Discuss the extent to which the economic theories in the Market's Reader can be applied to the "New Economy". (50 marks)

A) Discuss the extent to which the economic theories in the Market’s Reader can be applied to the “New Economy”. (50 marks)

In this question, I will define the old and new Economy, then I will mention the main characters of New Economy and what is different between new and old Economy. After that, I will discuss the role of knowledge, innovation, and individual creative and competitive as the primary resource needed to create economic wealth. Then, I will discuss Innovation reduce costs and improve product quality and how advances technology achieve the cost reduction and reserve the economic scale in good level. finally I will Study the Economic theories in market reader, clearifing how it could use and ably in the new economy.

It may be helpful to describe the “old economy” before I talk about the “new economy.” From around 1938 to 1974, the economy was built on a manufacturing base geared toward standardized production (It was manual labor) (1). It was organized into stable, hierarchical and generally autocratic organizations. These organizations achieved a competitive edge in the market by making standardized products faster and more economically. They focused on incremental cost reductions and a national marketplace. This is how success and prosperity were achieved in most courtiers, examples of type of organization could be found in textile and steel mills.

This economic order began breaking down between the mid-1970s and the early 1990s. The crisis included both textiles and steel in a period of transition from the old economic order to the new one. a lot of countries loss their competitive edge because other countries were making things faster and cheaper. The cheap labor which had brought industries to the South was being very cheap. At the same time, workers also began wanting a higher standard of living, wanting cars, televisions, washing machines, better clothes and homes, wanting a chance to educate their children.

The new economy is emerging as a knowledge- and idea-based economy. In this new economy, the key to success and prosperity is the extent to which technology can be utilized, quality can be provided, and ideas and innovation can be embedded in all sectors of the economy. For example, 80% of the jobs in America today do not spend time making things, they move things, process things, or generate information. In 1950, 60% of the jobs could use unskilled labor—today only around 15% of jobs can use unskilled labor.

The requirement for professionals has held steady at about 20%. The growth has come in skilled jobs, and these jobs require education and training. Real wages (adjusted for inflation) for high school graduates with no technical training are down 18% over the last 18 years. Real wages for persons without a high school diploma have dropped 40% in the last 18 years.

I think Most of us have seen evidence of change from the new economy such as revolutionary technological advances, high-speed telecommunications, the growing presence and use of the personal computer, imbedded computer technology in the devices of daily life, and of course the Internet.

I believe Patricia Seybold article when he say, ‘The new economy is not just high technology and the Internet’. Work is now being organized around technology and evolving with technology rather than using technology to support a static work process. The new economy is about new organizational models as well, emphasizing teamwork and empowerment. It is about flat organizational structures with decision making no longer in the hands of a single boss. Growth among some of these new or reorganized firms is staggering. Now I will talk about the most clearly feathers of the new economy:

knowledge society

There are a few factors that differentiate the new economy from the old economy. The major difference in the "newness" of the new economy and the old economy is the mode in which the organizations operate and the resources used. In the old economy, the main resources used were physical materials while in the new economy knowledge is the main resource. In the information society or "new economy", there is a barrage of information as a result of increased connectivity through communication networks, which includes consumer feedback and behavior. As Robert M. Howe author said ‘technology is in the hands of society at large’. It's being used to change the way that people and companies do business. Buyers and sellers are getting together as never before. Consumers have so many choices. Prices are transparent. Knowledge or 'intellectual capital' is a true resource and valuable asset to organizations in the new economy (Harreld, 62). The characteristics of a knowledge society:

Borderless ness, because knowledge travels even more effortlessly than money.
Upward mobility, available to everyone through easily acquired formal education.
The potential for failure as well as success. Anyone can acquire the “means of production”, i.e., the knowledge required for the job, but not everyone can win.

Companies, by using research techniques like data mining, communication networks and databases can turn information into knowledge. This knowledge can be used to devise new strategies, which can target a specific segment of audience that are qualified prospects rather than large homogeneous unqualified prospects. (Day One Media,1996) This makes advertising more efficient and increases audience targetability for a fraction of the cost.

