More than a month before Sir Howard Stringer made headlines with his plan to restructure Sony (SNE), the company quietly made a move that could be just as important to its future: On Aug. 8, it opened a design studio in China. Based in Shanghai, the small studio is intended to give the company firmer footing in the Middle Kingdom, one of the fastest-growing markets on the planet.
Led by veteran designer Katsumi Yamatogi, the studio is charged with understanding what Chinese consumers want in a TV or camera and coming up with products that satisfy these desires. It's Sony's most aggressive mobilization of resources in China in years, marking a shift in the company's perception of the country as a low-cost manufacturing base and low-volume export market.
"We expect China to become a consumer superpower," says Ryoji Chubachi, president and CEO of Sony's electronics division. "Eventually, we will be designing, making, and selling our products in China."
GADGET CENTRAL. Sony's experience in China hasn't been entirely smooth. Soon after the Japanese consumer-electronics giant first entered the market (Sony (China) was set up in 1996), research showed that younger consumers saw Sony as "Daddy's brand." The company launched a strategic marketing initiative aimed at connecting with trendsetting teens and twentysomethings. That helped Sony increase sales. But the market has become increasingly competitive, and it's no longer enough to sell goods developed for Japanese or Western tastes.
Increasingly, gadget makers are using China as a testing ground for new products. Samsung, for instance, recently launched a new line of cell phones in China before doing so anywhere else, says Bain & Co. analyst Phil Leung. Tech companies "want to be the first player to launch products" in China because it's so competitive, says Leung, an expert on China's electronics sector. So it's no surprise that Korea's LG Electronics , which makes cell phones and PCs, opened a design shop in Beijing in 1998, and Samsung Electronics followed last year, establishing its studio in Shanghai.
For tech outfits already there, China is turning out to be a bonanza. Since 1999, its consumer-electronics market has nearly doubled, rising from $7 billion to just under $14 billion in 2004, according to British research firm Datamonitor. That blistering pace is expected to continue, with $15 billion in sales forecast this year and an average 10% growth expected every year through 2009. By then, sales of TVs, DVD recorders, digital cameras, and portable music players are expected to exceed $22 billion.
COURTING YOUTH. At $3 billion, Sony's 2004 China sales give it about a fifth of a market that's chock-full of the biggest names in technology: Hewlett-Packard (HPQ), Philips, Siemens (SI), LG, Samsung, Chinese PC maker Lenovo, and even upstart BenQ of Taiwan.
Not all tech concerns run their overseas studios the same way. Some, such as Samsung, see it as a first line of quality control for China-based plants and a firsthand look at local trends. Others, such as LG, gather market intelligence that's used to give products designed elsewhere a major face-lift.
Sony is taking a more comprehensive approach, doing extensive design research that will inform the development of new products. To figure out what technologies Chinese youngsters use, for instance, Sony recently dispatched a team to Beijing and Shanghai to ask 50 high school students, college students, and young graduates, who grew up surfing the Internet and chatting on cell phones, about their daily routine. Then each was given a digital camera with simple instructions: Keep a photo diary of your lives.
Over the next 5 to 10 years, Yamatogi's team plans to pore over these captioned photos, looking for clues that might help them create the look of the next must-have product. "Our objective is to find out how they live and what they value," Yamatogi said in an e-mail response to questions. He wouldn't discuss what insight designers had gleaned from the data or how extensively they would use it to tweak products. But Sony is clearly putting more stock in what consumers want.
SURPASSED IN DESIGN. That desire to reconnect with consumers is a key part of new Chairman and CEO Stringer's plan to reenergize the onetime electronics king. Once a global leader in innovation and design, Sony has lost its edge. In recent years it repeatedly misread the market, sticking with its Trinitron TV sets and Walkman CD and minidisk players while other companies were going with flat-screen TVs and portable digital music players. In his Sept. 22 announcement, Stringer outlined a plan to streamline the chain of command and slash costs, stressing that he wanted to make the company more flexible to changing trends.
Design, traditionally Sony's strong suit, will have to play a role in any turnaround. The company opened its first overseas design center in New York in 1968, which it later relocated to Los Angeles. Since then, it has opened two others, in London and Singapore, spending heavily on industrial design and collecting honors at the world's top design contests.
Still, over the past five years, others have adopted that strategy to surpass Sony. In that period, Samsung has won more Industrial Design Excellence Awards (IDEAs) than any other company. Sony has not even been among the top 15 winners.
TV MAKEOVER. The company's current best-sellers in China are video camcorders and notebook computers. But TVs make up the biggest slice of China's electronics sector, according to market researcher iSuppli. Fittingly, Yamatogi's first project will be a makeover for a 30-inch cathode-ray-tube TV set that is scheduled for sale this year, with Walkman digital music players, digital cameras, and DVD players to come later.
A huge market beckons, and Sony is determined not to be left behind.