Sony Breaks Tradition, Expands Outsourcing

Sony Corporation is well known around the world for their top of the line electronics. From TV’s, to cameras, to the Playstation family of gaming systems and more, Sony products are well received and respected in the technology world. Similar to the majority of corporations based in Japan, they are also known for not outsourcing any of their work outside of the country…until recently. Driven by heavy losses in their TV department, CEO Howard Stringer has decided to undertake a massive cost-cutting operation in their electronics manufacturing, and globalization and outsourcing are his main priorities.

As a Welsh-American business man running a traditional Japanese company, Stringer has been leaning towards outsourcing for years but hadn’t yet changed the company practices. However, by the end of the 2008 fiscal year, the TV department had sustained three-year losses of $2.3 billion. Goldman Sachs predicted that they department could potentially lose another $1.1 billion during the next fiscal year. Due to fluctuations in the world economy and the weakening of the yen, Sony was predicted to lose nearly $3 billion total in the 2009 fiscal year – what would be their first deficit in 14 years. They ended up losing $1.03 billion that year.

As their largest subgroup of products, Sony’s TV department is where most of the attention is being focused. Ryoji Chubachi, the head of Sony’s electronics department, said that “before the electronics department can be healthy, TV’s must be profitable.” Sony’s strategy with globalization involves keeping the manufacturing of high-end, thin plasma’s in Japan. These TV’s are Sony’s biggest calling card, and they don’t want to risk competitors getting wind of their innovations. However, the company plans to expand their outsourcing of small and mid-sized TV sets. Currently, different manufacturers in China and Taiwan make around 8% of these TV’s for Sony, and Stringer wants to increase this number substantially.

Outsourcing alone will not be enough to reverse Sony’s financial fortunes on its own. Various financial analysts are all in agreement about that. However, it is unsure exactly how much of an effect this new policy has had on their finances. Due to the massive earthquake off of Japan, Sony’s factories were crippled and the company suffered an estimated $3.1 billion loss in the 2011 fiscal year. However, Sony executives have blamed these losses on the aforementioned earthquake and expect their fortunes to improve. Only time will tell, but Sony was willing to break a serious tradition in Japanese business culture because they are confident that outsourcing and globalization will lead to increased profits.