7-35 Kitashinagawa 6-chome
Incorporated: 1946 as Tokyo Tsushin Kogyo K.K.
Sales: ¥63.48 billion (US $11.2 billion)
Stock Exchanges: Tokyo Osaka Nagoya New York London Amsterdam Pacific Hong Kong Paris Frankfurt Zurich
SICs: 3651 Household Audio & Video Equipment; 3661 Telephone & Telegraph Apparatus; 5064 Electrical Appliances--Television & Radio.
The Sony Corporation is one of the best-known names in consumer electronics. Since it was established shortly after World War II, Sony has introduced a stream of revolutionary products, including the transistor radio, the Trinitron television, the Betamax VCR, and the Walkman portable cassette player.
Sony maintains a number of joint ventures, including one with Union Carbide to manufacture Eveready batteries in Japan. The company also operates a life-insurance company in association with the Prudential Life Insurance Company and, with PepsiCo, runs a company that imports and markets Wilson sports equipment. Sony has also established a joint venture with the Chinese government to produce television sets in the People's Republic of China.
Sony was founded by a former naval lieutenant named Akio Morita and a defense contractor named Masaru Ibuka. Morita, a weapons researcher, first met Ibuka during World War II while developing a heat-seeking missile-guidance system and a night-vision gun scope. After the war Ibuka worked as a radio repairman for a bomb-damaged Tokyo department store. Morita found him again when he read in a newspaper that Ibuka had invented a shortwave converter. In May of 1946 the two men established a partnership with $500 in borrowed capital, and registered their company as the Tokyo Tsushin Kogyo (Tokyo Telecommunications Engineering Corporation, or TTK). Morita and Ibuka moved their company to a crude facility on a hill in southern Tokyo where they developed its first consumer product: a rice cooker which failed commercially. In its first year TTK registered a profit of $300 on sales of less than $7,000.
But as the Japanese economy grew stronger, demand for consumer goods increased. Morita and Ibuka abandoned the home-appliance market and, with injections of capital from Morita's father, concentrated on developing new electronic goods. Ibuka developed a tape recorder fashioned after an American model he had seen at the Japan Broadcasting Corporation. Demand for the machine remained low until Ibuka accidentally discovered a U.S. military booklet titled Nine Hundred and Ninety-Nine Uses of the Tape Recorder. Translated into Japanese, the booklet became an effective marketing tool. Once acquainted with its many uses, customers such as the Academy of Art in Tokyo purchased so many tape recorders that TTK was soon forced to move to a larger building in Shinagawa.
Norio Ohga, an opera student at the academy, wrote several letters to TTK criticizing the sound quality of its recorder. Impressed by the detail and constructive tone of the criticisms, Morita invited Ohga to participate in the development of a new recorder as a consultant. Ohga accepted, and subsequent models were vastly improved.
Constantly searching for new technological advances, Masaru Ibuka heard of a tiny new capacitor called a transistor in 1952. The transistor, developed by Bell Laboratories, could be used in place of larger, less-durable vacuum tubes. Western Electric purchased the technology in order to manufacture transistorized hearing aids. Ibuka acquired a patent license from Western Electric for $25,000 with the intention of developing a small tubeless radio.
TTK began mass production of transistor radios in 1954, only a few months after they were introduced by a small American firm called Regency Electronics. The TTK radio was named Sony, from sonus, Latin for "sound." The Sony radio had tremendous sales potential, not only in the limited Japanese market, but also in the United States, where the economy was much stronger.
Traditionally, international sales by Japanese companies were conducted through trading houses such as Mitsui, Mitsubishi, and Sumitomo. Although these trading companies were well represented in the United States, Morita chose not to do business with them because they were unfamiliar with his company's products and did not share his business philosophy. Morita traveled to New York, where he met with representatives from several large retail firms. Morita refused an order from Bulova for 100,000 radios when that company required that each carry the Bulova name. Morita pledged that his company would not manufacture products for other companies and eventually secured a number of more modest orders that assured his company's growth at a measured pace.
The rising popularity of the Sony name led Morita and Ibuka to change the name of their company to Sony Kabushiki Kaisha (Corporation) in January of 1958. The following year Sony announced that it had developed a transistorized television. In 1960, after a business dispute with Delmonico International, the company Morita had appointed to handle international sales, Sony established a trade office in New York City and another in Switzerland called Sony Overseas.
A subsidiary called Sony Chemicals was created in 1962 to produce adhesives and plastics to reduce the company's dependence on outside suppliers. And in 1965 a joint venture with Tektronix was established to produce oscilloscopes in Japan.
