By Mr. Kunitake Ando
Sony Corporation

Hong Kong, November 12, 2002

Good afternoon, Ladies and Gentlemen. It is a real pleasure to be with you here today and share with you my thoughts for the new frontier brought about by broadband networks.

I am greatly honoured by the presence of so many distinguished guests today. In particular, I would like to extend my gratitude to the Honourable Elsie Leung, Secretary for Justice; the Honourable Jun Yokota, Consul-General of Japan in Hong Kong; Dr Chow, President of the Japan Society of Hong Kong; and also Mr Ronnie Chan, Chairman of Asia Society Hong Kong Centre - and all the distinguished guests gathered here today.

I'd like to thank the organisers for this invitation, The Japan Society of Hong Kong and the Asia Society Hong Kong Centre, The Consulate-General of Japan and Hong Kong Japanese Club, and the Hong Kong Japanese Chamber of Commerce and Industry. It is my honour to be invited to speak at the final event of the Japan Festival.

I am so happy to be back in Hong Kong, in such a beautiful and exciting place, with such great people, great food, and always with stimulating ideas. As proof, here is a picture I took with my new Sony Cyber-shot U yesterday at lunch, and you can see some very familiar faces there. This was a great welcome back to Hong Kong.

This year is a special year as it marks the 40th Anniversary of the Japan Society of Hong Kong; and in an interesting coincidence, it also marks the 40th Anniversary of Sony Hong Kong.

Over the years you have generously invited several Sony executives to share with you their outlook in this same venue.

In 1992, Mr Akio Morita, the co-founder of Sony was here. Mr Akio Morita was the one who established Sony Hong Kong. Two years ago, our current Chairman and CEO, Mr Idei, was on the same podium. Since then, the business environment has changed so much, but I believe that the big opportunities ahead are clearer than ever. That's what I'd like to talk to you about today; the big opportunities ahead, and why this region is so well positioned to take advantage of them.

Let me start my presentation by sharing with you some of the philosophy behind our overseas operations.

The philosophy for our overseas operations is based on a long-term commitment to introduce innovative products and to develop primarily new markets. In order to make such a long-term commitment I think two important factors should be remembered. One is, of course, the continuous transfer of innovative technology - especially in the case of a technology company like Sony it is almost an imperative. The second is to develop local ties for a successful operation. I think it is very important to have a strong corporate philosophy that supports long-term commitment, and the core of this philosophy, I believe, is a strong corporate culture.

In the case of Sony, our strong and clear corporate culture has been developed by the two co-founders you see in this chart. Mr Masaru Ibuka, a very famous engineer, started Sony Corporation six months after World War II. The famous founding prospectus - detailing the objectives of the company - included this phrase: "to establish an ideal factory that stresses the spirit of freedom and open-mindedness, and where engineers with sincere motivation can exercise their technological skills to the highest level."

He also talked about the individual. "We shall place emphasis on a person's ability, performance and character, so that each individual can fully exercise his or her abilities and skills." This spirit has been inherited in a sort of DNA, and I hope I have inherited it from working directly with him. It is very fortunate for us to have had such inspiring co-founders, the other being Mr Akio Morita, who strongly promoted the concept of global localisation. The other person that I want to mention is Mr Norio Ohga, who was originally trained to be a singer, but went on to become a great CEO of Sony. He always emphasises the four letters of Sony, S-O-N-Y, and the enhancement of the brand of Sony Corporation.

Let me show you a little bit of Sony's history for the first fifty years. Sony was primarily a hardware company. You know some of the famous products like the Trinitron colour TV, the Betamax and the Walkman. Then came the 1990s. In Japan, people refer to the nineties as the lost decade and Sony's growth seems to have stopped at that time. In 1995, Mr Idei was appointed COO of Sony Corporation and promoted the slogan "Digital Dream Kids". With this slogan, he aimed to revitalize Sony Corporation. Basically he did three things. First was to accelerate the digitization of hardware products; second, to launch a PC business based on the Wintel Standard; and third, to develop service platforms for content distribution. There was a big debate as to whether we should start this IT business because all the products were becoming the same. Like a commodity, the big question was: how can we differentiate ourselves like we did with other Sony products?

