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Canon, A Country, Environmental, And Cultural Analysis Project

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A Country, Environmental and Cultural Analysis Project

February 25, 2007

Table of Contents:

Abstract Page 3

Part I: Country Analysis Page 4

Part II: Environmental Analysis Page 6

Part III: Cultural Analysis Page 21

Part IV: Implications for Doing Business in that Country Page 24

References Page 26

Abstract:

Slightly smaller than the state of California, Japan has propelled itself into a position of economic power over the last 60 years. Japan’s economic strength is due to a strong national pride supported by its religion and group culture. Japan was able to very quickly industrialize after World War II and reap strong economic benefits. Many of the benefits can be linked to the strong culture that stressed not the individual but the household; the company worked for and the social group that one belonged to. However, Japanese culture is in a current state of transition and close attention must be observed in order to successfully negotiate and participate in business ventures.

With a strong political stability factor, Canon Inc., is a company that was able to navigate the reconstruction of its country and successfully grow, merge and adapt to technological changes held over the past century making it a leader in photo imaging services and a strong contender in business operation machines to include printers, fax machines and typewriters. Furthermore, Canon’s ability to build upon Japanese distribution systems and appropriately predict emerging technologies has helped her remain extremely competitive in her markets and will help her to navigate new markets as the old ones approach saturation and maturity.

Overall, Japan is a stable country but there is a dark underbelly to her hidden away by politeness, sacrifice of self and perhaps ego. Japan continues to have an elitist government view where business and bureaucracy are interlinked despite reform efforts, people continue to push themselves with little to no potential recognition as seen by entrance examination processes and Japan remains a homogenous country with very few minority groups or minority presence which is often looked down upon.

Part I: Country Analysis

Slightly smaller than the state of California, Nippon Koku translates as Land of the Rising Sun; this otherwise known as Japan is home to one of the worlds most creative forces in consumer electronics. Japan is located in Eastern Asia with its closest country neighbors being: Democratic People’s Republic of Korea (North Korea), Republic of Korea (South Korea), Russia, People’s Republic of China and Taiwan. Currently Japan has land disputes with China for islands located just north of Taiwan called the Senkaku Islands and with Russia for four islands just north of Japan’s internationally recognized land border. Japan is an island country comprising of four major islands, the Sea of Japan (between the Korean Peninsula and mainland Japan,) the Tartar Strait between Russia and Hokkaido(the northern most island) and the Tsushima Strait between Japan and the Korean Peninsula. It has a mountainous terrain (approximately 75% of the land) with a very active volcanic lifestyle. According to the CIA World Factbook, there are about 1,500 seismic occurrences every year as a result of volcanic activity (World Factbook, 2006) creating a tenuous natural disaster atmosphere with tsunami warnings and numerous typhoons.

The capital of Japan is Tokyo, a mega city with approximately 12 million people living within her limits. This number equates approximately 10% of Japan’s total estimated population of 127,500,000 persons (CIA Factbook, 2006). Nearly 80% of the country’s population lives in urban areas with more than 50% living on two percent of the land (Library of Congress, 1994).

The major language of Japan is Japanese with English being the primary secondary language students are allowed to learn. The people are also deeply influenced by religion. There are two major religions in Japan which are Shinto and Buddhism. These two religions constitute approximately 84% of Japanese beliefs (CIA Factbook, 2006). Christianity makes up less than one percent of the belief system. Finally, Japan has a 99% literacy rate defined as people over the age of 15 can read and write due to a “compulsory free nine-year education followed by public and private upper-secondary schools supplemented by preschools and after-school education” (Library of Congress, 1994).

Japan utilizes a free-market economy system heavily influenced by the United States after World War II. Japan’s GDP is estimated at $4.22 Trillion with a Purchasing Power Parity of $33,100 in 2006 (CIA World Factbook, 206). The currency for Japan is the Yen with an exchange rate of 1 dollar equaling about 115 yen. Exported Goods equal an approximated $590.3 billion and include transport equipment, motor vehicles, semiconductors, electrical machinery and chemicals. Major export partners include the US 22.9%, China 13.4%, South Korea 7.8%, Taiwan 7.3%, and Hong Kong 6.1%. Major imports equal $524.1 billion and include machinery and equipment, fuels, foodstuffs, chemicals, textiles, raw materials. Japan has very little in natural resources due to its geographic features (primarily being mountainous) and small size. Major import partners include China 21%, US 12.7%, Saudi Arabia 5.5%, UAE 4.9%, Australia 4.7%, South Korea 4.7%, and Indonesia 4%.

