Canon’s Reverse Thinking Shakes Up Production

The market was astir on April 9 after the closing of the Tokyo Stock Exchange. Sony, which had reigned over the market as Japan’s top company for the last half century, had been pushed to second place in total market value by Canon.

While Sony’s total market value had dropped to 3,720,300,000,000 yen, Canon rose to number one in the electronic device section at 3,745,100,000,000 yen. The Japanese media reported, “Canon has replaced Sony as Japan’s top high-tech company.”

This is a shocking turn of events, because just six years ago, in 1997, Canon’s total market value amounted to only one-fifth of Sony’s. Now, with Canon’s growth and Sony’s slump, the gap between the two is growing wider with Canon in the lead.

Japan Marvels at Canon’s Winning Streak: With its net profit of 197 billion yen last year, Canon is expected to post a net profit of over 250 billion yen (after tax) this year. This means that it will break its own record for top profit five years in a row since 1999. The record shines all the more brighter for it is happening amidst a long recession that is putting many top Japanese industries in difficulty.

The reason for Canon’s success is its satisfactory sales of office devices such as copy machines and scanners, followed by the hit of its new digital camera. Thought it does not have a wide assortment of products, Canon has a firm structure where all of its products, including color copy machines and laser printer parts, earn profits.

Thinking in Reverse: After CEO Fugio Mitarai took the helm of the company, Canon banished conveyer belts, a symbol of U.S.-style mass production, from its plants. The reason was that the monotonous operation speed, with no consideration to the employees’ capabilities, got in the way of skilled workers from doing their best.

In its place, Canon established a cell method where a few employees worked as a team to take responsibility in producing a product from the beginning to its completion. They took notice of the fact that this enhanced workers’ efficiency because it was less monotonous than the former method of repeating simple tasks.

“We decreased our inventory and distribution costs by controlling our production volume for each product according to the global market demand.” said Canon personnel.

Also striking is its decision to walk a different path from the majority of corporations that are rushing to China. Canon has, on the contrary, decided to launch an automatic production line for low-price electric devises in Japan that were originally produced in China. The reasoning behind this decision is that though labor costs are cheaper in China, production costs will drop if everything is automated. Considering the fact that consumers from advanced nations have a negative view of products made in China, the “Made in Japan” label is expected to have a positive effect.

“Let’s Learn from Canon”: After CEO Carlos Ghosn revived Nissan from its near-bankruptcy condition through layoffs, the belief that “the only way to survive is through western management methods” expanded through the Japanese business community.

Canon is an example that will put the brake on this belief. They are living proof that profits can be made without firing anybody, and economists are excited that “a 21st century Japanese management model has been established.”

Canon has managed to raise its R&D investment to eight percent of sales and was second in the number of patent acquisition within the US last year, topped only by IBM.

CEO Mitarai is a rising hero to the Japanese, whose pride as the “world’s second largest economy” has been hurt due to its long-term recession.

parkwj@donga.com