3- Speed

For a company to optimize the use of knowledge, it must use knowledge together with speed. With knowledge and speed working together, the company is able to achieve faster production, increased volume of production, lower costs, and faster responses to consumer needs hence being able to capitalize sooner on new opportunities. (Harreld, 62) The new economy is characterized by constant rapid changes. The speed in which commerce operates is non-stop and new technology obsolesce in months making speed and immediacy a major factor for businesses to stay competitive. Communication networks and increased computer processing capabilities facilitates the speed in which businesses. The combination of speed and knowledge results in efficient narrowcasting through integrated communication (3) and a more direct link with the consumer, which enhances business-consumer relationships.

4-globalization

Communication networks are not only restricted to regional connection; it also includes global connections. Networks of businesses and are able to cooperate globally and achieve business objective. Global networks are the foundation of the rise of globalization - also a major factor in the new economy. Global networks make accessing collective information about consumers worldwide possible while also enabling communications in real time. Distance between regions and countries are virtually reduced. "Globalization is both chicken and egg. It is driven by and driving the new technology that enables global action." (Tapscott, 65)

Computer networks allow round the clock service, eliminating time boundaries, enable collaboration between companies, reduces importance in location and contributes to the possibility of reorganization of business structures to include entire industries on an international level. Networks have also made communications between companies and consumers faster and more instant with the technologies like electronic mail and telephone conferencing and has become a substitution for travel and made interactions between businesses as well as consumers more convenient. Communication networks made the world a lot smaller.

In general terms economists has always realized the importance of innovations in economic development. There are four models that in the market reader. There are four models that in the market reader talk about economy model, am going to explain and discus if these model could ably in the new economy or not. The first model to consider is one that emphasizes the importance of competition in stimulating innovation in new products and new process. This competition was created by Joseph Schumpeter. Schumpeter views market as a dynamic model characterized by innovations which reduces costs and improves quality. Furthermore, costs can be reduced through achieving the economies of scales and this can be realized only by large and successful firms. Moreover, firms who do not go for innovations go bust, where firms reach market failure.

Now, to ably this model in the new economy, Let us consider what is actually happening in the US economy today, Martin Baily, Chairman, Council of Economic Advisers, has said that the US economy ‘appears to be growing steadily. But, beneath the surface, there is massive change’. New firms are entering and old firms are leaving. New technologies are developed that gain competitive advantage for a period and then are overtaken. Jobs are being created and destroyed. ‘Since 1980, the US has lost some 44 million jobs but it simultaneously created 73 million’.

The economy is in the grip of what Joseph Schumpeter once called "creative destruction". Today we see networks of firms sharing a common workforce and collaborating around some projects while competing vigorously for other market opportunities. In short, we are living in a new economic era quite unlike the more stable and predictable world we once knew. Companies compete on speed, quality, flexibility, knowledge, and networks. The same is true not only for high-tech businesses, but for most industries. In my point of view, this kind of collaborating could reach to monopolies and the government have to keep intervention every time and prevent monopoly.

An opposing model of competition is the Equilibrium (Neoclassical model). This model examines the commodity prices influences by grouping them into two categories; side of supply (such as: right kind of labour, raw materials, machinery, power and the used technology) and side of demand (such as: influences affecting consumer demand e.g. income, lifestyle, age, and the social conventions and expectations).

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It identifies competition with the absence of such corporate power in the market. Neoclassical model of competition are productively efficient, that is, costs are at the minimum known level given the state of technology, and prices are at the minimum possible level. Under Neoclassical model no single firm can influence the market price through its action. All firms are price taker. Interests of consumers and suppliers are harmonized – brought into equilibrium. In this model, prices are determined impersonally in the market and this secures the equality between those demanding the good and those supplying the good.

I think that Neoclassical model don’t work in the new economy, According to the neoclassical The price of labor, i.e. wages, will fall if unemployment increases. The demand for labor will then rise, and the original level of employment will be retained. this view has been strongly criticized since the level of wages is often slow to fall. A wage cut can be difficult to implement for political, social, historical and/or institutional reasons. For example, lowering wages can be hard to implement in a country where the trades union movement is strong. In addition, the degree of that substitution is possible between the work and capital factors of production can be limited. In this type of situation, a reduction in wages will not have any great impact on the level of unemployment.

