Photocopier Industry Analysis

The problem with the photocopier and printer industry is that it is almost to a
saturation of point. Competition is growing, in a market that is dwindling. The large
players within the market are looking for fresh markets to implement their new
technologies. To customers, photocopiers are seen as being homogenous; which in turn
makes competitive advantage hard to come by. Even though the industry attractiveness
and outlook is not the brightest, Ricoh has found a way to continually grow (Ricoh’s
Plan).

In 2000 the photocopier industry grew only 1% but Ricoh’s share of the market
grew 8.7%. Xerox is known as the document company, but Ricoh wants to be known as
the company that puts all of its emphasis on the end product. Ingolia, a top manager
within Ricoh, said in his opinion the copiers that we know today will be non-existent by
2005; therefore Ricoh does not want to be known as a copier company.

New entrants are not a large concern within the copier industry. Barriers to entry
include large capital expenditures to start up a company capable of producing high-
quality digital imagining machines. But, these barriers can be easily overcome for a
company that is already established in the technical sector (Illustrative Marketing, 2003).
Building copiers is generally not a complicated task because there is no real proprietary
technology that is impossible to imitate. (Copier Industry, 2003). The technologies are
broadly understood and easily imitated. But the initial investment to enter the industry is
very high due to economies of scale. There is also a lot of brand recognition in the copier
industry. Offices do not want to settle for a second rate name that will not perform as
well as a name like Ricoh. Threat of new entrants is currently fairly weak.

The threat of substitutes is high. Like most industries the copier industry is not
immune to substitutes. Ranging from the archaic way of writing something down to the
high tech scanning and electrical creation of documents. There are new technologies
coming out every day claiming to be the new ‘all in one’ total office solution (Yahoo!
News, 2003). Ricoh has attempted to curb this with its All Office Coverage networking
solutions. But there are still many companies that offer the stand-alone products that
many want. Outsourcing document work is also making a surge in the market
(Smartsims Technology). Also many offices are switching to a philosophy where paper
is not needed. The use of email has all but removed the need for fax and post. A
customer may not need to go make the large purchase of a copier because of the many
substitutes available to them.

Competitor Strategies:
Recently, Canon has decided to concentrate on enterprise-wide document and image
management-copiers, printers, faxes, scanners. The aim of Canon was to start competing
directly with Xerox, and to try to get a part of this high-end segment that Xerox has
dominated for the past number of years. Its share of the U.S. laser copier market grew
from 13.3% in 1998 to 36.6% in unit sales last year. Xerox's share went down from
38.3% to 14.2%. At the same time Canon has become more competitive than Xerox in
the high-speed digital copier market.
Here we have seen how the company is being competitive and how it has began to
differentiate from its competitors. In fact, Canon has entered a new market very easily
because of the high amount of capital it was able to invest. The company tends to
differentiate its brand, making itself stronger in comparison to the others, since this
differentiation seems to work. The company has become the leader of the market in a
short time, which shows how aggressive it can be. Xerox has a differentiation strategy
concerning its management because they recruit, hire, train people from different
background, skills, sex, race, age… Xerox has a favorable brand image, its brand stands
for quality, technology, good service. Xerox strives to build a unique brand name that
eventually will become intimately identified with the product category such as Kleenex
or Hoover.

Financial Ratios:
For the sake of analysis, Ricoh is being compared to two of its main rivals, Canon
and Xerox for the years of 2000, 2001 and 2002; although the financial information for
Canon and Xerox were unavailable for the operating efficiency measures for the year
2002. After an overall financial analysis, the numbers prove that Canon is the overall
industry leader; but Ricoh seems to be the most financially stable.

Profitability Ratio: Operating Margin can be defined as the amount available to cover
the cost of taxes, interest, and income (Financial Statement Ratio Analysis). The ratio is
found by dividing operating income by net sales. Higher profitability ratios are better for
the company (Clark 2003).
Operating
2002 2001 2000
Margins
Ricoh 7.8% 6.8% 6.1%
Canon 11.8% 9.7% 8.8%
Xerox 1.6% 7.2% 4.9%
(www.hoovers.com)
As it can be seen from the table, Canon has the highest Operating Margin, with Xerox
and Ricoh following significantly behind. In 2002, Xerox's profitability margin
tremendously decreased placing it further behind all its competitors.

Operating Efficiency Measures: Asset Utilization calculates the amount of sales gained
by each dollar of asset (Financial Statement Ratio Analysis). Asset Utilization is
calculated by dividing the net sales by total assets. An asset utilization ratio that is higher
than normal indicates that the company is able to increase sales better and faster than the
average company (Clark 2003).

