Research paper, 2009, 44 Pages
2. Objectives and Problem Definition
4. Canon: Strategy Analysis and Evaluation of a Diversified Company
4.1 Analysis of the external environment
4.1.1 Dominant Economic Features in the Electronics Industry
4.1.2 Analysis of the Competitive Forces in the Industry Segments Business Machines, Cameras and Opticals
4.1.3 Drivers of Industry Change
4.1.4 Key Success Factors
4.2 Canon Inc.: Key Markets & Key Products
4.2.1 Key Markets
4.2.2 Portfolio, Key products
4.3 Canon’s Financial Performance in Comparison to the Main Competitors
4.4 Canon: SWOT Analysis
4.4.5 Hewlett-Packard: SWOT Analysis
4.5 Canon – Strategy Evaluation of a diversified company
4.5.1 Analysis of the Industry Attractiveness
4.5.2 Business-Unit competitive strength
4.5.3 Weighting and Scoring of Industry Attractiveness and Competitive Strength
4.5.4 Nine Cell Matrix - Results
4.5.5 Potential of Competitive Advantage by Cross Business Strategic Fits
4.5.6 Ranking Performance Prospects
4.5.7 Recommendation - Crafting New Strategic Moves
6 ITM Checklist: 360 Degree Analysis
In 1965 Canon Inc. started out as a company with a handful of employees and a great vision. Now it is a global multimedia corporation with the revenue of about 50 billion USD and 167 thousand employees. Although the company had a very strong financial performance and broad brand recognition over the last years, Canon is now facing an immense competition in all business unit segments. The current financial crisis and the forecasted decrease in demand for the office electronics market and for the photography market put additional strong pressure on the Japanese electronics giant. Falling prices in the camera segment and strong global competitors capable to operate at low costs make the operating environment very challenging and leads to price wars. New evolving trends such as tendency to the paperless status in offices and the capability of mobile phones to take pictures represent considerable threats for the company’s revenue. In order to outperform the competition the company should re-allocate its resources concentrating on the business units which are more attractive and less competitive. Canons business is spread up into two cash cows (Business Machines and Cameras) and one cash hog (Optical and other products) in the moment. With regard to the segment Optical and other products Canon can boost its performance when focusing its investment on the growing market of multimedia projectors. With regard to the segments which were very profitable over the last year, in light of the very intense competition, the company should take into account evolving trends and slowly move its resources from printers and copiers to full business solutions for offices which will become more profitable in long run.
Figure 1 Global Office Electronics Market Value and Market Share (DATAMONITOR,
Global Office Electronics - Industry Profile, 2009a)
Figure 2 Global Office Electronics Market Value and Market Share ( (DATAMONITOR,
Global Photographic Products - Industry Profile, 2009b, p. 13)
Figure 3 Market Competitors
Figure 4 Canon - Sales by Region (CanonInc, Annual Report 2008, 2008)
Figure 5 Business Machines Product Portfolio (Reuters, 2009)
Figure 6 Canon -Sales by Product (CanonInc, Annual Report 2008, 2008)
Figure 7 CanonIc. Profitability
Figure 8 Xerox: Profitability
Figure 9 HP: Profitability
Figure 10 Ricoh: Profitability
Figure 11 Nikon: Profitability
Figure 12 Canon: SWOT Analysis
Figure 13 HP - SWOT Analysis
Figure 14 Nine Cell Matrix - Evaluation Results
Figure 15 Canon - Nine Cell Matrix
Figure 16 Synergy Effects – Canon´s Business Units, derived from (Thompson/
Strickland/Gamble, 2008, p. 295) (green=good; yellow=sufficient; white=minor)
Figure 17 Canon: Suggested future development - Strengthening the LCD Business
The field of strategic management has offered a variety of frameworks and concepts during the last half century. The role of strategic management has been recognized as a crucial factor of success or failure in the international business.