Japan is represented by a constitutional monarchy with a parliamentary government and represented by a legal system modeled after European civil law system with English-American influence (CIA World Factbook, 2006). The head of the state is the Emperor Akihito in a ceremonial role whereas the head of government is the Prime Minister Abe recently appointed after in 2006.

Part II: Environmental Analyses (SWOT-PEST)

Political Forces:

Starting at the national level, Japan has numerous parties affiliated with the Diet however it wasn’t until recently that the legislative branch had more than one political power (Economist, 2006). According to the same source, the Liberal Democratic Party (LDP) has become polarized of recent due to economic policies pushed by Fmr Prime Minister Koizumi. Those policies may threaten the political power process in Japan where business men and bureaucrats frequently met at the same locations like a bar or restaurant and shared similar tastes due to education backgrounds. It is common for those who retire from government to become executives in the industries or companies with whom they had frequent contact. Further evidence of the close association between business and government is with the process called shingikai. With this process, the government, business and educational elite may meet to refine language involved with policy creation. Each ministry has a shingikai and this usually occurs after extensive informal meetings have occurred (Library of Congress, 1994).

For lower level governments the situation can be much more challenging in terms of balancing directives from a strong central government against population pressures from below. This was the situation created after World War II where policies were enacted that changed the political landscape. Instead of looking towards the central government for guidance and maneuvering for future political jobs, the local governments became responsible to the people. No longer were the desires of a central government or a government with the royal family above those of the people. The people put the lawmakers into power and could take them out with the next round of elections.

Despite this, Japanese political forces are still elitist and centralized. Reform is difficult to get through due to strong business ties with all levels of politics (Country Risk Assessment, COFACE). “The potential for citizen participation in local policymaking and for an effective voice in shaping urban life in Japan is yet to be fully realized” (MacDougall, 2001). In short, Japanese people have the ability to afflict change in how the political forces work in Japan. Other than that, things run the status-quo with few modifications.

There is one other section of government that must be looked at and that involves the ministries; particularly the Ministry of International Trade and Industry (MITI) and the Ministry of Finance. MITI was instrumental in post-war developing Japan for it very successfully navigated a country through its policies to efficiency. “MITI was responsible not only in the areas of exports and imports but also for all domestic industries and businesses not specifically covered by other ministries in the areas of investment in plant and equipment, pollution control, energy and power, some aspects of foreign economic assistance, and consumer complaints” (MITI, FAS). MITI policies aided in the development of the distribution channels Japanese companies have throughout the world and controlling foreign trade and international commerce. Whereas the power has diminished over the years, it still retains some measures of influence over the economy and its direction. The Ministry of Finance worked the numbers in terms of tax policies and funds for public investment. This promoted industrial expansion by making money cheap.

Economic Forces:

Post World War II modernization happened at a lightning pace. “Aided by government-industry cooperation, a strong work ethic, mastery of high technology, comparatively small defense allocation (1% of GDP)” (CIA Factbook, 2006) helped Japan advance with extraordinary rapidity to the rank of second most technologically powerful economy in the world after the US and the third-largest economy in the world after the US and China, measured on a purchasing power parity (PPP) basis. (CIA Factbook, 2006). The freedom companies to pursue their dreams, desires or in Canon’s case, original mission was aided by the new non-military government. Investments were made in key industries such as coal and electricity. These industries would lead the country to a new industrialization base to build from as the decades past.

Another economic force of the country is the close-knit coordination amongst manufacturers, suppliers and distributors (also known as keiretsu) that have allowed Japan to increase its quality management of products well ahead of any of its industrial competitors. This mindset tended to stress product diversification (Library of Congress, 1994) which would aid Japanese companies like Canon into branching out and finding new fields of employment. Canon was able to diversify very young and wisely chose emerging technologies that bolstered its growth into an international competitor very early as opposed to niche marketing whereas once the product life cycle is complete the company shuts down or goes through possibly a painful transition. While keiretsu is currently eroding, this mindset combined with an elitist political structure could make adaptation difficult in the future and change will have to be managed carefully across all fields.

