Japan has the second largest economy in the world. The major industries of Japan are insurance, banking, real state, retailing, telecommunication and transportation. Japan is the center for new product development and technological innovations. In the field of scientific research, Japan is a leading nation. As the economy is growing, the purchasing power of the consumers is also increasing, so the consumers are early adopters. There are high consumer expectations from the market so there is a need to develop advanced products that can satisfy the consumers. The government is also aware about the new product development and aid to new global business ventures. Japan is ruled by law, so the level of corruption is very low in Japan. Infrastructural facilities are also highly developed in Japan. Before creating a roadmap, it is necessary to understand the current state and desired state of the business.
Sony Corporation is a Japanese multinational corporation and one of the world’s largest media conglomerate. Sony manufactures world class electronic items with the seal of “Made in Japan”. Sony is committed to apply highly advanced technologies in the various sectors to fulfill the common household needs. Sony provides highly value added products to its customers.
Political, Legal and Regulatory Risk
The Government interference in business affairs in Japan are classified under nationalization of industries, taking industries assets into public ownership. These risks consist of confiscation, expropriation, currency inconvertibility, and contract repudiation. The political risk between the Central and Local Government, and the Provincial deal with the applicable laws, this continually makes it very difficult for Japan to know exactly what rules apply at any given time. Japan political risks are higher than any other Country markets because they have a Communist Government. Governments’ agreements with new businesses are contingent upon the company’s willingness to relocate their production to Japan.
This enables the Japanese to learn modern management skills from the Non Chinese companies while acquiring new technology.
Exchange and Repatriation of Funds Risk
In business regulations and guidelines with Japan, Organizations need to get approval for repatriating profits up to 90% from the Japan based operations. Operations are required to file fourth quarter tax return with the Japan State Administration of Taxation (SAT) to confirm profits amounts before finalizing net profits for their organizations. Wholly Foreign Owned Enterprise (WFOE), reserve 10% of all net profits up to 50% of the companies registered capital. Foreign exchange controls are set up with the State Administration for Foreign Exchange (SAFE). This is to control funds that flow out of Japan.
Foreign investors from the US, Europe and Asia has created some of the most intensely competitive markets in the world. Japan competes with many domestic, private and state-owned enterprises operated by professional and financially motivated managers who quickly respond to market pressures on a daily basis. But it also hits well-performing domestic companies in the form of unequal bargaining power along the value chain. Local suppliers, as well as the Japanese government, are aware that manufacturers without access to customer knowledge, design capability and export distribution channels capture, on average, as little as one-tenth of total value chain margins. Companies faced with these challenges can be aggressive in seeking advantages by any means.
Japanese manufacturers to develop ingenious new low-cost business models, while successful entrepreneurs create large economies of scale and capture market dominant positions in entry-level markets that result in low fixed-cost organizations.
Japan will then move on to obtaining knowledge on how to continue attacking more of the customer needs. Complex product systems, work on software and interface improvements that can deliver somewhat lower performance at a significantly lower cost. Market leaders in higher-end markets can be blindsided by companies using the resulting profits to move up the value-added ladder.
Taxation and Double Taxation
Japan is a signatory to a treaty to prevent double taxation with countries around the world. Double taxation prevention treaty enables Japan to offset tax paid in one country against tax pay in other countries, which prevent double taxation. Japan’s exemptions or tax at a reduce rate on certain receipts, including: interest, royalties, dividends, capital gains and others that are connected with a transaction carried out between parties associated with the double taxation prevention treaty. When certain income is taxable under Japanese Income Tax Ordinance is exempted under any taxation treaty. The income is taxed according to the provision of taxation treaty.
The competitive risks of importation of products from Japan are more in the realm of quality and trust than in any truly competitive risk. There is little or no risk of gaining lower wage problems and the price of creating and manufacturing in Japan still remains lower than in most other places in the world. The Japanese government has been accused of pressuring the yuan low to keep competitive pricing from becoming a problem. The United States as you example is not close to being able to product the risk factors of better competition in manufacturing and labor.
The four p’s, product, placement, promotion and price are among the most competitive risks. The price, as discussed previously is usually going to find its advantage from Japan. There may be some research done to help find lower cost goods and maybe these will be lower due to the closer geographical location with less transportation costs. People still do not always trust the “made in Japan” labels so marketing a product with that may be more of a challenge, but as long as the pricing is good, it may be a simple matter of letting price speak. Quality issues have become more important, however, in recent months with the pet food, toothpaste, and now tire recalls.
The products are going to be scrutinized more carefully along with other like items and maybe even some substitution items. I have heard that the sales of books with dog food treats and other animal based food prep are beginning to sell better.
Promotion is delicate in these times. While Japan is a Most Favored Nation and cannot be taxed and tariff more than any other country, it is not something people yet trust as true. The decades of poor quality items or worse, dumping that occurred here is hard to overcome. Very few things are going to be profitable unless the “Japan” connection is kept to a minimum. One clear example of this is the difficulty of the Japanese automobiles to enter to US markets. A recent comment in my classes about a Daewoo being more trustworthy and reliable than any Japan car is troubling.
People attempting to bring in goods should work slowly and allow Japan to build their reputation. Japanese teas are excellent so we know they can produce quality, fine and delicately handled products. Maybe overcoming part of the problem would be to remind people of all the items Japan created and was using and then shared with the world before Communism. And there is the main block to the import and getting the 4 P’s in place….Communism.
Skipping it and returning to the creation of spaghetti noodles, fireworks, etc. may help manage the risks better.