In the following work, tools and analytical models of strategic management are applied to answer the question: has Canon Inc. any chance to beat its competitors is a highly competitive market? Canon Inc. is a global player which develops, produces and markets copying machines, printers, cameras, optical products and industrial equipment. Due to the immense competition in all fields of its operations Canon looks for possibilities to improve its competitive position and to become the world’s leading and most profitable provider in its industry and its segments.
Task of this assignment is it to provide an industry profile of Canon´s business units, to define segments and market conditions, to describe factors driving industry change and the competitive forces that are putting pressure on Canon Inc. The assignment is built on the recognition of the complexity of the company's external environment and Canon´s diversification strategy that targets to outperform the rivals. The strategy of Canon Inc will be analyzed and evaluated on the basis of financial data provided in the annual reports (20062008), press reports and market studies. In this context, strengths and weaknesses of the company are analyzed and it will be defined how and to which extent the external environment can represent threats and opportunities for the Japanese electronics giant. Under consideration of the above-indicated factors the assignment targets to answer the following questions: How can the company improve its competitive position in the industry? Is Canon’s diversification strategy sustainable? Which business should be invested in and which business should be divested?
The analysis of Canon’s strategy is based on primary and secondary research. The following sources of information are used in the assignment: annual reports of Canon and its competitors, press releases, industry interviews, consumer surveys, analyst reports, business information books and market research for specific industries. The data and information has been collected, analyzed and cross-checked, in order to obtain reliable data. Standardized market and financial definitions provide the basis for the analysis to ensure comparability of the findings. For the evaluation of the Canon's external environment and internal development such analytical tools of strategic management as the five forces model, SWOT analysis and the Nine Cell Matrix are applied.
The identification and evaluation of a company´s external competitive environment and the company´s internal capabilities is the starting point for the formulation of a business strategy. Knowledge about the competitive environment and the market forces that determine the shape of the industry is therefore essential (Thompson/ Strickland/Gamble, 2008, p. 51). Additionally, the company´s own strength and weaknesses have to be considered in this context, too. Based on these analyses, the management is able to form a competitive advantage by defining a strategy that goes hand in hand the firm´s situation and consequently boosts the performance of the business.
The analysis of the dominant economic features of an industry is essential for the creation of a general understanding for possible future moves of the competition within the industry. The Information Technology and Communications (ITC) (in concrete the global office electronics and photographic product market) is analyzed by the evaluation of the following environmental factors:
- Market Size and Growth
- Market Segmentation and Number of Buyers
- Number of Rivals
- Product Innovation
The analysis of Canon's market environment is based on the analysis of the ITC market that indicates the market volume and growth for business solutions as well as consumer electronics. This is reasoned by the fact that Canon offers business solutions as well as products for private customers.
The Information Technology and Communications market is resisting the financial crisis. The world wide IT- Investments will increase in 2009 despite the economic downturn to 983 billion Euro. The forecasted international growth rate for the IT market for 2009 was decreased by the international market research institute EITO by 1.7 per cent to 2.7 per cent (EITO, www.eito.com, 2008b), because of the crisis. The hardware market will grow by 1,3 per cent to a total volume of 305 billion Euro. "So far, the IT industry has navigated the economic storms with relative stability", said EITO chairman Bruno Lamborghini. This showed the increasing importance of information technology for business. "Modern IT systems", said Lamborghini, "lead to lower costs, promote innovations in products and processes, and are therefore an important instrument in managing the crisis." (EITO, www.eito.com, 2008a) Especially emerging markets like China, Russia and India boost the total IT expenditure, although these markets are still on a lower absolute level than in the leading industrial states. In the previous year the IT market was growing by:
17.8 percent to 39.1 billion Euro in China
17.2 percent to 18 billion Euro in India and
17.5 percent to 12.5 billion Euro in Russia
The EITO defines the ITC market by six segments:
- IT Equipment
- IT Services
- Carrier Services
The relevant segments for the analysis of Canon are defined by the IT market, focused on the IT equipment and its sub segments, the global office electronics market and the market for photographic products.
