In addition to this potential scale advantage in manufacturing, Canon appeared to gain from its centralized research.
In the late 80's, therefore, the Xerox partners began to work more closely together. In research, they launched their first joint projects, in which they agreed on "lead" and "support" roles and eliminated overlapping activities. Research collaboration between the companies was reinforced by exchanges of personnel and by an evolving communication process. Personnel from Fuji Xerox spent time as residents at Xerox, and engineers from both companies frequently crossed the Pacific to provide on-the-spot assistance. These personnel exchanges were also an important channel for the transfer of technology between the companies.(13)
Efforts were also made to intensify cooperation in product development, manufacturing and planning. Mr. Kennard, the Xerox director of Fuji Xerox relations, and William Glavin, vice chairman of Xerox, worked together to launch "strategy summits." These top management meetings, held about twice a year during the 80's, led to further meetings between the functional organizations on each side. The personnel exchanges and summit meetings contributed to a constructive relationship.
"Whenever a problem came up, we established a process to manage it," Mr. Kennard explained. "The trust built up between the companies has been a key factor in the success of this relationship. It enables one to take on short-term costs in the interest of long-term gains for the group."
Uniting Separate Interests
In the context of the recognized need for closer collaboration, Mr. Allaire and Mr. Kobayashi commissioned a "Co-destiny Task Force," charged with developing a framework for cooperation between the two companies for the 90's. One of the issues addressed by the team was how the Xerox group should manage the low-end laser printer business in the United States.
Most laser printers were assembled by O.E.M. customers using image output terminals (I.O.T.'s) produced by vendors such as Canon, Matsushita, Oki and Fuji Xerox. These terminals were the hardware innards of the printer, that is, the drum, photoreceptor, laser and paper-handling mechanism. O.E.M.'s added their own electronic and software subsystems. Dependence on O.E.M. customers and high volumes of production made for fierce competition in the I.O.T. business.
"The margins in this business are razor-thin," commented Julius Marcus, vice president for strategic relations at Xerox. "And the business is very different from any with which Xerox or Fuji Xerox was familiar. You need to sell it before you have it, and price it before you know what it costs." Furthermore, production costs for I.O.T.'s were highly sensitive to scale.
Bill Lowe, Xerox's executive vice president for development and manufacturing in 1990, recalled how Xerox and Fuji Xerox failed to work together effectively in this business.
"Both companies were trying to get full profit out of it, even though the margins were slim," he said. "Fuji Xerox's policy was to mark up costs; Xerox's was to get an acceptable gross profit. Furthermore, each product had a different markup scheme, and many sideline deals confounded the issues. This fostered sharp dealings between the partners. So, most of our energy was focused on each other, not on Canon. We were pointing fingers and frustrating ourselves."
Ultimately, however, Xerox and Fuji Xerox devised a creative response to the challenge of selling low-volume laser printers in the United States. In 1991, they established Xerox International Partners (X.I.P.), a joint venture to market Fuji Xerox printer engines outside of Japan. Xerox holds a 51 percent stake in X.I.P., and Fuji Xerox 49 percent; the first president of X.I.P. was an experienced Fuji Xerox executive and the first chairman was a senior Xerox executive. X.I.P. had a staff of fewer than 60 people, mostly in sales, but the new joint venture would also get help from Fuji Xerox engineers. The venture was licensed to sell in Xerox territory via certain specific O.E.M. customers outside of Japan, but most of its business was in the United States, where most global O.E.M. customers were based. X.I.P. would handle only low-end laser printers.