Sharp’s Outdated Business Model Essay

Currently, with the increased mobility in engineering talent and technology transfer, companies from new emerging markets such as South Korea and Taiwan are gaining the competitive advantage over Sharp’s outdated business model that no longer fit with he firms strategy or the business environment. Sharp’s previous president, Katsuhiko Machida, adhered to the principles of keeping manufacturing in Japan. 3 Following this principle had some advantages in the domestic market but had major disadvantages for fulfilling demand in the international market.

Sharp is becoming popular in the international market with significant increases in foreign sales revenue (Exhibit 1). Due to the fact that all of its products were manufactured in Japan, Sharp were unable to keep up with the international demand for its product. With more than 54% accounting for nternational demand, implementing an effective supply medium to deliver its product is imperative for Sharp’s success2 (Exhibit 4). Some products lost as much as 10% of its value, in the shipment time duration it required to reach its target market.

With Sharp’s products not flowing to the target market smoothly, competitors including South Korean and Taiwanese companies were gaining a competitive edge. Sharp’s inability to supply their product efficiently to the international market correlates to the negative effect on the domestic market as excessive company resources were being channelled elsewhere (Exhibit 2). The negative effect may also have been caused by the foreign exchange rate. With the majority of its inventory being sold abroad, Sharp now faced a new issue which was beyond its control.

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Sharp Corporation

The foreign exchange rate was susceptible to an array of different environments and varied consistently through time (Exhibit 3). The increase in the value of the US dollar meant operating income for Sharp was relatively lower as well. This is mostly notable in year 2009, when the Japanese Yen devalued the most against the US dollar $, which aided in the operating loss of millionl . No significant financial rovisions were taken in order to mitigate foreign exchange losses by Sharp.

Sharp has been continuously investing large amounts in production facilities in Japan and then exporting key devices to be assembled in foreign countries. 4 Basing most of its operation in Japan, Sharp had the disadvantages of paying higher tax rates and costly infrastructure in comparison to its competitors who based their core businesses in key strategic locations with minimum tax implications and low infrastructure costs. 6 Also, due to excessive domestic investments, Japanese plants had turned into high alue added knowledge, while overseas plant lacked any of this traits which is detrimental for any overseas expansion strategy.

Using the “black-box” approach Sharp has been secretive about its production and was unable to reap any benefits that might be possible through effectively engaging in value chain integration to suit their needs; while its competitors were readily exchanging and integrating industry knowledge. Sharp’s emphasis on combining knowledge and capabilities in ways other firms could not imitate is not feasible in the age of Globalization where satellite and internet communication is readily available to everyone.

The increased mobility of crucial talent and technology transfer within the industry is something Sharp had not experienced 5 – 10 years ago. Sharp’s intellectual property is limited to the core operations of the company itself. 4 Due to this, Sharp were confined to the industry knowledge within their company and had limited access to R&D from different companies within their value chain. Sharp did not have a stringent plan to remain as an industry leader in its LCD division as well. Most of the competitive advantage it gained is through using its proprietary LCD technology “Four Primary Colour” and by increasing the sizes of the TV.

Sharp’s business outlook in the LCD market to gain competitive advantage by increasing the sizes of the TV, is not farfetched as the company is now beginning to realise that the customers had a threshold point on the sizes of TV they wanted. The new president of Sharp Mr. Katayama had a “Globalization” attitude to the company’s business model. Sharp is in the verge of creating a new identity for itself. It is a major player in the industry and could not operate in an “also ran” basis that it used to in the past.

It needed new alternatives to remain on the top and gain competitive advantages over its competitors. Starting production in an international market seemed unlikely in the previous business model which followed the “make in Japan, sell overseas” principles. With recent losses in the company’s financial statements, and worsening economic conditions it is imperative for Sharp to overcome this limitation. Starting production in major markets and developing specialized knowledge internationally would divert the focus of heavy investment in Japanese plants/infrastructure.

Access to lower-cost workers, technical expertise, lower transportation costs and productions inputs are a Just a few benefits Sharp ould be able to realize with the new business model. However, there were many risks associated with expanding production to a foreign country. Thorough investigation on the feasibility of this option needs to be scrutinized accordingly. Changing operating model from vertical integration to horizontal integration for the company’s production technologies and manufacturing capabilities will give it a better standing in the competitive market.

Forming alliances with local companies in major markets such as China, to establish a value chain would maximize efficiency and cash flow (Exhibit 5). Up until recently Sharp has been building plants in Japan for front-end processes with their own resources5. With its knowledge centres and infrastructure located solely in Japan, Sharp could benefit from it by bolstering cutting edge production technologies/manufacturing capabilities nationally and extending its technologies gradually to global sites.

Aiming to create a value chain in the consumption area/maJor markets, encompassing each step from procuring materials through manufacturing and sales; an internal company concept known as “local production for local consumption”, would allow Sharp to receive a return on its roprietary technologies and technology assistance fees such as initial payments, royalties, dividends and revenues from Joint ventures. This serves to reduce risks involved in foreign exchange rates and the recovery of capital expenditurtes4.

Sharp has already started this initiative with its Solar Cell product division, forming alliances with Italian power company Enel SpA3. This trend n other product divisions as well. s to follow suit for its Starting a new manufacturing plant outside Japan would be capital and labour intensive. It would also expose the company to various risks such as financial, olitical, environmental, and legal risks. Alternatively, integration through value chain approach would allow Sharp to mitigate some of the risks involved compared to starting a new plant and would not require intensive capital investment.

Forming value chains would allow Sharp to access the benefits from well established businesses which are already firmly integrated in the local business environment. It would also allow Sharp to access and understand potential opportunity for future markets for its products as the current markets gets saturated. Integration with arious international value chain means Sharp would adapt an “International Firm Management” technique in the global business environment. Up until now, Sharp had minimum production technologies/manufacturing operations internationally and operated its production plants predominantly in a national level.

Despite the potential benefits of global markets, Sharp must constantly monitor the match between the firm’s product and new markets to not overlook the needs of the buyers. Sometimes, the benefits of serving customers with an adapted product may outweigh the benefit of a standardized product5. The value chain will allow Sharp to perform distinctive, speedy and efficient R using “open innovations” and cooperation with partners to gain expertise in fields of technology that are new to Sharp8.

However, while operating in foreign markets it should protect its intellectual property and industrial properties through various mediums of patent, trademarks and copyrights. Sharp’s previous model “make in Japan, sell overseas” has not been successful recently because the market has changed dramatically. Its operating model had not historically emphasized co-operations with other firms. With increased mobility in ngineering talent and technology transfer, companies from new emerging markets has made its previous business model obsolete.

If Sharp wanted to remain as an industry leader it had to change its operation model to suit the “Globalization” environment. Integration with the international value chain to provide production technologies and manufacturing capabilities beyond national borders would allow Sharp to mitigate expensive legal risks, political risks, shipment cost, infrastructure cost (home/abroad) and foreign exchange fluctuations. It also opens an opportunity to new markets for Sharp as current markets gets saturated.