Global Office Electronics Industry
Between 2004 and 2008 the development of this market reduced its growth and is expected to further decelerate it within 2009. In 2008 the industry generated revenues of $ 120.2 billion having a compound annual growth rate of 3.7%. The performance of the market is forecasted to slowly gain growth towards 2013 with an anticipated compound annual growth rate of 2.7%. The most lucrative product segment in this market is the copier segment that accounted for 45.50% of total market volume in 2008 (Datamonitor 2009a, p. 7-8).
illustration not visible in this excerpt
Figure 1 Global Office Electronics Market Value and Market Share (DATAMONITOR, Global Office Electronics - Industry Profile, 2009a)
Hewlett-Packard is the market leader in the office imaging segment followed by Canon with a 15.4% market share and Ricoh Co Ltd. accounting for 9% of the global market.
Between 2004 and 2008 the global photographic industry market experienced a significant decrease and suffered under the economic crisis. The segment had a compound annual rate of change of -7.2% . However, up to 2013 the market performance is forecast to stabilize, although no growth can be expected. The predicted compound growth rate for the period 2008-2013 will reach only 1.1%. That means that by 2013 the market will shrink by 11% since 2008. In 2008 single used cameras generated 73.9% of the global revenues on the market and digital cameras accounted for 25.4 % of the global volume (DATAMONITOR, Global Photographic Products - Industry Profile, 2009b, p. 8).
illustration not visible in this excerpt
Figure 2 Global Office Electronics Market Value and Market Share ( (DATAMONITOR, Global Photographic Products - Industry Profile, 2009b, p. 13)
Canon generated 41.3% of the global photographic market value and is the absolute market leader in this business segment.
Summarizing it can be stated that the financial crisis affects the market for office electronics to a moderate extent, because the markets are still growing. On the other hand, it has to be considered that the market for consumer electronics cannot continue the enormous growth rates of the previous years, because private consumers tend to spend less money on consumer electronics in times of crisis. The market for digital cameras is shrinking. The global photographic products market shrank by 2.3% in 2008 to reach a volume of 581.8 million units. The compound annual rate of change of the market volume in the period 2004-2008 was -7.2% (DATAMONITOR, Global Office Electronics - Industry Profile, 2009a, p. 9).
The number of competitors in the office electronics and the market for digital camera as well as the market for optical products is enormous. The competitive landscape is characterized by various types of rivals. On the one hand companies have to compete with large enterprises that offer a widespread portfolio and on the other hand there are many highly specialized small firms that are trying to gain market shares. The main competitive elements are technology, quality, reliability, performance, price and customer service and support.
Canon’s Competitors in the relevant businesses (CanonInc, Annual Report 2008, 2008):
Business Machines Digital Cameras Optical and others
- Xerox Corporation/Fuji Xerox Co. Sony Corporation Nikon Corporation
- Ricoh Company Fujifilm ASML Holding N.V
- Konica Minolta Olympus Corporation
- Hewlett-Packard Company Nikon Corporation
- Lexmark International Inc. Casio Computer Co
- Seiko Epson Corporation Panasonic
illustration not visible in this excerpt
Figure 3 Market Competitors
The product lifecycles in the afore-mentioned industries are rather short. Independent from the segment the market participants face an intensified technological competition in terms of quality, functionality and effectiveness.
