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 / First Quarter 1997 / Issue 6(originally published by Booz & Company)


Competing in Constellations: The Case of Fuji Xerox

The relationship between Xerox and Fuji Xerox, its joint venture in Japan, is the centerpiece of this commentary on how alliances among companies are forging new units of economic power known as "constellations." Internal rivalry can put constellations at a disadvantage against single-company rivals, and the ability to manage the balance of competition and cooperation is critical to success.

In a world of global businesses and extended enterprises, it often makes more sense for companies to team up than go it alone. Here is how Xerox and Fuji Xerox collectively compete.

Cooperation among companies has grown rapidly since the early 1980's, as alliances have proliferated in one industry after another. At the same time, however, the competition in these industries has in many ways become even fiercer than before. This flies in the face of traditional economic thinking. As Adam Smith observed: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."(1) In fact, modern alliances do not so much suppress business rivalry as transform it, giving it a new shape that is often even more virulent than the old.

The new "collective competition" grows out of the very dynamics of collaboration. Simply put, business rivalry now often takes place between sets of allied companies, rather than between single companies. The alliances among companies are forging new units of economic power -- "constellations" that compete against each other as well as against traditional single companies. In this new world, the way companies manage the collaboration inside their constellation affects the competitive behavior and performance of the group as a whole. And the performance of each company comes to depend not only on its own capabilities and strategies but also on those of its allies and on its relationships to those allies.

The case of the Xerox Corporation and the Fuji Xerox Corporation shows how successful a constellation can be if it is managed effectively. In copiers and laser printers, the competition between Xerox and its archrival, Canon Ltd., was not one on one, company against company. Instead, a constellation of companies around Xerox competed with Canon, which operated as a single company. The Xerox constellation is complex, but at its core is a pair of allied companies -- Xerox and Fuji Xerox, the Xerox joint venture in Japan. Together, this pair develops products, penetrates markets, manufactures hardware and so on -- all the things that Canon does on its own. Fuji Xerox is thus much more than a curiosity on the periphery of Xerox's organizational chart: the two companies are comrades-in-arms. The Xerox constellation has enjoyed some powerful advantages as well as suffered some serious disadvantages because of this structure.

In one sense, the Xerox group and Canon were not all that different. After all, single companies and constellations simply represent different ways to control a set of capabilities so as to maximize their return. The single company can be thought of as having full control over its capabilities; in the constellation, control over the set of capabilities of the group is shared among separate companies.

The Xerox group and Canon each had the set of capabilities needed to develop, make and sell copiers and laser printers worldwide. But these two rival organizations controlled their capabilities in different ways.

At the risk of oversimplification, we may say that Canon had full control over its capabilities, because it owned 100 percent of its laboratories, plants and marketing organizations in Asia, Europe and the United States.

In the Xerox group, as we shall see, control over the capabilities was split -- Fuji Xerox owned some assets and Xerox owned others; Fuji Xerox had rights to the Japanese market and Xerox to the United States market. And Xerox did not have full control over the capabilities of Fuji Xerox, even though it owned part of the venture's equity. Indeed, a tradition of Fuji Xerox autonomy gave Xerox even less effective control than the ownership structure of the joint venture might suggest.

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