According to the Japan External Trade Organization (JETRO), rising wages are putting pressures on companies resulting in the export of production overseas and importing of finished goods. Furthermore a stalemate in consumption levels of the population and large public debt number will increasingly make economic expansion difficult to maintain. This may halt a positive trend of a decreasing amount of bankruptcies over the past 8 years resulting from the strong economic and fiscal reforms implemented by the Japanese Government.

Nonetheless, foreign direct investment continues to rise in Japan which can be taken as a symbol of confidence by the international community in Japan’s economy. Furthermore, COFACE Country Risk Assessment gives Japan an A1 rating due to the steady political and economic environment indicating a low event probably of defaulting and overall a very stable country.

Figure Three: Trends of Japan's outward foreign direct investment

Socio-demographic:

The average age of a Japanese national is 44 years and aging. The graphic below depicts a forecast over the next 50 years and stresses the need for Japan, much like the United States, to come to terms with growing old and the reality that social security or cultural considerations may not keep up. Japan’s population growth rate is at 0.2% and considered a homogenous country with negligible migration rates from other countries. On the other hand, life expectancy is on the rise with Japan hosting some of the world’s oldest people. Other factors affecting population include the change in household structure in the 60’s and again in the 80’s where women have become economic powerhouses and shifting attitudes that once dictated women have to marry and leave the workforce to raise a family by the time they are 30. Instead women are staying longer, earning their own pay and putting off raising a family which is dropping the birthrate. This is evident by the increase in age for first-time marriage which has gone from 24 years of age in 1971 to 27 in 2000 (Library of Congress, 1994).

Furthermore, changing attitudes that children do not have to take care of their elderly, can be derived from the statistics. There has been a 17% increase in 15 years of private nursing homes and a 41% increase in public homes (Elderly Care, 2004). In short, there is the beginning of a cultural shift away from the group attitude that allowed Japan such economic recovery after World War II. The group attitude is likely not to dissipate for it is engrained into Japanese history and culture throughout the past several centuries; but Japan will find itself attempting to create a delicate balance and redefining the boundaries of that group attitude.

Figure Five: Number of users of nursing care facilities and services Another large factor that affects socio-demographics is the education system and specifically the entrance examinations. Society stresses higher quality education and the school attended impacts employment opportunities in the future with the most prestigious jobs held for those graduating from public universities. Public universities equate to Ivy League Schools in the United States and thus the competition for them is intense. As a result society has deemed a word to describe students in the process of studying for the exams which is called ronin. There are also specific schools called Yobiko that cater to ronin and the process of preparing for these examinations (Library of Congress, 1994). The impact of education and the entrance exams was directly related to lifetime success. In Japan, another dying custom was the shushin koyo or permanent employment. At one time, once an employee was hired they worked at the company for the rest of their lives or until retirement. Pay was based of seniority. While this is changing, it is creating friction in society for those individuals that find themselves fired or laid off to be replace by blood which is newer and receptive to change. Older people find it very difficult to find new work putting stress on the social systems in country. Another stress on the social systems is the minority presence (as small as it is) located throughout Japan. Japan’s minorities are looked down upon and it wasn’t until the past twenty years or so that they had any rights or access to the social programs established in Japan.

Religions play a major role in Japan in shaping its society and how it has created something called the group society. Japan has a group dynamic whereas the good of the country and the good of the society comes prior to individual wants. There are two major religions in Japan which are Shinto and Buddhism. Shinto is the native religion whereas that stresses ancestor worship but in a very real and tangible way. Ancestors leave the current world and become kami who must be mitigated and blessed in order to maintain balance and happiness in the current worldview. Buddhism was brought in country from interactions with China and Korea and after an original period of upper-class enlightenment, Buddhism beliefs became popular amongst the masses for it answered ideas of the afterlife through the belief of reincarnation and karma. Furthermore, Buddhism stressed the delay of personal rewards much like Puritan values did in Colonial America. These religions combined with other philosophical ideas such as Confucianism (which stressed proper behaviors in social and familiar relationships) aided in creating a society where social responsibility is stressed and loyalty to the state is a given (Library of Congress, 1994).