Asset Utilization 2002 2001 2000

Ricoh 0.912 0.902 0.938
Canon n/a 1.022 0.982
Xerox n/a 0.614 0.634
(www.hoovers.com)
Once again Canon has the highest ratio in 2002, with Ricoh closely following, and Xerox
very far behind. However Ricoh and Xerox both experienced decreasing ratios from the
year 2000 to 2001; Ricoh recovered somewhat, but not to the level it held in 2000.

Liquidity: Current Ratio indicates the ability of a company to pay its short term creditors
from its current assets therefore indicating fixed assets will remain intact (Debt to Equity
Ratio). When analyzing current ratios, it is best to look for ratios above 1:1 but as close
as 2:1 as possible. One problem with the current ratio is that it ignores the timing of cash
received and cash paid out (Clark 2003). Current Ratio is found by dividing Current
Assets, by Current Liabilities.
Current Ratio 2002 2001 2000
Ricoh 1.297 1 1.317
Canon 2.13 1.909 1.715
Xerox 1.42 1.228 2.078
(www.hoovers.com)
Canon is controlling this area as well with Xerox, and then Ricoh lagging behind,
although Xerox experience almost a 0.8 decrease, and then recovering slightly in 2002.
Ricoh declined 0.3 between 2000 and 2001, but made most of the loss back in 2002.

Leverage Ratio: The debt to equity ratio can be used to estimate the amount of debt a
company can carry based on the equity invested in the business (Financial Statement
Ratio Analysis). This ratio also explains how the firm is in debt by comparing what is
owed to what is owned. A high debt to equity ratio could possibly indicate that the firm
may be over-leveraged, and should look for ways to reduce the level of debt (Clark
2003).
Leverage
2002 2001 2000
Ratio
Ricoh 0.887 0.892 0.78
Canon 0.900 0.203 0.301
Xerox 5.8 6.913 4.371
(www.hoovers.com)
In comparison to our competitors, Ricoh is closely behind Canon in their debt to equity;
while Xerox is far behind both its competitors. Xerox should consider ways in which
they could decrease their debt and lower their leverage ratio to be closer to Ricoh and
Canon.

In conclusion, Canon has proved to be the leader in the copy machine industry by taking
control of the ratios that were analyzed above. Ricoh seems to have a steady position in
this industry, and their margins have been slowly increasing, at least, since 2001. By
analyzing Xerox's ratios, most of their margins have been decreasing since 2001. The
profitability ratio for Xerox is very low in comparison to Canon and Ricoh. Overall,
Canon and Ricoh are more competitive than Xerox.

Recommendations and Strategy

Corporate Strategy

Growth- A growth strategy is optimal because there are opportunities within the market
to takeover some other companies’ shares. The plan would be to takeover Xerox market
and cut into Canon’s market share. It is understood that the copier market is not the
strongest, but there are many opportunities within the industry for growth. Along with
continuing to fund the long-term commitment to research and development Ricoh will
focus on concentric growth.

Concentric (related, diversification) Growth – This choice is due to our strong

competitive position, but the low industry attractiveness. So we also recommend
moving into a more attractive sub-category, which is the SOHO/consumer printer
market. Maintain acquisition strategy. Also look for an opportunity for production
sharing. The suggestion is due to the analysis of the operating margins of the main
competitors. Working with a smaller company to produce some of the parts could
help us reduce those margins. We should look for an opportunity to combine our
high tech labor and production skills with a lower cost labor. Demand for small
office home office printers is on the rise. Ricoh is not as well known in that portion
of the industry, so a suggestion would be moving into the consumer market by way
of large consumer electronic stores.

Business Strategy

Competitive Strategy- We recommend a strong competitive strategy in order to

maintain a defendable position with in the industry, and to give Ricoh a chance to
outperform Canon and Xerox. We think this can be achieved by implementing a Lower
Cost Strategy.

Lower Cost Strategy- We believe that using Ricoh’s knowledge and experience from
the professional grade printer and copier line. Ricoh will then be able to create a lower
cost product that will be comparable to Canon’s SOHO printers and copiers.

Functional Strategy

Marketing Strategy- As we said our corporate strategy would be based on the expansion
of printers towards home consumers, Ricoh should use a Product Development
Strategy to push their SOHO printers and copiers. The marketing should be
aggressive in order to have better brand recognition. People always hear “ I’m going
to Xerox these papers”, this is the type of recognition we aim to achieve. This will
be accomplished by utilizing print advertising in specific trade journals; for example
entrepreneurial trade magazines as well as everyday consumer magazines. Their
printers should be available in the retail stores where consumers can choose between
Ricoh, Canon or Xerox.

R&D- Continue with the current philosophy of substantial investment into R&D.
Operation Strategy -Due to the high level of competitive intensity we should use a
continuous improvement strategy, which focuses on work teams who constantly
strive to improve the production process.

