and merging it with all sorts of different new features.
LCD televisions, game, Computer, digital image, network services, mobile products, music players, movies and entertainment sector are some of the market leading products and services produced by Sony.
Sony is quoted on the London Stock Exchange, Tokyo Stock Exchange, New York Stock Exchange and Osaka Securities Exchange. They not only stay on their origin country but also well spread into overseas market. Their goal is to continue creating innovative products and services to the consumers to sustain a healthy growth in the market.
From the chart above we can tell that consumer products & devices takes up 40.5% of Sony business sales, as it is the most focused business unit of Sony Corporation. The consumer products & devices include Sony LCD TV, Camera, music player and etc. 21% is the Networked products & services which consist of 56% Game (Playstation series) and 44% PC (Sony Vaio) and other networked businesses
What is Exchange Rate?
Exchange rate is the price of one country's currency level that is expressed by another country's currency rate.
For example- The higher the exchange rate for one dollar in terms of one yen, the lower the relative value of the yen or 1 Swiss Franc can be bought by 80 Japanese yen and 80 Japanese yen can be bought by 1 Swiss Franc
The exchange rate plays one of the most important role in determinants of a Country's relative health level of the economic. It is very vital and important in a country trade level, which is absolute critical to every free market economy around the world. This explains why exchange rates are one of the most analyzed, watched and governmentally economic measure. The exchange rates matters no matter the scale as it will impact and affect investors or any matters that involve money and trade. The exchange rate movement of a nation will affect the trading relationships with the other nations; a higher currency makes the exports more expensive and cheaper imports in the foreign markets; the other way around that lower currency will lead to cheaper exports and expensive imports in the foreign markets. The country's balance of trade will be lower by higher exchange rate while there will be increase with a lower exchange rate.
There are few factors which are affecting the changes of exchange rate which are,
Differentials in Inflation
Countries with lower inflation rate shows a rising currency as the country purchasing power increases relative compared to the other currencies. Countries with low inflation example- Japan, Germany and Switzerland. High inflation countries will able to see depreciation in ther currency relation to the currencies.
Differentials in Interest Rates
Interest Rates and exchange rates are highly related as central banks manipulating the interest rates and influences over inflation and exchange rates, the banks also changing the impact inflation and currency values. With higher interest rates offer lenders in an economy will have a higher return relative to other country. It will attract foreign capital and increasing the exchange rate.
Public Debt
As we all know that foreign investors does not like to venture into nations that are having a large public deficits and debts as a large dept will encourages inflation and when inflation is growing high the debt will then paid off with cheaper real dollars in the future. If the debt is too large the government might need to print money to pay the debt and by increasing the money supply it will causes inflation.
Political Stability and Economic Performance
Foreign investors always like to venture in or seek out a country where the political situation is stable and the economic performance is strong and healthy to invest their capital into the country. Countries with negative attributes will not be taken into consideration for the investor as the political and economic risk might be too high to taken account, as the country with positive political and economic attribute will definitely draw more investment into the country.
Actual and Potential changes of the Exchange Rate
As an MNC Sony has develop its brand and operations into different part of the world, they now not only station at their origin country Japan but they also expanded to places like Malaysia, Europe, US, China and etc.
Due to the increase in Japanese Yen compare to Dollar recently we can see that there is a drop of consumers in the US from year 2008 25.1% till year 2010 22.1% there is also a great increase of sales in the Japanese market which is 29.1% of the total sales by Sony Corporation this year. The exchange rate changes in Yen lead to the increase of sales in the market as we can see that those targeted market currency is very crucial to the sales as the purchasing ability will be flowing differently.
Another actual impact of the exchange rate will be affecting the operating expenses, we all know that Sony makes their products in different places and they will import different materials from different country as well, due to the currency changes it will also changes the current cost for the manufacturing, and higher China RMB might lead to increases in labor cost. Therefore the whole value and supply chain of the company will be affected if there is a big movement in the currency changes.
The potential changes in the currency might lead to the lost of overseas market, if the Japanese is still increasing and the Dollar is lower this might lead to the increase of consumers in Japan but the US consumers will consider that the items are expensive and not willing to buy. Therefore, if this happen Sony overseas market share will drop and the local will increase it will affect Sony branding as an international brand.
What is Credit rating?
Credit rating estimates how much a person, corporation or even a country worth in credits. Credit rating is also used as an evaluation of the ability of a potential borrower to repay the dept he owes; it is prepared at the request of a lender. It is calculated from the financial history of the borrower and the current assets and liabilities. Usually the credit rating is used to evaluate the ability or the probability of the borrower being able to pay back the loan or dept. As time passes, now days credit ratings not only used for calculating pay back ability but it is also been used to adjust things as insurance premiums and to establish the amount of utilities or leasing deposit.
A bad credit rating will shows a high percentage of defaulting a loan or dept and it leads to high interest rates or rejection on the loan by the creditor (borrower).
The factors that affect the credit rating are the interest, amount of credit used, saving patterns, dept, spending patterns and the ability to pay a loan all these will be taken consideration in affecting the credit rating. In different countries or places there will be a different type of personal credit rating systems exist and being used.
The Sony Corporation's credit rating
Sony credit rating is been cut down by Standard and Poor's which concern about the declining profitability in the company's core business the consumers electronics goods as the company sales is dropping as the outlook is being negative for Sony. As the credit rating company said that Sony is facing tough price wars in the market for its electronic goods with its competitors and also the drop of sales consecutively for 3 years.
