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 user 2009-01-26 at 11:12:19 am Views: 67
  • #21250
    Can Canon?
    Japan’s cash-rich electronics giant believes it can expand and diversify itself out of ?the recession. ?
    A worker needlessly turning 90 degrees wastes 0.6 of a second or moving an unnecessary step wastes 0.8 of one, points out Hiroshi Okugaki, manager of Canon Inc’s Toride plant, 22 miles from Tokyo, explaining how production methods in ‘cells’ – which have replaced conveyor belts – have been tightened. Assemblers can build a copier, single-handed, from more than 3,000 parts in less than three hours, a proud Mr Okugaki clucks. Over the next few months, the Japanese electronics giant will need to excel at even nimbler manoeuvres on a much greater scale.Canon’s nine-year run of growth is set to end as the global economic meltdown coupled with the Sumo-strength yen’s might against the puny dollar and euro have slashed American and European spending on copiers and digital cameras, of which Canon is world leader. In October, it cut its operating profit forecast by 23% for fiscal year 2008, which ends in March. In the run-up to Christmas, company president and COO Tsuneji Uchida warned of stagnation in sales of digital SLR cameras – the high-end models that use pricey bolt-on lenses – and suggested that the €30bn digital camera market may start shrinking.?

    Far more scarily, Japan officially entered recession last November – and last October the country’s exports were 7.7% lower than they were a year earlier. But of growing concern to all Japanese firms is that demand for their goods is waning in emerging economies. Exports to Asia were down by 4% in 2008 and those to China fell for the first time in three years. The OECD forecasts that Japan’s economy will grow by just 0.5% in 2008, and will shrink by 0.1% in 2009. According to the country’s labour ministry, around 30,000 Japanese contract workers will lose their jobs between December and March. ?This has stoked fears of a return to Japan’s ‘lost decade’ from the late 1980s to the mid-1990s, when economically pummelled Japanese households simply stopped buying goods, deflation was normal and interest rates were held at zero for six years. Many analysts are predicting a return to zero interest rates this year and a return to deflation. There is also bewilderment and indignance that Japan, which learned from its past indulgences to avoid the credit expansion, consumer frenzy, house-price bubbles and trade deficits, has seen its economy dragged down by external shocks this time round. ?

    Uchida’s predecessor, Fujio Mitarai, who is now Canon chairman, says: “Japan is an earthquake country and this financial crisis is like an earthquake. The country was enjoying economic growth for the past five years and has entered a recessionary stage because it was too dependent on external forces. Probably the recession will continue in the world for a year or 18 months.”?Indeed Japan’s manufacturing output fell for the ninth consecutive month last November, to a new low. Sales of vehicles fell by more than a quarter from a year earlier. The trade balance was tipped into deficit in August and again in October. Bankruptcies are rising and, worried about the supply of credit to firms, the Bank of Japan agreed on 2 December to accept riskier corporate bonds as collateral when it lends to commercial banks.?

    In November, one of Canon’s rivals, Panasonic, revised its annual profits forecast down by 90% from ¥300bn (€2.4bn) to ¥30bn while two others, Sony and Toshiba, reported even higher profit falls in the previous quarter: Sony 93% year-on-year, Toshiba 210%. In December, Sony announced 8,000 job cuts in a bid to save over a billion euros. In such a climate, what exactly is export-driven Canon doing to safeguard its future? ?“There is no silver bullet”, smiles Uchida, seated in the boardroom at Canon’s Tokyo headquarters. “We can do nothing different except press on with the existing twin strategies: globalisation and diversification. We are in a rapidly changing economic environment. But we’re in stage three of our economic plan so there will be no major changes. I do not believe we will change our capital expenditure or R&D spending. We want to grow in all areas of business. We can be much bigger in medical imaging, instance.”?Canon is also eyeing new sectors: for example, visually oriented robots. It already has automated camera systems carrying out quality checks on more than 200 points on its finished copiers in a matter of seconds. “Patents are most important for the next generation of business,” says Uchida, noting more than 19,000 were granted in the decade to 2007.?

