The Sony Corporation includes film, TV, computer entertainment, music and online businesses. It had sales of 7730 billion yen in 2009 and employed 180500 people worldwide. Sony is concerned about slow future growth rates in the USA, Europe and Japan. It has announced a growth strategy that focuses on emerging markets. Sony’s objective, at the moment, is to increase its annual sales in the BRIC economies (Brazil, Russia, India and China) to 2000 billion yen by 2010. It aims to achieve continued fast growth in these and new emerging markets in the long term. With reference to Sony and other organizations that you know, to what extent do you think that a business strategy of targeting emerging markets a good one?
Business strategies include the activities and decisions made by a business so as to meet its corporate objectives. Emerging markets are those countries with a low to middle- average income per person – the four most targeted emerging markets are the BRIC economies (Brazil, Russia, India and China). This is because these countries, which have approximately 40% of the world’s population, are seeing high rates of economic growth, such as the growth rates of over 9% seen in India and China.
One situation when a business strategy of targeting emerging markets is a good one is when established markets are in a recession. In a recession, unemployment starts to go up which results in people having less disposable income to spend on price elastic goods such as entertainment goods which is what Sony specialise in manufacturing. The USA, Europe and Japan have all recently experienced recessions, and on-going problems including slow future growth rates and the Eurozone crisis make these markets an unfavourable place for fast growth which Sony is aiming to achieve. On the other hand, BRIC economies are seeing high levels of economic growth which mean that if Sony targets these countries they are more likely to see achieve continued fast growth. During the recent recession that hit the Western World, Ford found that it had to make 50,000 workers redundant, cut its suppliers in half and sell off numerous brands including Aston Martin, Jaguar, Land Rover and Volvo. At the same time, it managed to target emerging markets such as Brazil, its third largest market. In 2009, it managed to sell 400,000 cars which shows that although some of Ford’s customers were going through a downturn in the business cycle, resulting in less sales revenue for the business from these areas, Ford could still continue to grow by targeting emerging markets such as the BRIC economies. Therefore, a business strategy of targeting emerging markets is a good one if other markets are going through a recession as it allows a business to continue to achieve fast growth.
Another reason why targeting emerging markets is a good business strategy to use is when the domestic market has become saturated. If the majority of the population of the existing markets in which a business operates are already using a firm’s products, that firm may choose to target emerging markets. This is also true if the existing market place has too many competitors, meaning that there is too much competition to gain a sense of monopoly power in that market. For example, the USA, Europe and Japan are economically developed countries which have had entertainment systems for many decades – the fact that these are not new in these countries means that there is limited potential for growth. However, BRIC countries are starting to require these products due to the fact that they are experiencing high rates of economic growth resulting in less unemployment and people having more disposable income. Another example of this is Vodafone, which announced at the end of 2011 that it was experiencing declining levels of sales revenue in their more established European countries, seeing a 4.7% decline in the UK alone. However, Vodafone has been able to grow substantially in emerging economies such as India, where it saw its customer base grow by 62 m to 137.4 m, an increase of 82% in 2006 alone. Vodafone would be unable to achieve these levels of growth in countries such as the UK, which only has approximately 60 million people in total, of which even less would be mobile phone users and less would use Vodafone due to the fact that the market for mobile phones in the UK has a number of competitors such as Orange, 02, T-Mobile and 3. By targeting emerging markets, businesses like Sony and Vodafone can achieve high levels of growth due to the fact that these countries could be seen as “rising star” countries if applied to the Boston Matrix, due to the fact that they are growing substantially in terms of GDP. Therefore, to an even further extent, a business strategy of targeting emerging markets is a good one as it will enable firms to continue to achieve fast growth even when their domestic markets have become saturated, as customers in emerging markets are beginning to require the same products meaning that there is a large potential for growth.
However, a business strategy of targeting emerging markets may not be so good as firms must recognize the fact that there are cultural differences between countries. This is particularly the case for Sony, whose markets can be split up into two main groups – emerging markets (such as the BRIC economies) and more economically developed countries (such as the USA, Europe and Japan). Therefore it is important that a firm achieves a “global localisation” strategy when marketing their products, ensuring that products are personalised for the customers in that market. According to Ansoff’s matrix, targeting a new market with new products is a diversification strategy, which carries a high level of risk. Therefore, firms may opt to set up a joint venture using the help of a similar firm which is established in the country which is being targeted. For example, in 2007, Mothercare announced plans for a joint venture with China’s largest childcare products retailed, Goodbaby – this would ensure that their products would be personalised and fit the culture in China, to ensure that sales are maximised. Although this would allow them to take advantage of the estimated 1.3 billion population in China and the fact that over half of the population do not stick to the “one-child policy”, Mothercare would only have 30% in the new venture, meaning that although the risk would be a lot smaller, so would the potential returns. Therefore, in some ways, a business strategy of targeting emerging markets may not be good as it requires firms to customise products so that they will fit the culture of the market they are targeting, a strategy which carries a lot of risk. Alternatively, the firm could carry out a joint venture with an established business providing similar goods in that country which carries less risk but also less rewards.
On balance, I believe that a business strategy of targeting emerging markets is a good one as it allows businesses to continue to operate successfully when other markets are going through a recession. This is particularly true for Sony, who were experiencing slow growth rates in the USA, Europe and Japan, probably due to the recession. Therefore, targeting emerging markets which are currently better stages of the business cycle (boom and recovery) will allow Sony to grow further just as Ford did when it saw substantial growth in BRIC countries when countries such as the UK were going through a recession. Another reason why a business strategy of targeting emerging markets is a good one is because it allows businesses to continue to grow when their domestic markets become saturated. This was seen in the case of Vodafone which, in a single year, saw their number of customers in India alone grow by 62 million which is larger than the entire population of the UK. This shows that targeting emerging markets is a good strategy as it will allow a business to continue to grow when their original target markets become saturated with too many competitors and not enough opportunities. However, this is dependent on the type of marketHowever, this is dependent on the type of market as this would be more true for income elastic products as people in emerging markets now have more disposable income to spend on these types of products – for example, entertainment products provided by Sony. Furthermore, a business strategy of targeting emerging markets is also dependent on how well the business plans their marketing strategy. they must ensure that products are adapted to fit the cultures and tastes represented in the emerging markets so that the strategy can be successful. This may require the business to set up a joint venture with a company that is currently operating in the target market, as seen in the case of Mothercare and Goodbaby. In this case, the business will not be able to reap all the rewards from the venture, meaning that targeting emerging markets could either be very risky, or provide smaller-than-expected returns.
