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Advance Information
Edexcel GCE
Business Studies (8076/9076)
Advanced Subsidiary
Advance Notice of Case Study for
Unit 1 – Business Structures, Objectives and
External Influences
Unit 2 – Marketing and Production
Unit 3 – Financial Management
June 2004
This paper may be opened on 29th March 2004

Information for Candidates

In preparing for the Case Study paper, candidates are advised to undertake general revision as well as
detailed investigation of issues related to the Case Study.
This Advanced Notice should not be taken into the exam. The Case Study is reproduced in the exam
paper.

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CONTEXT

The Games Console Market in 2002

In 1999 Britain’s computer games developers and publishers were the toast of the leisure sector,
having a reputation as the world’s best. At their peak the seven British companies, including Eidos
the inventor of Tomb Raider, were collectively worth £1.8 billion. However, 18 months later more
than £1.4 billion had been wiped off their value, taking the size of the sector to just £335 million.
Shareholders may have held back from selling their shares because a range of new consoles were 5
due to be launched in 2000, including Nintendo’s GameCube and Microsoft’s Xbox. Sony’s
PlayStation2 had already been launched. Customers had been holding off from buying existing
consoles and this contributed to the sector’s poor performance.

Nick Gibson, games analyst, said that consoles are launched every five years so the fall in demand
and the “year of profit warnings” follow a predictable trend. He said “… Cyclical growth has been 10
a characteristic of the games industry since its inception. … Periods of strong growth have tended
to last four to five years, followed by flat or falling sales during a two-year transition period as new
games platforms are introduced. … The last two growth periods occurred between 1989 and 1993,
and between 1995 and 1999”. In 2001 the industry was described as being in the later stages of a
two-year transition – moving out of the downward part of one console cycle and onto the incline of 15
the next. It was predicted that strong year-on-year growth would not occur before the end of 2002,
with a 15% to 25% annual boost from then until 2005.

As the cycle begins again with a new set of games platforms, only time will tell whether the sector
will bounce back. The market is expanding as the average age of games users increases, upgrading
their consoles with each cycle. “The increasing sophistication of game graphics is attracting new 20
players,” says Gibson.

The current market leader in 2002, Sony’s PlayStation2, had enjoyed just over a year at the top but
faced challenges from two very contrasting companies: Nintendo (which had provided stiff
competition to Sony in the past) and a newcomer to the console market, Microsoft with its Xbox.

Although Sony has dominated the console market since 1995, Microsoft’s Xbox could represent a 25
real threat despite its launch price of £299 being £100 more than the PlayStation2. In May 2002
worldwide sales of PlayStation2 were 30 million units, including 8.8 million units in Europe.

Nintendo has a proven track record in the games console market. Until Sony’s intervention,
Nintendo was undisputed king of the console market. However, Sony dominates the market in
almost every area it releases products, most recently gaining a sizeable chunk of the mobile phone 30
market. Microsoft, primarily a software company with little hardware manufacturing experience, is
seeking to challenge the dominance of both firms with its Xbox console. The problem Microsoft is
likely to encounter is surviving in a market that, traditionally, cannot support more than two
machines at any one time. In addition, Sony and Nintendo both enjoy considerable brand loyalty.

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Nintendo has a reputation for ‘cutesy’ titles and, at one stage, would not allow developers to portray 35
blood in any of its games. Sony’s PlayStation2, on the other hand, does not have as much censorship
and its consoles are home to some particularly gory series. However, Microsoft claims that its new
console will aim to cater for both extremes of the market.

All three consoles have good and bad features but in the market, opinion seems to favour the Xbox
and PlayStation2 over the GameCube. The GameCube’s £150 price tag is competitive, but its small 40
number of game developers and lack of DVD playback may make it slightly less attractive than
either of the alternative consoles. Despite these disadvantages, its initial sales in the USA ran at
twice those of the Xbox on its launch in the same market.

Adapted from the following sources:

‘Play turns rough for Britain’s computer games companies’ The Sunday Times,
September 2001;
‘Mortal Combat’, Living Well Life, Spring 2002.

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APPENDIX 1

The Sony Corporation

1946 – 2002

The Sony Corporation is the leading manufacturer of audio, video, and information communications
technology products for both consumer and professional markets. It is a public company with shares
listed on 16 stock exchanges. It has 1 068 subsidiaries world-wide and employs more than 168 000
people.