During the early 1960s Sony engineers continued to introduce new, miniaturized products based on the transistor, including an AM/FM radio and a videotape recorder. By 1968 Sony engineers had developed new color-television technology. Using one electron gun, for more-accurate beam alignment, and one lens, for better focus, the Sony Trinitron produced a clearer image than conventional three-gun, three-lens sets. In what has been described as its biggest gamble, Sony, confident that technology alone would create new markets, invested a large amount of capital in the Trinitron.
Also in 1968, Sony Overseas established a trading office in England, and entered into a joint venture with CBS to produce phonograph records. The venture was under the direction of Norio Ohga, the art student who had complained about Sony's early tape recorder, whom Morita had persuaded in 1959 to give up opera and join Sony. The company, called CBS/Sony, later became the largest record manufacturer in Japan. In 1970 Sony Overseas established a subsidiary in West Germany to handle sales in that country.
After a decade of experience in videotape technology, Sony introduced the U-matic three-quarter-inch video-cassette recorder (VCR) in 1971. Intended for institutions such as television stations, the U-matic received an Emmy Award for engineering excellence from the National Academy of Television Arts and Sciences. In 1973, the year Sony Overseas created a French subsidiary, the academy honored the Trinitron series with another Emmy.
Sony developed its first VCR for the consumer market, the Betamax, in 1975. The following year the Walt Disney Company and Universal Pictures filed a lawsuit against Sony, complaining that the new machine would enable widespread copyright infringement of television programs. A judgment in favor of Sony in 1979 was reversed two years later. Litigation continued, but by the time the matter reached the U.S. Supreme Court the plaintiffs' original case had been severely undermined by the proliferation of VCRs, making any legal restriction on copying television programs for private use nearly impossible to enforce.
During the mid 1970s, competitors, such as the American RCA and Zenith and the Japanese Toshiba and Victor Company of Japan (JVC), effectively adopted and improved upon technologies developed by Sony. For the first time, Sony began to lose significant market share, often in lines that it had pioneered. Strong competition, however, was only one factor that caused Sony's sales growth to fall (after growing 166 percent between 1970 and 1974, it grew only 35 percent between 1974 and 1978).
Like many Sony officials, Akio Morita lacked formal management training. Instead, he relied on his personal persuasive skills and his unusual ability to anticipate or create markets for new products. In typical fashion, Sony introduced the Betamax VCR well before its competitors, in effect creating a market in which it would enjoy a short-term monopoly. At this stage, however, Morita failed to establish the Betamax format as the industry standard by inviting the participation of other companies.
Matsushita Electric (which owned half of JVC) developed a separate VCR format called VHS (video home system), which permitted as many as three additional hours of playing time on a tape, but which was incompatible with Sony's Betamax. When the VHS was introduced in 1977, Morita was reported to have felt betrayed that Sony's competitors did not adopt the Betamax format. He appealed to 81-year-old Konosuke Matsushita, in many ways a patriarch of Japanese industry, to discontinue the VHS format in favor of Betamax. When Matsushita refused, many believed it was because he felt insulted by Morita's failure to offer earlier collaboration.
Matsushita launched a vigorous marketing campaign to convince customers and other manufacturers not only that VHS was superior, but that Betamax would soon be obsolete. The marketing war between Matsushita and Sony was neither constructive nor profitable; both companies were forced to lower prices so much that profits were greatly depressed. Although Betamax was generally considered a technically superior product, the VHS format grew in popularity and gradually displaced Betamax as a standard format. Despite its falling market share (from 13 percent in 1982 to five percent in 1987), Sony refused to introduce a VHS line until the late 1980s.
In 1979 Morita personally oversaw the development of a compact cassette tape player called the Walkman. Inspired by Norio Ohga's desire to listen to music while walking, Morita ordered the development of a small, high-fidelity tape player, to be paired with small, lightweight headphones that were already under development. The entire program took only five months from start to finish, and the product's success is now legendary--Walkman even became the generic term for similar devices produced by Sony's competitors.
During the 1970s, Masaru Ibuka, 12 years Morita's senior, gradually relinquished many of his duties to younger managers such as Norio Ohga, who was named president of Sony in 1982. Ohga became president shortly after a corporate reorganization that split Sony into five operating groups (marketing and sales, manufacturing, service, engineering, and diversified operations). While not formally trained in business, Ohga nonetheless understood that Sony was too dependent on an unstable consumer-electronics market. In one of his first acts, he inaugurated the 50-50 program to increase sales in institutional markets from 15 to 50 percent by 1990.