In addition to the wage mechanism, a number of other mechanisms exist in the economy that create new job opportunities at the same rate as the old ones disappear. However, unemployment can occur in the short term if the compensation mechanisms do not operate satisfactorily. In other words, the economy is not capable of creating new jobs at the same rate, or to the same extent, as others disappear.

An income effect can occur Rationalizations that result in increased productivity imply higher wages, profit, or some other kind of return. In turn, this can create increased demand elsewhere in the economy, which can promote a higher level of employment. the new technology can give rise to completely new products. New technology not only has consequences for the production process, it can also create new products, markets or form the basis of completely new industrial activities. This, in turn, can have a positive impact on employment.

The neoclassical theory does not explain the reasons for long-term growth, and therefore gives no recommendations on how it can be stimulated. The long-term growth of the economy is mainly caused by technological development (which increases productivity), but whatever creates the technological development has to be sought outside the theory. The neoclassical model incapable of explaining the growth experienced by the western world in the last two hundred years other than by “technological development,”

F.A. Hayek is representing the third theoretical perspective of the competitive market. He admire the basic idea of the Neoclassical model (perfect competition) pointing out its main weakness; lack of emphasis on the process of competitive price information. Hayek theory concentrates in the process of competition according to consumers taste and how prices (are signals) play a role in transmitting information among concerned individuals at a surprisingly low cost. When the demand for certain product increase, then the suppliers are encouraged to increase their output and consequently the product price will increase. The output will continue to increase till the product price stop rising, where demand and supply are equal in the equilibrium price. According to Hayek, since he is concentrating on the process the equilibrium prices may never take place.

At the same time, prices can not always be relied upon to provide the necessary signals and incentive to allocate resources to their best uses. They may reflect only the individual consumer's satisfaction and exclude the wider benefits to society as a whole. In other words, they carry the wrong information or highly incomplete information; prices may then come to reflect private costs rather than socials costs which called "Externalities" in economists' language. For example, transmitting the information that AOU become in Kitan will effect in Kitan house price.

Amarya Sen; is the last theoretical perspective of competitive market. Sen's model draws attention to the conflictive nature of markets rather than their harmonious aspect . Sen's considers the "power balance". The power of this nature distributes gains as a result of exchanging in Market not according to efficiency. Here some inequality is shown up this is why he emphasized on the idea of freedom as enabling powers and capabilities.

The concept of freedom appropriate to an approach such as Sen’s would on the other hand be a concept of freedom as enabling powers or capabilities. As this concept of freedom emphasizes the actual opportunities available for people to act upon, it is sometimes refereed to as positive freedom. In this context, Sen's arguments are new and refreshing. Sen himself has come out in favor of liberalized markets, which are necessary to modernize developing economies, but he has also emphasized the need for state support and social welfare programs to cushion the blow of market machinations. He said ‘We need markets for efficiency and growth and innovation, but we need social programs to ensure that everyone has basic freedoms’.

Now if we take an agriculture & Genetically modified seeds production an example, according to Sen farmers have to pay seed premiums and technology fees and enter into a contractual relationship with the innovating firm. Monsanto, for example, uses restrictive contracts, called “grower agreements,” whose terms and conditions must be accepted to use the technology. The growers receive the right to purchase the technology but are not permitted to keep seed, sell it, or give it away for replanting purposes (5).

So we can see how a big company like Monsanto, perhaps in league with other, would have to maneuver itself into a market position whereby consumers (farmers, seed merchants) would have little or no choice to fall into line with the interests the biotechnology multinationals, the major player would have to least have to gain control over crop research & production as well as sales & distribution networks. Framers in both the developed & the less devolved world would lied into products of company through restrictive corporate contracts or bound in through seed stock which left farmers no option but to purchase fresh seed from the same source year after year .

As Sen see the competition as a power struggle markets characterized by conflict rather than by harmony of interest , here he has different view with the Neoclassical mode. For example, if a powerful American company like Monsanto had the backing of its government, then the USA- trough the use of world trade rules- could insist that other countries, such as the UK approve the company’s genetic products.

