Canon boosts production in China: Canon shows off to investors it can become GE, or even better

Japan, Inc., May, 2004

Canon Inc., which in 2003 marked the fourth straight year of extending a record profit, wants to prove to investors that it can become another General Electric.

Just as Jack Welch, former CEO of GE, focused on businesses in which GE could be the world's best, Canon's CEO, Fujio Mitarai, scrapped the company's PC and typewriter businesses in the 90s.

In March, Canon held a press conference to show investors that it is the world's best in copiers, laser printers, digital cameras, digital video cameras and equipment for making liquid crystal displays. That the above accounts for most of Canon's businesses illustrates how Canon is following Welch's example.

Canon aims to keep its revenue and profits growing, expecting pretax income to rise 5 percent this year and 6.4 percent the next. Sales will rise 4.1 percent this year and 8.1 percent next year.

At the press conference, Canon boasted of its profitability and cost-cutting measures, announcing that its gross margin (sales minus production costs divided by sales) was 50.3 percent in 2003, the highest percentage in the past six years.

What made Canon's magic possible is continual cost-cutting efforts. Canon said in its public relations material that innovations in manufacturing methods cut production costs by [yen]55 billion in 2003.

The reduction in manufacturing costs partly comes from the shift of production offshore. Asia excluding Japan accounted for 37 percent of the company's output in 2003--the highest percentage ever. Mostly, Canon is boosting its production figures in China.

Canon's profit-making model is to hold large shares of the printer and copier markets so that customers keep buying its toner cartridges, papers and other consumables--the classic razor and razorblade strategy.

Canon revealed that it had a 32 percent global market share in monochrome copiers and a 22 percent share in color copiers in 2003. In laser printers, it had a 60 percent share in the black-and-white segment, while it took a 40 percent share in the color category. Canon also said that it grabbed a 17 percent share in digital cameras and a 19 percent share in digital video cameras in 2003. As for steppers, which print circuitry onto liquid crystal displays, Canon proudly declared that it had more than a 70 percent market share in 2003.

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What more does Canon have to prove? It focused on No. 1 products, and is extending a record profit every year.

GE has always raced against Microsoft for the world's No. 1 spot. Canon, however, was actually ranked eighth in market value in Japan as of December 31, 2003--a value below that of lumbering behemoth NTT! (By the way, eighth is the highest ranking ever achieved by Canon.)