Business Overview and Purpose of the Report
Sony Corporation is one of the leading technology giants operating in various market areas, including Game & Network Services, Music, Pictures, Entertainment Technology & Services, Imaging & Sensing Solutions, and Financial Services. The organization began to develop in Japan after the Second World War, and its rapid growth led the company to become an international corporation operating in numerous countries worldwide (Alhashash et al., 2019). Currently, the company is the world leader in producing professional equipment for videographers and photographers.
This report will focus on the division of Sony Electronics, which is engaged in a wide range of smartphones, game consoles, cameras, films, digital content, and televisions. In countries such as Japan and India, the macroeconomic environment can have a profound impact on a company’s behavior and on its earnings and operations. This understanding is crucial for a company to identify the most profitable markets for expanding its operations.
Analysis of the Market Structure
Japan
Japan is a densely populated country with a high number of electronic device users. In 2023, the country’s consumer electronics market revenue reached US$36.99 billion, with an expected annual growth rate of 0.29% through 2028 (Statista, 2023a). At the same time, the market’s largest segment is smartphone and accessory sales, where Sony holds a small share compared to its closest competitors, such as Samsung and Apple (Gao et al., 2022).
At the same time, a positive indicator for Sony’s electronics segment in the Japanese market could be profitable online sales, including various services, as this segment accounts for 46.1% of total sales in the country (Statista, 2023a). According to Statista (2023a), consumer electronics sales are projected to grow by 1% by 2024. This opens up specific opportunities for the corporation’s investigated division.
The consumer electronics market in Japan is divided into several major segments: Telephony, TV, Radio & Multimedia, Computing, Peripheral Devices, Drones, and Gaming Equipment. Thus, Sony can use this segmentation productively, as the company produces its own devices in each category and supplies them to the market. The mature market also means it will be challenging for new manufacturers to enter without incurring high financial costs. Key players in the market in all designated categories are Sony, Apple, Samsung, Huawei, HP, and Dell. Thus, the market is saturated and stable, with no apparent new entries that could change the situation dramatically.
India
India has one of the world’s largest populations, making it a potentially attractive market for many organizations. Consumer electronics in the United States are in high demand. They are expected to generate a profit of US$69.15 billion in 2023, with the market projected to grow at 5.89% annually (Statista, 2023b). This pace indicates excellent potential for Sony’s electronics division.
The country’s constant growth and development have driven an increase in electronics sales, as citizens’ purchasing power has grown. However, online sales of goods and services in this area are not as advanced, accounting for 18.3% of total volume, significantly less than in Japan (Statista, 2023b). However, the potential growth in the number of electronic device users suggests the market may continue to evolve, and there is a risk of new companies entering the market and capturing market share.
The Indian consumer electronics market is experiencing steady growth, offering numerous opportunities for companies to enter. Sony’s business expansion may be related to cinema, which is also constantly developing in the country. Large volumes of electronics sales can be attributed to India’s large population and the increasing number of devices per person each year. Thus, sales in the electronics market are expected to be 921.60 million pieces by 2028 (Statista, 2023b). This indicator may mean that the country is developing and people’s purchasing power is increasing.
Comparative Analysis of Macroeconomic Indicators
GDP Growth Rate
Japan is a developed country with a diverse range of industries and numerous international companies that drive the country’s economic growth. The country’s gross domestic product (GDP) growth rate over the past decade has been unstable and tends to decline, as shown in Graph 1, in 2011 and 2020. The coronavirus pandemic can explain such a drop, which led to a significant decrease in the country’s economic opportunities in 2020. Despite a steady increase year over year, its value has been in constant decline since 2017, with a more significant increase in 2021 (Graph 1). Thus, this indicates that the country’s economic stability is not in complete order, and emergencies can significantly harm the domestic market.
Nevertheless, despite the country’s recent moderate GDP growth, this situation may change. This conclusion can be drawn from information on extensive private investment in the domestic financial sector. Thus, for the first quarter of 2023, Japanese GDP increased by 2.7%, a figure significantly higher than in the same quarter of the previous year (Lee, 2023). For Sony, as an original Japanese brand, this means the consumer electronics sector may also begin to grow as citizens’ economic opportunities increase.
The Indian economy is relatively stable and has experienced steady growth in almost all years. However, this does not apply to 2020, when the country’s GDP declined significantly compared to previous years. The previous declines in 2017, 2018, and 2019 are also indicators for concern (Graph 2). However, despite the significant economic constraints during the years under discussion, India achieved economic stability in 2021, with a notable jump in GDP growth. This is also reflected in electronics sales, which are growing steadily and showing strong profitability for all key players.
India’s current GDP growth can contribute to the country’s faster and more sustained development, as many enterprises operating in the country have established a strong market position. In today’s environment, economists predict even greater growth in India’s GDP, which may affect how the country invests in infrastructure development, including from the financial sector (ADB, 2023).
Thus, this region is among the most attractive to investors, which may complicate Sony’s expansion in this market. Such economic activity in the large Indian market presents an opportunity for capital injection; however, Sony is unlikely to succeed, as its products are not currently popular in the market.
GDP per Capita at Constant Prices
GDP per capita in Japan has also declined significantly since the COVID-19 pandemic in 2020. This figure is one of the lowest in the country’s history since the post-war period. Thus, this directly affects the population’s ability to purchase new technical goods, which is an essential indicator for Sony. GDP per capita is calculated using the annual nominal GDP and population, allowing for conversion into US dollars. This approach, however, means that calculation errors may occur because the population has uneven incomes. On Graph 3, you can see that this parameter began to recover in 2021. This fully reflects the state of the economy, as indicated by the country’s GDP.