Distribution and Supply Chain Risk
Manufacturing and Distribution Operations face risks daily. Each level of a value chain: suppliers, transportation, manufacturing, warehousing and distribution are affected from quality problems such as: supply shortages, transportation and interruptions. Risk management should span the entire value chain in order to understand, quantify and mitigate any risk.
The following are management tools for risk:
Increased globalization – reduced controls on suppliers and networks
Outsourced functions – functions that used to be performed internally
Political instability – potential impacts are heightened due to global terrorism
Product safety legislation – improved product safety legislation requires intensive material tracking
Supply chain weaknesses – exposure from internet and extranet ordering and communications
Physical and Environmental Challenges
How many operations enter a foreign market depends on the entry modes: Exporting is the marketing and direct sale of domestically produced goods in another country. It is traditional and well established methods of reaching foreign markets. Exporting does not require that the goods be produced in the target country, investing in foreign production facilities is required taking the form of marketing expenses. Licensing permits a company in the target country to use the property of licensor. These properties usually are intangible, trademarks, patents and production techniques are a few examples. The licensee would pay fees in exchange for the rights to use any intangible property.
The common objectives of Joint Ventures are: market entry, risk and reward sharing, technology sharing and joint product development, conforming to government regulations. Benefits can include political connections and distribution channel access that may depend on relationships. Foreign Direct Investment takes ownership of facilities in the target countries, involving the transfer of resources including capital, technology and personnel. The investments are made through acquisition of existing entities or establishing new enterprises.
Managing these Risks
To manage these risks Sony will have to stay as current as possible on the political standings within the country, they will have to see what new businesses have come into the area and if any arrangements have been made with the politicians. In order to stay competitive they must make sure they stay ahead of the competition and know immediately when a new organization has evolved in their market. To manage the risk of distribution and supply Sony must to everything they can to ensure they have their transportation contracts in tact and that their distribution centers are always fully stocked and have a quick shipping process. Managing risks with joint ventures is essential to success; it is a necessity to research any company you are going to go into business with. Sony would also need to make sure they have a good strong team of attorneys working for them to make sure any joint business deals were legit and they were protected as much as they could be. Sony would also need to make sure their operations were all being run in the most efficient way and in a way that the employees will stay happy and continue be as productive as they can be; any permits or license they might need would need to be kept current as well.
Mission and Objectives
The mission statement of the company is “To approach the customers through advanced technological products in the various fields to fulfill their needs”. This statement states that Sony existed to provide innovative and modern services to its customers. The customers also expect quite a bit from Sony that it will offer them value added products that will enhance the quality of life and provide a better solution to their demands. This statement indicates the major component of strategy and that is the expansion of business. It also helps to formulate the policies and practices for Sony that is committed to provide superior technological products.
Human capital is the greatest asset of the Sony especially its engineers that form its R&D department. It brings together the best of talents which make the firm a profitable venture. Its job rotating and self promoting system gives better exposure to its employees and thereby creates satisfaction.
The Weaknesses would include: It is having an operating profit margin of 2.49% with the revenues of $78.40 billion for the year ended march 31, 2007. The diminishing returns from the product innovation are evident. The high rate of investment does not represent a growth in the profitability. A lack of general direction is another weakness of the company. The company also lacks in strategy.
Opportunities would include: Sony has the opportunity to set the standards and dominate the field. Entering high technology businesses acquire enough technology to increase width.
It is also having an opportunity to make use of the markets and cheap labor of the rising Asian countries.
Threats would include: There is a threat of duplication of resources. The products developed by the Sony involve both hardware and software. Therefore, for selling the products, it is necessary that the required software must be available in the country. The non-availability of software will create the biggest threat for the company’s products.
Alternative Strategies and the Selection of the Best One: The various alternatives in front of the company are diversification, alliance and cooperation, cost leadership, integration of the product design and marketing. Among the various alternatives, alliances and cooperation and integration is the best suited strategy for the company. Therefore, the company can make use of alliances for the purpose of entry in the market for its new global venture. This is because such alliances will help in generating mutual benefits and active sort of the new standards.
Strategy Implementation: For implementing the strategy, it should be first reviewed from the beginning. It should incorporate together both its western counterparts and Japanese work ethic. Management must act as liaison and provide proper guidance for building effective communication for the purpose of integrating the company, designing, production and marketing. This calls for a change in the culture of Sony and thereby, the top management has to actively push and pursue for this direction. There is also a benefit of availability of cheap labor in Japan which will help in cost reduction.
Control and Evaluation: The effectiveness of the strategy implemented above is notified by developing a control and evaluation program. It can be done by setting the performance standards, measurement of the actual performance, analysis of variances and finally taking corrective action. By using benchmarking, the firm can make its comparative analysis for the purpose of evaluation.
Contingency Plan: As other electronic companies are taking the market share and profits away from Sony, there is a need to develop a contingency plan by using its core competence which cannot be easily imitated by its competitors. The contingency plan of Sony will include Diversification as an alternative in case when it is impossible for the company to set up alliances. Diversification, emphasizes on making business supplies a key part of Sony’s business. It will help in achieving the optimum mix. This would also enable Sony to use its core competence and unique talents and will thereby be less dependent on coming up with a sound stream of comparatively short-lived hit products.
As you can see Sony faces many risk when they made the decision to go global, within every new country they decide to venture into they must educate themselves on many things from the political factors to the transportation availability in the country. However, with risk comes great rewards and as long as Sony insures they are within the compliances of the country they are in they have presented themselves with a great opportunity to be really successful. As long as Sony sticks with their strategies and their contingency plan they will be able to continue their success and finding more success in the global ventures they choose to pursue.
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