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Konica and Minolta Squeeze Into One
By Dick Norton
On January 7, 2003, it was announced that Konica Corporation and Minolta Corporation would merge their operations during 2003. There is a great deal of overlap in the markets served (office imaging products, cameras, optical products, and medical and graphic products) by the two companies. So, on the surface, and from a product viewpoint, this merger could proceed very smoothly.
The new corporate group created as a result of this integration of management takes "The Creation of New Value" as its managerial philosophy, the concepts of being an "Innovative Corporation That Continues to Create Impressions in the Field of Imaging" and "A Global Market Leader That Offers Advanced Technology and Reliability" as its managerial visions, and "The Essentials of Imaging" as its corporate slogan.
It is obviously the aim of this merger that the combined capabilities of Konica and Minolta will result in a stronger market presence and therefore a larger market share than the sum of the two companies individually. In fact, the combined corporation has already set out an interim target for growth. The estimate for combined net sales of the two companies in fiscal year 2002 is 1.1 trillion yen (approximately 9.2 billion U.S. dollars); the target for fiscal year 2005 is 1.3 trillion yen (approximately 10.9 billion U.S. dollars). Operating income is projected to be 63 billion yen in fiscal year 2002 (approximately 528 million U.S. dollars); the target for fiscal year 2005 is 150 billion yen (approximately 1.2 billion U.S. dollars).
The Sequence of Events Each corporation is currently organized into separate operating groups or companies. Each of these groups has responsibilities for individual products such as office products, cameras, etc. In April 2003, Konica Corporation will establish their operating groups as separate companies and will become a holding company for those corporations. Although it will be held by Konica, Minolta will continue operating in much the same way as they do today.
In August 2003, the Konica Corporation will change its name to Konica Minolta Holdings Incorporated. At that time, the separate operating groups at Minolta will begin to report to Konica Minolta Holdings but, there will be no merging of similar operations.
In October 2003, the companies will be reorganized. At this time, operating groups serving the same markets will be merged. This will mean that certain functional groups will be subsumed into other functional groups. The planned new corporate group will consist of the new integrated holding company, six business companies, and two common function companies.
Fumio Iwai, the current president of Konica Corporation will become president of Konica Minolta Holdings. Yoshikatsu Ota, the current president of Minolta Corporation, will become Vice President of Konica Minolta Holdings with direct responsibility for the office products group. The Board of Directors will consist of an equal number of directors from Konica and Minolta as well as directors from outside the companies. It is not possible to tell at this point whether the Konica or Minolta team will have more control over the combined office products operation. However, we assume that, since Konica is the larger of the two entities and in better financial shape, Konica management will end up with a stronger hold on the combined operation.
Product Presence The principal area of business is placed in the field of input and output devices in networking for corporate customers focusing on MFPs (multi functional peripherals) and printers. Emphasis will be placed on such growing fields as color MFPs and printers, and the high-speed digital copiers. The color output devices and on-demand printing, as well as the polymerized toner business, will be positioned as strategic fields.
The research and development and direct sales forces will be reorganized and strengthened with the goal of increasing the level of customer satisfaction. Konica Minolta believes that by improving market presence, in addition to the impact the group has on the market, it can anticipate an increase in sales.
Commentary While this announcement is being made at a very high level without many specific details, it is not possible to forecast exactly what this merger means for the market in general and for Konica and Minolta dealers in particular. However, there are certain inferences we can draw based on the prior history of the two companies.
It has been almost three years since Konica and Minolta announced that they would partner on the development and manufacture of products. Each of the companies was to concentrate on its perceived strength; Konica on high speed black and white digital engines and Minolta on color products. This certainly made a lot of sense given the capabilities and success of these two companies in these areas.
However, it is our impression that neither company really got behind the other company's products. For example, Minolta has been slow in moving into the Konica manufactured high-speed engines and Konica has also been somewhat slow in capitalizing on Minolta's color products. If the two companies cannot mesh, they will run the risk of falling victim to the "us and them" mentality that so often plagues these agreements.
Of greater significance to us is distribution. The joint development agreement of three years ago was a tacit acknowledgment that things needed to change at these two companies in order for them to be competitive in the future. We believe that the companies were absolutely correct in concentrating on their respective strengths, however, the changes seem to be limited to product only. Distribution was as much of an opportunity for improvement as their product lines were and was never fully addressed.
As a merged operation, Konica Minolta Holdings will have an even greater challenge in managing its distribution system. First, since neither company has been a market leader that attracts dealers easily, each company has had to adopt policies and practices that can make them more attractive to dealers. For instance, exclusive territories have been the norm rather than the exception; individualized programs for high performing dealers have also been a common practice. And, both corporations have extensive direct sales and service operations. The merged operation will have redundancy in virtually every market in the United States. They will need to rationalize this distribution very quickly to prevent the loss of customers as well as key employees and dealers as they go through the merger process.
Since the merged organization intends to change its brand name immediately, they will forgo the luxury of maintaining separate identities as physical operations are merged. If not addressed, at the time of merger, there will be no exclusive territories and dealers and branches will not be able to differentiate based on brand because they will all be selling Konica Minolta brand.
The net result of all this could mean significant changes in the dealer distribution network. We do not see exclusive territories being a practice in the merged company either; Konica Minolta Holdings will need as many distribution outlets as possible in order to maintain and improve market share and reach the revenue goals set by the corporation.
We believe that a significant upgrade in the systems' sales and service capabilities of the independent dealers of both Minolta and Konica is critical. These capabilities will be essential for the success of any company, regardless of size, in the network environment of the future.
Lastly, this merger is another indication that the copier market is well into its mature phase. We have seen other non-manufacturing vendors and a few niche manufacturers disappear but this merger means that the industry is down one full line manufacturer. The copier market is taking on more and more of the textbook characteristics of a mature market-consolidation, commodity products and services, and extreme price competition.
Richard Norton is the president of the Saratoga, CA-based market research firm DocuTrends. Norton can be reached at rcn451@aol.com or 408.253.2763.
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