Why did Fuji and Xerox Merge? A Case Study

Motives for Establishing the Joint Venture Between Fuji and Xerox

Conflicting policies between Japan and the West prompted the Fuji and Xerox merger. Japanese companies wanted to acquire Xerox’s xerography licenses, but the strategy proved commercially unviable. Later, Xerox identified Japan as a viable market. However, Japanese regulation restricted their venture into the region, which required the company to sell its products through a joint venture with a local firm (McQuade and Gomes-Casseres 3). Hence, the merger facilitated the exploration of the Japanese market, which could not have been achieved if the firms worked individually.

Differences in the products offered by Fuji and Xerox necessitated diversification. Initially, Xerox globally held the rights to the xerographic technology. The merger included the company giving rights to Fuji to produce the Xerox copiers in Japan and sell them to the Asian market. Fuji would then pay royalties and half of its proceeds to Xerox (McQuade and Gomes-Casseres 4). Fuji thus diversified from photographic film to making photocopiers. On the other hand, Xerox expanded its market segment. Therefore, Fuji realized horizontal growth, while Xerox benefited from market diversification. Davies and Hobday assert that diversification is one of the strategies embraced by firms for either defensive or offensive reasons (78). Notably, the merger between Fuji and Xerox enhanced profits while the companies enjoyed economies of scale. Consequently, the firms mutually benefited from implementing the diversification strategy.

The variances between the needs in the Eastern and the Western markets were an inspiration for the merger. Xerox mostly concentrated on Europe and the U.S. as its main markets. The regions had almost homogeneous qualities, including clients’ tastes, methods of product distribution, and economic development. Fuji had more experience in the Asian market and could detect and adjust to local market trends. As a result, each firm could conform to changes in competition in their respective regions. For instance, Xerox did not find the need to manufacture small copiers and focused on large-scale users, while Fuji ascertained that small copiers were indispensable in the Japanese market (McQuade and Gomes-Casseres 5). The process of merging reduced the need for extensive research about markets. Thus, the likelihood of successful entry into unexplored regions was improved.

Factors that Influenced the Negotiation and Implementation Phases of the Joint Venture and their Impact on Success

The joint venture between Fuji and Xerox was founded on trust. The President of Rank Xerox was acquainted with the Chairman of Fuji Photo Film (McQuade and Gomes-Casseres 3). The two belonged to different industries. Despite Fuji being a Japanese company applying to merge with Xerox, the latter felt that the relationship between the two leaders provided a strong foundation for the merger to thrive. The friendship implied that the firms would be dedicated to protecting each other’s interests and striving for collective financial and operational success. Therefore, enthusiasm was evident in the several instances they negotiated to settle their differences.

The provision for Fuji Xerox to operate autonomously was a marketing capability for the merger. Fuji was located in Japan, where new domestic entrants into the market posed a notable threat since they understood the needs of the local people better than Xerox did. Fuji could identify the imminent intensified competition in time and recommend strategies to counter it. Accordingly, the independence granted to Fuji during the negotiations contributed to its success.

Fuji and Xerox emphasized the need for quality products to satisfy the expected market to grow exponentially. The merger would face vigorous competition from firms such as Canon. Notably, high-quality production endorses marketing competency (Pride and Ferrell 272). Engineers from Fuji Photo Film, who were initially to manufacture copiers for Fuji Xerox’s Eastern market, had to receive training from Xerox (McQuade and Gomes-Casseres 4). Consequently, the products’ quality could not be compromised. The process of local production in Japan was systematic, whereby Fuji Xerox could, at first, import fully manufactured copiers from Xerox, later assemble imported parts locally, and finally, manufacture the entire products with the assistance of skilled engineers. Eventually, Fuji Xerox took over production from the contracted Fuji Photo Film to bear full responsibility for the production process. Therefore, the firm’s commitment to high-quality production during negotiations enhanced the merger’s success.

National Culture Distances Between Fuji and Xerox

National culture distances between Fuji and Xerox were restrictive to the establishment of the merger. The Hofstede model provides five areas in which the differences can be categorized, including individualism, power distance, masculinity, uncertainty avoidance, and long-term orientation (de Mooij and Hofstede 88). Differing organizational cultures between merging firms can be constructive or destructive. As a result, Fuji Xerox management had to be decisive on the most appropriate approach to adapt to ensure less conflict and more productivity.