Resources:

Jacquelyn P. Robinson
Mediamorphosis - "By studying the communication system as a whole, we will see that new media do not arise spontaneously and independently - they emerge gradually from the metamorphosis of old media. And that when never forms of communications media emerge, the older forms usually do not die - they continue to evolve and adapt." ()
integrated communication - "Communication which is the process that people engage in to share understanding and meaning.. integration, which is commonly defined as the process of achieving a unit of effort in various organizational subsystems." ()
packet switching - "breaks up digital information into individually addressed chunks, or packets, so that many users can share a single channel." ()

B) What can governments do to create a competitive economic environment in the “New Economy”? Explain how governments can prevent market failure. (25 marks)

In this question, I will defined first what’s mean by government then I will talk about government function and some concept like, Social efficiency, Equity, Macro economic stability and growth. After than I will talk about government role to create competitive, I will talk about 4 issues; Monopolies in the market, Protectionism, Stabilization and Create policies for equity, protect people and economic growth. After that I will talk about how Governments can prevent market failure through; Public goods and Missing market. Finally I will mention some Cause of government failure; Decision makers have their own agendas and Rigidities.

The term government is used in economics in a broad sense to include all public officials, agencies, government bodies, and other organizations belonging to or under direct control of central and local governments (Lipsey, Courant, Ragan, 1999, p.55). Generally, governments have important influences on economic activities through their expenditures, taxes, transfer programs, regulations and debt management.

The government performs many different roles in market economies, but there is general agreement on a list of basic objectives that need to be provided by the government for the proper operation of markets in transition economies:

Protect life and property
Improve economy efficiency
achieve some accepted slandered of equality
protect individuals from other and from themselves
stability the economy
influence the rate of economic growth

Government also implement to increase the Competitive in the market, Because the Competition keeps up the pressure on businesses to raise their game - thereby stimulating innovation and creating new business and employment opportunities. And competition brings benefits to consumers, reflected in prices, quality and choice. I will explain and explore some of the government role in creating a healthy competitive economic environment:

monopolies in the market:

monopolies are considered harm full because it has less incentive to be efficient in the absence of effective rivals. It may have higher costs, and price to the consumer are higher than they need be. So the government are obliged to be concerned to prevent the monopolies by intruded legislation in an attempt to control the growth of monopoly and cartel agreement. For example in UK, the monopolies and mergers commission makes reports is the extent to which a monopoly situation could result from the proposed merger. This kind of government concern would be an example of a situation where the ‘freedom’. Many natural monopolies have in the past been taken into public ownership in order to try to overcome this problem. The public utilities such as gas, electricity, water, rail and telephones have at various times come into this category.

B- Create policies for (equity, protect people and economic growth)

The processes for Eliminating Monopolies and Encouraging New Service Delivery in a Liberalized Environment in a country revolve around two protagonists - the citizens and the government.

The Government as elected by the majority of citizens has a moral obligation to provide the infrastructure and services to enable citizens to develop in every sphere of endeavour, to enjoy an acceptable quality of life and to participate in the global economy. The government must be citizen-centric in its focus and adopt policies that would promote the advancement of all citizens without discrimination. The Government must be close to its citizens through the services it provides. The services must be delivered with appropriate systems for transparency and accountability. These requirements are the foundation blocks of good governance.

The Government's role revolves around the development of a national policy, legislation and regulations to increase the competition. When these activities have been adequately addressed, the Government must then take some definitive action to promote the sector and to adopt use of the technologies in their dealings with their citizens.

The government uses three basic institutions to protect individual rights in a market economy. Police protection is used to prevent individuals within a society from violating one another’s rights. National defense is used to protect the rights of individuals within a nation from foreign aggressors. The courts and criminal justice system are used to resolve disputes among individuals within a society so that those who have disagreements do not have to resort to the use of force to settle their disputes. In all cases, the use of government to protect individual rights is intended to create a system in which all individuals interact with one another through voluntary agreement, and the legitimate use of force against others is reserved to the government.

Stabilization

The Government's role is not only to pick winners, but to improve the conditions within which all businesses and employees operate. Under its new model of partnership with business, the Government is therefore acting to promote economic stability, improve the legal and regulatory framework, and promote innovation, high-quality investment and employment opportunity.

the government could productively get involved in creating a more stable economic environment. In response to banking crises that would occur during recessions, Congress created the Federal Reserve System in 1913 to stabilize the banking system. A host of stabilizing programs appeared during the Great Depression, and, after World War II, the government explicitly pledged itself to pursue policies that would produce full employment.

