the relationship between xerox and fuji xerox

NINE MILEM a n a g e m e n t C o n s u l t i n g

The Relationship between

Xerox & Fuji Xerox

Copyright © 2013. All Rights Reserved. The Nine Mile Management Consulting Group

February 2013

www.ninemileco.com

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Nine Mile Management Consulting Group October, 2012 October, 2012 February 2013

The Relationship between Xerox & Fuji Xerox

Fuji Xerox (FX) was a 50-50 joint venture between Rank Xerox (RX) and Fuji Photo Film (FPF) in

1962 to pursue the Japanese market. In this early global structure, Xerox participated in the activities

of FX through RX, but no real linkages in terms of resources or information flow was seen.

By 1988 however, FX accounted for over one-fifth of Xerox’s net earnings, it established itself as

a technically competent member of Xerox with development of the FX2200/FX3500, established a

Total Quality Control (TQC) philosophy, and by 1989 all Xerox’s and RX’s mid-to-high volume copiers

were FX designs. FX’s successes within Xerox’s evolving global strategy can be attributed to the

following determining factors: (1) a strong vision for the company with formalized expectations, and a

strong understanding of their value creation/appropriation dynamic within Xerox, (2) focusing around

a set of values and norms (TQC) that positively infiltrated through all aspects of Xerox, (3) a

responsive attitude towards endogenous market shifts, (4) promoting a shared culture of cooperation

and technology transfers, and (5) adopting a long-term company focus.

Ultimately, these successes within FX translated into a stronger joint-venture relationship – FX

served as a vehicle for change in the organization while Xerox benefited via the adoption of many of

FX’s strategies.

Vision, Expectations, and Understanding of Value Creation & Value Appropriation

Even with Xerox’s limited direct-involvement in FX’s early activities, FX had a clear vision with

“aspirations to be a global company in marketing, manufacturing, and research.”1 The initial perceived

conflicts between Xerox and FX were a result of an expectations shortfall on the dimension of

efficiency (both internally and externally) – while FX reacted responsively to these value creation

challenges (i.e. Asia-Pacific competition, low-end copiers), Xerox wanted uniformity and status-quo

across the organization. While Xerox never formally supported FX’s vision in the beginning – FX

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remained true to their internal company goals and strived towards them by investing in long-term

R&D, product design (FX2200/FX3500), and manufacturing capabilities (Xerox 914 copier). Ultimately

Xerox began to follow suit and sought new competitive positioning opportunities.

Adopting Common Values & Norms

FX’s TQC movement (“Achieving No. 1 Product”1 or “dantotsu”1) cannot be underestimated as a

driving and solidifying force behind the organization. This adoption of a common set of values and

norms led to many positive benefits that permeated the organization – i.e. reducing product costs

(“[copier] machine manufactured for half the price”1), minimizing product complexity/parts, and

developing an understanding of their competitors and consumers by analyzing competitors’

products/systems. As FX’s influence on Xerox’s bottom-line began to increase, Xerox implemented

this as a global strategy with 100,000 employees going through “off-site training to unite the entire

organization behind the quality effort.”1 TQC allowed FX to achieve high product quality, minimal

defects, and improve margins through cost-control – all endeavours to retain competitive positioning

against its largest rival, Canon.

Responsiveness towards Endogenous Market Shifts

FX realized early on the significance of the growing number of entrants in the Japanese

marketplace for copiers – by 1975, the market was being saturated by 11 Japanese companies leading to

an erosion of Xerox’s position. While Xerox defensively attempted to maintain their market position

via litigation of patent infringements with little product development attempts, FX realized the need

for copiers to serve the low-to-mid-range market. The Xerox 10 series ultimately responded to this

market demand through cooperation between Xerox and FX – becoming its most successful line of

copiers.

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Culture of Sharing, Cooperation, & Technology Transfers

The lack of direct communication, information, and resource flows early on in the joint-venture

was due to the structure of the organization itself – with RX acting as an agent for communications

with FX. While Xerox was reluctant to acknowledge FX’s R&D and product design capabilities (those

traditionally associated with Xerox’s US HQ), and reluctant to import FX’s products – FX on the other

hand always imbued cooperation. It was through this framework of cooperation that furthered the

Codestiny discussions and technology agreements – but true acceptance of cooperation from Xerox

only occurred when it was willing to take constructive feedback and began ‘benchmarking’

performance against FX’s operations.

