Bap nikon final

Anglia Ruskin University BAP

TABLE OF CONTENTS

Abstract.......................................................................................................................................3

Objectives of the study................................................................................................................4

Chapter 1 – OVERVIEW OF NIKON........................................................................................5

1.1. Overview of Nikon’s profile............................................................................................5

1.1.1. Introduction...............................................................................................................5

1.1.2. Set up of the company...............................................................................................5

1.1.3. Business segment......................................................................................................6

1.1.4. Past, present, future strategic view...........................................................................8

1.2. Competitors’ profile.......................................................................................................10

1.3. Organizational structure & culture analysis...................................................................13

Chapter 2 – MARKET ANALYSIS.........................................................................................15

2.1. Marketing strategies.......................................................................................................15

2.2. Business segmentation of three companies....................................................................15

2.3. Marketing plan – global scenarios.................................................................................16

2.4. Marketing mix with product life cycle & globalization driver......................................17

2.2. Industry life cycle..........................................................................................................18

Chapter 3 – FINANCIAL ANALYSIS & OPERATING ANALYSIS....................................19

3.1. Financial review / audit..................................................................................................19

3.2. Benchmarking................................................................................................................19

3.3. Key Performance Indicators (KPIs)...............................................................................20

3.4. Financial & Operational analysis...................................................................................21

3.4. Cost analysis..................................................................................................................25

Chapter 4 – ENVIRONMENT ANALYSIS.............................................................................26

4.1. Business environment factors........................................................................................26

4.2. Macro - PESTEL analysis..............................................................................................26

4.3. Micro - Porter’s Five forces analysis + 3 forces............................................................27

Chapter 5: SCENARIO ANALYSIS........................................................................................29

5.1. Introduction to scenario.................................................................................................29

5.2. Assumptions...................................................................................................................29

5.3. Scenario analysis............................................................................................................30

5.4. Results with risk coverage process................................................................................31

Chapter 6: FINDINGS..............................................................................................................32

SID


Chapter 7: CONCLUSION.......................................................................................................36

Chapter 8: RECOMMENDATION WITH STRATEGIC MODEL.........................................37

BIBLIOGRAPHIES..................................................................................................................41

LIST OF TABLES AND FIGURES

Figure 1: Nikon’s milestones ........................................................................................................5

Figure 2: Nikon’s business domains .............................................................................................6

Figure 3: Net sales by business segment in FY2015 ....................................................................7

Figure 4: Net sales by business segment from FY2011 to FY2015 .............................................7

Table 1: Past, present, future strategic view .................................................................................8

Table 2: Competitors’ profile .....................................................................................................10

Table 3: McKinsey’s 7S model ..................................................................................................13

Table 4: McKinsey 7S factors pertain to Nikon .........................................................................14

Table 5: Marketing strategy ........................................................................................................15

Figure 5: Revenue by business segment .....................................................................................16

Figure 6: Nikon market business life cycle ................................................................................18

Table 6: Benchmarking ..............................................................................................................19

Table 7: Key Performance Indicators (KPIs) .............................................................................20

Table 8: The calculated financial ratios of three companies from FY2011 to FY2015 .............21

Table 9: Financial ratios analysis ...............................................................................................22

Table 10: Cost structure ..............................................................................................................25

Table 11: PESTEL analysis ........................................................................................................26

Table 12: Porter’s Five forces analysis ......................................................................................27

Table 13: IMF’s estimates relating to advanced economies’ real GDP growth rate & inflation 29

Table 14: Assumptions of three scenarios ..................................................................................29

Table 15: Three scenarios analysis .............................................................................................30

Figure 7: The operating profit & operating profit margin for FY2014, FY2015, FY2016 (est.) & FY2017 (est.) ..............................................................................................................................31

Table 16: Kaplan and Norton's strategy map .............................................................................37

Table 17: Analysis Recommendation Implementation Steps .....................................................39

SID


ABSTRACT

NIKON has been operating in the imaging product industry. Facing the increasing popularity of smart phones, Nikon and other peers in the imaging products industry has struggled a lot to maintain the competitiveness, stabilize the declining income of core businesses & accelerate the modest income of new businesses. Through the report, the researcher chooses Fujifilm & Olympus as the competitors of the main company – Nikon to provide a complete view of Nikon performance with comparing with other peers.

The business analysis report is made for Nikon in terms of (i) the company’s overview; (ii) market analysis, (iii) financial & operating analysis; and (iv) scenario analysis. The findings & recommendation with strategic model will also be provided to help Nikon to enhance its performance.

SID


OBJECTIVES OF THE STUDY

The main objective of the study is: (i) evaluating Nikon’s strategies & (ii) assessing the financial performance and position of Nikon in comparison with other two peers – Fujifilm and Olympus. Moreover, the market analysis of the digital camera industry will be also provided. At the end of the report, there are some findings & recommendation with strategic model will also be provided to help Nikon to enhance its performance.

