Canon - Company History

A domestic luxury camera funded by an obstetrician

In November 1933 Yoshida Goro (吉田五郎), an engineer working on projectors, and Uchida Saburo (内田三郎), who worked in the securities business, set up Seiki Kogaku Kenkyusho — the Precision Optical Instruments Laboratory — in a room of a block of flats at Roppongi in Azabu, Tokyo[1]. The purpose they set out was the research and manufacture of precision high-grade 35mm cameras, a field then held by imported goods[2]. The money came from Mitarai Takeshi (御手洗毅), head of obstetrics and gynaecology at Seibo Hospital, who had attended the birth of Uchida's wife. In 1935 the painstaking research finally reached a marketable product[3], named at first Kwanon after the thousand-armed goddess of mercy, but soon changed to Canon — a word meaning scripture, norm and standard, chosen to carry the ideal of making a camera that would itself be the standard of excellence[4]. In 1936 a new plant at Meguro took the work into volume production, and in August 1937 the firm was reorganised as Seiki Kogaku Kogyo Co., Ltd. with capital of ¥1 million[5]. In 1939 it began making its own lenses[6], and in the same year completed the X-Ray Canon, Japan's first indirect X-ray photography unit, stepping into medical equipment as well[7].

In October 1945, the month after the defeat, the company was quick to restart production[8]. The Canon S that it sent out the following year, 1946, was well received among Occupation officers and men and among buyers visiting Japan, and this was the beginning of the Canon name being recognised abroad[9]. In this period Mitarai Takeshi gave up his post as an obstetrician to devote himself to management, and set as the purpose of the business the task of bringing to fruition a domestic camera able to stand against foreign goods. In September 1947 the trading name was changed to Canon Camera Co., Ltd.[10], and in May 1949 the shares were listed on the Tokyo Stock Exchange[11], opening a route to funding from the capital market. Of his 1950 tour of Europe and America Mitarai said that it came down to how little Japanese goods were trusted and how low the moral sense of Japanese goods was; I felt an impulse that would not let me rest until I had roused the industry[12] — he took the low standing of Made in Japan as the precondition for exporting.

The tenfold bet on the Shimomaruko plant that carried the export business

In 1951 Mitarai Takeshi signed a sole overseas export agency contract with Jardine Matheson, the British trading house, and with a loan of US$500,000 alongside it set out on exporting in earnest[13]. In November of the same year he brought the head office and the factory together at Shimomaruko in Ota-ku, Tokyo[14], as groundwork for future growth. The sum committed was $555,556 (¥200m), ten times the ¥20 million of capital the company then had, and far above the normal level of capital spending. A service centre was opened in Ginza, Tokyo at the same time[15], giving domestic customers a point of contact. The finished plant was described at the time as a leap from a wooden backstreet workshop to a modern factory[16], and this production design — specialising in high-grade cameras and putting in scale ahead of demand so that quality and quantity were secured together — became the physical base on which the export business rested from then on.

Specialising in high-grade cameras kept the ratio of profit to sales above 10 per cent, and the ¥200 million investment was recovered in three years. Meguro Seiki Seisakusho was founded in December 1952 and Chichibu Eikosha in May 1954, putting the supply of parts inside the company's own group[17]. In October 1955 a New York branch was opened to put a sales organisation on the ground[18], giving direct access to the American market. In September 1957 Canon Europe S.A. was placed in Switzerland as the sole agency for Europe[19], so that both North America and Europe were held through Canon's own sales network. Under Mitarai Takeshi's rule that volume production should be held back until a thoroughly satisfying product existed, exports were not hurried until quality was certain, and the sequence of moving into mass production and export only once preparation was complete became settled practice.

From 1956 the company brought out in quick succession the Canon 8T 8mm cine camera, the Canon Zoom 8, an 8mm projector and lenses for television cameras, widening the range[20]. In 1961 it sent out the Canonet, a forerunner of the EE camera, which together with the flagship Canon 7 Model F drew the attention of the market[21]. In October 1964 it put an electronic desktop calculator on sale, entering the office-equipment field in earnest[22]. In April 1966 it established Canon U.S.A., Inc. and switched to selling through a local subsidiary[23]. As of 1968 sales were divided roughly a quarter each between high-grade cameras, mid-range cameras, 8mm products and non-camera special equipment, and exports accounted for close to half of all sales[24]. Canon was the company that brought mass production and mass selling into the industry ahead of its rivals, and within the special-equipment division the IC-based electronic desktop calculator was growing[25].

