Canon
Corporate History & Strategy

In prewar Japan, the camera market was dominated by imported products such as Germany's 'Leica,' and there were no domestically produced high-end cameras. Japan's precision machinery industry was still in its early stages, and domestically manufacturing cameras—which required precision parts and mechanisms—was considered technically impossible. Two men challenged this conventional wisdom: Goro Yoshida, a projector engineer, and Saburo Uchida, a securities broker.

Cameras were luxury goods in Japan at the time, and even disassembling imported cameras to study their construction required substantial funds. While Yoshida and Uchida had passion for technology, they critically lacked the capital needed for research and development. The two approached Takeshi Mitarai, head of obstetrics and gynecology at Seibo Hospital, whom they had met through Uchida's wife's delivery, to request funding.

Despite being an obstetrician-gynecologist, Takeshi Mitarai had a strong interest in the future of Japan's precision machinery industry. He decided to invest in domestic camera production, and the venture began with a division of roles: Yoshida handling technology, Uchida managing business operations, and Mitarai overseeing auditing and investment. In November 1933, they established the 'Precision Optical Instruments Laboratory' in a single apartment room in Roppongi, Tokyo—this is considered the founding of Canon.

After two years of development from its 1933 founding, the Precision Optical Instruments Laboratory succeeded in domestically producing cameras. The brand name was initially 'kwanon,' meaning 'Kannon' (Goddess of Mercy), but was changed to 'Canon' to avoid an old-fashioned impression. In May 1936, a factory was built in Meguro, Tokyo, establishing camera production capabilities, and the laboratory transformed from a research-oriented organization to a production-focused precision equipment manufacturer.

In August 1937, the company 'Precision Optical Industry Co., Ltd.' was incorporated with capital of 1 million yen, transitioning from a sole proprietorship. However, 40% of the capital was contributed in kind (with equipment valued at inflated prices), and fundraising was far from smooth. Obstetrician Mitarai went around requesting investments from acquaintances, illustrating the difficulties in securing funds for company incorporation. In 1939, Canon also succeeded in in-house production of camera lenses, establishing an integrated production system independent of external lens procurement.

From 1937 to 1945, Canon expanded its operations through military production. In 1944, it absorbed the Yamato Optical Research Institute in Itabashi, Tokyo, adding production facilities, and by just before the war's end, had grown to approximately 500 employees. Having miraculously escaped damage from wartime air raids, Canon gained an advantageous position over competitors in postwar reconstruction.

Following the end of World War II in 1945, Takeshi Mitarai decided to stop juggling his roles as an obstetrician-gynecologist and Canon's executive, committing himself entirely to business management. The destruction of his obstetrics clinic by air raids also prompted his decision to focus on management. Mitarai stated, 'As a man born into this world, only I can take charge of perfecting superior domestic cameras aimed at defending against foreign products,' setting global expansion of domestic cameras as his goal.

In September 1947, the company name was changed to 'Canon Camera Co., Ltd.,' aligning the katakana company name with the brand name. Adopting a katakana company name was unusual for a Japanese company and was a measure anticipating overseas exports. At the time of its stock exchange listing in 1949, Takeshi Mitarai's shareholding was less than 5%, meaning the Mitarai family's management was not backed by capital ownership. Nevertheless, the Mitarai family would continue to be involved in Canon's management as the de facto founding family.

The camera manufacturer that began with an obstetrician's investment established 'competing with foreign products through domestic cameras' as its corporate raison d'être after the war. The anecdote that Mitarai was prepared to 'spend the rest of his life raising chickens' if the business failed illustrates the magnitude of risk Canon bore during its founding period.

After the end of World War II in 1945, Canon temporarily closed its factories during the transition from military to civilian production, laid off employees, and rehired only the most capable workers. This suppressed labor union radicalization and maintained good postwar labor-management relations. President Takeshi Mitarai decided to prioritize high-end products over mid-range ones, declaring that 'Japan's recovery depends on nothing other than using technological strength as a weapon,' and focused on high-end cameras.

Occupation forces (GHQ) soldiers stationed in Japan after the war picked up Canon cameras and Nikon lenses, and word of their quality spread by word of mouth. The soldiers had demand for cameras to send photos home to their families, and the reputation of Japanese cameras spread to Europe and America. With the resumption of trade in 1948, camera exports began and overseas buyers started making contact with Japanese industry figures.

In 1950, President Mitarai conducted a two-month inspection tour of Europe and America to explore the potential for camera exports. However, in the West, 'Made in Japan' was synonymous with shoddy goods. Local buyers told him, 'We acknowledge it as a fine new model, but we absolutely cannot trust Made in Japan'—while quality was recognized, the mere fact of being Japanese-made became a barrier to trust.

In November 1951, Canon signed a five-year export sales agreement with British trading company Jardine Matheson. Under the contract, Canon would export a minimum of 70% of its camera production to three major U.S. camera wholesalers (Lenagram, Hornstein, and Craig Movie) through Matheson. The U.S. wholesalers refused direct dealings with Canon due to its 'Made in Japan' status, necessitating a distribution channel through Matheson as intermediary.

