Canon Digital ImagingStrategic Industry Analysis

Devin ArbiterNatalie FergusonCharissa InukaiTai-Wei (David) LinEuclid WooDennis Xie

USC MBA PM – Globe JapanApril 24, 2010

Photographer: Commerciante Di Maiali

Agenda

•Industry Players•Evolution of Digital Imaging•Trends and Challenges•Printer Market•Camera Market•Five Force Analysis•Sources of Competitive Advantage•Competitive Response•Differentiation Strategies•Environmental Analysis•Customer and Competitor Analysis•Recommendations•International Business Insights

Players in Digital Imaging

Evolution of Digital Imaging

Analog/Early Electronics Digital

Cameras

Printers

Enablers

Memory

Processors

Image sensors

Per

form

ance

Time

Trends and ChallengesCannibalization:Cameras encroaching on Camcorder & SLR market

Commodization:Loss of technology as a competitive advantage

• 20.2% worldwide decline

• Growth areaso Managed print serviceo Smart MFPo Document management

software and services

Printer Market

Sources: "Worldwide Printer and Printer Cartridge Sales Market Share and Statistics",  Apr. 12th, 2010, http://news.printcountry.com/2010/04/worldwide-printer-and-printer-cartridge-sales-market-share-and-statistics.htmlMichele Masterson, "Global Printer, Copier, MFP Market Sees 20 Percent Decline in First Half of 2009", ChannelWeb, Aug. 27, 2009, http://www.crn.com/hardware/219500374Andrew Seymour, Printer market jammed by slump in sales", Aug. 27, 2009, http://www.itp.net/566102-printer-market-jammed-by-slump-in-sales

Camera Market

Source: “EMEA Quarterly Market Update Q4 2009 Digital Cameras”, Future Source Consuling, Mar 2010, Daniel Lim, "'Big Two' continue to stomp Digital SLR market in Japan", Dec 31, 2008

Supplier Power (low)-Raw material is commodity priced. -Canon manufacturing fabricates all chips and designs

Threat of New Entry (Low)-The brand identity play a fundamental role in the digital imaging industry-High fixed investments are required to compete on a global level with near commodity pricing-Easy access to the distribution system-Products are protected by patents

Buyer Power (High)-Low switching costs of point and shoot markets and little product differentiation allows buyers to pick the lowest cost option.-Value depreciation of older models allows down market access to technology

Threat of Substitutes (Medium)

-Cell phone cameras are beginning to be competitive in terms of picture quality and functionality-Low switching costs

THE BOTTOM LINE: The digital imaging industry needs to look for ways to differentiate its product or risk product commoditization. With low margins, this becomes a volume based business, which forms high entry barriers and forces out the weakest competition.

Five Force Analysis

Industry Rivalry (High)-The digital imaging industry is reaching saturation with sales declining globally from 2008-present.

-Medium concentration of competitors (Nikon, HP, Kodak, Xerox, Epson)

-Low product differentiation

Sources of Competitive Advantage

Canon harnesses its sources of competitive advantages to be the lowest cost supplier to maximize Ricardian rents.

National Differences:• Low cost production in east Asia• Local manufacturing to avoid

tariffs

Economies of Scale:• 6 manufacturing facilities• 9 R&D labs• 50 Global offices

Economies of Scope:• Fixed costs spread across

$39.4 B in annual sales• R&D crosses every product

line

Non-market Strategies:• Access to low cost Japanese debt

Global Learning:• Share local knowledge from

one country to all others• Test new products in

multiple locations

Global Flexibility:• Best of breed supply chain

management• Global footprint to diversify

unsystemic risks

Competitive Responses

• Cost cutting

• Expand into new area

• Strategic acquisition

• R&D

Amid the harsh global economic climate, further acceleration of technical innovation will play an important role in opening the way to a new era.”

Tsuneji Uchida, President & COO

R&D Expenditure = $4.5B per annum

In order to sustain this differentiation strategy, Canon must focus on marketing its digital imaging products and technologies to the target markets where it can expect to earn margins higher than the industry average.

Technology-based Product Differentiation Strategy

Focus on High Margin Markets

How to Sustain Differentiation Strategy?

• Average income USD $50,000+, above average discretionary spending• Mature market but high concentration of enthusiasts & early-adopters

• Average income USD $18,000•Lower margins products, but higher volume• Potentially “grow” into high margin market

• Average income USD $5000• Thin margins, maximize utilization capacity, economies of scale

Environmental Analysis

15

Environmental Analysis (cont.)

Characteristics of Customer and Competitive Environment

Very high and steady competition

Numerous substitute and accessories available

Influx of newer products

Very loyal customers

Popularity of digital cameras in lower income classes

Purchasing decisions based on features, size and technology

INTERNATIONAL BUSINESS INSIGHTS

QUESTIONS?