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


Competing in Constellations: The Case of Fuji Xerox

Two years later, this "impossible" product was ready. Mr. Kearns, for one, was amazed when he first saw a demonstration of the prototype, and spontaneously broke out in applause. By 1979, the FX3500 had broken the Japanese record for annual sales of a copier. Largely because of its effort to develop the FX3500, Fuji Xerox in 1980 won the Japanese Government's prestigious Deming Prize, awarded annually to a company achieving outstanding quality.

The FX3500 was Fuji Xerox's "declaration of independence,"(7) but it was an independence born of necessity. The project came after Xerox had canceled a series of low- to mid-volume copiers on which Fuji Xerox was depending. Code-named SAM, Moses, Mohawk, Elf, Peter, Paul and Mary, each was canceled in mid-development, even though Fuji Xerox needed models of this type in its product line. Jefferson Kennard, the Xerox director of Fuji Xerox relations, recalled that when Tony Kobayashi was told about the cancellation of Moses, he was also asked to stop work on the FX3500 project. According to Mr. Kennard: "Tony refused, and said, in effect, 'As long as I am responsible for the survival of this company, I can no longer be totally dependent on you for developing products. We are going to have to develop our own.' "

Fuji Xerox to the Rescue

The growth in the technical capabilities of Fuji Xerox took place in what was for Xerox a "lost decade."(8) This was not a coincidence. The threat to Xerox's monopoly came from Japan, where new technologies, domestic demand and rivalry among producers generated a unique environment for product innovation. Xerox competitors like Ricoh, Canon and Minolta benefited from this environment, but so did Fuji Xerox. The joint venture had the additional advantage of direct access to Xerox technology coupled with autonomy.

"The fact that we had this strong company in Japan was of extraordinary importance when other Japanese companies started coming after us," Mr. Allaire, the chief executive, later explained. "Fuji Xerox was able to see them coming earlier, and understood their development and manufacturing techniques . If Fuji Xerox were within our organization, it would be easier, but then we would lose certain benefits. They have always had a reasonable amount of autonomy. I can't take that away from them, and I wouldn't want to."

But it took a while for Xerox executives to recognize the competitive value of Fuji Xerox. In 1978, Fuji Xerox offered to sell low-end copiers to Xerox and Rank Xerox to help them counter Japanese competition in their markets. At the time, Xerox did not yet see the need to do so. But Rank Xerox purchased 25,000 of the machines for sale in Europe.(9) The success of this transaction led Rank Xerox to import more of the Fuji Xerox machines. With this product -- and a delay in Kodak's entry to Europe -- Rank Xerox was able to defend its market, while the position of Xerox in the United States continued to decline.

A year later, Xerox too began to import the FX2202 and related machines into the United States. At first these products were assembled by Fuji Xerox. Then, acceding to the demands of American unions, Fuji Xerox exported them as knock-down units (kits of parts) to be assembled at Xerox. Over time, Fuji Xerox exported more and more finished products, disassembled kits and copier components to Xerox units worldwide -- as much as $800 million by 1994.

The Fuji Xerox exports to Xerox helped stem the advance of the competition, but they did not change how Xerox developed, manufactured and marketed its own products. Fuji Xerox's quality control program, however, eventually served as a model for Xerox that led to deep changes in these areas as well. Xerox acquired management ideas, subcontracting approaches, product development techniques and competitive data from Fuji Xerox. Through this reverse flow of technology, Fuji Xerox helped Xerox get back on its feet.

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