UK: Canon's New World Order.

UK: Canon's New World Order. - Global challenges demand global responses. Canon's was the launch of a five-year plan to create autonomous groupings of subsidiaries in different parts of the world.

by Geoffrey Foster.
Last Updated: 31 Aug 2010

Global challenges demand global responses. Canon's was the launch of a five-year plan to create autonomous groupings of subsidiaries in different parts of the world.

On a new so-called business "park" at the edge of Woking is a smallish two-storey industrial building bearing the name Canon Audio Ltd (You did say Canon? The photocopiers and cameras firm? Didn't know they did audio equipment as well - yet the logo is unmistakable.) This modest establishment in suburban Surrey is in fact the epicentre of the Japanese group's audio activities. The company was formed last year, to exploit a technological breakthrough that had then only just been made - in the UK as it happens. Its initial offering is already on the market. The product is unique, a potential world beater. In the 21st century, if all goes well, its successors will build Canon Audio into a sizeable business, and make it a significant exporter - to Japan among other places.

Canon Audio is one of the most positive manifestations of the global policy currently being followed by certain Japanese companies. Of course, many of Japan's big businesses have long been persuaded of the good sense of investing in the West: of setting up manufacturing plants and R and D facilities in addition to their distribution organisations. They well understood western resentment at the size of Japan's trade surpluses, and at the repeated failure of western attempts to make serious inroads on the Japanese market. It seemed a wise precaution to get safely installed inside other people's frontiers before protectionism got the upper hand.

Canon began manufacturing in the West 20 years ago, when small-scale operations in support of sales of business machines opened almost simultaneously in the United States and Germany. (This was quite early on in its struggle with Xerox for mastery of the office copier market: the original Canon plain paper copier had been launched only three or four years earlier.) Ten years passed before Canon built any more factories in Europe - or America. But in 1983 a second European plant was established in Brittany, also to assemble copiers. France was a difficult market for the Japanese. Remember the affair of the video imports which were allowed to pile up at Poitiers when the French devised their own version of a Japanese-style non-tariff barrier? "There were problems about exporting to France," acknowledges a Canon spokesman in Tokyo. "We thought it might be a good idea to become a French company."

Canon's latest factory is currently under construction in the UK, at Glenrothes in Fife. It will supply lens assemblies - key photocopier components at present being shipped from the Far East - to the other European plants. Four years ago the company set up a research centre in the UK, the first of its kind outside Japan. Located close to Surrey University at Guildford, its purpose was to support domestic Japanese research by bringing British software skills to bear on the evolution of new computer languages. Canon's audio venture emerged from Guildford almost by coincidence.

Comparable developments have been taking place all round the globe. There are still newer research establishments in the US, Australia and France. Canon is no longer interested merely in optics and business machines. At the group research centre just outside Tokyo they are also working on materials technology and biotechnology (as an extension of image processing), and super-precision controls and novel methods of printing (Canon is the world's leading producer of laser beam printers, and currently pioneering bubble-jet printing), plus several more. "Some key technologies we could buy in," says a corporate R and D manager, "but we prefer to develop them ourselves."

However the entire Canon group has now grown so complex that it is in danger of becoming uncontrollable. Turning over rather less than $15 billion and employing 63,000 people (at end-1991), Canon is not in the first league of multinationals. Yet it embraces a bewildering variety of activities. It has a total of 19 product groups (each with its development centre quite distinct from corporate R and D) spanning seven business areas. The main factories are all in Japan but the rest also report direct to Tokyo. Sales and distribution are organised on a product basis but come together, outside Japan at least, at regional or national levels. There are some 280 subsidiary operations worldwide. The whole edifice is kept in place by a web of coordinating committees. Anglo-Saxon managers might sneer at matrix structures but they are well suited to consensus management in the Japanese style.