    One potentially lucrative new business is television sets. Uchida confirms that Canon is working on television sets based on surface-conduction electron-emitter displays (SED), a rival technology to organic light-emitting diodes, or OLEDs, a system backed by Sony and Samsung. Canon sees these cost-competitive displays, which could jolt the huge TV and monitor markets, as a logical complement to its cameras and copiers. Having trumpeted SED prototypes in 2006, Canon was recently cleared to launch SED television sets after winning a patent lawsuit that has delayed progress for more than three years. Nevertheless, Uchida suggests that Canon will not launch SED immediately because of the fall in television prices that has anguished Sony and Panasonic. ?Contracting camera sales in emerging markets is also causing Canon to look outside its traditional viewfinder. According to analyst IDC, the global demand for digital cameras grew 24% to 130.7 million units in 2007, While Canon (and its rivals, Sony and Nikon) still expects sales growth, it cut its 2008 compact digital camera sales forecast by 6% to 23.5 million units, which would still mark a rise of 10%. The demand for SLR cameras, which Canon ?estimates was up 38% to 4.4 million units for 2008 (and which offset sales of compact cameras in developed markets), says Uchida, is showing signs of “stagnation”.?

    Canon is currently talking to some mobile phone manufacturers about potential technological tie-ups to safeguard its position. “We had some discussions with Nokia a while ago but nothing came of it. We’re talking to them again. We’ll see,” says Ryoichi Bamba, the wry London-based CEO of Canon Europe, the group’s biggest market. ?But Canon is keen not to talk down the importance of the camera sector – after all the company was founded 71 years ago with the goal of overtaking Leica and other German companies and the imaging division generated 26% (¥1.15 trillion) of revenues in 2007. Masaya Maeda, the chief executive of Canon’s image communication products operations, insists: “People will always want to capture important scenes in their lives. A phone will never replace a camera. We can further advance the brands through technologies and design and by delivering the right timing and the right price.”?

    Maeda points out: “The size of the digital camera market is 10% of the mobile phone camera market. According to our research, many of those who use phones to take photos are also purchasing digital cameras so we don’t see competition. People who are buying digital compact cameras are upgrading to SLRs to take higher quality photos. It is only five years ago since SLRs came of age. There is still room to improve the product.”?And, apparently, to improve efficiency. The company is planning to complete a new central computer system by 2010 to control information across the company, including data on its development, production and sales activities. Uchida said the system will cost about ¥20bn to implement but will generate cost savings of about ¥100bn (in an unspecified period). “It will speed up our business, eliminate human errors and allow us to get our jobs done with fewer people,” says Uchida.?

    People are a touchy subject. In early December, Vietnam’s Hung Yen Industrial Zone Management Board announced that Canon has received the go-ahead to begin building its fourth electronic plant in ?the country. The factory will manufacture ?and assemble miniature motors used in cameras, laser printers, and photocopiers. Canon also has several factories in China, where Uchida says labour costs are a tenth of those ?in Japan. In the same week Japan Today reported that Canon is expected to cut ?more than 1,100 workers at its subsidiaries that produce cameras and chemical products for copiers at its Japanese factory Oita. Canon says these are contracted workers, not full-time staff. The hyper-efficient Toride plant, says Hiroshi Okugaki, is currently running at reduced capacity.?Canon says it plans to spend ¥60bn or more to build a toner cartridge plant in the US state of Virginia and start output there in December 2009. Uchida says the money saved on transport is as important a consideration as production costs themselves. ?Unlike other Japanese companies however, famously conservative Canon is in a better position to ride out the downturn, sitting on a ¥737bn cashpile. Uchida rules out any hostile takeovers but murmurs politely about complementary businesses such as Hitachi Displays, which the company bought ?last year. ?

    Canon’s lack of debt is the result of the reorganisation begun by Mitarai after he became Canon president in 1995. Apart from the big hitters – printers and photocopiers (which account for almost 30% of profits) and cameras – Canon is still profitably active in x-rays and scanners and the optical devices used to miniaturise and etch complex circuit diagrams onto silicon chips.?Mitarai says: “Even in such a climate I am optimistic about Canon for two reasons. ?For the past 10 years, Canon has already restructured to eliminate losses – I closed eight divisions and grew the profit-making ones. Now in many territories we are still number one or at least in the top three. Also we are always trying to penetrate new markets and, crucially, we spend 7-8% of our sales on R&D.”?

    The 73-year-old, who is also chairman of the Japan Business Federation, says the way out of the global recession is one of global cooperation: “I hope and I think that central banks won’t fail us but the one measure I expect to see most is free trade. The Doha Round of the WTO needs to progress at least for major partners to agree a framework and of course the US still has issues and the automotive industry there has concerns. ?“There is no challenge that cannot still be overcome though. It is worth remembering that in 1929 we experienced the Great Depression. Then countries engaged in protectionism engaged in war. Once we establish a framework for free trade we can all grow our way out of the recession together.”