Canon Cutting Edge By trimming down to four product lines, it's making record profits

Walk through the gates of Canon Inc.'s headquarters and you might think you're back in Japan's boom days of the late '80s.

With good reason. While much of Japan Inc, is stuck in the past, Canon is busy reinventing itself as a globally focused 21st-century company. Much of the credit goes to its President Fujio Mitarai, who is at the vanguard of a new breed of CEO bent on combining Japanese quality and attention to detail with the U.S. focus on cash flow and shareholder value. Mitarai also puts a premium on providing job security as a way of keeping staff hard-working and loyal. In Japan, at least, he has managed to avoid layoffs.

That doesn't mean Mitarai, 66, shies away from the hard choices, however. He has hacked spending, closed plants, and refocused Canon on four main product lines At the same time, Mitarai is pushing into lucrative consulting work, helping corporations plan and maintain their office machine networks. "Canon is the exception in Japan," says Satomi Ushioda, industry analyst at Nikko Salomon Smith Barney. "It's on the growth track even though its core business is mature."

Can Canon keep up the momentum? There are some concerns. For starters, it can't expect much growth in the near-and midterm in Japan, which accounts for one-third of sales. Furthermore, as the global recession deepens, orders for Canon copiers and printers could tank.

That marked the start of Canon's transformation to a more global enterprise. It became one of the first major Japanese companies to report its earnings on a consolidated basis and to emphasize shareholder value. The stock has tripled in value since Mitarai took over. He also introduced cash-flow management through better budget planning and inventory reductions. Instead of borrowing money for capital investment, as many Japanese companies do, Canon used its own cash.

Mitarai's reforms extended to Canon's factories, 70% of which are based in Japan. The company improved just-in time manufacturing, and introduced other production changes to eliminate waste, while tweaking supply chain management to increase efficiency. This enabled Canon to reduce parts inventory by a third and to cut the number of warehouses.

Business Week

Nip, tuck

One of Europe's finest conglomerates needs more radical surgery

Klaus Kleinfeld, 15 months into his tenure as boss of Siemens makes a good fist of selling his company as an "infrastructure supplier" well positioned to follow "megatrends" such as urbanisation and die growing demand for water, transport, health care, security and power. Yet he cannot disguise the fact that Siemens is for all that an unfashionable conglomerate that some analysts and investors would like to see streamlined further, or even broken up. Some Siemens divisions, such as power generation, automotive parts, or medical equipment, are world leaders. Others such as business services and communications are languishing.

Even if Mr Kleinfeld misses next year's targets, his job is unlikely to be on the line. Despite the impatience of some shareholders to see profits across all divisions — the last year that happened was 2000 — there is a counter-argument in favour of some diversification. Siemens' power generation and medical divisions, now success stories, were once problem children.

But for Siemens' worst businesses to come good — and hence for Mr Kleinfeld to meet next year's target — analysts think he will have to take drastic action: He has already shown he can be tough. Last June he sold Siemens' mobile-phone division to BenQ of Taiwan.

But investors would like to see more streamlining.

The Economist

UNIT 5 CONSOLIDATION

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Great-Grandma Bell Is the once great telecoms company on its last legs?

Churches have altars, royalty has thrones, and AT&T has its network. For over 125 years, this was the source of the telecoms company's power and its most prized asset. Yet as telecoms capacity has become a commodity, the value of owning a network has diminished dramatically. It has forced AT&T to search for new areas of growth, but its prospects are not promising. Last week, the company's latest earnings figures included an $11.4 bn write-down of its assets, forced by a fall in prices due to competition and new technologies. The troubles which AT&T faces are severe. The company earns roughly half of its revenue by charging for long-distance calls, but these earnings are tumbling at around 20% a year and will never recover.

The company is therefore between a rock and a hard place: it must migrate to the more efficient technology without cannibalizing its existing revenue, at a time when there is a plethora of competitors. This dilemma has been predicted by telecoms pundits for a decade, but AT&T never developed a suitable strategy to cope. Its plan now is to slow its decline in income and cut debt by continuing to slash its workforce. It hopes that a better balance sheet will help as it hunts for new business, focusing on large corporate accounts, which make up about 60 % of its revenue. AT&T's foundering fortunes come amid difficulties in the telecoms industry as a whole. America's second- and third- largest long-distance companies are also suffering from the glut of telecoms capacity and the fast erosion of revenue.