Based of the national religions, Japanese family and society are built to maintain a harmonious relationship with each other and this is what creates the group culture concept. Families once were required to take care of their extended kin but there has been a cultural shift away from this norm just as there has been a shift away from where the eldest son maintained the family line whereas all other sons began their own families. However, the family structure has changed very little over the past several decades with two exceptions. The number of single-elderly households is increasing and the numbers of remaining in the workforce and resisting pressures to return to domestic family life is decreasing

Technological:

Japan is a high-technology based country. They are leaders in the world of innovation and technological advancement. Figure Four shows how Japan leads the world’s economic leaders in research and development whereas figure five indicates Europe’s view of Japan’s innovation levels. In short, Japan spends more than most other countries and is able to translate those monies into innovative and creative products that are cutting-edge.

The relevant elements of innovation output are captured by two sub-groups of indicators:

1. Application, to measure the performance, expressed in terms of labour and business activities, and their value added in innovative sectors.

2. Intellectual property, to measure the achieved results in terms of successful know how, especially referred to high-tech sectors.

Competitive:

There are several competitors in the photography industry. The numbers vary depending on the year and since the market continues to tighten currently there are three major competitors that Canon faces. Those competitors are Nikon Corporation, Sony Corporation and Kodak. All of these companies are well known brand names but have some unique differences.

Nikon Corporation is a unique brand in terms of 20-25bn net sales in Yen for last year. However, the company seems to be focused on the technical aspects of the camera and marketing seems to take a back seat. With this being said Nikon uses its history and image with professional photographers and are successful amongst them. They came in fourth place for 2006 sitting with 10-20% of the American market. Nikon Corporation has recently moved away from film photography in pursuit of digital photography and out sources most of its distribution overseas in conjunction with manufacturing facilities in Korea, Japan and Indonesia. It recently signed a deal with UPS to act as a distribution channel however for North and South America. Overall, Nikon is struggling to reach the main masses and is now attempting to exploit its brand in something other than professional photography magazines.

Kodak maintains a close number three presence in the world market for cameras. Kodak is an interesting case for it has been struggling to turn a profit and was finally able to do so in 2004 after paying for costly restructuring. 2005 sales statistics put Kodak at approximately $14,268M. Along with restructuring, Kodak has been redeveloping its brand name and image to include online photography options and improved kiosks in stores. Nonetheless, Kodak has the number 3 spot with American market share equaling %16. Within the past two years, Kodak let go of its outsourced production facilities in China to a company called Flexitronics. Overall, Kodak has some more recovering to do for the company still suffers from limited distribution channels satisfied mostly through 3rd Party contracts to sell Kodak products.

Sony Corporation acquired another of Canon’s competitors called Konica Minolta Holdings, Inc. Sony currently sits at the number two spot in the world market with at least 17% of its sales coming from the US and totaling $63,541.2M. Sony is Canon’s strongest competitor due to a rather large brand awareness and intense customer loyalty and currently holds 17% of the American market. Production facilities include locations such as England and China.

SWOT:

The market for digital cameras is expected to decline as it reaches a saturation point by 2009. Maintaining 10% growth will be difficult at best which means diversification and total product solution will be key to Canon’s survival. Canon started this process in the 60’s with the creation of the Business Machines Division. In this division, Canon is not a market leader but is a strong competitor. According to IDC, HP and Xerox are the market leaders while Canon fits in with numerous other competitors in terms of market strength but lacking the more versatile approach. (Corsetti, 2003) The theme shift towards customers doing more with less indicates where strategy will have to focus to include customer options and full package deals to anticipate customer future needs. This is something that Canon, Inc realized and has initiated by not always selling the most advanced products but those that can offer the customer what it needs (Canon Aim, 2004). This represents one of Canon, Inc’s main strength as it shows company flexibility and willingness to change in the environment it works. Another example of Canon’s willingness to implement change comes with their staffing policies. Canon has subsidiaries all over the world and is always attempting to streamline processes. For example, in Europe, Canon has implemented a new HR system that focuses on creating tomorrow’s workforce vice today’s through an HR program and process that allows potential future candidates to indicate what their requirements for employment are. After this is reviewed by the company, the same system will contact the potential employee the job opportunity and send the results to the recruiting manager (Weekes, 2005).

