How Fuji Xerox And Xerox Compete Business Essay

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In a world of global businesses and extended enterprises, it often makes more sense for companies to team up than go it alone. This case is about how Xerox and Fuji Xerox collectively compete.

Business rivalry now often takes place between sets of allied companies, rather than between single companies. The alliances among companies are forging new units of economic power -- "constellations" that compete against each other as well as against traditional single companies. In this new world, the way companies manage the collaboration inside their constellation affects the competitive behaviour and performance of the group as a whole. And the performance of each company comes to depend not only on its own capabilities and strategies but also on those of its allies and on its relationships to those allies.

The case of the Xerox Corporation and the Fuji Xerox Corporation shows how successful a constellation can be if it is managed effectively. In copiers and laser printers, the competition between Xerox and its archrival, Canon Ltd., was not one on one, company against company. Instead, a constellation of companies around Xerox competed with Canon, which operated as a single company. The Xerox constellation is complex, but at its core is a pair of allied companies -Xerox and Fuji Xerox, the Xerox joint venture in Japan. Together, this pair develops products, penetrates markets, manufactures hardware and so on -- all the things that Canon does on its own. Fuji Xerox is thus much more than a curiosity on the periphery of Xerox's organizational chart: the two companies are comrades-in-arms. The Xerox constellation has enjoyed some powerful advantages as well as suffered some serious disadvantages because of this structure.

The following analysis is about the evolution of the joint venture, who stood to gain and how it could change in the future.

Role of Fuji Xerox in Xerox's Global Strategy - Past and Future

In the early 1960s when the joint venture was being negotiated, the intent was to make Fuji Photo film a marketing organization to sell xerographic products. Purely to comply with the Japanese Government regulations the agreement was revised to give Fuji Xerox manufacturing rights.

To begin with the intent of Fuji Xerox playing a vital role global strategy of Xerox Corporation did not exist. As part of its technology licensing agreements with Rank Xerox, Fuji Xerox had exclusive rights to sell the machines in Indochina, Indonesia, Japan, the Philippines, South Korea, Taiwan and Thailand which was not a big pie considering Xerox's global market.

But over the years, Fuji Xerox started playing a major role in the over all business model of Xerox Corporation. Fuji Xerox's dollar revenues grew much faster than Xerox's in the 1980s. Also, its share of Xerox's global revenue showed consistent increase. This can be seen from Exhibit 1. From around 3 - 4 % in 1970, Fuji Xerox was contributing to around 30% of Xerox's global revenues and over 20% of its global earnings by the year 1989. With this kind of contribution, it will be hard to ignore Fuji Xerox's growth in the future global strategies of Xerox Corporation. They were also investing heavily in R&D and had proved more than once that as an organization they were more agile and could counter competition much more effectively than Xerox.

It was also an early adopter of the Total Quality Movement to speed up the development of products that matched customer needs and to reduce cost and eliminate waste. By the early 1980s Xerox followed suit and capitalised on the experience of Fuji Xerox. Taking another leaf from the Fuji Xerox book, the company reduced its supplier base, bringing the cost of purchased parts down by 45 percent. Average manufacturing costs at Xerox were reduced by 20 percent and the time-to-market for new products was cut by 60 percent.

Another measure of the growing capability of Fuji Xerox was the proportion of models developed in-house. In the 70's, the majority of models sold by Fuji Xerox had been developed by Xerox. Although Fuji Xerox continued to rely on Xerox for basic research in new technologies, by the late 80's few of its models were designed by Xerox.

This is something which the strategists in Xerox Corporation acknowledged as well, more so because, they were under pressure at home. The relationship between the 2 companies was changing and had to further change if they had to take on competitors across the globe.

A testimony to their efforts to take on the forces globally is the formation of Xerox International Partners (X.I.P.), a joint venture to market Fuji Xerox printer engines outside of Japan. Executives from Xerox and Fuji Xerox felt that this new alliance gave them a better chance at competing in a tough market.

Fuji Xerox was destined to become much more than a marketing outlet for Xerox products -- it helped save Xerox from a near demise situation. No one could have predicted this outcome. For a long time, Xerox executives treated Fuji Xerox with a benign neglect that sometimes bordered on condescension. This attitude changed dramatically in the 1980's, as Fuji Xerox came to the rescue of Xerox with a series of startling product breakthroughs and no-less-startling management, manufacturing and technology lessons. By 1990, Fuji Xerox had become "a critical asset of Xerox," as Xerox C.E.O. Paul A. Allaire called it.

Is Fuji-Xerox a successful JV in 1990?

Success of a joint venture can be measured in multiple ways. Some of them are hard while some are soft.

Where the JV was heading to in the early 1990 was a cumulative effect of the past 30 years. There are numerous references in the case which seem to indicate that while Xerox might have benefited because of the joint venture, the same cannot be said about Fuji Xerox.

As competition grew to challenge Xerox worldwide, Fuji Xerox was beginning to feel constrained by the relationship because they had aspirations to be a global company but were limited by the licensing agreements to sell only Japan and a few other far eastern countries.

The goals of Fuji Xerox and Xerox were both comparable and conflicting. There we serious questions being raised about their effectiveness in the worldwide management of their businesses.

Xerox insisted on uniform policies across the globe - without this there is a good chance Fuji Xerox might have captured a larger market.

Xerox was stagnating as a corporation in the 80s. Its mid range products suffered from reliability problems. Their own top management admitted that complacence had set in.

Xerox also got caught in a number of court room battles and was forced to licence many of its patents to competitors.

Rank Xerox emphasized higher profit margins and sales of high end machines while Fuji Xerox put greater emphasis on market share and low end products.

