Section A: Read the case study and answer the questions that follow.
Why Sony’s name change matters
Most now agree that the 1958 decision to rebrand Tokyo Tsushin Kenkyujo was a solid one. The new name, Sony Corporation, was elegantly globalised, easily pronounced and, according to internal scripture, fitted perfectly with the company’s “spirit of freedom and openmindedness”.
Last week, however, shareholders approved the company’s first name change in 62 years. The Sony bit will stay, but from the start of the next financial year, “Corporation” will become “Group”. It may not sound terribly seismic in the scheme of global rebranding exercises, but in some ways, this is just as significant a moment as 1958.
The explanation for the shift, from chief executive Kenichiro Yoshida, was that the company wanted to take advantage of the “diversity of our portfolio” and to promote the evolution of its businesses. In practical terms, there is an important dynamic behind the move.
As many long-term Sony watchers were quick to point out (the domestic traditionalists in tones of resigned disapproval), the new use of “group” implies a historic internal levelling that places the once sacrosanct electronics division on a par with games, movies and music.
But the real pivot — the more psychological one — is revealed through Mr Yoshida’s reference to the diversity of the portfolio. Signalling that it is done with the current vogue for divestments that leave only the slim “core” of once tubby corporations, Sony is making clear it is a conglomerate and proud of it.
The tone of defiance has a following-wind: the Covid-19 pandemic has left corporate Japan’s once strongly criticised cash reserves suddenly looking more prescient than reprehensible, raising the question of whether other orthodoxies of the traditional Japanese model may also be thrust back into favour by crisis. Could Sony, as a self-appointed leader in this, even defy the conglomerate discount?
Sony’s decision to change names required some courage, particularly given that pushy foreign investors occupy more than half of its shareholder register.
Over the past couple of years, the Japanese stock market has become an arena where — in many cases for the good — shareholder activism and demands for better governance standards have gained traction. Sony itself has faced several challenges from activists.
The latest, which drew a clear indication of Sony’s self confidence, involved the US activist Third Point demanding the company sell its majority stake in Sony Financial. Instead — to theconsternation of some analysts — Sony bought the rest of the business and tucked the whole thing into its conglomerate folds. Sony’s share price is now pushing towards a 19-year high, though CLSA’s Amit Garg is among several analysts who believe the stock is still trading with a conglomerate discount of at least 15 per cent.
Sony’s new fearlessness appears to come from two sources.
The first is that investors are now better able to value the sum of Sony’s various parts. Key to that, says Mr Garg, was the June initial public offering of Warner Music Group — a listing thatproduced a “pure play” music business against which Sony’s market-leading music operations could now be judged. Covid-boosted valuations for Nintendo and other games companies, along with the recent flurry of M&A activity in the film and television industries have provided similar catalysts to revalue Sony’s business portfolio.
The slower-burning cause is that, after a prolonged period of appearing somewhat behind the digital curve, the shape of its content and entertainment portfolio looks an increasingly good fit for the current era — even without Covid raising demand for at-home activities.
Its offerings of music, movies, TV and games, when combined with the various delivery mechanisms Sony produces (virtual reality, streaming services and soon to include the PlayStation 5) appear to vindicate years of persistence with a business mix that always seemed more cohesive in principle than it ever quite delivered in practice. Given that context, it is notable that Mr Yoshida described the portfolio as diverse when a more strategic message might have focused on its interdependence.
Sony’s problem, as ever, will be one of delivery. The change to “Group” and the implied embrace of the conglomerate ideal create both a hostage to fortune and a clear set of parameters for what Mr Yoshida must do to make the whole project look wise.
The investment risks to Sony — and the reason it retains a conglomerate discount — are familiar: the instinct to cling to businesses that have generated negative returns for ages, the need to integrate what it has recently acquired and, most critically of all, the need to remove the intra-company silos that prevent diversity becoming cohesion. Mr Yoshida’s challenge, in effect, is to make a group more corporate.