Monetary policy and fiscal policy are the primary tools that are used to stabilize the economy. Monetary policy is aimed at controlling the money supply and the banking industry, while fiscal policy uses taxes and government expenditures for the purpose of maintaining full employment and low inflation. The stabilizing functions of the state are covered in macroeconomics and monetary economics, so despite their importance, they will receive minor attention in this text devoted to public finance. There are, however, direct implications for public finance with regard to the government’s use of deficit finance and money creation.

Government also implement in prevent market failure, now I will explain how government can prevent market from identifying the market failure, and what is the government role to protection the individual, market, community and firms.

Market failure it’s the failure of the market economy to achieve an efficient allocation of resource.

the market failure has several important circumstances under which market failure to allocate resource with reasonable efficiency, like:

where there are resource that can be used by everyone but belong to no one- called common property resources.
Where there are goods whose consumption cannot be restricted to those who are willing to pay for them- called public goods.
Where people not party to some market bargain are none the less significantly affected by it- externalities.
Where one party to a market transaction has fuller knowledge of its consequences than is available to the other party- a situation referred to as asymmetric information.
Where needed markets do not exist
Where substantial monopoly power (exists)…

Economies must allocate resource between the production and consumption of the four major classes of goods and services that are shown in table 1.

Table 1. four types of goods

Excludability: "Can people be prevented from using the good?", while Rivalry: "Does one person’s use of a good or service diminish another person’s use?". As can be seen non-excludability is a common denominator. Also can be seen that a public good can turn into a CPR. (and CPR an become a private good by way of exclusion.)

The main objective here for the government is to protect and control the economy from failure, I will explore two of market failure problems (externalities and public goods) and explain how government try to prevent economy:

A- Externalities

Externality - an economic side effect that affects an uninvolved third party. These are also examples of market failures. There are two types of externalities:

Negative externality- harmful side effect that affects an uninvolved third party. In most events, it constitutes external cost. An example of this would be the construction going on the LIE. Because the roadway is being widened, trees along side have been taken down, thus exposing the once secluded service road and the homes that are alongside it. This construction has annoyed drivers, who have to put up with the mess and homeowners as well

Positive externality- beneficial side effect that affects an uninvolved third party. an example can be drawn from the previously mentioned one. The construction on the LIE may cause traffic tie-ups, but local businesses may benefit from the traffic, which detours by their shops, and the workers who may require services from one of the businesses.

The government policies respect to negative externalities in the context of one of their most important applications, environmental damage caused by pollution. Direct controls are a common method of environment regulation, for example, UK car emissions standards must be met by all new cars, and by cars over three years of age when they take their annual MOT test. Many cities and towns prohibit the private burning of leaves and other rubbish because of the air-pollution problem that the burning would cause.

The government, meanwhile, has tried to use price mechanisms to achieve regulatory goals, hoping this would be less disruptive to market forces. It developed a system of air-pollution credits, for example, which allowed companies to sell the credits among themselves. Companies able to meet pollution requirements least expensively could sell credits to other companies. This way, officials hoped, overall pollution-control goals could be achieved in the most efficient way. Emission taxes can work only if it is possible to measure emissions accurately.

B- PUBLIC GOODS

Public good is a commodity or service that if supplied to one person can be made available to other at no extra cost. It is more common that a good is said to be a mixed good or impure public good other than the extreme case or the case of a ‘pure’ public good. The provision of a public good (when possible) through a private market will not enable the ‘optimal’ level of output to be produced. Example of public good include national defence, street lightning and environmental protection. It is generally expected public good to be provided by the governments and paid for through compulsory taxation.

Public Goods not provided by the free market because of their two main characteristics:

Non-excludability where it is not possible to provide a good or service to one person without it thereby being available for others to enjoy
Non-rivalry where the consumption of a good or service by one person will not prevent others from enjoying it

Examples here is, Street lighting / Lighthouse Protection, Police services, Air defense systems, Roads / motorways, Terrestrial television, Flood defense systems, Public parks & beaches. Because of their nature the private sector is unlikely to be willing and able to provide public goods. The government therefore provides them for collective consumption and finances them through general taxation.