Given all these issues, it is fair to assume that the joint venture was not doing as well as it could have. And the numbers also say the same.

Xerox's market share was on the decline while Fuji Xerox's was on the rise.

Clearly, Xerox Corporation was being a drag on Fuji-Xerox's performance. All other financial metrics are also showing a downward trend.

It can be seen from Exhibit 7 that Fuji Xerox's margins are coming down and so is its return to shareholders.

The Xerox story clearly shows how a company can benefit from a well-managed alliance. But it also shows how the difficulty of integrating the separate interests of partners can handicap constellations that face powerful single companies. Moreover, the optimal design and governance structure for an alliance can change dramatically over time, in response to changes in the environment, as well as in the partners themselves.

The collaborative arrangements that helped launch Fuji Xerox in the 1960's and 70's were not as effective in the fierce global battle to develop new technologies in the late 80's. Instead of relying on the transfer of technologies from one to the other across the Pacific, Xerox and Fuji Xerox were forced to join forces to develop wholly new technologies together. This meant that the managerial autonomy that served Fuji Xerox so well in the 70's had to give way to greater coordination and integration between the partners.

This is not to say this JV was a failure. In fact, the Xerox story is a classic one of a once dominant company that lost its edge and was overcome by new rivals from unexpected sources. The environment in which Xerox Corporation was operating had undergone drastic changes and called for a realignment of the joint venture to face the threat of competition.

Critical Success Factors of the past

Alignment behind a common strategy

Fuji Xerox sold under the 'Xerox' name and saw itself as a part of the Xerox group. As a part of the larger constellation they tried very hard to compete with the rest of the players and not among themselves. Collective competition always requires that companies walk a fine line between rivalry and collaboration. More so than single companies, constellations have within them sources of conflicts that can tear them apart. At the very least, internal frictions can reduce a constellation's ability to exploit benefits from collaboration. And lacking these benefits, the group stands little chance in the competitive marketplace. The joint venture has played this game very well.

Clear division of responsibility among partners

The Xerox story clearly shows how a company can benefit from a well-managed alliance. control over the capabilities was split -- Fuji Xerox owned some assets and Xerox owned others; Fuji Xerox had rights to the Japanese market and Xerox to the United States market. And Xerox did not have full control over the capabilities of Fuji Xerox, even though it owned part of the venture's equity. Indeed, a tradition of Fuji Xerox autonomy gave Xerox even less effective control than the ownership structure of the joint venture might suggest.

Flexibility

The design and management of the alliance evolved continually in response to competitive challenges and changing capabilities of the partner. The concept of 'Codestiny' helped them achieve this. Exhibit 4 demonstrates this clearly. The terms and conditions of the joint venture have constantly been brought up for discussion to better suit environment changes. It is this flexibility that has largely shaped the future if the JV and also helped them fight competition together. The following figure shows how Xerox has been keen to capitalise on Fuji Xerox's capabilities.

Source: Gomes-Casseres, Competing in Constellations: The Case of Fuji Xerox

Leadership

Strong leadership in Fuji Xerox played an important role in shaping that company's future. For example when Tony Kobayashi, President of FX, was told to stop work on FX3500 project, he refused to do so, stating that he is responsible for survival of the company and will continue to develop new products.

Visionary approach of Fuji Xerox and the support it provided to Xerox Corporation

Fuji Xerox was able to see competition coming earlier, and understood their development and manufacturing techniques. Fuji Xerox's quality control program, also served as a model for Xerox that led to deep changes in the organization. Xerox acquired management ideas, subcontracting approaches, product development techniques and competitive data from Fuji Xerox. Through this reverse flow of technology Fuji Xerox helped Xerox get back on its feet when Xerox was struggling to regain its leadership position.

Every time Xerox blinked Fuji Xerox forged ahead. It had a great corporate vision and continued as the agent of change.

A healthy mix of Japanese and American way of doing business

Although Fuji Xerox adopted a number of business practices from Xerox, including organizational structure and the rental system, it remained distinctly Japanese throughout its history. They emphasized on long term planning, team work and bottom-up decision making.

Clearly, given the business environment in the 80s and 90s, Xerox had to change its way of working and hence the critical success factors also metamorphose a little.

A SWOT analysis of Xerox Corporation will help arrive at the focus areas

To make use of the opportunities, there has to be a tilt in the balance of power in the joint venture. The joint venture had to be rewritten to give Fuji Xerox a much more important role to play on the global strategy of Xerox Corporation. This might mean a complete reorganization of the functional structures within to reduce overlaps and redundancies and play on each others strength. Xerox has excellent basic research and software capabilities while Fuji Xerox is good at development and hardware design.

Another important factor for continued success of the joint venture is the agility of Xerox Corporation. They should start forecasting and guessing competition's moves to strategise in a proactive manner to regain and retain their market leadership position.

Reorganization Options

Marketing

Currently, there was no coordination between the marketing groups of Fuji Xerox and Xerox Corporation because each had a different licensed territory. There was still a tendency to protect traditional turfs.

There was a greater need to collaborate and eliminate overlapping activities. Given the nature of the product, there is huge scope for coordinating the efforts of basic marketing activities and fine tuning down the value chain for specific regional requirements.

To meet this objective,

Research

Going by the existing structure, collaboration between Xerox and Fuji Xerox seems to be quite successful in research. Barring the initial 'step-motherly' treatment given to Fuji Xerox, Xerox has benefited through the joint venture's R&D.

Given that the product is more technology oriented and might not call for huge customisation region wise, a combined research facility would prove very efficient.

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