Case discussion on Xerox Corp of USA (XX) Fuji Xerox (FX) 1960- 1990.

Other short forms: Rank Xerox (RX); Xerox GROUP (XG)

Key Case Facts
Xerox Corp
- XX discovered xerography. This was a major advantage as long as the exclusive patents lasted
(till about 1972). Xerox engineers seem to carry the mental baggage that their research skills are
superior
- XX was lost in 1972-1982, wandering off to financial business and exiting, while competitors
grew from strength to strength in copier business
- However, in fact XX is strong in basic research
- XX is strong and strongly focused in the high-end copier business
- XX is a key customer to FX, enabling FX products to reach US customers
- XX has benefitted from FX by timely provision for smaller copiers in the US market, copiers that
were produced by FX and just assembled in the USA
Fuji Xerox
- FX focuses on the small copier market, and not so much on the high-end copier (though, it could
be a matter of time before FX may come up with a miniature high-end copier)
- FX built very good products in the small copier space
- FX requires much less time than XX to bring out new products. Cost of production is low as well
- It is restricted to sell only in Japan and a few neighboring countries.
- RX sells in other APAC countries, often the stuff originally made by FX and shipped to RX in UK
- FX feels more constrained in competing with Cannon, which can compete worldwide. FX feels it
should be assigned a bigger market so that it can get into volume competition with Cannon
Interaction between XX, FX, RX and competition
- Originally, XX did not allow outright sale of copier machines. This was a damper for FXs target
segment, the users of small copier machines. After the FTC action, XX removed the lease only
condition
- FX and XX seem to do well when cooperating in R&D, less so when cooperating on
manufacturing, and even lesser for marketing coordination/ cooperation
- XX has also RX to think about, when considering any request to broadening FXs scope.
Historically RX had been the via media for XXs foray into Europe. Like Japan, the Euro zone
market is also somewhat difficult to penetrate without a local partner. Nothing in the case

suggests it was not so in 1990. But the case does not explicitly mention the difficulty regarding
entry into Eurozone1.
Cannon is building up pressure at low-end and mid-segment. Cannon appears to be decisive,
since it is under one management control
Other players like RICOH are also upping their game

Is the RX factor relevant, or has RX outlived its shelf-life

- The RX element is salient too
o Given that RX plays a role in accessing European market (and that it is 1990 in the case,
i.e., pre-Euro time, when there were lot more trade barriers)
o Given that RX had helped XX grow in its early stage, when XX did not have money to
expand, just fire in the belly and some patents
o RX had even been involved with FX in its early stage (ref. old British style management)
There is a bit of RX in the DNA of both XX and FX
Thus, it may be outright foolish to simply jettison RX and give its APAC markets over to FX, without
compensating RX in some way. If RX is harmed, Euro zone may decide to shut out both FX and XX, a real
threat. Alternately, if RX is dropped, not only there may be costly lawsuits, RX may ally with a competitor
(say RICOH) and use its deep knowledge of XX and FX to put them in a spot.
Some good reasons why FX may wish to continue with XX
- The feature set that is high-end today, becomes common place tomorrow, i.e., a part of nothigh-end, FXs target market. Being in touch with XX will mean FX can get those things faster
into its offerings, as products and markets evolve
- XX is an important customer of FX. Under normal circumstances one would not like to upset an
important customer
- XX is the via media to getting FXs products to US customers. Without XX, FX will need a lot of
time to build such distribution in the US. In addition, FX may face various kinds of trade
protection measures from the government of USA.
Some good reasons why XX would continue to need FX
- FX is good in process technology, miniaturization, productizing an innovation at shorter time
(compared to XX), and reducing costs over time. The Fuji engineers have been disseminating
best practices over the years. XX may be good in coming up with new stuff, particularly in the
high-end. But, without FX their processes may remain unwieldy, high cost etc.
- FX is XXs access point to the Japanese market. Japan has rich corporations that can buy high
end XX products. Developing someone new could be done, as a last resort.
1

It is quite common for published work to discuss threadbare the faults of Eastern nations (or of the South in
political science, though South generally implies developing or un-developed nations) in constructing trade
barriers. Discussing trade barriers in Europe and the US is less common!

Copiers from Japanese companies are flooding the US market. The Japanese conceive
innovation by serving multifarious needs at home. These innovations win abroad. FX, located,
Japan, is keyed into that innovation chain. XX benefits from having a long standing Japanese
partner. If FX is let go, XX drops a valuable link to the Japanese innovation chain. XX will then be
blind-sighted regarding how Japanese competition will develop in the USA.