Mr Idei's intention was to take advantage of the great opportunity that lies ahead and to prepare for this new tidal wave when we enter the network age — which was almost like an explosion in new businesses.

That was exactly what had happened, as you can see from the growth of Sony after 1995. We entered the game business with PlayStation; we started the VAIO business (I myself was involved in establishing this company); and also we entered the telecommunications business, which is now in a joint venture with Ericsson. In the last several years, especially after 1995, our acquisition of Columbia Pictures and Sony Music started contributing to Sony's overall growth to make Sony a truly global entertainment company. So if you look at Sony's position in this chart, you can see how unique we are, competing in traditional Audio Visual area, but also in IT, Telecom, Game and Content areas.

Our competitors are totally different today. When I joined Sony in 1969, we had just started transistor radios, and then the Trinitron colour TV.

Our competition came mainly from Japanese and American electronic manufacturing companies. But now, you see some of the logos and company names [on this slide]; Nokia is one of the biggest competitors in Telecom; Microsoft, Intel; Dell in the IT field, and of course, in game there are Nintendo and Microsoft; and content there are Vivendi, AOL, Disney and others. The new emerging companies are very strong, like Samsung, LG, and of course, TCL in Hong Kong and Legend in China. So we are always competing. But, Sony is the only company that has a strength and presence in all the four different areas. We're working across these sectors to develop a new business model that probably has never existed before, and that no other company has accomplished it in the past.

Unfortunately, the economic environment has not been so good, and 2001 was very bad. The combined sales for industries like AV, IT, Telecom and Semiconductors showed a big decline, and an even sharper decline on the profit side. This slide shows the combined profit for the top five companies in each industry, you see the names there, you can understand how much of the world's economy had been affected by the economic downturn on 2001.

Fortunately, after six months of solid performance in this fiscal year, we are happy to report that we made a sort of recovery, and I know many other companies have done it too. In this situation though, we know that the winner takes all, so competition has become more severe. We still focus on the great opportunities that lie ahead.

I call this "great opportunity" the "Ubiquitous Value Network". Ubiquitous is a word that has become very popular in Japan recently. Ubiquity is from Latin meaning "God exists everywhere." Or in this context, you can connect to the Internet, wherever you are, whenever you want. So we're using all our strengths, like hardware and content and networks, to make the network ready for you any time you want to use it. And the ease of use is another very important factor. We know that in the broadband age there is a big opportunity for great expansion in new businesses. We are not just waiting around, we are trying to make this big wave happen.

So, the basic strategy for Sony is the shared vision for the "Ubiquitous Value Network".

The difference between the Internet age that started in the early-to-mid-nineties, or the so-called narrowband age, and the current broadband age, is that the narrowband age is PC-centric, and mobile products like the telephone were connected to the Internet but only with limited capability. We believe, when the broadband age comes the centre-stage will be taken over by other very important products like TV and other audio-visual products, game machines, and new mobile devices such as PDA's and digital camcorders. All these will become information devices. Of course, the PC will never disappear even though it will become more a home entertainment type of product.

Sony is now producing and selling over 100 million units of hardware every year. On top of that we have PlayStation which sells another 20 million to 30 million, including PlayStation 2. If we are able to connect all the hardware into some sort of platform, and on this platform if we could bring new types of services, new content, then we envision that we could build a new business model.

Sony founders Mr Ibuka and Mr Morita developed a strong hardware company, and Mr Ohga acquired Columbia pictures and Sony Music to add strong content and media to the company. Then Mr Idei started shifting gears towards network ready types of services and building a strong infrastructure. By combining all these, we have what we call an Integrated Business Model that has helped us take a strong leadership in this area.