The primary reason Canon partnered with Matheson was that, in addition to securing distribution channels, a $500,000 (180 million yen) loan was incorporated into the contract. The production system split between two facilities in Meguro and Itabashi was inefficient, and building a new factory was essential to establish mass production capabilities. Using the loan from Matheson, Canon acquired the former Fuji Aviation Instruments factory site in Shimomaruko, Ota-ku, Tokyo for 100 million yen and invested another 100 million yen in machine tools and other equipment, allocating a total of 200 million yen for the new headquarters factory.

At the time, Canon's semi-annual revenue was 190 million yen with profits of 12 million yen (as of June 1950), meaning the 200 million yen investment was equivalent to roughly ten years of profits. Against total assets of 160 million yen (capital of 20 million yen), the 200 million yen investment was 'ten times the capital' and 'exceeded total assets,' carrying the risk of insolvency if the investment failed. A capital increase in 1952 raised 100 million yen, but the post-increase equity ratio stood at 32%, a low level for a manufacturer.

Having consolidated production at the Shimomaruko headquarters factory, Canon introduced high-performance foreign-made machine tools and established a mass production system for cameras. By specializing in high-end cameras, the company maintained an operating profit margin above 10%, recording annual net income of 180 million yen by 1954. The massive 200 million yen investment was recovered in just three years. Cumulative net income over the five years from FY1951 to FY1955 reached 794 million yen.

Throughout the 1950s, Canon expanded its operations through North American exports of high-end cameras, opening a New York branch in 1955 to build a local sales organization. The barrier of 'Made in Japan' distrust was overcome by stabilizing quality through the establishment of mass production and building a track record of continuous deliveries.

President Mitarai's policy of 'exercising restraint until we can produce work we are confident about' was a strategy of not rushing exports until quality met his standards, then launching mass production and exports all at once when preparations were complete. By bearing the risk of an investment ten times its capital while pursuing both specialization in high-end products and the benefits of mass production, Canon established its position as a 'global manufacturer of high-end cameras.'

In 1975, Canon suspended its dividend due to the underperformance of its calculator business, and was forced to withdraw from calculators. Under the 'Camera in the Right Hand, Office Equipment in the Left' diversification strategy formulated in 1967, Canon had launched multiple businesses including calculators, copiers, semiconductor lithography systems, and office computers. However, the intensifying price competition in calculators during the 1970s eroded profitability, forcing a review of the diversification strategy. The camera business was also experiencing slowing growth due to the peaking of the mid-range camera boom and economic recession, leaving Canon without a growth driver.

Amid this management turmoil, President Maeda suddenly passed away, forcing Canon to simultaneously select a successor and rebuild its management. In an extraordinary personnel decision that leapfrogged the usual succession order of vice president and senior managing director, Ryuzaburo Kaku (then 51 years old), who held the position of managing director, was appointed President & CEO in June 1977. Kaku was a Canon veteran who had joined the company in 1954 after graduating from Kyushu University's Faculty of Economics, and his appointment to president came just three years after becoming a managing director in 1974.

After taking office, President Kaku publicly criticized the previous management regime, stating 'management had inevitably become lenient' and 'management had become inept' (Nikkei Business, February 4, 1985), and embarked on reforms in both organizational structure and business operations. On the organizational front, he introduced a divisional system, establishing profit-and-loss accountability for each division—cameras, office equipment, and optical instruments. By making each division's profitability visible, he built a system to quickly identify unprofitable businesses and accelerate resource allocation to growth areas.

On the business front, he reorganized the scattered diversification strategy and made the decisive move to concentrate R&D investment in the office equipment sector. Rushing to develop copiers and printers as the next revenue pillar after cameras, Canon signed a business cooperation agreement with U.S.-based HP in 1985 and began OEM supply of laser beam printers (LBP). Rather than building its own sales channels, Canon chose HP—one of the world's largest IT companies—as its OEM partner, a strategy to capture the global market at once while minimizing sales costs.

Over President Kaku's ten-year tenure (1977-1987), Canon achieved a structural transformation from a camera maker to an office equipment maker. LBP global market share reached 70% by 1990, with sales exceeding 400 billion yen. Sales to HP continued to expand thereafter, reaching 611 billion yen in FY2002. The revenue structure that had depended on cameras shifted to one driven by office equipment, and consolidated revenue surpassed 1 trillion yen.

In 1987, Kaku stepped down to become chairman, passing the baton to his successor. The transformation from a company that had suspended dividends to a 1-trillion-yen consolidated revenue enterprise in ten years was the result of overcoming the post-calculator withdrawal management crisis through concentrated investment in office equipment. President Kaku, who was appointed through the extraordinary personnel decision of leapfrogging the senior managing director and vice president, drove the two reforms of introducing the divisional system and concentrating investment in office equipment, fundamentally transforming Canon's business foundation.