Canon Inc. Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Canon Inc. Case Study Solution

Based on Canon’s portfolio of businesses prior to entering the network security market, assess whether Canon possessed the resources and capabilities needed to successfully diversify into the network security market. What are the costs and benefits associated with diversifying into this new industry? Was this a good move for the company?

After being in the business for more than 80 years, the company had become a market leader only within the camera industry. The business of the company was highly globalized and it generated sales from Asia, Japan, Africa, Middle East, Europe, America and Oceania. The distribution of the sales is shown in exhibit 1 in the appendices. The trend of the distribution shows that a fixed pattern is not followed by the company. On the other hand, the growth of the smartphone industry had begun to pose a significant threat to the camera business of Cannon and in order to respond to the rising threat of the smartphones, the CEO of the company, Mitarai had focused on a new solution that was to grow the company through diversification into the other businesses.

At the time of the development of this growth strategy, Mitarai had hinted that the company had the resources of around $ 3 billion that it can spend on the big purchases such as at overseas or home safety and the human lives. This showed that the company had the financial resources to exploit the business opportunities within the network video surveillance arena. The company had already made a separate segment for the network security business. Prior to entering the network security business market, Cannon had the ability to leverage its technical knowledge and the business for competing in the new market through internal growth.

Internal growth was highly important for succeeding in the network security market and Cannon had also learned how Kodak had failed to adopt the transformation of the markets and could not develop and extend its model internally. Cannon had therefore, established a presence in this market long before entering into this market in 2014. The company had launched 3 1.3 megapixel IP security cameras. Therefore, these factors show that the company had the resources and the capabilities required to successfully diversity into the network security market. The network market also shows a strong growth potential and as it is estimated that the network camera market would expand annually at the rate of 20% in the near future and Cannon has always believed that it could leverage its camera making skills for successfully entering the surveillance market.

The costs associated with diversifying into this industry was the $ 3 billion investments that Mitarai had proposed to make in this market. Secondly, the costs of acquisition of the two major network security companies that are Axis and Milestone Systems. The benefits associated with the diversification into the new industry is that growth of the Cannon company sales and the company would be able to gain a competitive advantage in the market of network security. This was a rapidly growing market and the company had created a growth plan of $ 1 billion sales in the market by the end of the year 2020. The company had the sensor and lens technology that would position it to become a leader in this market. Therefore, this move of diversifying in a new market was a rational and a logical decision. If Canon has to survive in its camera business, then it needed to have the share in other businesses to remain competitive against the smartphone companies. The camera market had entered the maturity stage and thus, Cannon needed a leverage to sustain its growth in the long term.

Question 2

What was Canon’s motivation for acquiring Axis and what were the natures of the synergies that they hope to realize from this acquisition? Could these synergies have been achieved using an alliance instead of an acquisition?

Axis Communications was acquired by Canon for $ 2.8 billion in 2015 and the primary motivation of the company for acquiring Axis was to further strengthen its positon within the network security market because Axis was one of the leading providers of the video surveillance equipment and the video surveillance market was believed to be a $ 20 billion industries. Secondly, the business unit sale analysis in exhibit 2 appendices shows that the sales of cameras and other equipment’s was eroding severely. Therefore, the A 50% premium was offered over the current stock price of Axis and the synergy that was created with this acquisition was that it allowed Canon to achieve economies of scale and generate additional revenue in the network security market. Through this acquisition, Canon was able to sell its lenses and cameras while it was also designing the larger networking service.

Canon Inc. Harvard Case Solution & Analysis

The acquisition of Axis was a driving force for the future growth of Canon. Secondly, the other synergy related to the diversification and revenue generation from the overseas market because this acquisition had allowed Canon to capitalize on the opportunity of diversifying in the other markets where Axis had operations. Axis was generating sales of 50% and 40% from America and Africa, Asia, Middle East and Europe together respectively.Although, it was not yet clear that whether Canon would be able to generate $ 1 billion in sales without integrating Axis with its business operations however, this acquisition was benefitting the company and fueling its growth.......................

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