Sony's electronics, game and content form the three core business sectors to be supported by new applications and services. That's why we have created so many different types of new services, as you can see here. Some of them exist only in Japan, and some of them outside of Japan - because we want our services to be closely related to local business, have local tastes and for local consumers. That's why we believe our ability to reach out to users everywhere, is a big strength for Sony.

In Hong Kong, you all know the famous Octopus card, but you may not know that it uses Sony's technology called FeliCa. We are producing all the chips for this Contactless IC Card. Now, several years after Hong Kong has adopted this technology, Japanese Railway companies and many other companies have started using the same kind of chip making it a de facto standard.

If you take a look at what's happening in the East Asia Region, I strongly believe that there are great opportunities here. Let's look at the top five countries with the highest penetration of broadband infrastructure --- four out of these five are Asian countries. I don't see Japan on the list because this data was taken at the end of last year. This year Japan is really shifting to accelerate broadband infrastructure with low fees for broadband service. Now Japan is catching up.

Using this infrastructure, people will be able to access rich content and services. They won't have to face the same frustration brought by a PC, because they'll be able to use a lot of user-friendly non-PC products.

But, no single area can make it happen alone: Hong Kong, Japan or China. Instead, we believe the strategy is for the entire East Asian Region to collaborate to start developing new types of businesses, by taking advantage of the great infrastructure we have. We are far ahead of North America and also European countries.

So, by combining the strength of this infrastructure with the great quality of the people we can create a great chance for East Asian countries to lead ahead and to take leadership as a growth engine to drive the global economy.

I have already had a lot of meetings and discussions in two days here. I am convinced that Hong Kong will become one of the most exciting hubs of this broadband age because Hong Kong has so many advantages to offer.

In addition to the advanced broadband infrastructure, people here are always willing to adopt new technology.

The multiple communities here create a basis for many types of services, and the widespread use of the English language supports Hong Kong's global role. I see the mixed cultures of Hong Kong as a very attractive thing, and I strongly believe that Hong Kong has a great chance with its multiple communities to create a new network age.

Hong Kong is already a regional centre for finance and services. This is the big difference between Japan and Hong Kong. Hong Kong has a high level of service efficiency in the commercial sector, which Japan is still lagging behind and is now the biggest problem.

Also, I must mention that Hong Kong is a gateway into China and a showcase for future business models for the entire region.

But what is most important and unbeatable is the spirit of the Hong Kong people and your entrepreneurialship; and the fast-moving pace is something I have always admired.

So all of these things work well together to create exciting opportunities and innovative markets from Hong Kong.

Here is a concrete example of what one company, namely Sony, is doing in Hong Kong. There are Sony's activities mainly related to the electronics company. We also have a strong content business with Sony Music and Sony Pictures. Last year, we launched our Internet Service Provider business in Hong Kong called "So-net HK" to make use of advanced broadband network. I understand that Hong Kong people are very interested in all kinds of online games, online services and so forth. I am so happy to tell you that our people involved in this online business in Hong Kong are better than anywhere else because of their creative ideas and drive.

We are now putting all these together. We are working on new ways to entertain and to help consumers be creative with network products. So, basically we're aiming to make a successful business model; and if it works here in Hong Kong, then maybe we can apply it to the rest of the world, including Japan and the US. In that sense, Hong Kong has the best chance over any country in the world.

I hope my presentation has helped you feel the excitement that Sony feels when we look at the future. And I hope you can see the great opportunity for Hong Kong to develop new business models for the broadband age. What is important is that Hong Kong will be able to develop these models faster than anybody else in the world; and they can then be applied to the rest of the world.

So, I think these pictures I took this morning from my hotel room, (you see I only prepare my speech at the last minute), are good images to me of Hong Kong. From Hong Kong you can look towards China, but also you must always try to reach the Peak.

Thank you very much for listening.