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Precision Instruments Industry Overview

11, 01. 2004

Current State

High Share Secured in the Global Market

   There are about 160,000 people employed in the precision instruments industry, which include fields such as cameras, timepieces (watches and clocks), office automation equipment, medical equipment and measuring equipment. With the total value of product shipment at roughly 4 trillion yen, it is one of Japan's key industries after automotives and electronics. Cameras, timepieces, etc. which began being exported from the 1960s, came to dominate the world market and are among the leading industry sectors in the world as well. In the photocopier field, where there recently is a shift away from B&W to color copiers as well as multi-functional machines, Canon Inc. and Ricoh Co., Ltd. have surpassed America's Xerox Corporation and have captured a more than 40 percent share of the world market. Canon and Seiko Epson Corporation (formerly known as Suwa Seikosha) also lead the world in printers. Furthermore, in digital cameras, the world shipment of which surpassed film cameras in 2002 at 2.455 million units, precision instrument makers such as Canon, Olympus Corporation, Fuji Photo Film Co., Ltd., Nikon Corporation, Casio Computer Co., Ltd., and PENTAX Corporation are virtually monopolizing the market along with electronics manufacturer Sony Corporation. While electronics manufacturers of semiconductors, liquid crystal displays and personal computers have lost a large market share through competition by Korean and Taiwanese makers, the precision instruments industry in Japan, together with the Japanese automotive industry, has secured a global position as a leading industry of the world.

Transition of production and export of Japanese precision machine

Konica Minolta Challenges the Three Majors: Canon, Fujifilm and Ricoh

   Many companies in the precision instruments industry had their beginnings in cameras or timepieces through which they grew and then later succeeded by diversifying. Among them, Canon, which succeeded through copiers and laser beam printers (FY2003 sales: 3.198 trillion yen); Fuji Photo Film, a top manufacturer of photo film (FY2003 sales: 2.5603 trillion yen); and Ricoh, the major manufacturer of copiers and other office automation equipment (FY2003 sales: 1.7802 trillion yen) form the leading group in the industry. Seiko Epson, which is Japan's domestic leader and No. 2 in the world for ink jet printers, leads the second pack with sales of 1.4132 trillion yen. These companies were followed by companies such as Nikon, a major manufacturer of single-lens reflex cameras as well as semiconductor steppers (exposure equipment); Olympus, which is the world leader in endoscopes; Casio, which is displaying strength in digital cameras and TFT liquid crystal; and Hoya Corporation, which has a high share in optical and electronic materials. However, Konica Corp. and Minolta Co., Ltd., which were companies that were both in the third pack, merged in 2003 and established Konica Minolta Holdings, Inc. Konica Minolta's sales for FY2004 are forecast at 1.1145 trillion yen, making it a 1-trillion-yen corporation after Canon, Fuji Photo Film, Ricoh and Seiko Epson. Copiers and printers have been positioned as one of the core businesses of the new company as it endeavors to expand market share. There is now a possibility that the industry map, centering on the three majors, may be rewritten in a big way.

History

Surpasses West Germany to Become the World's No. 1 Camera Giant

   Successful technological innovation after World War II enabled the Japanese precision instruments industry, such as those in the camera, watch and clock sectors, to leap to a top position in the world in next to no time. In the case of cameras, demand triggered by the Korean War, grew among the occupation forces on the one hand, while domestic demand also expanded. While there were 50 camera manufacturers in 1950, it had doubled to nearly 100 companies by 1953. Small enterprises eventually disappeared during the recession that followed after the end of the Korean War, but in the meantime, a camera boom had arrived in Japan through the launch of RICOHFLEX III by Riken Optical Co., Ltd. The camera captured a position as a consumer durable with mass appeal. As cameras were changing from a luxury item to a consumer item for the masses, manufacturers switched from small-lot production, which was dependent on skilled labor, to mass production methods based on mechanization and automation, thus enhancing the industry's international competitiveness. The results of such efforts blossomed during the period of high growth that began in the 1960s.

Transition in production and export of still cameras of Japan

   In the 1950s, Japanese cameras were sold on the export market at about half the price of West German cameras, which had the world's top share at the time. Japanese cameras were purchased as a cheaper alternative. However, the functional performance of Japanese cameras was enhanced in the 1960s. In 1964, Japan surpassed West Germany in the total value of camera exports, and in 1967, also in the volume of camera exports, rising to a position of No. 1 in the world.