During this time, Sony's research-and-development budget consumed approximately nine percent of sales (Matsushita budgeted only four percent). Another groundbreaking result of Sony's commitment to research and development was a machine that used a laser to reproduce music recorded digitally on a small plastic disk. The compact disk (or CD) player eliminated much of the noise common to conventional, analog phonograph records. Sony developed the CD in association with the Dutch electronics firm Philips, partly in an effort to ensure broad format standardization. Philips, which had developed the most advanced laser technology, was an ideal partner for Sony, which led in the pulse-code technology that made digital sound reproduction possible. Soon the CD format was adopted by competing manufacturers; by the mid-1990s it had virtually replaced phonograph systems as the recording medium of choice.
Early in the 1980s, Morita began ceding some of his duties to Sony's president, Norio Ohga, the young opera student hired 30 years earlier to improve Sony's tape recorders. Under Ohga, Sony entered into a new acquisitions phase with intent of protecting itself from the costly mistake it had made with Betamax. One example of the changes Ohga brought about was Sony's video camera, introduced in 1985. Lighter, less expensive, and more portable than VHS cameras, the camera used 8mm videotape, and was incompatible with both Betamax and VHS machines. The key difference between this and earlier Sony products was that Sony developed the new 8mm video format in conjunction with over 100 competitors. While the camera may have been incompatible with the older Betamax and VHS technologies, Sony ensured that it would be compatible with the next generation of video cameras. Within three years of its introduction, the camera captured over 50 percent of the European, 30 percent of the Japanese, and 20 percent of the North American markets.
In May 1984 Sony purchased Apple Computer's hard-disk-technology operations. As a result of this acquisition, Sony was able to capture about 20 percent of the Japanese market for "work stations," personal computers used in business offices, thus helping to increase the proportion of its sales derived from institutional customers. Ohga also broke a decades-old tradition in 1984 when he established a division to manufacture and market electronics components for other companies. By 1988, fueled by strong sales of semiconductors (once manufactured only for Sony products), the components division had grown to represent about 11 percent of Sony's total sales.
Sony also sought to gain control of the software end of the electronics/entertainment industry. On November 29, 1985 the Sony Corporation of America, which operated several assembly plants in the United States, purchased the Digital Audio Disk Corporation from its affiliate CBS/Sony. Two years later, Sony purchased CBS Records for $2 billion. CBS Records, whose labels included Epic and Columbia, was during this time the largest producer of records and tapes in the world.
Sony had learned through its Betamax experience that a superior product alone wouldn't ensure market dominance; had Sony been able to flood the market with exclusively Beta-formatted movies, the VCR battle might have turned out differently. Looking towards the future development of audio equipment, including digital audio tape (DAT), Sony bought the record manufacturer with an eye toward guaranteeing that the products it manufactured to play music would remain compatible with the medium used to record music. The acquisition marked less of a diversification for Sony than an evolution toward dominance in a specific market.
Sony sought further diversification in U.S. entertainment companies. In 1988, the company considered an acquisition of MGM/UA Communications Company, but decided the price was too high. Then in 1989 Sony made headlines around the world when it bought Columbia Pictures Entertainment from Coca-Cola for $3.4 billion. Columbia provided Sony with an extensive film library and strong U.S. distribution system. It also carried a $1 billion debt, which almost tripled Sony's short-term debt to around 8 billion yen. Industry analysts applauded the move; however, when a recession hit the film industry shortly after Sony's purchase, some began to question Sony's ability to deliver its traditionally strong profits.
Sony did deliver, however, posting record earnings in 1990 of 58.2 billion yen ($384 million), a 38.5 percent increase over 1989. In 1992, Columbia Pictures and its subsidiary TriStar jointly captured 20 percent of the U.S. market share, far above the shares held by competing studios.
However, the complexities of operating a truly multinational corporation began taking their toll on Sony. Most of the world's largest economies (Europe, Japan, and the United States) were experiencing a slowdown in the early 1990s. This factor created what Sony called "an unprecedentedly challenging operating environment." Although sales in most of Sony's businesses increased in 1992, operating income dropped 44 percent to 166 billion yen ($1.2 billion). Net income increased slightly to 120 billion yen.
The ongoing appreciation of yen against most major currencies had an even more adverse effect on Sony's bottom line in 1993: net income fell a dramatic 70 percent to $36 billion yen ($313 million) on sales of 3,993 billion yen ($34.4 billion). Had the yen's value held steady at 1992 figures, Sony's net income would have totaled about 190 billion yen ($1.3 billion).
During that year, Ohga assumed the duties of chief executive in addition to his role as president. He and Morita responded to Sony's tough economic situation by bolstering marketing, reducing inventory levels, streamlining operations, and keeping a watchful control of capital investments. The company also embarked on an extensive reorganization effort with the goal of decentralizing operations and reducing unnecessary management. Despite these measures, Sony was unable to stem the slide. Net income plummeted another 50 percent in 1994 to 15 billion yen, on sales of 3,734 billion yen.
