Although the global economy showed some signs of growth last year, the military action in Iraq contributed to increased economic uncertainty in this year, especially in the USA, and the year ended without any indications of a recovery. Recently, Sony is doing well, but under such difficult market conditions, Sony's sales for 2003 decreased approximately 1.5 percent and operating income decreased approximately 5 percent compared with the previous year (Sony Annual Report 2003). Last year, in order to compete with other companies in some certain markets, we decreased our price level of some our products, such as PC, DVD-Video player, and home-use video camera markets. It seems that the main reason, which causes the decrease of sales and operating revenue, was the increased price competition. However, it was not. There were more other problems that cause the decrease. And the problems still exist in the current global economy.
In Japan, Sony suffers the pain from the stagnant consumer demand and the high exchange rate of Japanese Yen against American dollars.
Two Major Issues
First of all, it is the general economic recession in Japan right now. A decade of deflation in Japan's economy has discouraged the average Japanese citizen from spending. During a period of deflation, the price level decreases rapidly, and normal interest rate decrease coincides with a fall in economic growth. The decline in wealth depresses consumers' spending. Although the Japanese government has lowered the interest rate near to zero to encourage public investment and private investment, the continually dropping price made consumers very pessimistic. Currently, Japanese consumer's confidence about Japan's economy is extremely low. In this situation, investing in business in Japan right now would be a very brave thing to do for every business owner because the low profit growth would give the...