Canon Makes Dramatic Leaps Forward through a Single-lens Reflex Camera Loaded with a Microcomputer

   In the 1970s, the adoption of electronic engineering led to the automation, weight trimming and price-reduction of cameras, resulting in a reorganization of the camera industry. One of the triggers was the marketing of AE-1, a single-lens reflex camera launched by Canon in 1976. For the first time in the world, a microcomputer was installed in a camera to enable autoexposure. The manufacturing of this model also introduced electronically controlled equipment that brought about dramatic automation and a major reduction in the number of workers involved. With the appearance of the AE-1 on the market, other camera manufacturers successively launched new cameras with electronically-controlled functions, and competition intensified. Asahi Optical Co., Ltd., (PENTAX) which had held a superior position in the single-lens reflex camera market until the mid-1970s, as well as Nippon Kogaku K.K. (Nikon), manufacturer of luxury cameras, lost ground while Canon and Olympus continued to grow. Financial difficulties surfaced at those camera manufacturers that did not respond to technological innovation quickly enough. Miranda Camera Co., a foreign affiliate, failed in 1975, followed by the collapse of Petri Camera Co., Inc. in 1977. In 1983, Yashica Co., Ltd. turned to Kyocera Corporation for help which resulted in a merger by absorption. Mamiya Camera Co., Ltd. failed as a backwash of the bankruptcy of J. Osawa & Co., Ltd. and was absorbed by Olympic Co., Ltd. in 1993, and it became Mamiya-OP Co., Ltd.

Becomes No. 1 in the World in Timepieces As Well through the Quartz Revolution

The electric wave clock made from Casio Computer Co., Ltd. uses a detection IC excellent in sensitivity and signal-to-noise ratio characteristic. Moreover, receiving algorithm (data analysis) is also optimized and receiving efficiency is gathered.
The electric wave clock made from Casio Computer Co., Ltd. uses a detection IC excellent in sensitivity and signal-to-noise ratio characteristic. Moreover, receiving algorithm (data analysis) is also optimized and receiving efficiency is gathered.

   The timepieces sector, such as watches and clocks, also made rapid recovery triggered by the economic boom resulting from the Korean War. Production volume, which was 1.6 million units in 1947, nearly doubled to 3.06 million units in 1949. It fell temporarily in 1950 due to the effects of the Dodge Line (Dodge Plan), but in 1954, production volume exceeded pre-World War II levels and reached 5.6 million units. During Japan's period of high growth, the timepiece sector continued to grow, as with cameras, with a focus on exports. In terms of the domestic market, it went from 6.9 million units in 1960 to 10.1 million in 1964, becoming a mature market. Meanwhile, exports grew at an annual pace of over 80 percent from 1960 to 1966, and in 1972 the export ratio reached a whopping 66 percent.
   A very big turning point for the Japanese timepiece industry, in terms of the advancement of its position in the world, was the changeover to quartz timepieces. In the 1960s, the development of electronic clocks that utilized electricity and electronic control to measure time were under development. It was in 1969 that Suwa Seikosha marketed the world's first quartz watch, an electronic watch controlled by quartz crystal oscillation. The age of quartz dawned in the world of timepieces. As a result of technological innovation - switching to quartz - and aggressive capital investment, Japan's timepiece industry secured a superior position in the late 1970s. In 1980, the volume of watches manufactured in Japan was 87.89 million units, surpassing the production volume of Switzerland. In clock production, too, the volume manufactured in Japan was 58.96 million units and surpassed West Germany. Japan became the world's top producer of timepieces. Technological innovation resulting from the switchover to quartz also resulted in advancing a reorganization of the industry. In 1974, Casio entered the market through digital timepieces. As the timepiece market began to saturate, companies such as Ricoh Tokei Co., Ltd. and Orient Watch Co., Ltd. lost ground. An oligopoly consisting of the Seiko Group, centering on Hattori Seiko Co., Ltd., Citizen Watch Co., Ltd. and Casio was created.

Diversification into Copying Machines, etc. Also Advances

   From the period of Japan's high growth in the 1960s and together with the growth of sectors such as cameras, watches and clocks, diversification advanced in the precision instruments industry to other areas such as office equipment and precision measuring equipment. One of the pioneers in diversification was Ricoh (then Riken Optical Co., Ltd.). In 1955, the company launched the manufacture and sale of a small table-top copying machine. It then successively launched a diazo copier (blueline copier) which uses photographic paper, and then an EF copier. In 1971, Ricoh entered the office computer market, and then made entry into the facsimile market in 1973. Meanwhile, in 1962 Fuji Photo Film established Fuji Xerox Co., Ltd. as a joint venture with Rank Xerox Ltd. of the UK and entered the photocopier market. In the 1960s, copying machines were predominantly diazo copiers or EF copiers, and Xerox had a monopoly in plain-paper copiers (PPCs). However, Canon developed an original developing method for electrophotographic copying machines, and advanced into PPC photocopier field in 1968. In 1971, Konishiroku Photo Ind. Co., Ltd. (Konica Minolta today), also advanced into PPCs which are the mainstream type of copier that is in use today. The momentum for diversification continued to remain strong in the industry and spread into areas such as printers, steppers and medical equipment.