Long-Term Company Focus

The long-term focus achieved by FX and later adopted by Xerox also helped the organization to

achieve success against rivals. For example, while Xerox cancelled many R&D projects (7 in mid-

development), FX continued to strive towards its vision and continued development of the FX3500.

From these examples, it becomes clear that by-and-large the successes of the Xerox-Fuji Xerox

relationship comes from the direction of FX. When FX was able to prove its capabilities and earn its

position within the Xerox organization (as demonstrated through bottom-line returns), the dynamic

of the Xerox-FX relationship changed and the balance of power shifted towards FX. With this slight

power shift came openness from Xerox (through previously established cooperative communication

channels) to establish many of the strategies that FX adopted – ultimately leading to further

cooperation and success.

Comparison of Xerox-FX Joint Venture to GM-Daewoo – Contrasting Outcomes

While the Xerox-FX joint-venture was a success, the GM-Daewoo venture proved to be on the

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“road to nowhere.”2 The Value Creation-Appropriation framework suggests that perception gaps and

shortfalls between expectations and intermediate results ultimately lead to joint-venture failure2. The

contrasting outcomes between Xerox-FX and GM-Daewoo are outlined below:

Table 1: Mapping Expectations in the Xerox-FX Venture:

Casual Attributes of Perceived Shortfall

Endogenous Factors Exogenous Factors

Nature of Perceived Shortfall

Efficiency (Value

Creation)

Sharing product design capabilities (Xerox 10 series).

Dialogue to improve interfaces: Codestiny discussions, technology transfers, top management summits.

Mutual learning through adoption of TQC.

Sharing of strategic market assumption in regards to Asia-Pacific region, Europe, need for low-end copier.

Joint analysis to determine best strategy to compete against Canon.

Equity (Value

Appropriation)

Reinforcement of strategic alliance through adoption of TQC and uniting organization behind the quality effort.

Renegotiation discussions regarding decline of royalty paid by FX and FX begins to receive manufacturing license fee.

Table 2: Mapping Expectations in the GM-Daewoo Venture:

Casual Attributes of Perceived Shortfall

Endogenous Factors Exogenous Factors

Nature of Perceived Shortfall

Efficiency (Value

Creation)

Internal conflicts and poor cooperation, GM not promoting Pontiac LeMans aggressively enough.

Differences in management decision-making: GM – prolonged decision-making, Daewoo – decisions made quickly be few top executives.

Deterioration of external conditions (labor unions, wages, South Korea’s expanding economy & currency.

Diminishing benefits of location advantage for manufacturing.

Equity (Value

Appropriation)

Mismatch of sources of value appropriation: GM – relies on US sales, Daewoo – wants to shift focus to compete directly against Japanese.

External imbalance created: Daewoo’s desire to be a technology leader to compete against Japanese leads to technology sharing deal with Suzuki Motor Co.

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In both the Xerox-FX and GM-Daewoo cases, the perceived and actual lack of value creation

through both shifts in internal and external factors, and how each company handled these shifts,

ultimately led to their respective success and failure.

The Xerox-FX joint-venture succeeded because of the ability to understand the value

creation/appropriation link between the two, which lead to significant levels of cooperation. By

clearly understanding the value creation role of FX within Xerox as a generator of novel ideas and

approaches with product design, R&D, and manufacturing – a reciprocating exchange of ideas,

resources, and information began to flow throughout Xerox’s organization.

By the same token, the GM-Daewoo venture failed because of the lack of appropriate

responsiveness to internal and external shifts in the value creation framework. The partnership did

not necessarily form through an advantageous merging of distinct capabilities between the two

companies, but rather was dependent on external market conditions. The value proposition based on

market conditions suggested South Korea as an advantageous location based on low-wage labour – but

when such conditions were no longer present due to a fledgling economy and poor vehicle quality, the

relationship became increasingly strained. Instead of both companies resolving to work through these

conditions – each had different aspirations of the joint-venture which further widened the

expectations shortfall.

While Xerox-FX was successfully able to respond to value creation challenges induced by

internal/external factors, GM-Daewoo did not – ultimately leading to contrasting outcomes.

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References

1. B. Gomes-Casseres & K. McQuade: Xerox and Fuji Xerox. Harvard Business Review, 1991,

391156.

2. A. Arino & Y. Doz: Rescuing Troubled Alliances Before it’s Too Late. European Management

Review, 2000, 18, 2, 173-182.

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