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


Competing in Constellations: The Case of Fuji Xerox

(3) It was I.B.M.'s introduction of its Copier series in 1970 that signaled the end of the Xerox monopoly in its home market. This line of products, however, was dogged by performance problems. A more serious threat came from Kodak's popular and high-performance Ektaprint series, introduced in 1972.

(4) The joint venture with Rank was formed in 1956, with Xerox holding 50 percent of the equity. In 1969, the Xerox share was increased to 51 percent, and Xerox took over management control of Rank Xerox. In 1995, Xerox purchased additional shares from Rank to bring its ownership up to 71 percent.

(5) As part of its technology licensing agreements with Rank Xerox, Fuji Xerox had exclusive rights to sell the machines in Indochina, Indonesia, Japan, the Philippines, South Korea, Taiwan and Thailand. In return, Fuji Xerox would pay Rank Xerox a royalty of 5 percent on revenues from the sale of xerographic products. Rank Xerox would, of course, also be entitled to 50 percent of Fuji Xerox's profits. By agreement, 66 percent of Rank Xerox profits (that is, 33 percent of Fuji Xerox profits) flowed to Xerox between 1969 and 1995. After Xerox increased its share of Rank Xerox to 71 percent in 1995, 80 percent of Rank Xerox profits flowed to Xerox (that is, 40 percent of Fuji Xerox profits). Originally, Fuji Xerox was designed to be purely a marketing joint venture to sell copiers made by Xerox or by Fuji Photo. When the Japanese Government refused to approve a joint venture intended solely as a sales company, however, the agreement was revised to give Fuji Xerox manufacturing rights. In the early years, Fuji Xerox subcontracted Fuji Photo Film to manufacture the products.

(6) Rank Xerox became a passive partner because Xerox acquired control of Rank Xerox in 1969, when it increased its shareholding to 51 percent, from 50 percent; from then on, Rank Xerox decisions were controlled by Xerox. The reasons behind Fuji Photo's passive stance are more complex. In 1971, Fuji Photo transferred its copier plants to Fuji Xerox. In an interview in September 1990, Yoichi Ogawa, one of the executives transferred from Fuji Photo to launch Fuji Xerox, explained how the contract with Xerox raised barriers to technology flow between Fuji Xerox and Fuji Photo: "According to Fuji Photo's agreement with Xerox, the company, as a shareholder, could collect information from Fuji Xerox, but it could not use it in its own operations. In addition, a technology agreement between Fuji Xerox and Xerox provided that any technology acquired by Fuji Xerox from outside sources (including from Fuji Photo) could be passed on freely to Xerox.

(7) Gary Jacobson and John Hillkirk, "Xerox: American Samurai" (Macmillan, 1986), p. 299.

(8) Ibid.

(9) Although Xerox had acquired control of Rank Xerox in 1969 by raising its share of equity to 51 percent, the line operations of the two companies were not integrated until 1978. Rank Xerox could thus make this decision in relative autonomy.

(10) Royalties were again renegotiated in 1993. Xerox then expected the royalties to increase over time, in recognition of the rising value of Xerox technologies supplied to Fuji Xerox.

(11) Many of these models were manufactured by Fuji Xerox and transferred to Rank Xerox and Xerox for sale in Europe and the United States. This trend started with the FX2200 and the FX3500.

(12) Paul Allaire was referring to the three ultimate parents of Fuji Xerox -- Xerox, Fuji Photo Film and the Rank Organization.

(13) By 1989, an estimated 1,000 young Fuji Xerox employees had each spent three years as residents at Xerox, and about 150 Xerox people had done the same at Fuji Xerox. These residents were directly involved in the work of their host companies. Every year there were also some 1,000 shorter visits by engineers and managers.

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