- Using evidence from the case, what aspects of Sony’s historical diversification strategy have caused it problems? (Maximum Wordcount = 400) (15 marks)
- Discuss why Sony’s senior management are ignoring the underlying rationale behind Boston Consulting Group Matrix, i.e. its purpose is to review the effectiveness of individual lines of business? (Maximum Wordcount = 800) (20 marks)
- Evaluate the sorts of challenges Sony confronts to improve the effectiveness of its corporate strategy going forward. (Maximum Wordcount = 800) (15 marks)
Section B: Read the case study and answer the questions that follow.
Porsche presses on with electric vehicle launches as it battles Tesla Porsche will press ahead with the launch of new electric models in the US despite sales in the country dropping by a fifth during the coronavirus crisis as the carmaker steps up plans to take on Tesla.
“We haven’t got a plan to postpone anything in [America], and that’s true for other countries as well,” Oliver Blume, Porsche’s chief executive, told the Financial Times.
But he added that current projections were based on there being no “second wave” of Covid19 infections. Last year, the German luxury carmaker, which accounts for more than a quarter of parent Volkswagen’s profits, unveiled its flagship electric sports car, the Taycan, designed to compete with Tesla’s Model S.
The Taycan 4S has been on sale in Tesla’s home market since the start of the year but, overall, Porsche sales in the US dropped 20 per cent in the first six months of the year, as the pandemic led to the shutdown of showrooms.
Sales in Europe fell 18 per cent in the same period.
Despite reversing sales, Porsche will not postpone the launches of electric versions of the Macan sport utility vehicle, Mr Blume said, as well as further Taycan variants, including a cheaper base model.
However, the Taycan Cross Turismo, an estate version that had an original launch date for the end of the year, will be delayed until 2021 as Porsche attempts to improve its “break-even point”, where it starts to make profits, in the wake of the crisis.
The Stuttgart-based carmaker posted an operating profit of €1.2bn in the first half of the year, despite lockdowns in several countries causing delays to deliveries and a prolonged shutdown of its plants in Zuffenhausen and Leipzig.
Porsche’s global sales grew by almost 18 per cent on an annual basis in July, helped by demand for the Taycan and Cayenne models.
Although the company scrapped its target of achieving a 15 per cent profit margin, Mr Blume said Porsche, which on Thursday unveiled a new hybrid version of its Panamera model, was “doing everything we can to achieve a two-figure return on sales again in 2020”. “No other European automotive manufacturer has been able to generate as much profit as Porsche in the first six months of 2020,” he added.
The luxury brand was helped by a remarkable recovery in China, its single biggest market, where sales dropped by just 7 per cent from January to June, compared with a 12 per cent decline worldwide.
Business in the country has since improved further, Mr Blume revealed. “We are nearly at the same level as in 2019,” he said, adding that he expected China to account for 30 per cent of Porsche’s sales this year.
- What global PESTEL factors have influenced the decision-making of Porsche’s senior management? (Maximum Wordcount = 400) (10 marks)
- According to the article Porsche was able to generate more profit than any other European automotive manufacturer in the last 6 months. What does this suggest about the strengths of Porsche’s positioning in its strategic group and the European industry in general? (Maximum Wordcount = 800) (20 marks)
Section C: Read the case study and answer the questions that follow. To merge or not?
You are an up-and-coming executive with a manufacturing company, and you have just been called late on Friday afternoon by your boss, who is the sole owner of the company. He has a very important task for you.
Your company makes mostly plastic (and some paper and metal) boxes for the food industry and he has just been thinking over a phone call from a rival who makes mostly metal and paper (and some plastic) boxes for the consumer electronics industry. The rival has suggested that they should explore the possibility of a merger. Both companies are medium-sized and the rival company also has a single owner who is an owner-manager.
Your boss wants you to come to dinner tonight and brief him on your first reactions to the idea of the merger. He wants a brief based on these two questions.
- What major gains might be worth seeking from such a merger? (Maximum Wordcount = 400) (10 marks)
- What are the typical kinds of problems mergers experience? (Maximum Wordcount = 400) (10 marks)
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