The continuously growing need for more efficient Office Imaging Systems and Computer Peripherals, as a part of cost saving strategies of the customer, enhances the innovation of new products. The Consumer electronic market continuously demands digital cameras that offer higher picture qualities and more functionality. Consequently the product lifecycles are limited to a few months. This circumstance goes hand in hand with high efforts in designing (R&D) and flexible sourcing. The majority of products in the photographic market are not very differentiated: products have similar features and are available at a very similar price level. This rather standardized selection of products is due to the consumer behavior. The average end-consumer can be characterized as “snap shooter” who has normally no idea about specific features and is not interested in them. Such consumers very often buy on impulse. Therefore, the most important differentiation factors in the consumer electronics goods industry are the brand value and the quality as a major driver of the brand value. Overall target is it to bind customers in the long-term, in order to profit from a sustainable relationship (re-buys/ customer retention) (G. Hofbauer C. H., 2005, p. 31). All manufacturers focus the strengthening of the brand by offering high quality products, special customer services and supporting marketing campaigns.
The differentiation strategies in the office electronics market focus, as well as in the consumer electronics market, the establishment of a strong brand. In contrast to the consumer market, major drivers in the Business to Business Market (B2B Market) are the quality, the functionality, effectiveness and the potential for future savings. Style obviously plays a subordinate role in the B2B market. In the B2B market the customer retention and satisfaction plays a significant role, because of the gathering of business references and the potential for the supplier to increase the realized volumes with the satisfied customer.
The five forces model is applied in order to identify and to evaluate the principal competitive pressures in a specific industry. The assessed forces have to be weighted according to their impact on the degree of competition. Finally, the overall attractiveness in terms of profitability of the industry is evaluated.
The business fields in which Canon operates are characterized by a high degree of rivalry
because of the following factors:
- Financial crisis enhances price wars
- Shrinking profit margins
- Short innovation cycles
The continuous and rapid introduction of new products and product collections is a typical indicator for intense rivalry. All market participants are forced to adapt their product innovation lifecycle to the market requirements, therefore for instance new digital cameras are launched two to four times a year. Competitors that fail the regular introduction of products cannot keep track with the market and the business rivals. In the B2B business the rivalry is characterized by an enormous need for innovation. Only the most efficient and price attractive products can compete in the moment, because of the financial crisis.
Next to short innovation cycles, the need for differentiation plays an important role. Although digital cameras are differentiated by functional attributes, quality and design, the product offer is quite standardized especially in the important recreation-user sectors. Such a low level of diversification increases the rivalry between the competitors. The consumer electronics market is stagnating combined with a shrinking profitability, because of aggressive pricing. Therefore the competitors target to defend their market shares until the financial crisis is over and the market will grow again.
The most important competitive weapon is the focus on a strong brand image (G. Hofbauer J. S., 2007, p. 110). In order to be perceived as trendy and high end brand in the heads of the customer, the manufacturer invest huge amounts in advertising. As important as advertising is availability of collections that fit the current customer expectation. Therefore the product lifecycles, especially in the consumer goods market, are very short. The market of office electronics have a more differentiated product feature (printer speed and quality of images, colors etc), there function are however very similar.
The pace of rivalry has to be evaluated by a differentiated view. On the one hand the rivalry in existing markets like the US and Western Europe is more or less stable on a high level. On the other hand, rivalry in new markets in developing countries like China and India with predicted growth rates of 15+x per cent, is very intense. The manufacturers of ITC goods target to gain market shares in these growing markets. Enormous investments in advertising, facilities and partnerships are made, in order to participate on the growing wealth in these countries.
The pace of rivalry in the ITC industry has to be evaluated by a differentiated view. On the one hand the rivalry in existing markets like the US and Western Europe is more or less stable on a high level. On the other hand, rivalry in new markets in developing countries like China and India with predicted growth rates of 15+x per cent, is very intense. The manufacturers of ITC goods, in concrete in office electronics and optical, target to gain market shares in these growing markets. Enormous investments in advertising, facilities and partnerships are made, in order to participate on the growing wealth in these countries.
Because of these facts, the rivalry among competitors is a strong force that clearly influences the attractiveness of the industry in a negative way.
The analysis of the threat of new entrants concerning the luxury goods industry is divided into two points of view. First, the threat of new entrants from outside the industry sector and second, the potential of existing competitors to enter new markets segments or geographic areas.
