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


Competing in Constellations: The Case of Fuji Xerox

Another measure of the growing capability of Fuji Xerox was the proportion of models developed in-house. In the 70's, the majority of models sold by Fuji Xerox had been developed by Xerox. Although Fuji Xerox continued to rely on Xerox for basic research in new technologies, by the late 80's few of its models were designed by Xerox. For the most part, these were high-end copier models, working at speeds of above 120 c.p.m. By the late 80's, Fuji Xerox had produced many low-end models, and even a few in the 60-90 c.p.m. range.(11) Many of these were exported to or manufactured by Xerox and Rank Xerox. In 1980, 30 percent of the low-volume units sold by Xerox and Rank Xerox were of Fuji Xerox design; by 1987, that figure was 94 percent. Xerox and Rank Xerox continued to design and make their own mid- and high-volume copiers, however.

Closer Collaboration to Meet New Challenges

By the 90's, Xerox and Fuji Xerox faced new competitive challenges and were determined to meet them together. One challenge was the rising capabilities of Canon. Although Xerox's precipitous decline in the 70's had been stemmed and many of its competitors from that decade had faded away, Canon's copier business continued to expand. From 1980 to 1989, Canon's sales grew to $9.4 billion, from $2.9 billion, a gain of 14 percent a year. Canon's R.&D. spending grew even more rapidly, at 24 percent a year, to $525 million, from $77 million. By 1989, Canon was no longer primarily a camera company -- 40 percent of its revenues came from copiers, and 20 percent from laser printers.

In the second half of the 80's, Canon developed a dominating presence in the low-end laser printers that were becoming ubiquitous companions to microcomputers. Laser-printing technology was closely related to plain-paper copying technology, and as digital copying systems were introduced, the importance of laser printing in the copier market was bound to increase. Canon's laser-printing engines were the core of the highly successful Hewlett-Packard Laserprinter series, which accounted for about 50 percent of laser printer sales in the United States. This original equipment manufacturer, or O.E.M., business was thought to yield Canon $1 billion in revenues. In the rest of the world, Canon sold printers under its own name.

In copiers, Canon was strong in the low end of the market, and the company had recently developed a growing business in color copiers, where it held 50 percent of the market by 1989. Analysts pointed out that Canon was introducing twice as many products as the Xerox group, although it spent less than $600 million on R.&D. annually, compared with Xerox's $800 million and Fuji Xerox's $300 million. Canon's goal was to become a $70 billion company by 2000, which would require a 22 percent annual growth rate in the 90's. A significant portion of this growth was projected to come from Xerox's heartland of high- and mid-volume copiers and printers.

Xerox, however, was determined to be aggressive in its response. The company's strategists now saw the relationship between Xerox and Fuji Xerox as a critical element in competing worldwide against Canon. Canon had a strong presence in all major world markets, as did the Xerox companies. But Paul Allaire highlighted a major difference in the two companies' global networks: "When we negotiate with Fuji Xerox, we can't just represent ourselves. We need to find what is fair and equitable to essentially three partners. Canon is 100 percent owned by one company."(12)

Tony Kobayashi saw the difference between Canon and Fuji Xerox in this way: "We often compare our situation with that of Canon or Ricoh, companies that have a single management organization in Japan. Are we as efficient and effective in the worldwide management of our business as we could be?"

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