Sony United Kingdom (Sony UK) was founded in 1968. There are two factories, both located in 5
Wales, which between them manufacture over one million television sets for the UK market and for
export. Sony UK employs approximately 6 000 people.

All the Sony Corporation’s factories are driven by a desire to improve quality and reduce cost,
employing lean production and Just-In-Time (JIT) manufacturing techniques to maintain a
competitive cost advantage. Financial planning plays a key role in its cost control and financial 10
management. The Corporation also tries to instil a belief in ‘Kaizen’. It has developed a wide
product portfolio, including digital television, DVD, mobile phones, and computer games. The
Corporation’s aim is to create a network environment within the home from which consumers can
access specific video or audio selections whenever they choose. It is committed to maintaining a
sustainable environment and is continually seeking ways to minimise the ecological effect of its 15
operations. The Corporation is also dedicated to improving people’s lives by, for example, helping
local communities, fostering better educational systems and helping disadvantaged youth.

The pace of technological progress has forced fundamental changes on Sony’s corporate structure.
In 1996, Sony’s 50th anniversary was earmarked as the start of a new digital age. The Corporation
reorganised its management by replacing its vertical organisation structure with a horizontal one. 20
This was done to speed up decision-making and market responsiveness, and to raise employee
awareness of new business direction in terms of new products and new markets. The eight
divisional companies were reorganised into ten divisions each with its own president.

The Consumer Audio & Visual (AV) Products Company was reorganised into three new companies:
the Display Company, the Home AV Company and the Personal AV Company. 25

The InfoCom Products Company and the Mobile Electronics Company were merged to create the
Personal & Mobile Communications Company.

The Information Technology Company was newly established to oversee Sony’s businesses in the
personal computer and IT areas.

The other companies are the Components & Peripherals Company, the Recording Media & Energy 30
Company, the Broadcast Products Company, the Image & Sound Communications Company and
the Semiconductor Company.

The presidents were appointed from young talent and, as in the past, were given full autonomy and
authority to manage their respective companies.

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Sony’s key to success in this challenging and highly competitive technological market is effective 35
innovation and the continual development of new products. Successful ideas undergo thorough test
marketing before they are launched. Market research is an extremely important part of the
development process but often, as with most innovative products, Sony is anticipating a desire that
consumers have yet to realise. Sony uses a combination of television advertising, national press,
consumer, trade and specialist magazine coverage to inform and persuade consumers. In addition, 40
the development of a highly efficient distributor network has helped to build the brand image.

Adapted from the following sources:

‘Sony – Leading the Digital Revolution’, The Times 100, Edition 5;
The Sony UK Internet site, October 2002;
The Sony Corporation Internet site, October 2002;
The psreporter.com website, November 2002.

APPENDIX 2

Sony’s Management Philosophy

The management philosophy for all companies in the Sony group includes four key words:

z unique – ensuring that Sony would always be an innovative company;

z quality – reflecting emphasis on product quality;
z speed – in the form of a framework that would enable the company to respond quickly and
decisively to new market conditions;
z cost – reflecting the importance of competitive pricing once the other three conditions were fully
met.

Adapted from the following sources:

www.sony.co.uk;
www.sony.net;
www.sony.com;
www.psreporter.com.

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APPENDIX 3

Financial Information, The Sony Corporation

Profit & Loss information: Apr 2002 to Apr 2001 Apr 2000 to
Sept 2002 to Mar Mar 2001
(6 months) 2002
Total Sales (£m) 18 482 39 886 38 499
Net Profit (£m) 533 81 89
Ratio of Net Profit as % of Total Sales 2.9 0.2 0.2

Balance sheet information: at 30 Sept at 31 Mar at 31 Mar

2002 2002 2001
Current Assets (£m) 18 597 17 564 18 302
Other Assets (£m) 25 692 25 397 22 897
Current Liabilities (£m) 13 985 13 466 13 930
Other Liabilities (£m) 17 877 17 019 15 082
Shareholders’ Equity (£m) 12 427 12 476 12 187

Adapted from the following source:

The Sony Corporation Website, using an exchange rate of £1=190 Yen (November 2002).

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