What is at stake, in terms of continuance of the relationship between FX and XX

- By being committed to each other for so many years, they have built a large pool of intangible
capability that is unique and valuable.
o Given that US and Japanese firms are so different, their cooperation is unique. It takes
ages to build another one, but just a few acts of selfishness or breaking trust to
obliterate the cooperation
o Given that FX bailed out XX in their worst times, by bringing in innovation (in the small
copier segment) when XX itself could not imagine FX had the RnD capability to do so
o Given that XX and FX complement each other so well, one staying the course when the
other is about to drop the ball and vice versa.
Thus, this alliance is worth continuing.
What are the moot issues? What assumptions need to be made? What is the way forward?
The moot issues constitute the Codestiny III team finding some answers to below questions:
- What differentiates low-end from mid-end and mid-end from high-end, in the copier business?
o Unfortunately, the case does not say much about this, other than high-end copier =>
produces upwards of 100 copies per minute. But, we can deduce that, there would be
some more stuff, related to quick deployment of ink droplets to make pixels on the
paper, characteristics of the paper, withstanding a range of humidity and dust
conditions, etc. all of which require basic research, and strength with software for
controls, XXs strength.
- Which all world markets (APAC, Europe, US) have demand for how much capacities of high-end,
mid-end and low-end products?
- Out of above demand what parts are key competitors like Cannon serving, and not-serving?
Where all are XG members strong and weak and why? Where does it make the most sense to up
the ante on competition, and by what product mix and sales and marketing effort
- What justifies FX products making a round-trip from Japan-to-UK-to-a-neighbor-of-Japan under
the label of RX?2
We may assume that fact-finding on above issues lead the Co-destiny III team to form the premises given
below (these are actually assumptions we make to go ahead with the analysis of the case)

One may be surprised that structure of taxes, duties etc. often make this kind of roundabouts quite profitable!
Example- Capital flows from India to Mauritius, and comes back to India as FDI.

a) That, Cannon and other competitors that are growing in APAC need to be countered with
*some* action by the Xerox GROUP (XG).
b) That, from among members of XG, FX is in the best position, to take definitive action in APAC.
c) That, from XGs perspective, the new deal is structured such that overall interests of XG are not
harmed. This does entail doing only things (in good faith) that will do least harm to RX, XX and
FX. The (a-priori) cross-holdings of shares help in ensuring that.
d) That, RX indeed has non-low-end product offerings in its share of APAC (Australia, Singapore
etc.) market, that is necessary for XG as a whole to continue to keep offering, so that space is
not unwittingly yielded to competition by RX withdrawing from APAC.
Based on the way I have presented my interpretation of the case facts and as elaborated in the
discussion in the two classes (sections E and A) here is what I argue:
Advent of competition by powerful competitors, higher capability of FX, the crucial nature of Japan as
the source for innovations in copier business are the factors that require a reforming of the alliances
within XG. Since the three partners are known to each other for years, the major change that is needed
is in the interaction/ coordination area. However, it is XGs look out that the resultant reconfiguration
of outcomes does not hurt any given partner more than it needs to.
There seems to be a fit case for allowing FX to expand into the whole of APAC. RX needs to be
compensated for the investments it made in developing the market (HK, Singapore, Australia etc.), for
instance by an upfront lump sum license fee and/or certain royalties based on sales into a reasonable
time horizon, say, 1997 or 2000. Henceforth, RX will focus on the European market. Its salesforce,
channel relations etc. in its part of the APAC get transferred to FX3. FX may continue to source high-end
and mid-end copiers from wherever it was sourcing earlier, most likely XX. If sourcing of these from RX
in Europe is cheaper, that may be done as well. Alternately, if XX was shipping to RX in Europe, and
those shipments were then coming to RXs part of APAC, that may continue, or a direct link XX-FX may
be explored, if cheaper. Again, RX should be compensated in the latter case. Further, XX needs to
continue being a benevolent parent / partner (to FX / RX respectively) and a neutral arbiter, as it has
been, all these years.
Students may please note that, just writing the last two paras above does not consider a good case
analysis. The meat of the matter is in the content that appears in the part from page 1 till the
commencement of the last two paragraphs. That is what we spend most energy on, in the class (ref.: the
Socratic discourse method). How one puts together the final recommendation (as given in the last two
paras above) can differ from one individual to another.
In writing a case analysis it is no rocket science to say Do X. Recasting the case information in a way
that it becomes clear (or is persuasively argued) as to why one should do X, leaving aside every other
possible action, is what is key to how one gets evaluated for performance on case analysis.
3

Note that, even in 1990 it was known that the British were to move out of HK in 1997.