Analysis Into the Vertical Integration Across the Value Chain of Sony

4619 WordsNov 19, 201119 Pages
“The greater a firm‟s ownership extends over successive stages of the value chain for its product, the greater the degree of vertical integration” (Grant, 2010, pp354). The consumer electronics industry value chain is depicted below: Thus a firm can be said to be vertically integrated if it owns and operates each of these stages of the value chain. The consumer electronics industry has many players who produce goods for purposes such as entertainment, communication and work. There are many determinants of success, including technical innovation, price competitiveness and brand awareness. The degree of integration in the value chain can influence success within the industry. Examples of firms who manage the value chain differently include…show more content…
In 2009, 50% of their total annual production was in their in-house factories in Japan, with 60% of this production destined for export to other regions (Datamonitor, 20111). There are some benefits of maintaining vertical integration in manufacturing. First and foremost, vertical integration will help with control and coordination throughout Sony‟s value chain. By owning production factories and operating its own logistics, it is readily able to respond to changes in consumer demand or market trends, with no reliance on external suppliers. That is, it has full control over its operations. Further, Sony has „trade secrets‟ which it wishes to protect from its rivals. In an industry which is shaped by technological advancement, keeping such trade secrets is therefore of great importance. Not adopting an inhouse manufacturing strategy will always bear the risk of these secrets being expropriated by others. Also, if Sony were to outsource, it may require its manufacturers to make transaction-specific investments (Grant, 2010). There is a need for trust and a strong relationship, as well as rigid contractual agreements, thus making the transaction costs potentially high. Therefore it can be seen that manufacturing in house could avoid a lot of complexity. However, keeping manufacturing vertically integrated poses several issues especially with a big part of their operations being based in Japan. Firstly, the average hourly wage rate in Japan is

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