Human Resource Strategy- According to the report of Ricoh 2002, it has been proven
that they do not employee many females. This fact could be judged as discrimination
in America or in Europe. Human Resource Strategy needs to be looked at on an
individual regional basis, but the overall emphasis should be to hire skilled
employees cross-trained to work in self-managed teams. This allows the problem to
be examined by people from different backgrounds. Diversity brings creativity
therefore it is a key to continuous innovation. In some areas it is understood that
teams are not the best way to go, so in those areas a new philosophy must be made.
An overall HR strategy for a company that is all over the world, as is Ricoh, is very
difficult to propose.

Conclusion:
In this analysis we have seen Ricoh as a high-ranking company in its industry.
Nevertheless we recognized that Ricoh’s corporation could have issues to insure its long-
term profitability. As shown, most of the problem comes from its brand awareness, which
drives competitive weaknesses to our company. Those have been illustrated by the
analysis of the company’s ratios, where some of its competitors were doing better. At any
time we tend to say that Ricoh’s corporation is not a quality company in the electronic
field, but we just showed that it wasn’t using its full potential with making strategic
errors. We only tried to correct those, with giving new ideas for the company success
trough our recommendations.
Appendix
SWOT ANALYSIS:

STRENGHS WEAKNESSES
-Research and Development: Ricoh has a Weaknesses:
high budget to remain a technology leader - Distribution channels: Ricoh has a
in environmental technology research, narrow distribution channel, so they do not
image communication advances spend a large amount of money on
(www.ricoh.com, 2003). advertising for the average consumer.
-Employees: 74 200 employees which However, Ricoh mainly deals with large
represents the highest number in this companies in the office equipment
technological segment (www.ricoh.com, segment.
2003). -Brand awareness: In Europe, the Ricoh
-Ranking: Number one on the global brand is not well-known at the level of
market of monochrome copiers that small consumers. Indeed, it is not possible
includes results of its subsidiary NRG to find a printer of their brand in Carrefour.
(Nashuatec Gestetner, partner of Ricoh). Also, the promotion of its new products is
(www.parabole.com, 2003). limited and targets only the business
-Increase of sales: Since 1997, Ricoh’s magazines such as Capital in France.
group has been increasing its sales, and -International presence: Sales are higher
reached 446,894 million yen in 2001. Also, in Japan than in another countries.
the sales in the copiers segment are Therefore, the company could improve its
impressive and got to 1,038,495 MY in the presence in Europe by making more
same year. Rank to 377 by Fortune, mainly acquisitions, and strategic movements. It
because it made a big push into the U.S may be convenient to develop this strategy
market, buying Lanier Worldwide, that in order to make more joint venture and be
permit a 28% increasing in profit, to $481 more known worldwide.
million (www.fortune.com, 2003).
-Sustainable management: carries out the
most effective method of improving the
quality of its products and business sites in
major environmental conservation areas
(resource conservation, recycling, energy
conservation and pollution prevention)
(www.ricoh.com, 2003).
-Products: Offers a large range of products
which includes (copiers, printers, fax
machines, personal computers, CD-
recordable…) (www.ricoh.com, 2003).
-Internationalisation: 404 subsidiaries and
affiliates in Japan, North America, Europe,
Asia and Oceania. In each of those places,
there are manufacturing and Research and
Development facilities (www.ricoh.com,
2003).
OPPORTUNITIES
- Copiers/printers/fax : These segments
will still increase in Japan because it is a
written culture. They like to have all
information on the paper.
- Consumers want to follow advance
technology, and they like to have the last
product of their favourite brand name.
- Electronic features becoming more and
more simple to use, and offering us at the
same time more integrated solutions.
- With the apparition of Internet, the
number of paper printed has known a boost.
- Augmentation of using Digital Camera.
THREATS
- High competition : large number of
competitors such as Canon, Xerox, HP…
- Copier market is highly sensitive to
economic trends. During economic
depression businesses are less willing to
invest in assets and companies may use
equipment that they already have.
Therefore, investments are discouraged.
- IT services in companies, focus on the
high costs of printing and want to find
substitutes to reduce them.
Yahoo! News - Ricoh 3rd-Quarter Net Up, on Track for Record Year (February 5, 2003).
Retrieved February 12, 2003, from
http://story.news.yahoo.com/news?
tmpl=story&u=/nm/20030205/tc_nm/tech_japan_ricoh_dc_2

1. Illustrative marketing Plan (n.d).

Retrieved February 12, 2003, from
http://mot.vuse.vanderbilt.edu/MTEFILELIB/MarketingPlan/Illustrative_Marketing_Plan
.html

2. Smartsims Strategy (n.d).

Retrieved February 12, 2003, from
ftp1.smartsims.com/mike/v56x/resources/ ppt/StrategyMBppt.pdf

Ricoh’s Plan
http://search.epnet.com/direct.asp?an=4205645&db=buh