Actual and Potential Changes in the Credit Rating
As we all can see that Sony Corporation credit rating is given an outlook of negative by Standard and Poor's (S&P) this will definitely affect the company image and also it will show that there are less trust or priority given when it comes to company loan. Banks might be considering about the ability of Sony Corporation to pay back for the future loan it may lead to inefficiency of cash flow or disturbance of generating funds for upcoming projects. This will also affect the stock pricing for the company shares in the exchange market, it is consider as a bad new for the company as shareholders might not be confident enough in holding the company shares as the poor performance of the company sales and dropping of company credit rating.
The credit rating might continue to get lower if the company profitability is still in the current stage and there is no increasing.
Affecting the operations
Good credit rating is like having a good passport for lending money and a good company portfolio; with the drop of Sony Corporation credit rating its operations will be affected.
For Example-Sony wanted to start off a new project but however they are lack of funding, with a bad credit rating the company are not able to borrow money from the banks to start off the project, this not only cost Sony the opportunity cost but also it will be very hard for Sony to start off any new projects as there are stopping bars while allocating for funds.
The corporation daily operating might be affected as well, as we know that for every company u need to have cash for flowing around the business in manufacturing, marketing, labor cost and etc. When the company is facing certain issues regarding the cash flow and is not able to locate money to solve it the company might be facing a major crisis and it may lead to bankruptcy.
Analysis of Sony Corporation Environment
PESTLE identifies the political, economic, social technology, legal and environment factors that will directly affect Sony
Political
Sony Corp political factors might be changes over time as the government always holds the authority and power to change any given policies or any traffic law. As the government changes or increasing the trade restrictions it will definitely affect the operating of the company and Sony needs to be prepared for any major changes.
For example- Government might increase the minimum wages for factory worker and this will increases Sony operation cost.
Economic
Because Sony is an International company therefore the exchange rates can be very important as Sony produce and trade in different country. If the exchange rates in different countries have changed Sony will need to do adjustment in their operations. The economics of the trading countries also determine the consuming power and the buying pattern of the consumers, Sony has to consider its product prices before the launch of product.
For example- Countries like Indonesia might not have the purchasing ability like Japan due to the economics level of the country.
Social
For social section, Sony is doing very well due to their new products is high quality and innovative, this earns them high reputation in electronics good industry. It is also shown that the older generations are not really into the latest products, they might prefer those products which are much simple to use.
For example- The elderly might not have the knowledge to use the trendy gadgets as we do, this will lower down the consumers number of the products.
Technology
For Technology Sony is always leading in the market, however there is more and more competitors coming out from the market. Therefore Sony must always create revolutionary products to keep the lead in the market. They made the Playstation 2 back in 2002 which is a great breakthrough back in the days and now followed back the Playstation3 which had blu-ray, from here the passion of Sony being innovative is shown in these 2 products.
For example- Sony came out with the blu-ray disc and player where the performance and viewing images quality shock the world and it immediately take over the place of DVD, now more and more people are using blu-ray for their home cinematic.
Legal
Due to the difference of law and legal system in other countries before manufacturing a large number of products, Sony might need to get permission from the authorities. Sony is facing certain legal issues about their Playstation 3 jail breaking, which include of home users making illegal software to run pirated games.
For example- The Company might be sued if they never pay the worker fairly according to the labour law of the particular country.
Environment
For environment sector Sony has establish the new concept of Green TV which shows the pledge of Sony in improving the environment for the sake of next generation. Therefore Sony combines their innovation with environmental friendly technology.
For Example- Sony Bravia Green TV is one of the most innovative products from Sony to keep their pledge in saving the environment for next generation. They hope to lower the energy consumption of all products by 30% in the next few years.
Above is the PESTLE analysis of Sony Corporation, by comparing the changes of currency exchange and also the credit rating characteristic we can tell that the sectors that will mostly be affected will be the Political and Economic.
From the political we can sure that the changes of currency exchange will affect the company from the operating expenses and also the taxation.
Example- The currency of China went up and also the government raise the minimum wages of the labour, this will lead to the increase of operation in 2 ways as Sony manufacturing factory is there. Also the taxation payment will be higher if the company is using currency transits to pay the tax.
From the economic mostly it will affect the operation of the company and also the buying pattern of the consumer in that country, as Sony products consider imported goods to the consumers they might not willing to buy it due to the gap between the currencies is too high.
Strategies to Overcome
For the currency exchange changes, I suggest that Sony Corporation should not only depend on one particular country for its usage, for example-Sony only concentrate its manufacturing at China so when the China RMB increases so does Sony operating expenses and operating expenses is one of the most heavy cost in the chain it should not be fully controlled by one country. Sony can also set up manufacturing factories in other places where there are human resources and it is low cost, the factory can start off by producing sub products or even accessories, this allows us to view the market condition of the selected country also to test out the plan weather is working or not and is there potentials. Even if the company suffers some loss it won't really matters as they are only producing accessories and not the main stream products it is a good way to explore differently.
For the credit rating changes, Sony should increase their ratings however this cannot be done without the increase of profitability of the company. I suggest that besides enhancing the marketing mix of the company, Sony should find a way to lower their related cost. A separated project management team can be formed to investigate and find out the source that leads to the loss of the company and that particular team should also involve in cost control as with cost control and the overview at the whole company we then are able to find and identify the problem, credit ratings will go up if the company profitability is increasing every year as when the company is making money banks will be happy to borrow money and with this way the risk of insufficient cash flow and it will lower the interest rate given.
Referencing
O'Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall
