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 user 2009-01-26 at 11:13:08 am Views: 75
  • #21118
    Can Canon?
    Japan’s cash-rich electronics giant believes it can expand and diversify itself out of ?the recession. ?
    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

    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.”?

    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

    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

    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.”