This strength can be taken directly from the company philosophy of kyosei. Kyosei defined as “living and working together for the common good.” Started working on green initiatives and in 1997 initiated green procurement standards. Thus Canon is attempting to create in house and procure environmentally healthy products that do not cause harm to the enivronment and helps people around them. This is embedded into Canon’s corporate history and culture through in the 40’s when Canon created an X-Ray camera for hospitals to start the search for and detect signs of pulmonary tuberculosis.

Innovation that builds knowledge base and cycles back on itself as is the case with the plain paper copier where R&D was performed to create it. The market was pretty saturated when the product came out but what was taken away from the process allowed Canon to move towards the mini-copier, minitizaration in general combined with a streamlined program management system. The knowledge base created allowed them to build upon future technologies like the laser printers and is yet another strength possessed by Canon. Furthermore, how they perform innovation is important by putting designers and manufacturers together and keeping researches with the product line until it is successfully

manufactured (“The Japanese Approach to Innovation, 1996)

A final strength that Canon holds is an excellent history of grasping emerging technologies and market trends. Canon started simplifying its products when the occupation of Japan was ongoing starting with its name. Originally known as Kwanon, the name was changed and simplified for it was easier for Americans to say (Canon Website,2007). Other emerging technologies included VCRs and photo-copiers both of which Canon made products for.

Figure Eight: 1934 Logo with goddess Kuan Yin

The main weakness that Canon holds is that it is a very conservative and traditional company in terms of its employees. Yes reforms have been instituted as described above but as the market saturates, Canon will need to ensure its number one spot through competitive recruitment and bargaining for competitor employees. This will help ensure that Canon has the best in employee resources and creative thinking. Currently Kodak employs this tactic which could end up helping the company if and when they complete turn-around procedures.

There are several opportunities available to Canon, Inc. at this time. The largest opportunity is Japan in itself. Canon, Inc. could start acquiring and merging with competitors to tighten and control the market more. Currently the Japanese economy still supports such a function. “Japan's strong technology-based industries offer a multitude of opportunities for foreign companies looking to partner with Japanese firms at all stages.” (JETRO, 2007) The second opportunity provided by the home-country is the weak Yen. The weak Yen is increasing sales abroad even though consumption in the domestic market is currently decreasing. This would be an excellent counter opportunity to a known threat and opportune time to solidify the company’s position for when the Yen grows in strength again and exports rise. Another opportunity is presented by the market through the digitization that the industry is going through. Canon has already demonstrated an ability to successfully digitize and could lead the way in future designs and capabilities of digitized product lines.

Major threats to Canon include the rising wages of Japan itself. These wages may put increased pressures on the company and cut profits. Rising wages will also erode supply-chain efficiencies with the keiretsus while providing a compound threat that must be navigated as the keiretsus are slowly dismantled throughout Japan. Another employment threat is the eventually stopping of the lifetime employment practice resulting in a huge and detrimental loss of knowledge base that Canon has built up over the years. This is perhaps the biggest threat that Canon faces not only for the knowledge loss of people retiring but of also people being pulled by other competitors. Nikon was already successful in pulling a Canon employee to rework Nikon’s marketing campaigns in an effort to build market presence. Another threat to Canon, as mentioned above is the saturation of the market resulting in decreasing consumption. If Canon is not successful in navigating the saturation and shifting into new markets the company will not survive. Finally, the other large threat to the market is the emergence of camera phones. Camera phones are convenient, multi-purpose items that have increased in popularity in a very short time. This will limit the market to all competitors.

Part III: Cultural Analysis

Geert Hofstede’s Five Cultural Dimensions for Japan:

Figure-Nine: 5 Cultural Dimensions Chart

PDI: Power Distance Index Defined

“High power-distance cultures have a tendency towards centralized power with hierarchies in organizations and large differences in salaries and status between individuals. Subordinates in the organization are expected to do as they are told and teachers are viewed as possessing wisdom and are automatically held in high esteem.” (Tylee, 2001)

This number is generally higher for Asian countries with strong influences in Confucianism than for other worldviews. This number is not surprising given Confucianism theology that dictated proper relationships and strict household lifestyles and societal rules.

