Xerox & Fuji Xerox

Global Strategy Analysis

Somewhere between a strategic business unit (SBU), strategic alliance, and subsidiary is the Fuji Xerox and Xerox business relationship. The complex nature of this relationship has been forged over time through a multitude of factors including: regulation, market elements, and competition. From the inception of Fuji Xerox, Japan’s regulatory environment would allow for the creation of an autonomous company that would share technology and patents with Xerox rather than becoming a sales company (Harvard Business School, 1992). This factor would be fundamental in establishing a strategic alliance rather than a subsidiary or SBU. At the time of inception, Fuji Xerox was to be a market penetration company for Xerox but as a result of its autonomy, the company was able to grow into the most important structure in Xerox’s global strategy.

Due to the autonomous nature of Xerox Fuji, the company was able to operate without restrictions in the Japanese and neighboring markets. Although Xerox maintained control over the company via ordering and profit sharing, Xerox Fuji was able to operate with little oversight which led to the company developing its own sales strategies as well as management systems (Harvard Business School, 1992). This independence made Xerox Fuji a powerful strategic partner due to the fact that the company was able to operate within the Japanese market and glean insights into market factors as well as competition in this arena. These insights were passed on to Xerox which provided the company with valuable intelligence for decision making. For example, competition began prior to the patents on xerographic technology running out and this allowed both Xerox and Xerox Fuji to begin planning for new products such as laser printers (Harvard Business School, 1992).

Another major advantage of this relationship was the ability for the companies to reduce cost while maintaining markets abroad. Xerox and Xerox Fuji both shared a lower cost by maintaining independent organizations which were tied to profits and patent knowledge licensing agreements. If Xerox had to establish a subsidiary manufacturing facility in Japan or neighboring counties the cost for running this facility would have been tremendous.

Despite the advantages of this relationship, there are some disadvantages which have occurred overtime. The relationship of Fuji Xerox with Xerox is a complicated authority structure in which each company owns different patent and market rights. For example, Fuji Xerox maintained rights to the Japanese market while Xerox operated in the United States. This would create issues with being competitive as the lines dividing markets forced Fuji Xerox to limit its growth to the Japanese and surrounding markets.

Another major disadvantage was that the autonomy that allowed Fuji Xerox to become successful also created its own management structure which would often conflict with Xerox (Harvard Business School, 1992). By 1977, this reality was evident as Fuji Xerox refused to stop developing its own products despite being ordered to halt work on several projects by Xerox. While both companies were still heavily dependent upon one another, the reality of this relationship was that neither could fully control the other which led to poor decision making and stagnation of product lines for close to a decade (Harvard Business School, 1992).

It would become evident that the role of Xerox Fuji would need to change. One of the catalysts for this change would be globalization. As globalization continues to expand, strategic alliances such as Xerox and Xerox Fuji become vulnerable to competition. Because globalization reduces borders and barriers to trade, strategic alliances and expansions into new countries have been made easier. For Xerox and Xerox Fuji, the strategic relationship is actually a hindrance to maintaining competitive advantage due to the fact that companies such as Canon had a more centralized research and development systems which allowed for lower cost and more efficient production.

…Canon was strong in the low end of the market, and had recently developed a growing business in color copiers, where it held 50% of the market by 1989. Analysts pointed out that Canon was introducing twice as many products as the Xerox Group, although it spent less than $600 million on R&D annually, compared to Xerox’s $800 million and Fuji Xerox’s $300 million (Harvard Business School, 1992).

In order to alter the problem of being too autonomous a strategy would be necessary which allowed the both companies to share in the R&D but maintain separate operations. The most reasonable means for accomplishing this task would mean developing overlapping functional areas which allow for the companies to increase competitive advantage without giving up autonomy. The most reasonable means for accomplishing this task would be to establish some form of joint venture which would allow both companies access the need areas of development within functional areas but that at the same time limited access to areas which may be proprietary. For example, in the area of marketing, and independent and separate system is needed in which areas of licensing are concentrated on in each company with exceptions for multinational business actions. In this way, territories would remain static and reduce competitive friction but still allowed for some exceptions based on specific accounts or sales.

Ultimately, research would be designed in a coordinated effort in which both companies maintained autonomy but shared information. By designing this functional area in this way, research would become more centralized and allow for greater information sharing and completive intelligence. Development and manufacturing would differ from research as this area would need to be complementary without overlap in order for Xerox and Fuji Xerox to maintain core competencies. Each company could maintain specific manufacturing functions which would allow them maximize their specific market advantages such Fuji Xerox maintaining manufacturing and marketing for certain machines which it developed.

Xerox is clear example of how a properly managed strategic alliance can create a highly collaborative and competitive business model. The Xerox Group also reflects how these alliances can become complex relationships in which defining the interests and functions of each partner can become extremely difficult. One of the complexities of this alliance is rooted in the organizational structures which have occurred almost by accident due to regulatory and licensing factors. If it were not for Japan’s regulatory laws, this alliance would likely not have occurred in this form. The refusal of Japan’s government to allow a Xerox to establish a joint venture that would create a sales only company forced a relationship which was based on patent sharing. While this alliance has been difficult to manage it has provided significant long term benefit for both companies by allowing them to be both dependent and independent based on proprietary information sharing and manufacturing relationships. This relationship has continued to evolve as market factors such as competition and globalization continue to impact its sales and profits. The ultimate success of this relationship is based on the balance of each company’s interests while maintaining their legal arrangements. Thus far this appears to have been successful when in 1991 Xerox and Fuji Xerox formed a new partnership known as Xerox International Partners (XIP) (Gomes-Casseres, 1997). This partnership was formed to penetrate the laser printer market in the US. XIP is another example of how both companies are able to work together to solve market problems. The measure of this success has been the successful development of lower cost printers and deeper penetration into the Canon dominated market (Gomes-Casseres, 1997). While the strategic alliance between these companies has been mostly a great success, continued management of the partnership will be necessary in order to maintain competitive advantage. The dynamic nature of this partnership between Xerox and Fuji Xerox demands ongoing management and attention from both companies in order to continue making it a success.

References

Gomes-Casseres, B. (1997). Competing in Constellations: The Case of Fuji Xerox. New Jersey: Booz & Company.

Harvard Business School. (1992). Xerox and Fuji Xerox. Harvard Business School, 156.

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