The Economist

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Вкус прибыли

«Кэдбери Швепс» (Cadbury Schweppes), по сообщению Би-Би-Си, начала реструктуризацию бизнеса, в ходе которой компания планирует закрыть несколько фабрик и уволить почти 6000 сотрудников. Необходимость в проведении реструктури­зации возникла после того, как в марте этого года компания купила за 4,2 млрд долл. США фирму «Адаме» (Adams) — американского производителя конфет и жевательной резинки.

Теперь многие службы объединенной компании дублируют ДРУ^Г друга. По расчетам руководства Cadbury Schweppes, реструктуризация, затраты на которую оцениваются в 900 млн ф. ст., в дальнейшем позволит компании экономить до 400 млн ф. ст. ежегодно. Одновременно менеджеры компании заявили, что в связи с предстоящей реструктуризацией акционерам придется на некоторое время забыть о ежегодном увеличении прибыли.

Компания

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The Hard Way

If General Electric hoped to buy itself out of trouble, it may have to think again. GE had in three days showcased bold, supposedly business-transforming, deals worth over $25 billion. As investors promptly cut their valuation of GE's shares, however, it was not wholly clear whether Jeffrey Immelt, the firm's boss, was climbing out of a hole, or digging himself deeper in. Mr Immelt has had a torrid time since taking over from Jack Welch, GE's former boss, in 2001.

Waking from the dreamy 1990s, investors discovered that GE was not, after all, a smooth earnings machine that pumped out profit growth of 16-18% a year, but a collection of mature industrial assets bolted to a fast-growing, opaque and highly-leveraged finance business. Worse, thanks to the effect on profits of a bubble in GE's power business and a seemingly overfunded corporate-pension fund, the firm's best days now looked to be behind it. Last year, GE failed to grow its profits at the promised double-digit rate for the first time in ten years. Most likely, it will fail to do so again both this year and next.

The Economist

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Dell

Michael Dell prefers to view his company as a high-tech Robin Hood, delivering cheap prices to "parts of the market where customers are not getting a fair deal."

Michael Dell's mixture of price sensitivity and tech savvy has worked well, especially recently. Its now famous business formula, called the Dell model, includes setting up superefficient factories, keeping parts on hand for only a few days before they're used and selling computers based on common industry standards like Intel chips and Microsoft operating systems. Most notably, Dell cuts out the retail middlemen and sells directly to customers over the Internet.

By its nature, the Dell model requires aggressive expansion. Back in the mid-'90s, Michael Dell would often say he didn't need to enter new markets because the PC business was growing so quickly. Then the Dell model helped uncork the PC's downward price spiral, and suddenly computers were a commodity that everyone owned. "Dell's problem is that it picked a business that you now need to be great in just to break even," says Wharton professor David Croson.

Newsweek

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Nike's New Advice? Just Strut It

The sneaker giant is betting big on a foray into the fickle world of street fashion

When Mindy Grossman took the helm of Nike Inc.'s apparel division three years ago, it was staggering along like a winded sprinter. The New York fashion veteran wasted no time whipping things into shape: slashing costs, consolidating global sourcing, and centralizing design. Her efforts have paid off. While sales at the core footwear business grew just 5%, for the fiscal year ended in September, apparel sales climbed 12%.

But this race isn't anywhere near done. With a host of collections set to hit stores next spring, Grossman, wants to move the sneaker giant well beyond clothes for serious athletes and into the market for sporty street apparel. By combining Nike's high-tech athletic materials with casual fashion, she hopes to gain an edge over other apparel makers in creating "must-have outfits."

Getting it right in the faddish casual-wear market is notoriously difficult. Nike figures it has little choice, and if anyone can pull it off, say industry watchers, it's Grossman.

BusinessWeek

UNIT 6

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