A scene from Sony’s’Spider-Man’ series, which is expanding the movie business.
Sony is the only Japanese home appliance company to maintain an operating margin of over 10%. This is the result of transforming into a 21st century service company by expanding the business model in the form of receiving content such as music and movies through a subscription method. In contrast, Panasonic’s operating margin is only in the 2% range, half of the 5% target. It is an analysis that it is the result of staying in a hardware-oriented 20th century manufacturing company.
○ Sony changed to’Smile Curve’
Taking on the success of conquering the world in the 1980s and 1990s as a Walkman, Sony paid a high price for not responding in time to the Internet era. In April 2003, net profit fell 40% from the same period last year. Since then, the stagnation of the main electronics business continued, resulting in five losses in the six years from 2009 to 2014.
Sony’s choice for survival was a business reorganization to reduce the proportion of the electronics business. It was an attempt to move away from the manufacturing industry, which is greatly affected by price fluctuations, and transform into a service industry that is easy for companies to take the lead in price.
The big direction of the business reorganization conducted by Sony is summarized in the resolution of corporate group discounts and smile curve. The corporate group discount is a phenomenon in which the total value of the group is less than the sum of the affiliates. It is pointed out as a detriment of octopus expression management. Regardless of its reputation so far, Sony concluded that it would dispose of businesses that were negative for the sum of the group values.
In 2012, the chemical business was sold to the Japan Policy Investment Bank. After that, in July 2014, the PC business and the TV business were arranged in order. The lithium-ion battery business, which was successfully commercialized for the first time in the world, was also sold to Murata Manufacturing in 2017.
On the other hand, Sony Financial Holdings, a financial subsidiary that had 65% stake, made it a wholly owned subsidiary. It was a decision to make financing combined with fintech one of the core divisions of the Sony Group.
Smile Curve is a management theory that the added value of research and development (R&D), brand marketing, and after-sales service (AS), which are the first and last stages, is higher than the manufacturing process, which is an intermediate stage in the production process. The name’smile’ was given because the added value of each process becomes a’U-shape’ as if drawing a smile.
Sony drastically reduced the proportion of manufacturing, which was its main business in the past, through business reorganization. Instead, the proportion of service industries such as games, music, movies, and finance and parts industries such as image sensors increased significantly. Most of the core business units are located at both ends of the Smile Curve.
○ Panasonic has increased dependence on home appliances
Panasonic strategically pursued the housing business, but suffered a massive deficit.
Panasonic, which posted a deficit of nearly 800 billion yen (approximately 8,466.1 billion won) for two consecutive years from 2011 to 2012, also tried to reorganize its business. Panasonic President Kazuhiro Tsuga, who took office in June 2012, declared “breaking up with the old Panasonic,” and decided to change the business structure that had been focused on business-consumer transactions (B2C) to business-to-business transactions (B2B). Instead of withdrawing from the semiconductor, mobile phone, and TV markets, which had been pushed out of competition with Korean and Chinese companies after the 2000s, they referred to Philips, which transformed into a healthcare company. It withdrew one after another from the plasma TV and medical equipment business, which had suffered a huge deficit.
However, it was a mistake to adopt automobile parts such as electric vehicle batteries and the housing business named’Space Solution’ as a new growth engine. Most of the 1 trillion yen in strategic investment secured in 2015 was invested in automobile-related businesses, but in 2019 alone, it posted a deficit of 46.6 billion yen. The business of supplying batteries to Tesla made a profit last year for the first time, but it is analyzed that it is difficult to sustain profitability because it is far behind LG Energy Solutions and Chinese CATL.
The strategy to supplement profitability through mergers and acquisitions (M&A) in the housing business focused on air conditioning and lighting has also failed. As a result, the dependence on home appliances to break up has risen. More than half of last year’s April-September operating profit came from consumer electronics.
A more serious problem is the corporate culture that cannot abandon the mindset of the manufacturing industry. Panasonic has been setting up a business plan every three years since it announced its mid-term management plan for the first time in the industry in 1956. Sales are the most important thing in the mid-term management plan. Criticism continued that the company’s competitiveness is being evaluated for profitability and capital efficiency, but it is holding on to its sales target, which was important only during the period of rapid growth. Nevertheless, in the 2014 mid-term management plan, Panasonic again set a goal of “achieving sales of 10 trillion yen by 2018, the 100th anniversary of its founding”. Only after sales fell to the 7 trillion yen level in 2016, Panasonic adopted a strategy that emphasized profits.
Tokyo = correspondent Jeong Young-hyo [email protected]