In the Indian economy, considering the GDP per capita parameter, it becomes clear that it exhibits trends similar to Japan’s, with stable growth maintained without sharp drops or declines until 2020. However, despite this overall value, GDP per capita is significantly lower than in Japan due to the substantial difference in the country’s population. Thus, an accurate comparison is necessary to determine the profitability of Sony’s business expansion in a given country. Electronics traditionally play a large role, but it is also worth considering the specifics of Sony products, since they do not represent a necessary appliance, such as refrigerators or stoves. Given the large number of impoverished people, this can also become a problem due to Sony’s revised pricing policy, which has led to all brand products increasing in price.
Inflation Rate (CPI)
Inflation is one of the primary modern challenges in Japan, which hinders companies from fully implementing their strategies and marketing plans. Prices for all categories of goods have risen steadily since 2020. The price reduction category is noted only for fuel and electricity, which will not affect Sony’s expansion or the implementation of its new initiatives in the country’s market. Target inflation is declining, as indicated by the Bank of Japan, which can have negative consequences for manufacturers, as average expected prices are also declining.
In India, the inflation rate is higher than in Japan, as the national currency is unstable and commodity prices rise several times a year. At the same time, consumers can also observe downward inflation trends, as the pricing policies for many goods tend to fluctuate throughout the year. Thanks to this effect, we can say that inflation in the country does not have a fixed rate of increase but aims for stable fluctuations, which, nevertheless, can still affect consumer goods, including electronics. Such figures may affect Sony, as price increases are higher on average, and the company may incur additional costs that are not profitable.
Unemployment Rate
The unemployment rate in Japan is sufficient and cannot significantly affect the operations of large companies. Currently, as shown in Chart 7, the unemployment rate in Japan is 2.6%, suggesting that nearly the entire working-age population is employed. The country’s work ethic is a strong institution that prevents people in Japan from not working. This, in turn, provides market stabilization, allowing it to develop more intensively since a large portion of the population is employed. Japan has a large population, which makes the country economically stable because everyone is involved in some form of duty.
Unemployment in India is a critical issue affecting society and businesses. This indicator in the country, as shown in Graph 8, is relatively high, leading to specific problems associated with an uneven labor distribution. Unemployment has risen sharply due to the coronavirus pandemic, as India is a densely populated country and many people lack internet access. This means the lockdown has affected the economy, as Indian society has been unable to find alternative employment quickly. However, the downward trend in the unemployment rate that began in 2022 continues.
General Government Balances
Over the past year, Japan’s budget deficit as a percentage of GDP amounted to 11.6%, a high figure resulting from the economic crisis that began following the coronavirus outbreak (Graph 9). Since 2020, this figure has been steadily growing, as the state has allocated substantial funds to support businesses and finance projects related to the COVID-19 response. At the same time, it is predicted that by 2024 these indicators will return to normal and reach pre-pandemic levels.
The India Consolidated Fiscal Balance has experienced a smaller deficit than Japan’s, as reflected in a flat graph without a sharp jump after the pandemic (Graph 10). These indicators are optimal for more actively developing business in a given country, as the economy’s stability is at a reasonably high level, which can contribute to sustainability.
Balance of Payments
The current account of operations in Japan recorded a surplus, indicating that the country’s economy is on an upward trend and may have a significant impact on businesses. Thus, it can be said that Sony’s expansion in this country is a rather complicated process due to numerous factors that can affect foreign exchange transactions and consumer behavior. Accordingly, it is necessary to consider how significant they can be to the company as a whole.
The current account deficit on the balance sheet in India is 2.1% of nominal GDP, which suggests an improvement in the situation, as this parameter decreased compared to the previous year (Graph 12). Thus, in December 2022, the average value of the studied indicator was -1.7%, which means that the country demonstrates significant resilience to financial and global crises. The country’s export of goods is low, resulting in a relatively uncomplicated internal operation and low market competitiveness.
Analysis of the Monetary and Fiscal Policy
Monetary policy in India is developed and implemented by the Reserve Bank of India (RBI), which determines key elements such as interest rates and their fluctuations over time. Additionally, the current policy in this country aims to target inflation and maintain price stability, thereby preventing citizens from experiencing economic difficulties. Thus, the expansion of monetary policy requires operations on income funds and loans to achieve surplus results. For Sony, this situation can significantly affect the investments required to expand its business in the country. This, in turn, may affect consumer demand, as lower prices can influence attitudes towards the company.
Monetary and fiscal policy in Japan is primarily aimed at addressing government problems. At the same time, ensuring sustainable development is imperative for the country, as the Bank of Japan has defined this strategy. Fiscal policy decisions are also heavily influenced by high public debt, which has led Japan to introduce fiscal stimulus methods to improve consumer opportunities. For Sony, this approach to financial policy may result in increased public-sector costs for the execution of relevant documents.
Foreign Trade Policy Instruments
Japan and India are active participants in various international trade agreements. One example of cooperation is the Japan-European Union Economic Partnership Agreement (JEEPA). India, in turn, is part of the South Asian Free Trade Area (SAFTA), which includes vital trade agreements between neighboring countries. The exchange rate is of great importance for international trade, and in Japan, it is unstable due to the country’s peculiar economic control system (Graph 13). In India, the national currency has a more stable exchange rate, which aims to reduce prices, as does Japan (Graph 14).
References
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