IDV: Individualism

Defined as the group mentality, it stresses harmony within nature and harmony within culture more than individualism. “Collectivist cultures value harmony more than truth, silence more than speaking, and there is a striving for the maintenance of 'face'. Shame is used to achieve the behavior that is desired. In the workplace these cultures value training, skills and the intrinsic rewards of mastery. In society the emphasis is placed on collective socio-economic interests over the interests of the individual.” Nothing may represent Japan as a whole than individualism. Throughout the semester we have read about Japanese negotiations and the need for silence and patience which can be a difficult trait for Americans. This cultural analysis shows why it is important.

Masculinity:

Defined as traditional “roles” being maintained, I would challenge the high result of this factor. Japan is in a cultural shift and whereas I believe this would have been the case twenty years ago or more it is less so now. Women are increasing in their purchasing power resulting in an increase in societal power. Women are challenging the norms and staying in the workforce longer and delaying the starting of their families. This is one reason the birth rate is at 0%. Japan is in a flux of change and I expect this number to drop when next analyzed.

Uncertainty Avoidance Index:

Like the masculinity index, I believe this number is also changing. This is most evident through the analysis of lifetime employment opportunities. The strongest asset remaining to keep this number high would be the entrance examinations for they are a great example of living to expectations and resisting that uncertainty. While changing as well, it is still very taboo and difficult to hold the status of a socialite in Japan and not be productive in terms of society.

Long-Term Orientation:

Based of thrift and perseverance, this element may help explain periods of history of such economic expansion as was found after World War II. Japan was devastated but the country pooled its resources and abilities effectively to rebound back with a vengeance while moving towards the restoration of reputation and the saving of face that was lost through defeat.

Business Customs and Traditions:

There are several business customs one should be aware of when attempting business ventures. Jodie Gorrill lists a few of these customs. First and foremost is the exchange of meishi or the business cards. There is a particular way to hand a business card over to the new associate and one should never take the business card and put it in the back pocket for it is a sign of disrespect. Also attempt a bow unless the Japanese individual puts out their hand for a handshake. The bow is the greeting in Japan for Japanese do not like personal contact. Eyes should be lowered (not looking at the person to whom the bow is being given) for it is also a sign of disrespect if they are raised and a sign of challenge. Gift giving is a part of Japanese custom and must be appropriately done. Too big of a gift will make the recipient feel obligated to return the favor creating the potential for a gift-giving war. Other things to be aware of is the style of dress particularly in business as being very formal with the majority of people wearing suits every day. Long hours are still expected even though the job climate is changing as well as notions of seniority. Education is an important facet of Japanese culture but one must be aware of if the company stresses education over seniority of vice versa. That will determine where greetings start when attending meetings.

Part IV: Implications of Doing Business in that Country

Twenty years ago, implications of doing business in Japan would have been very different. Japan nearly entered into a trade war and placed voluntary restrictions on themselves to not risk closing the American market to Japanese exports in the 80’s. This is just another example of the strength of the Japanese will to be successful and build strong economic bonds to allow for its security.

Japanese goods have also matured and where once quality was an issue Japan was able to effectively institute total quality measurements throughout the world with concepts of Just-in-Time. Thus with all of this, implications of business with Japan are good. Japan is not likely to drop into political chaos similar to man developing nations may with long histories of internal strife. Economically she is a strong nation but high public debt and continued resistance to reforms may cause some headaches for people doing business in Japan. Japan is aging and that may be the largest impetus for the shifting cultural view whereas companies no longer stress life-time employment and women remain in the workforce longer to aid to the family’s checkbook. Furthermore, Japan is a high-tech country with a good infrastructure built aiding in economic profit awareness. However, the largest impediments for business implications in Japan would be the competition face by outside companies due to a highly-educated and highly competitive country bound on being very successful; this combined with a homogenous society that may hide a darker underbelly in areas of discrimination and relations with foreigners. It is not an easy walk to be successful but the stresses are different then in an emerging or fledging democracy found elsewhere.

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