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AnonymousInactivehttp://cnbceb.com/technology-telecoms/can-canon/867/
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.” -
AuthorJanuary 26, 2009 at 11:13 AM
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