TECH: Sony India feature: Is India shining for Sony?

India shining for sony?

The consumer electronics major may be losing its brand halo in Europe and America but it continues to grow its business in India centred around TVs, laptops and smartphones

Just a couple of months after taking charge as President and CEO of Sony Corp, Kazuo Hirai visited New Delhi and Mumbai to strategise on new growth opportunities in India. The troubled global consumer electronics major saw its operating profit slid 77% to $80 million and it suffered a net loss of $314 million for the first quarter of the current fiscal ended June, results for which were announced in August. The figures, which incorporate Sony’s entire operation, represent a fourth consecutive year of losses for the struggling Japanese firm. With the company suffering losses globally due to adverse conditions in its major markets such as Europe and the US, Sony has set its sights on emerging markets like India to assuage the gravity of its losses. In line with this game plan, Hirai announced that Sony is targeting to treble its India revenue to Rs.200 billion by 2015. Sony India had clocked a turnover of about Rs. 63 billion in 2011-12 and is expecting a 35-40% growth in the current fiscal.

At first blush, Sony India’s revenue target looks too good to be true. But the company’s confidence in India is bolstered by the fact that unlike its American and European markets where consumer confidence has crashed dramatically, India still comes across as a country with strong economic fundamentals and where demand for consumer electronics among its youth and middle class still holds good. Also, compared to the revenue targets set by its competitors like LG and Samsung (both aiming around $10 billion by 2015) and even Panasonic, which is aiming to reach Rs.250 billion in the same period, Sony’s figures appear remarkably modest. But making good on one’s target could be a slippery goal to achieve, especially in the times of economic downturn. One only needs to look at how miserably LG failed in achieving its stated FY 2011-12 revenue target of Rs.200 billion, closing the fiscal just above Rs.160 billion. The main reasons for the debacle were the failure of its smartphone category, and increased competition in the ACs and flat panel TV space. The danger for Sony is that it might fall into a similar trap, in its blind dash to reach its 2015 target.

There are other speed bumps on the way too. One major wrinkle in Sony’s India plan is that the company has a limited product line. As competition in the consumer electronics domain is ruthless, competitors like Samsung, Apple, LG and others can be counted on to give no quarter without a good fight. Moreover, competition will intensify even further, especially in Sony’s flagship product category of flat panel TVs. Currently, the flat panel Bravia range contributes the lion’s share of Sony’s revenue at 35%, followed by consumer PC range Vaio at 20%, and the digital camera range Cyber-shot at 15%. Its other divisions like Mobile, PlayStation gaming et al contribute the rest.

The company has hitched its hopes high as it believes that unlike other consumer durable players, it is not a category player. “We are more of a brand player. So we don’t sell televisions, we sell Bravia. We don’t sell laptops but Vaio, and we don’t sell cameras but Cyber-shots,” avers Sony India Managing Director Kenichiro Hibi, who took over the reins of the Indian operations in July this year. So unlike other leading consumer electronics players, who build their category portfolio around a slew of product lines, Sony believes in keeping a simple and narrow focus: pick up a hero brand from a category and build onto it, rather than aim to spread thin in a category.

According to Hibi, Sony’s inherent DNA is of a content and entertainment provider especially targeting the youth, rather than being a consumer electronics company in the mould of a Samsung, LG or Panasonic. “That’s why all our products have a high degree of lifestyle, entertainment and youth appeal value, be it the Bravia TVs, the Vaio laptops, the PlayStation or the Sony Pictures.” Sony’s roadmap for the Indian market focuses on growth based on three main pillars – TV, personal computers and smart phones – even as other segments like audio systems and cameras are expected to pitch in with their own share of contribution. “Demand here is strong and people are still coming to showrooms and buying our products,” says Hibi. He goes on to add: “We want to connect with consumers 24x7, both inside their homes through our Bravia range of televisions, and outside through our mobile offerings.” Sony is betting big on the replacement market of CRT TV users, 10 million of whom it feels is its target audience in the coming years, as they graduate to LCDs and LEDs.