Yet it's hardly surprising that, like so many large businesses everywhere, Canon is undergoing profound organisational change brought about by the increasingly international scale of its operations. It's a long time since Ryuzaburo Kaku, Canon's chairman (who was president of the company for a dozen years from 1977), "suddenly realised", he says, "that our activities are on a global basis." Global challenges demanded global responses. And in 1988 - following all the normal processes of consultation - Canon launched a five-year global corporate plan which declared the startling intention of creating "autonomous" groupings of subsidiaries in different parts of the world.

Dr Keizo Yamaji, who succeeded Kaku as president three years ago, explains what this means. Canon, he suggests, could be divided into three regions, each with its own sales, production and research capabilities: Asia-Pacific, the Americas and Western Europe. Management intended to strengthen all three "regional hubs" so that the businesses would in future become both self-sustaining and, since they would remain part of the Canon group, mutually supporting. "It was the aim of the company that the fruits of the (research) institutions should be nurtured in the areas where these things were found. Our intention was not to take that technology out of those areas, but to sell the products from those areas so as to develop (Canon) globally ...

"One of the reasons why we set up the institution", Yamaji emphasises, "was that we wanted to balance exports and imports from the United States and Europe. If a technology is found in the US it should be brought into production in the US, and then exported worldwide." Reducing trade imbalances, it seems, is nowadays a responsibility of the good corporate citizen in Japan, rather like environmental protection. Canon has formed top level management committees expressly to deal with both problems.

There are four different kinds of economic imbalance, according to chairman Kaku, a tiny, chain-smoking, 66-year old with great presence and a talent for gnomic utterances. They correspond closely to the four stages in Kaku's theory of corporate evolution, which he is always keen to share with visitors. At the first stage the capitalist takes all. At the second, capital learns to appreciate the advantage of sharing with labour and seeking its collaboration, but continues to neglect the customer. At the third, benefits are extended to customers, suppliers, stakeholders and the community. However, "the biggest community is the country", which inevitably creates friction between nations.

"So Japan should change the national target," says Kaku from behind a wisp of cigarette smoke. Since Japanese industry has long since caught up with the West, "the policy to work only for the good of Japan is no longer valid ... I came to the conclusion that only by working for mutual co-existence could we make progress." Thus the final stage of evolution is the "truly global company", which is distinguishable from the mere multinational by its unselfish willingness to tackle serious global issues.

The philosophy might well cause western eyes to glaze over - or else to stare in disbelief. Was this the company whose aggressive commercialism made it the world's biggest manufacturer of cameras, and helped devastate the optical industries of Europe and America? Which wrenched leadership of the copier market from Xerox? Which is the dominant supplier of laser beam printers, even though there may be another's name on the box?

Kaku accepts that his philosophy may be misinterpreted as "hypocritical" and "self-serving", in Japan no less than in Europe. In fact Canon will continue to compete as vigorously as ever, and the fruits of that competition will be "more useful products that didn't exist before". The company explicitly rejects R and D for military purposes; also R and D that is "not desirable from an ecological point of view". But you can be a "responsible global citizen" while incidentally beating competitors into the ground: because a business which gives customers things that they want is contributing to the pleasure and prosperity of mankind. No western businessman will quarrel with that, anyway.

There can be mutually rewarding co-existence with rivals as well, Kaku points out. Canon has co-operative agreements with half-a-dozen major companies - with Hewlett-Packard, for example, a huge buyer of its laser beam printer "engines". It produces small copies in Europe through a joint venture with Olivetti. It has invested $100 million towards computer development in the US, in association with NeXT. (Although a big manufacturer of peripherals, Canon has no host computer of its own.) But when Canon's top managers talk about "mutually rewarding co-existence" or "symbiosis" or "globalisation" (and they use all three expressions a great deal, almost interchangeably) they generally mean "within the Canon family".

This is the fifth year of the five-year global plan, so how much has been accomplished so far? How much more self-sufficient and integrated are the regional hubs today? What are their technological achievements? "We fell we've built the foundation," says president Yamaji. In the Asia-Pacific region Canon can point to new plants in China, Malaysia and Thailand. The Taiwanese company, which manufactures much of the compact camera range, is considered competent to take on a design and development role. In Europe, meanwhile, the Glenrothes factory will make it a bit more difficult for any rival to accuse Canon of screwdriver engineering.