All members of society should theoretically benefit from the provision of public goods but the reality is that some need them more then others. For example the wealthy do not need welfare and the elderly still pay for school taxes. This leads to the inevitable argument about paying for public goods.... taxes!

The economic inefficiency is that markets, left alone, might not provide the public good or provides at less than optimum. The same good can be both public or private depending on the situation: fireworks during 4th of July (public) and at Disneyland (private). Lighthouses can be public and hence provided by government or private as was the case in England.

Government role to overcome this failure is:

taxation: impose a tax in the amount of the marginal damage to society. It is a linear tax levied on each unit of output in an amount equal to the marginal damage it inflicts at the socially optimal level of output.

subsidy: also fixes externality. Problems: have to raise the money and gives people incentives to enter the market to get subsidy.
Quantity regulation: tell firms how much to produce. Equivalent to Pigouvian tax in perfect world. Problems: heterogeneous firms and uncertainty.
Tradable permits: quantity regulation, but allow firms to trade. Advantage: same pollution reduction at lower cost. Problems: 1) need enough buyers and sellers of permits; 2) property rights must be guaranteed; 3) “pollution absolution”; 4) need regional/global

Describe a technology firm that you think will be successful in the “New Economy” Choose a firm that is publicly traded on the Nasdaq – see: or Specify the industry, good or service, and the firm’s characteristics. Explain your answer. (25 marks)

first I will introduce Sony company; short profiles. Then I will talk about the company characteristics; that succeed in the new economy, then I will discuss what firm do in improving and creating new products, processes Speed, flexibility in change, attracts newcomer and retains skilled workers, after that I will discuss is this firm encouraging the innovation. Finally I will explain the relationship between marketing theories concept and the successful of firm and finally I set my own conclusion.

Sony was established in 1946, under the name Tokyo Tsushin Kogyo (Tokyo Telecommunications Engineering Corporation), or Totsuko for short, with about twenty employees. In 1958 Totsuko changed its name to Sony. It took only about twenty years for Sony to grow into one of the most widely known Japanese companies in the world. In 1970 Sony became the first Japanese company to be listed in the New York stock exchange. Today, Sony is an important international group with more than 173,000 employees worldwide, with sales and operating revenues of 6.7 trillion yen. Today, Sony has become one of the world's most recognizable names since its inception in the war torn rubble of 1946 Japan.

Most of the credit for the success of Sony, goes to its co-founders - Ibuka and Morita. Morita saw long before his contemporaries that a shrinking world could present enormous opportunities for a company that could think beyond its own borders, both physically and psychologically. He pursued that strategy with his relentless brand of energy in every market, particularly the U.S. From the outset, Morita's marketing concept was brand-name identification and brand responsibility: that the name would instantly communicate high product quality. This is a marketing concept widely used by companies today. But at that time most companies in Japan were producing under somebody else's brand name.

Factors of Growth

The six significant factors that contributed to Sony's growth in 50 years from its humble origins to a US $63 billion transnational are - Competitive advantage gained by product differentiation and ransacking new markets; Taking an early plunge into foreign markets; Establishment of its prestigious brand identity and distribution channels (in Asia, US and Europe); Risk-taking investment to distinguish it from rivals; Strong determination to produce something that is unique and technically challenging and last but not the least the visionary leadership of Ibuka and Morita.

The first factor was clearly emphasized in the company prospectus issued on 7 May 1946 upon the founding of Totsuko, which included the following statement: "We shall be as selective as possible in our products and will welcome technological challenges. We shall focus on technologically sophisticated products that are highly useful in society." Sony Corporation (1999). The company stood by what they said and proved themselves pioneers with each new product they launched. The 1950 discovery of the magnetic tape recorder was the first pearl in the string of Sony's successful discoveries. The beginning of the 1960s was truly a time of new development. Sony had successfully launched the transistor television, introduced the Trinitron colour TV system (1968), home video recorder (1964), microphone (1965), integrated circuit-based radio (1966) and established its own sales and servicing channels in an effort to develop mass-market electronics. Sony preempted the competition, becoming a leader in these newly emerging markets.