Both Xerox and Fuji had relatively equal levels of individualism. Top managers were more independent during the first steps towards merging. The merger was actualized when the two leaders agreed based on their friendship (McQuade and Gomes-Casseres 3). Decision-making then shifted to the merger directors. However, the distinct contributions of the two firms demanded that each would present its opinion. The level of individualism then shifted, and managers from both firms became more interdependent and consulted before communicating their company’s position. The arising conflicts between the two teams led to the formation of the Codestiny Task Force. Accordingly, the two organizations had a similar transition in individualism.

The cultures of both firms were inclined towards uncertainty avoidance. Therefore, the two companies conducted due diligence in their engagements. Xerox, for instance, was concerned about Fuji’s insistence on the market of small copiers, while Fuji was convinced that the merger would succeed. Xerox also feared Fuji Photo Film’s capacity to manufacture the copiers, and Fuji Xerox had to assure Xerox that the subcontracted company would perform to expectation (McQuade and Gomes-Casseres 6). Accordingly, all the firms were cautious when addressing risks concerning the market and production.

The two firms had a notably equal level of long-term orientation. They were conscious that the economic environment was dynamic and instituted measures to remain sustainable and profitable. The decision to merge was triggered by the companies’ willingness to prepare for the future that was about to experience intense competition and globalization (McQuade and Gomes-Casseres 6). Each of the two firms had objectives that determined the most suitable strategy Fuji Xerox would embrace to capture a broader market and optimize the cost of production. Their dedication to adjusting to new conditions was outstanding.

Steps for Bridging Gaps between Fuji and Xerox, and Successful Implementation of the Joint Venture’s Goals

Gaps between Fuji and Xerox arose due to the ideological differences prompted by access to discrete information sources, conflicting objectives, and a misunderstanding resulting from the widening profitability gap between the two. The gaps usually led to mediation initiatives chaired by a task force (McQuade and Gomes-Casseres 2). However, the compatibility was not consistent, and it could thus adversely affect the merger’s sustainability (Burchell and Darl 34). Hence, to bridge the gap, the task force was contracted in three instances.

One of the steps for bridging the gaps would be establishing a platform on which information could be shared freely. Fuji was knowledgeable about the policies and markets in Asia, while Xerox understood the conditions in Europe and the U.S. Despite the two working in a merger, they shared information discriminatively. For instance, Fuji invested heavily in research and development while still relying on the basic research Xerox conducted (McQuade and Gomes-Casseres 14). Eventually, it developed new technologies that made it an innovation leader in the industry. The two could have avoided differences if Fuji would have shared the market information it gained from its research.

Another step would be to institute a permanent dedicated team to redefine Fuji Xerox’s objectives. The two firms had vague goals; therefore, their leaders initiated a framework to enhance cooperation between them by launching the third Codestiny Task Force. One of the conflicting strategies was that Fuji desired to exploit the low-end market, while Xerox aimed at the high-end. Another management issue was that Xerox considered their relationship asymmetric (McQuade and Gomes-Casseres 2). Therefore, an overhaul of the entire merger mission was paramount.

Lastly, the two should have restructured their financial engagements. Xerox suffered due to court battles and ineffective strategies. On the other hand, Fuji employed strategies that enabled it to increase its profits. The availability of reserved capital meant it could venture into research, improve its production capacity, and develop at a higher rate (McQuade and Gomes-Casseres 12). The success of either of the two determined the fate of Fuji Xerox. Subsequently, Fuji had to rescue Xerox to avoid the collapse of the merger. Despite Fuji contributing more to the revenue, the proceeds and shareholders’ wealth were not adjusted accordingly.

 

Works Cited

Burchell, Noel, and Kolb Darl. “Stability and Change for Sustainability.” Business Review, vol. 8, no. 2, 2006, pp, 33-41. 

Davies, Andrew, and Michael Hobday. The Business of Projects: Managing Innovation in Complex Products and Systems. Cambridge University Press, 2005.

De Mooij, Marieke and Geert Hofstede. “The Hofstede Model: Applications to Global Branding and Advertising Strategy and Research.” International Journal of Advertising, vol. 29, no. 1, 2010, pp. 85-110.

McQuade, Krista and Benjamin Gomes-Casseres. “Xerox and Fuji Xerox.” Harvard Business School Pub. Corp, 1991, pp. 1-29.

Pride, William M. and O. C. Ferrell. Foundations of Marketing. 3rd ed., Houghton Mifflin, 2009.

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