Now with the Sony Ericsson business also falling in its lap, and rechristened as Sony Mobile, Sony expects the mobile division will give a big boost to its business, considering that it enjoys a good perception among a certain set of smartphone users. Sony’s decision to acquire the 50% share of the joint venture with Ericsson for euro 1.05 billion last year made sense considering that smartphones today are all about media, video, pictures, music and gaming. Globally, Sony is aiming to make its mobile business one of the pillars of its turnaround story. According to industry estimates, Sony Mobile is expected to sell 33 million smartphones globally this year, up from 22.5 million last year and generate $23 billion in revenue from mobile devices, such as tablets and smartphones.

Already, Sony India’s mobile division appears on track to deliver 15% of the company’s total revenue. Hibi informs that as per the market research agency GFK report, Sony Mobile already has roughly 8-9% share of the mobile market in India. “Our endeavour will be to grow it further, and take it well past the double-digit market share.” At a recent event to kick off its festival offensive, Sony Mobile introduced the Sony Xperia smartphone Tipo. Priced attractively at Rs.9,999 and Rs.10,499 for the single-Sim and dual-Sim versions, Tipo with the latest Android platform and good music feature, looks like a winning proposition. However, Sony’s decision to go ahead with a sub-10k smartphone is fraught with risk. The risk is that it could dilute the ‘premium-ness’ of the Sony brand in the long run. Hibi, on his part, exudes confidence. “The single-Sim and dual-Sim Xperia Tipo smartphone models have been designed for selective markets like India. To further push ahead the penetration, we have brought in Vodafone to offer 500 GB per month, for three months. That should help customers explore the smartphone’s ability,” he says.

While Sony’s exuberance for India comes from the fact that the country is already its fifth-largest (country-wise) market, the company has so far refrained from investing in manufacturing facilities here. Over time, as its share from India grows, the lack of manufacturing and sourcing capability within the country can come back to haunt the company. Currently, Sony imports 100% of its products from its plants in Malaysia (for TVs and cameras) and China (for mobiles, laptops). At a time when the company is facing exigencies globally and badly needs cash in hand, it is understandable that it does not want to spread its resources too thin. But with rising input costs, a weakening rupee adding to import pressures, and poor global economic sentiments, Sony has to walk a tightrope, watching its bottom line, besides having to price itself more aggressively in a market overflowing with quality products at competitive price tags. Probably it can learn some lessons from Panasonic, which is aggressively investing in India in a last ditch effort to remain globally relevant and is aiming to make the Indian market its manufacturing hub for the Middle-East and African market. Copying the Panasonic model may not work for Sony in India considering its different business portfolio. But maybe it’s time for Sony to shed its reluctance and start looking at localising its products to the needs of Indian consumers. The company seems to be taking initial promising steps in this direction. “I clearly see a shift in our design focus from Europe and the US to now also include the needs of the Indian market. Like our compact cameras have high zoom features, which is liked by Indian consumers,” informs Hibi.

To make up for its lack of manufacturing presence in the country, Sony is now trying to strengthen its retail operation. The company has more than 250 brand stores in India, called Sony Center, which are owned and managed by franchisee partners much like rivals Samsung, LG and Panasonic. “The Sony Centers are important channels and partners for us. But the opportunity can be much more if we have our company owned stores,” Hibi says. And although the government has now allowed 100% FDI in single brand retail, which technically allows players like Sony to own their own stores in the country, the provision of 30% sourcing norms still acts as a deterrent.

At a time when Sony is betting big on its smartphone gambit, having a strong retail store network owned by the company will be vital to win consumers and prevent them from drifting away to Apple and Samsung. Apple became highly successful not only due to its products, but also due to a superior company owned retail experience where trained staff demonstrate the unique product features in well laid out large store format. While Sony’s main intention is to provide a superior retail experience to win Indian consumers, company owned stores will also help it break the various layers of distribution and improve margins. Since India has multiple layers of channel such as national distributor, regional distributor, sub-distributors, retailers, etc, Sony can stand to save 10%-20% margin flows into the channel by having its own stores.

Unlike in America and Europe where Sony has been overshadowed by the likes of more innovative and nimble players like Samsung and Apple, the company has managed to remain on a strong wicket in India. Sales of its Bravia TV, Viao laptop and Cyber-shot digicam continue to swell and rack up higher revenues for the company. And with plans to introduce greater product customisation and beef up its operations on the retail front, Sony could indeed well be on its way to taking the share of India’s contribution to its total revenues to 10% from its current 5% in the next couple of years.


Onkar Pandey (Issue Date - 30/11/2012 in Business & Economy)