The 1975 invention of Betamax VCR was a novel technology that involved high risk and greater capital investment. Additionally, there was no clear public demand for home videocassette recorders but Sony took the supply-side initiative and risk and pushed the innovation. This indicated the firm's ability to innovate and the benefits obtained from dedicated research and development. Unfortunately Sony resulted in being a victim, to a certain degree, of creative destruction, but it opened yet another new industry. However, "in the course of competing with the VHS format, Sony learned a lot. In particular, Sony learned how to promote unification of standards, something which has remained with the company ever since." Sony Corporation (1996), p. 183.

functionalism .

In 1979, Sony came up with the concept of portable music system - Walkman. It is to be noted here that when developing the Walkman, Sony did not look at consumer needs exhaustively. Instead the team looked at how people were living their lives and how these were changing. And, from a commercial point of view, the Walkman proved to be a phenomenal success. Significantly, Sony's team didn't invent any of the components from which the Walkman was formed. Rather, they were the first to put these pre-existing components together. The Sony Walkman is therefore a wonderful example of Koestler's Law: that creativity is the discovery of a new pattern of pre-existing components.

The market it had pioneered was crowded with imitators. Competition from rivals like Matsushita, Toshiba, Hitachi and other smaller Japanese and Korean producers, was turning this new market space into a mature business. The bottom-line being that there is no finish line. Not only must companies be able to create new market space, but also as competitors imitate, they must do it again to stay ahead. It is no wonder that corporate leaders see market creation and recreation as a central strategic challenge. Creating or recreating markets is not only what allows small companies to become big, but also big companies to regenerate themselves. Sony seemed to have understood this during their early years and acted well upon it.

As for early entry into foreign markets, the company's first important milestone was when Morita's first visited US in 1953 to secure the rights to manufacture transistors under license. In its process of rapid overseas expansion, Sony signed a contract with a US company to act as the sole distributor for its products in the area. The 1970's period saw the company's internationalization by establishing manufacturing plants outside Japan in Taiwan, United States and Europe. This reflected Morita's philosophy of global localization, by familiarizing himself with the local economies.

By 1980 Sony faced an appreciating yen and intense price and quality competition, especially from developing Far Eastern countries, which affected its export figures. The company used its technology to diversify outside consumer electronics, and it began to move production to other countries to reduce the effects of currency fluctuations

Post 1990 strategies:

The 1990's witnessed the company's growth and even further expansion or diversification into markets other than consumer electronics. Sony was transformed from an electronics company into a total entertainment company through the establishment of the music, pictures and gaming businesses. The decade saw a series of joint ventures and alliances in order to increase the consumer base and boost sales figures. Sony acquired CBS Records in 1988 and Columbia Pictures in 1989, which today form Sony Music Entertainment (SME) and Sony Pictures Entertainment (SPE) - two of the world's largest content producers.

This diversification into fields that the company was not familiar with was a major risk for it would affect the performance and the brand image it had created over the years. We notice here that right from its inception, Sony embraced a strategy of continuous innovation. Part of adopting this culture of innovation is tolerating some degree of failure and recognizing that not every idea will be a winner. And Sony having had experienced the bitter taste of failure, with the invention of Betamax VCR (1975), came out stronger. Sometimes a noble failure serves the world as faithfully as a distinguished success.

Perhaps, Sony's reason for getting into the entertainment business was to promote its "hardware" (CDs, cassette players, TVs, VCRs) by owning the "software" (records, tapes, films). In 1989, Sony bought Columbia Pictures and In 1993 Sony consolidated its US entertainment and electronics concerns into one organization. In 1995 Sony formed a strategic alliance with Intel. Intel designed a new PC exclusively for Sony and will manufacture its main electronic parts. Sony assembled and marketed the PC in the U.S. market, in head-on com-petition with Intel's major customers. There was no financial investment by Intel in Sony or by Sony in Intel. What Sony got out of this deal is access to Intel's design capacity. What Intel gained was a guaranteed and exclusive customer for its new microchips.