SID


CHAPTER 1 – OVERVIEW OF NIKON

1.1. Overview of Nikon’s profile

1.1.1. Introduction

Being established in 1917, Nikon (also called “the Group” in this report) has been a leading Japanese optical instrument maker. Since then, the company has increased its presence worldwide in the Americas, Europe, Asia, Oceania and Middle East (Nikon.com, 2016a). For years, the overseas sales of the Group have contributed a significant part in the total sales (about > 80%). This fact indicates that Nikon has been spreading its business globally enough. According to “Company profile 2015” of Nikon, the Group’s philosophy is “Trustworthiness & Creativity”. Its vision of “Meeting needs. Exceeding expectations” is the promise to not only meet the customers’ need but also provide value exceeding their expectation (Nikon.com, 2016b).

1.1.2. Set up of the company

The corporate history can be summarized as in the following concise timeline:

Figure 1: Nikon’s milestones

SID


Source: Nikon.com, (2016d)

The company’s product portfolio includes (i) digital camera & its accessories, (ii) optical instrument & (iii) precision equipment. In recent four years, Nikon’s consolidated net sales gradually declined. Compared to the previous year, in FY2015, net sales dropped by 12.5% to ¥858m while operating income decreased by 31.0% to ¥43.4b (Nikon.com, 2016e).

1.1.3. Business segment

Nikon possesses a wide range of advanced technology, product & service based on opto-electronics & precision technology. There are five business domains in Nikon, which are (i) Precision Equipment Business; (ii) Imaging Products Business; (iii) Instruments Business; and (iv) Other Businesses (Nikon.com, 2016c).

Figure 2: Nikon’s business domains

Source: Nikon.com. (2016c)

SID


Precision Equipment Business: Producing and developing the semiconductor lithography system & FPD lithography system for manufacturing semiconductor, liquid crystal panel & OLED panel.

Imaging Products Business: Based on the know-how, camera and advanced digital image technologies, manufacturing a wide range of advanced products (e.g., digital/film camera, interchangeable lens, speed-light, photographic accessories, etc.)

Instruments Business: manufacturing products used in bioscience & industrial field which require micro precision & accuracy (e.g., biological/industrial/ stereoscopic microscope, measuring instruments, etc.)

Other Businesses: Medical/glass/encoders/ophthalmic lens/ businesses, etc.

For FY2015 (ended March 2016), the composition of Nikon’s net sales by industry are 68.3% imaging products, 19.9% precision equipment, 8.5% instruments and 3.3% others. The imaging product business has consistently contributed to Nikon with the proportion of about 70%. However, over years, the contribution of this business segment has been gradually shrunk (illustrated as in Figure 3).

Figure 3: Net sales by business segment in FY2015


Figure 4: Net sales by business segment from FY2011 to FY2015


SID


According to Nikon.com (2016f), among business segments, net sales from imaging product business shown the poorest performance in term of net sales dropped by 11.2% YoY to ¥520.5b while operating income declined by 19.3% to ¥45.8b. In term of operating income, precision equipment segment was the most disappointed area with a sharp decrease in operating income by 74.8% although the net sales even rose by 6.8%. In the other hand, instruments business was highlighted with an increase by 6.7% in net sales & an impressive growth rate of 135% in operating income. Regarding to the new established medical business, the net sales were ¥18.3b and operating loss of ¥4.7b was posted because of the new business fields.

According to Nikon Report 2015, the company’s three key businesses (i.e., the Semiconductor Lithography Business, the FPD Lithography Business, and the Imaging Products Business) are at their maturity phase and have small prospects for abnormal growth in the medium term and long term. The launching of the other business segment is urgent and considered as Nikon’s big plan (i.e., the Medium – Term Plan) in the near future.

1.1.4. Past, present, future strategic view

Given the rapidly changes in company’s business segments (especially Imaging Product), the strategic view of Nikon has also been adjusted to be competitive. In general, along the timeline (Past Present Future), Nikon has paid more attention to (i) building sound corporate strategy; (ii) technologies; and (iii) cost optimization. Basic policy of Nikon’s newest strategy is “To become a Nikon Group that constantly creates new value and continues to grow” (Nikon.com, 2016b). The following table summarizing the strategic views over different period of the company timeline.

Table 1: Past, present, future strategic view

Timeline

Strategic views

Past Financial position 5 years ago (FY2010): (Morningstar.com, 2016a) ROA: -1.7% ROE: -3.4% Operating margin: -1.8% Debt-to-Equity ratio: 11%

Corporate strategy: Before being threatened by the rapid growth of smartphones, the imaging products industry had not been suffered from high level of competitiveness. Nikon had no intention of expanding its presence into other new business.

Technology: In the past, Nikon only focused on the idea of using Nikon’s unique technology in developing, manufacturing, & marketing products (i.e., a hardware-oriented strategy).

Manpower: Number of employees: 26,125 people (at the end of FY2010)

Present Financial position (FY2015): (Morningstar.com, 2016a) ROA: 1.9%

SID


ROE: 3.3% Operating margin: 5.1% Debt-to-Equity ratio: 15%

Corporate strategy: Launching the Medium-Term Plan with lots of new ideas & objectives (discussed in detail in part “Future”).