But organisational realignment has admittedly been slow. "It is a very long term target, it is not necessary to hasten," observes Yukio Yamashita, managing director of the UK company and a main board director of Canon Inc. The group has found certain difficulties in the West, in the way of putting the plan into action. One is a relatively high cost of production. "We have to keep our competitiveness ... At present sales and production are not integrated." But integration remains the objective.

Nor can Canon afford to lose touch with its markets. Until the early '80s, Yamashita concedes, the company had a poor understanding of Europe, and was apt to apply uniform prices and conditions throughout the region. The result was that, while some of the smaller companies prospered, the major subsidiaries in France, Germany and the UK lost market share. The solution was to give the bigger companies much greater independence, while the lesser operations took their cue from Canon Europa in Holland. Now, however, the aim is to get closer together again. For the past 18 months, the head of Europa has been meeting regularly with Yamashita and his counterparts in France and Germany, and with the European factory managers, to talk structures. "A consensus is emerging," says Yamashita with a smile. "As a first step, Canon Europa will be the headquarters."

But integration of R and D into the new European set-up is a long way off. Which seems odd, given that the only real innovation which Canon has produced outside Japan came via Guildford. However the inventor was himself a Japanese. A few years ago, just as Canon was launching its first 8mm camcorder, a technologist named Hirokazu Negishi was asked to study the European market and make proposals for what should come next. He was staying in the UK, which still had a high reputation for audio skills, and although qualified as a chemist, he was interested in sound - and he had an idea. He put his recommendation to Tokyo, and was told to return to Britain and pursue it.

Canon had made audio products before but they had always failed. "The technical people in Canon Japan said we had the wrong pitch," jokes Negishi. His notion concerned a new kind of stereo loudspeaker. Here was a product that had remained virtually unchanged for 40 years, and whose design was fundamentally flawed. The trouble was that, in order to get the full stereophonic effect, the listener had to be in the "hotspot", facing - and equidistant from - both speakers. Which was fine for the audio buff but hopeless for the music-loving family. Negishi thought that if the sound could be bounced off a precisely formed conical "mirror", it would be possible to get much better dispersion.

He built the prototype at home. The drive unit came from London's Tottenham Court Road, and the cone was of concrete which his wife helped to cast and polish. The principle worked, and after much refinement and patent protection, the first "wide imaging stereo" speakers were launched last year, a few months after the formation of Canon Audio. They are at present being produced under contract, and are on sale in the UK, France and Germany. If they are successful, Canon will offer them in the US and Japan as well, and the principle will be applied to a stream of follow-on products. Public address systems are one possible candidate.

But wide imaging stereo is not supposed to be a standalone technology. Canon expects to see a "convergence" of sophisticated audio and visual techniques, with the former being used in association with high-definition television, for example. The Guildford research centre, which Negishi has headed from the start, has an on-going programme in support of Canon Audio. (Having recruited staff from the UK audio industry, Negishi himself plays no part in the running of the company.) However the greater part of the centre's work still relates to computer languages, and it continues to be financed by Tokyo, out of central R and D funds.

Stereo sound is a "safe" technology for Canon, in the sense that it's not likely to be outdated. It's scarcely high technology, but it is the only development so far to have originated in Europe. In the US, Canon has a small venture in the solar energy field. The US also leads in computers, and has taken over responsibility for typewriter products. Nevertheless, it's still difficult to imagine how Yamaji's hope will be realised, that the two western hubs "will in future match what we now see in Japan."

This summer, while many Japanese companies were trimming back after the bubble economy burst, Canon was proclaiming its intention of multiplying consolidated sales by five, to Y10 trillion, by the 21st century. The bubble-jet printer, electron photography and developments in video screens - all of which are Japanese technologies - are expected to provide the bulk of this colossal increase. If the projections are anything like accurate, the Canon tricycle will have just one big driving wheel for some decades to come.

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