By this time Morita had relinquished virtually all his duties in the company, having suffered a stroke in late 1993. In Sony's 1994 annual report, his picture and signature were conspicuously absent from the letter to shareholders, implicitly announcing Ohga's new leadership position. Under Morita's leadership, Sony's rise to preeminence in the world consumer-electronics market was almost entirely self-achieved; Sony outperformed not only its Japanese rivals, among them associates of the former zaibatsu (conglomerate) companies, but also larger American firms, which by 1995 had all but abandoned the consumer-electronics market.
In the late 1980s Morita told Business Week that he regarded the Sony Corporation as a "venture business" for the Morita family, which had produced several generations of mayors and whose primary business remained the 300-year-old Morita & Company. Under the direction of Akio Morita's younger brother Kuzuaki, Morita & Company produced sake, soy sauce, and Ninohimatsu brand rice wine in Nagoya. The company, whose initial $500 investment in TTK was worth $430 million in 1995, owned a 9.4 percent share of Sony.
In April 1995, Ohga ascended to the chairmanship of Sony, and Morita was made an honorary chairman. The company's new president was Nobuyuki Idei, a 34-year veteran of the company, who had founded Sony's French subsidiary in 1970 and had since played a role in many of the company's major accomplishments, including audio CD technology, computer workstations, and the 8-mm video camcorder.
Sony's success had been a direct result of the wisdom of its founders, who had the talent to anticipate the demands of consumers and to develop products to meet those demands; Idei's presidency, some suggested, signalled a new era for the company.
Immediate among Idei's concerns were helping Sony become an integral player in the information highway industry. He also hoped to help the company establish an industry standard for DVDs, or digital videodisks, larger CD-like disks containing full-length films for play on television screens via videodisk players, which were becoming increasingly popular among electronics buffs. According to one writer in Fortune magazine, Idei also sought to "reinforce the open-minded and cooperative ideals of Sony's founders--which he calls Sony Spirit--companywide."
Principal Subsidiaries: Sony Precision Magnetics Corp., Sony Shiroshi Semiconductor Inc., Sony Digital Porducts Inc., Sony Asco Inc., Sony Finance International, Sony Music Entertainment (Japan) Inc., Sony Creative Products Inc., Sony Pictures (Japan) Inc., Sony Chemicals Corp., Sony Magnascale Inc., Sony Plaza Co. Ltd., Aiwa Co. Ltd., Sony Life Insurance Co. Ltd., Sony/Tektronix Corp., Sony Corporation of America, Sony Music Entertainment Inc. Sony Pictures Entertainment, Sony of Canada Ltd., magneticos de Mexico, S.A. de C.V., Sony Corporation of Panama S.A., Cony Comerico e Industria Ltd. (Brazil), Sony Chile Ltda., Sony de Venezuela S.A., Sony Austria GmbH, Sony Belgium N.V., Sony Nordic (Denmark), Sony France S.A. Sony Europa GmbH (Germany), Sony Production Technology Division, Sony Italia SpA, Sony Nederland B.V., Sony Portugal Limitada, Sony Espana, S.A., Sony (Schweitz) AG (Switzerland), Sony Overseas S.A. (Switzerland), Sony United Kingdom Ltd., Sony Gulf FZE (United Arab Emrites) Sony Electronics of Korea Corp., Taiwan Toyo Radio Co. Ltd., Sony Corporation of Hong Kong Ltd., Sony Magnetic Products (Thailand) Ltd., Sony (Malaysia) Sales and Service Sdn. Bhd., Sony International (Singapore) Ltd., Sony Precision Engineering Center (Singapore) Pte. Ltd., P.T. Sony Electronics Indonesia, Sony Australia Ltd., Sony New Zealand, Ltd.
Landro, Luar, Ono, Yumiko, Rubinfein, Elizabeth, "A Changing Sony Aims to Own the 'Software' That Its Products Need," Wall Street Journal, December 30, 1988, p. 1.
Lyons, Nick. The Sony Vision, New York: Crown, 1976.
Morita, Akio. Made in Japan, Akio Morita and Sony, New York: Dutton, 1986.
"Media Colossus: Sony Is Out To Be the World's One-Stop Shop for Entertainment," Business Week, March 25, 1991, p. 64.
Schlender, Brent, "Sony's New President: Here's the Plan, Fortune, April 17, 1995, pp. 18-19.
Source: International Directory of Company Histories, Vol. 12. St. James Press, 1996.