Tuesday, October 19, 2004
Fuji Xerox bets high on China to boost brand
Reuters Tokyo, October 19
Japanese copier maker Fuji Xerox Co may boost its investment in China to bolster its sales channels and strengthen its brand, but healthy profit margins are still a few years away, a senior executive said on Tuesday.
Fuji Xerox, owned 75 per cent by Fuji Photo Film Co and 25 per cent by the US-based Xerox Corp, is in the process of moving 90 per cent of its production to China to lower manufacturing costs and be close to fast-growing local demand.
Last year the company unveiled a plan to invest 36 billion yen ($329.2 million) in the three years ending March 2006 to establish China as a production base from which it will service the local market and for export.
Director and executive vice president in charge of Fuji Xerox's international business, Jiro Shono told Reuters in an interview that he would like to top up that investment to build marketing centres and strengthen its brand awareness.
"We have just started working on the budget for next year so I can't really say anything, but my feeling is that I would like to be more aggressive," Shono said. "China is a very brand sensitive market. You have to invest a lot in your brand."
It will also bolster its direct sales channels to sell more middle and high-end copiers and printers. About 90 per cent of Fuji Xerox's unit sales in China are low-end products sold through third-party dealers, Shono said.
Higher priced models yield juicier profits, largely because they use lots of toner and other "consumables" long after the initial sale of the machine. Consumables typically account for the lion's share of an office equipment maker's profit.
Shono said he wanted to nearly triple Fuji Xerox's direct sales staff in China to around 1,000 within five years. He also hopes to boost its service workforce to 1,000 from 450 now.
"It will take some time, but the Chinese market will eventually move to higher value products," Shono said.
Fuji Xerox is targeting 60 billion yen in sales in the Chinese market in the business year ending March 2006, nearly double the 32 billion yen it recorded in 2003. Shono did not disclose a profit figure, but he said margins were still relatively small.
"We are targeting a 10 per cent operating profit margin, but right now we are investing a lot so it will be some time before we reach a business structure (that can produce a 10 per cent margin)," Shono said. "Our margin now is not that large."
According to industry estimates, Fuji Xerox controls between 10 and 15 per cent of China's copier market. Canon Inc, Ricoh Co, Toshiba TEC, Sharp Corp, Konica and Minolta Holdings Inc all hold similar shares.
Including Kyocera Mita, a unit of Kyocera Corp the Chinese copier market is composed of seven fairly strong players, making it more diverse than the world's major markets, which are basically controlled by the Canon, Ricoh and Xerox brands.
Ricoh and Canon have not been as aggressive as Fuji Xerox about producing in China, preferring to set up factories in other areas like Vietnam while still keeping a fair amount of manufacturing in Japan.
Shono acknowledged there were risks to its production structure and said Fuji Xerox may need to diversify its manufacturing in the future.
"We have to look for another potential manufacturing site in another area," Shono said. "That will happen in the future in general, but (we will continue to have) the China manufacturing site as the core base of production for Fuji Xerox," he said.
© HT Media Ltd. 2004.