Japanese Position in 2003 World Watch Production (Estimates)

   In the case of Canon, which has seen advanced diversification, the proportion of its sales in FY1990 according to product type was 18.9 percent for cameras, whereas other optical equipment accounted for 5.6 percent, and office equipment had grown to account for 75.5 percent of total sales.
   Precision instrument manufacturers have transfromed themselves into integrated manufacturers with a focus on image and footage recording and telecommunications, rather than simply being a camera maker, . They have achieved this by integrating three different technologies: namely opitics, high-precision processing and assembly, and electronics.

Disposable Cameras Become Mainstream in the 1990s

   The appreciation of the value of the yen in 1985 triggered a phase of major change in the precision instruments industry. Not only were film cameras and timepieces a matured market that had ended its period of high growth, the strong yen put the squeeze on profitability. Although they shifted production overseas, it was not much help.
   In the 1990s after the collapse of the economic bubble in Japan, the appearance of the disposable camera caused the camera market to shift away from luxury models like single-lens reflex cameras and mid-range cameras such as compact cameras. Disposable cameras became the mainstream. A new camera standard named APS (Advanced Photo System) appeared in 1996. The main advantages were simplicity (including a film canister for easy drop-in film loading) and a very compact and lightweight design. However, the new system did not live up to expectations in terms of popularity.
   Meanwhile the production volume of timepieces also fell due to the maturation of the market and the strong yen. In the early 1990s, there was a trend for consumers to return to analog timepieces from digital, or to own several watches that they could wear according to the time, place or occasion. The domestic market recovered at one point, but then later headed back towards decline. Camera and timepiece manufacturers both intensified their diversification efforts into office automation and information equipment. While Canon's non-camera business, such as copiers and laser beam printers, grew and racked up profits, the gap between those who succeeded in diversification and those who failed became larger. Today, the three majors are Canon, Fuji Photo Film and Ricoh, with strength centering on Canon.

Three Key Points towards the Future

Point 1
Can a Post-Digital Camera Product be Developed?

Electric wave clocks. They receive the standard electric wave transmitted based on the very accurate atomic clock, and correct time automatically.
Electric wave clocks. They receive the standard electric wave transmitted based on the very accurate atomic clock, and correct time automatically.

   The market for the digital camera, which appeared in the late 1990s, grew quickly, and in 2001, its shipment value (54.5 billion yen) surpassed that of film cameras. In 2002, digital cameras also surpassed film cameras in the volume of shipments (24.55 million units). It became the biggest hit for the precision instruments industry. The next year, in 2003, the global volume of shipments expanded to 43.41 million units. However, as a result of Japanese manufacturers launching affordable models as well as luxury molds - such as single-lens reflex digital cameras - one after another, and excessive competition has already erupted. While the number shipped was still increasing in 2004, companies have made downward adjustments to their sales plans. It is certain that the market for digital cameras will eventually enter a matured phase, and so the next round, which will be dependent on how a post-digital camera product can be developed, has already begun.

Point 2
Can Core Components be Developed and Manufactured In-house?

   One of the biggest points that will determine the future course of the precision instruments industry is competition with the electronics industry. In the case of digital cameras, which became a record hit product, the key component is the charge-coupled device (CCD) which converts the light that comes in through a lens into digital signals. The only company among precision instruments manufacturers that has in-house technology for the CCD is Fuji Photo Film. Other companies are procuring the core component from Sony and other electronics manufacturers. However, unless core components can be manufactured in-house, a company is no different than an assembly and processing company. Furthermore, it places a limit to the amount of cost reductions that can be achieved. The same can be said for future product development. There will be a gap born between companies that have core components and those that do not. Whether a company will be able to develop core components ahead of other companies will become an important point in forecasting how that company will do in the future.

Development of Japanese Watch Production (incl. Overseas Produciton)

Point 3 Can Precision Instrument Manufacturers Win Against Electronic Makers?

   Cameras and timepieces originally developed with optics and mechanical engineering as a basis. However, as in the case of Canon, which got its lead over other companies by utilizing electronic control functions to develop autofocus cameras, it is essential that precision instruments be linked with electronic technology. When timepieces were heading towards digital, Casio made successful entry to the field based on liquid crystal display technology. Meanwhile, in the case of the current biggest hit - digital cameras - Sony, which has CCD technology, had top share in the market at one point despite being an electronics manufacturer. The boundary between precision instruments and electronics is now virtually gone. Although precision instrument makers still have an edge in optical techniques, it is no easy thing for them to be on an equal standing with electronics manufacturers that are large in scale as corporations. A major point will be whether precision instrument manufacturers can develop a unique technology that electronics manufacturers do not possess.

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