Innovations continued with the Minidisk (MD) player in 1992; the PlayStation game system in 1995 and the DVD player in 1998. An example of Sony's ability to reposition itself and its products is found in the Minidisk, which was a huge success in Japan, where it has become the dominant recording format; MD did not become a success in the U.S. until it was marketed as a digital music player that could record downloaded media from the Internet. The Sony PlayStation game console was launched in 1995. The risks involved in entering into an industry that has already formed strong roots and has its key players performing well is even greater, however taking into account its risk taking attitude, Sony went upfront with its idea of the PlayStation. Software companies were initially reluctant to support Sony's new format because Nintendo and Sega were already firmly established. However, with PlayStation and, most recently, PlayStation2, Sony has become the most successful game manufacturer ever.

Idei stepped in as President in 1995 and is credited with reinventing Sony's business model for the networked society, by complementing Sony's core competencies with partnerships and collaborations from other companies. Sony's vision of a world that is completely digitized, with devices offering a range of facilities and interconnectivity between them was realized with its Home network system. With this Sony has tried to be at the forefront of the movement to help consumers adopt digital lifestyles, which, in a broadband network era, means helping them maximize the power and control found within digital technology.

In 1997 the first VAIO (Video Audio Integration Operation) was launched, in an effort to send an idea of connectivity, and how an individual can own devices that being independent in their functions can all converge to achieve something big. Example of this convergence strategy includes: digital cameras that capture pictures on a floppy disk, CD or Memory Stick. Idei, played a key role in moving Sony into the digital network era by emphasizing the integration of AV and IT products. Sony's AV/IT strategy was the integration of information technology into their audiovisual products, providing enhanced workflow by improving efficiencies and productivity. This strategy was very well thought of, for it offered utmost convenience to those consumers who were loyal to the brand and also attracted non-consumers of Sony.

Sony understood the key factor in remaining competitive - apart from being innovative; the company must anticipate what the market will need in two to three years because in this ever-changing world of technology, while development times are shortening, the product life cycles are radically reduced over what they were just a few years ago.

Strategic position at the start of year 2002:

Beginning of year 2002, Sony continued to strengthen its efforts to prepare for the broadband era which is forecasted to arrive around the year 2005. Sony claimed that the Content Sector, including music and picture businesses, is one of the key elements in its broadband strategy. What Sony as an integrated entertainment company aims to accomplish is provide the world of consumer electronics with one brand that they can depend upon for hardware as well as software. This long-term strategy is very well thought of and can be achieved by making it possible for all audio video to connect to the internet and use it as a platform to serve its rich content in movies and music, offering a variety of products and services optimized for the broadband society.

Sony accelerated the structural reform of its entire electronic business and positioned Aiwa as a wholly-owned subsidiary in order to enhance its overall corporate value and corporate resources will be further concentrated in realizing the Ubiquitous Value Network, which is at the heart of Sony's growth strategy.

The company continued in its partnering efforts by forming soft alliances with Real Networks reflecting the rapid expansion in network distribution of digital audio and video content to personal computers and a new generation of networked consumer electronics products. The goal here was to make Sony a leading Global Media and Technology company.

In handheld devices, Sony finally proved itself a strong competitor after stumbling at first. It accomplished this by using the same strategy that made its Walk Man one of the most successful consumer products ever, releasing half dozen new models covering every price range. Initial efforts had fell flat on their face because of lackluster design and high prices.

The year also marked the company's restructuring of its sales and distribution channels. In addition to the existing structures based on product categories, a new organization was set to be established, that would focus exclusively on mass-retailers, in an attempt to foster close knitted relationships and improve communications with its consumers.

The strategies that Sony must continue to pursue are: it must keep itself ahead of the change curve. In order to do so, the company must be able anticipate the direction of the change. Second, it must be able to focus and make the change happen. Also, Sony as a company needs to redefine itself from a business perspective, demonstrating that Sony is a consumer electronics products company, not a gaming company. For the market of consumer electronics is an ever-growing market and will always be significantly greater than the target market for games, which only includes a small segment consisting mainly of children and teenagers. However, from a holistic point of view, Sony should strengthen and maximize the brand value of its core sectors- electronics, games and content (music and picture).