Sony joins the BPO bandwagon

Alfred Chandler’s reading of the historical course of the consumer electronics market was that Japanese firms such as Sony, Sharp, and Matsushita have insuperable advantages moving forward into the “electronic century”. However, recent upheavals and power shifts in the industry signal the risks of using history to guide the future. A recent Wall Street Journal article (March 10, 2005) described how American companies such as Kodak, Apple and palmOne have “seized the momentum” from the Japanese leaders to achieve rapid growth in revenue and market share. Lower manufacturing costs and a focus on core competences including design and development of digital (and digitization of) products were cited components of the American business model that are fast changing the rules of the game in consumer electronics and other industries. The enabler of this business model? Business Process Outsourcing. The bulk of Kodak’s cameras are built by contract manufacturers in China, while Apple’s iPod is predominantly assembled in Taiwan. Compare this to Sony’s in-house manufacturing and proprietary technology to discern distinct cost advantages and organizational flexibility enjoyed by the American firms.

However, Sony's operational model seems all too likely to change. This article reports that Sony Computer Entertainment president Ken Kutaragi has stated that the company is considering the possibility of outsourcing production of the PlayStation Portable (PSP) overseas, possibly to China or Taiwan. Kutaragi remarked that this was a response to the need to increase production capacity - “...we're not prepared to start selling in Europe, we've run out of units in the U.S. and it's still selling well in Japan,” Kutaragi told Bloomberg News at a games industry meeting in Tokyo recently. Sony is aiming to ship 12 million units of the PSP this fiscal year, after missing targets for the previous year. Currently 2.97 million PSPs have been shipped to the U.S. and Japan (a European launch is not scheduled until September) while around 6 million units of the rival Nintendo DS portable have been shipped worldwide. As the competition puts the pressure on Sony to grow, it's their turn to join the bandwagon.