The threat of new entrants by industry outsiders can be considered as limited. Even if great amounts of resources are available, new competitors would face enormous difficulties because of the fact that the existing markets players already have established very strong brands over decades as well as they have an advantage concerning the technological knowledge. As already mentioned is one of the key success concepts of the industry the focus on brand and product differentiation. Additionally the threat of vertical and horizontal integration has to be considered. In the past many under performing companies have been bought by industry-outsiders and have been reorganized and supplied with financial resources.
On the other hand, the potential of existing competitors for the entrance of new markets segments or geographical areas is very high. The established manufacturers own immense resources in financial and production terms, as well as they know about the high profitability of growing markets. Every competitor in the luxury goods industry has the possibility to enter new and attractive market segments. The growing ITC market in China has been entered by all named electronics manufacturers within several years by the creation of joint ventures in order to participate on the growing wealth.
Finally, the threat of new entrants can be considered as strong force as well and limits the attractiveness of the industry.
The threat by substitute products in the businesses in which Canon operates is moderate. At the moment there are only limited possibilities to replace office imaging systems and computer peripherals. However, there are some evolving trends that can threaten a successful growth. With regard to office electronics, it should be noted that many companies try to reduce the use of paper in the office and move towards a paperless status and electronic translations. In terms of photographic equipment the extensive use of mobile phones with photographic function can reduce the demand for cameras in the low-end camera segment ($ 250 or less) where the customers are “snap shooters”.
The bargaining power of suppliers to the analyzed markets is limited. This is reasoned by the fact that the raw materials are commodity materials that can be globally sourced. Even special raw materials like metals, silicon, electronic components and other matters are supplied by a huge amount of sellers. Another fact is that the core components of the electronic products are manufactured by the OEM´s. In other words, the value adding processes are owned by the luxury goods producers. The switching costs for manufactures to alternative suppliers are therefore limited, though it has to be stated that the availability of suppliers that offer good quality at reasonable prices is decisive for the OEM´s success.
The consumers of ITC goods in the B2C market do not have significant bargaining power, because of several reasons. First of all, the consumers are not organized, consequently the individual buyers do not have any influence on the manufacturers decisions. On the other hand the bargaining power of business customers is very high, because of the fact that price battles take place among the numerous providers due to the financial crisis. The business customers know about their bargaining power and that leads to shrinking profit margins for the manufacturers.
To sum up, all afore-mentioned industries are highly affected by the results of the financial crisis. The market of office electronics and photographic devices are both highly competitive and are characterized by constantly falling prices, especially in the camera market. However, the market of office electronics is predicted to recover and to have a quite stable, although modest growth rate. The prospects of the photographic industry are not very positive. The overall market is rather decreasing, except for digital photography which is forecast to grow, The office electronics and photographic industry is in sum competitively attractive because of its stable growth only for global players which can achieve a cost reduction through economy of scale, though it has to be stated that the current market situation limits the attractiveness due to the financial crisis. Customer retention and customer loyalty play an essential role in this industry sector. Another problem for new entrants as well as for market leader is that huge long-term investments in R&D are required: at the end it is even not clear whether the investment will pay out and whether a product will find customer acceptance. Therefore, the risks in the office, photographic and optical industries are quite high.
Competitive conditions are the most significant drivers for the ongoing change in an industry. The immediate competitive environment is mainly determined by the actions of competitors, suppliers and customers and therefore the industry conditions are continuously changing. The driving forces for change have to be identified in order to formulate adequate business strategies. The analysis of driving forces is divided in a three-step approach (Thompson/ Strickland/Gamble, 2008, p. 74):
1. Identification of driving forces
2. Impact analysis on attractiveness
3. Determination of strategies that effectively encounter industry changes
 The industry overview is based on the growth and forecast numbers given in Datamonitor: Global Office Electronics Industry Profile, 2009a and cross-checked with further data.
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