From the exit from calculators to Kaku Ryuzaburo's reforms

In 1967 Mitarai Takeshi declared that the company must brandish cameras in the right hand and office machines, optical products and special equipment in the left, and on top of that grow exports greatly, setting out a policy that made cameras and office equipment the two wheels of the business. In February 1968 Canon Business Machines Sales Co., Ltd. was established[26], and in April of the same year the NP system was developed, taking the company into plain-paper copiers[27]. In March 1969 the trading name was changed to Canon Inc., dropping the word camera from the company name[28]. In March 1970 it announced semiconductor production equipment[29], starting the line that would later lead to industrial equipment. In November 1971 Canon Camera Sales and Canon Business Machines Service were folded into Canon Business Machines Sales, and the domestic selling function was unified as Canon Sales Co., Ltd.[30]

Xerox had commercialised the plain-paper copier in 1960 and had kept others out with a patent wall built over twenty years[31]. Canon too had at first commercialised the Electrofax process, which used coated paper, but because the paper was coated with zinc oxide the ground never came out white, and the paper itself was thick and heavy[32]. In 1962 a product research section was created; of its seven members, three including Tanaka Hiroshi (田中宏) took charge of copiers and worked through the Xerox patents[33], only to establish that no small evasion would make a product possible. Tanaka then turned to cadmium sulphide, a material he had been studying for the electronic control of cameras[34]. Its resistance was low and it could not hold a charge, so it had been given up as a material for electrophotography; but by integrating an insulating transparent film on its surface to hold the charge, separating the function of charging from that of retention, the defect was turned into an advantage[35]. Combining two materials optically was the home ground of a camera maker, and the process was named the NP system[36].

An E Project of twenty-three people started in 1965[37], but practical application was not easy, and the copier division ran up cumulative losses of $2.8M (¥1bn)[38]. Strong voices inside the company called for withdrawal, yet management judged the business promising over the long run, moved the division into the Central Research Laboratory and let development continue at head-office expense[39]. The first machine, the NP-1100, reached the market in 1970, in the eighth year from the start of the work[40]. Because Canon had not grown a sales force of its own for copiers, it chose to license its patents freely to foreign firms eager to enter and take royalties in return[41]. From 1977 royalty income on copiers exceeded royalty payments, and from 1980 the payments were nil[42]. Establishing the patents had taken tens of thousands of pages of documents and several hundred million yen in legal fees[43].

The Hewlett-Packard OEM deal that opened a 70 per cent world share in laser printers

Calculators, meanwhile, had their margins destroyed by the price war of the 1970s, and the market turned a sceptical eye on how loosely the diversification had been narrowed[44]. At the start of 1972 the company's course was described as diversification without a decisive card[45]. In June 1975 Canon passed its dividend and withdrew from calculators. Amid this, and with the sudden death of president Maeda Takeo (前田武男), in 1977 the managing director Kaku Ryuzaburo (賀来龍三郎) was raised to the presidency over the heads of the vice-president and the senior managing director[46]. Kaku said openly that the previous management had been lax, and laid down a divisional system that made cameras, office equipment and optical products each answer for their own profit and loss[47]. Immediately after his appointment a severe view was also being expressed — that making office equipment comprehensive was Canon's task, and that the question was whether it could differentiate its products with high added value[48].

The copier business expanded rapidly from the late 1970s, and in 1982 its sales passed $401.5M (¥100bn)[49]. Seeing signs that growth was falling to single digits, in the same year the company put on sale the Mini Copier, small and cheap enough to sit on a desk, opening the market for personal copying[50]. In May 1975 it had succeeded in developing a laser printer[51], and in 1985 it concluded a business co-operation agreement with Hewlett-Packard of the United States and supplied laser beam printers to it on an OEM basis. Rather than building a branded sales channel of its own, it handed the front of the sale to the partner in order to take volume, and the world share of laser beam printers reached 70 per cent in 1990. Sales to HP later grew to a scale of ¥611bn. The bubble-jet recording process developed in October 1981[52] bore fruit in the BJ-10v, a printer for individual users launched in 1990.

Overseas production spread in parallel: Oita Canon in February 1982[53], Canon Virginia, Inc. in the United States in November 1985[54], Canon Opto in Malaysia in December 1988[55], Canon Dalian Business Machines in China in September 1989[56] and Canon Hi-Tech in Thailand in August 1990[57]. In the ten years from 1977, when Kaku became president[58], Canon moved the weight of its business from camera maker to office-equipment maker. In 1990 it was reported to have grown into a blue-chip company ranking fifth in Japan by consolidated recurring profit, with sales above $6.9B (¥1tn)[59].