Technology: Recently, the company has realized that establishing distinction in hardware alone has limit given the fast changing business environment. Thus, Nikon admits the need of adding application software to the hardware & that has been Nikon’s mainstay to “evolve into a solutions-oriented business model and sustain growth”.

Cost effective process: Achieved ratio of operating income to net sales above that of previous year by cost reductions, such as in advertising expenses

Manpower: Number of employees: 25,415 people (at the end of FY2014 – the latest update available) (decreased by 2.7% compared to FY2010)

Future Financial position: According to the Medium-Term Plan, in FY2016, there are three big financial targets (i) net sales of ¥1,200b; operating income of ¥110b; & operating margin of 9.20% (Nikon.com, 2016g).

Corporate strategy: The main contents of the Medium – Term Plan are:Enhancing corporate growth via implementing strategic actions in 6 businesses:o The Semiconductor Lithography Business:

Enhancing profitability via reforming structure Achieving 30.0% ArF immersion scanner’s market share

o The FPD Lithography Business Launching new product delivering (i) high resolution & (ii) high

cost performance. Protecting Nikon’s technological superiority via enhancing new technological development.

Cost reduction Dealing with demand fluctuation through a flexible production

regime.o The Imaging Products Business:

Introducing a series of innovative new products. Introducing an effective marketing strategies Cultivating more in emerging market. Cost reduction

o The Microscope Solutions Business Expanding via M&A and alliances Providing total solution focused on imaging analysis Enhancing & expanding innovative resolution microscope system Bolstering sales forces

o The Industrial Metrology Business Expanding via M&A and alliances

SID


Aiming at market leader in X - ray / CT inspection system & non - contact 3D metrology system.

Proposing solution via application software improvement.o The Medical Business

Prognostic management Focusing on drug discovery & regenerative medicine

Cost effective process: Attempt to achieve cost reduction in design & manufacturing procedures. The spirit of cutting costs will be spread in both headquarters & each business unit. Intensively reviewing production regime as an indication of business portfolio rebuilding.

Operational efficiency: Approximately ¥200b of the M&A budget allocated to the Medical & Instruments segments. Launching additional ¥30b of venture capital in Medical Business & enhance innovation.

Technology: Building an R&D budget which has invested substantially in new business segment. Trying to synergize among companies’ existing technologies. Actively cultivating venture firms owning new technologies.

Manpower: Recently, the Nikon Group has paid more attention to employees who have relevant expertise & skills. Nikon is willing to hire experts from outside & encourage existing employees to move internal for best performance.

Source: Nikon.com (2016g)

1.2. Competitors’ profile

Two chosen main competitor of Nikon are Fujifilm & Olympus which will be analyzed together in this report. The profiles of these two competitors are reviewed under main headings which analyzed Nikon in part 1.1.

Generally, the common business segment of Nikon and its two competitors are Imaging Products. Three companies built and have strictly been adhere to their medium-long term plan. Each company has its own advantages and strong business segment; however, their strategies all share the same idea of focusing on (i) technologies and (ii) cost optimization.

Based on some key financial indicators (ROA, ROE, operating margin, debt-to-equity ratio), we can observe the differences of capital structure & current financial performance. In term of financial performance (indicated by ROA, ROE for FY2015), Nikon has the poorest performance. Olympus has the most outstanding ROE partly due to high proportion of debt employed. The detailed financial & operating analysis which will be conducted in Chapter 3 will offer a more complete view.

The comparison between two chosen peers is presented in the following table.

Table 2: Competitors’ profile

CompetitorsFUJIFILM

Japan-based company

OLYMPUS

Japan-based company

SID


Established in

1934 1919

Philosophy "We will use leading-edge, proprietary technologies to provide top-quality products and services that contribute to the advancement of culture, science, technology and industry, as well as improved health and environmental protection in society. Our overarching aim is to help enhance the quality of life of people worldwide"

(Fujifilmholdings.com, 2016a)

“The Olympus Group strives to realize better health and happiness for people by being integral members of society, sharing common values, and proposing new values through its business activities.”

(Olympus-global.com, 2016a)

Vision "Anchored by an open, fair and clear corporate culture and with leading-edge, proprietary technologies, Fujifilm is determined to remain a leading company by boldly taking up the challenge of developing new products and creating new value."

(Fujifilmholdings.com, 2016a)

“Olympus contributes to society by making peopleʼs lives healthier, safer and more fulfilling around the world”

(Olympus-global.com, 2016a)

Business segments

Imaging solutions Information solutions Document solutions

(Fujifilmholdings.com, 2016b)

Medical, Scientific Solutions Imaging Information &

Communication Others

(Olympus-global.com, 2016b)

Corporate strategy

1. Setting up VISION 2016 medium-term management plan since 11/2014 with the aim of achieving significantly high profit & enhancing ROE by (Fujifilmholdings.com, 2016c):

Accelerating core businesses’ growth: Expanding sales, market share, & EBIT via strengthening healthcare, functional materials, & document business segments.

Improving profitability, business scale & advantages in all segments

1. Setting up the medium-term vision (since FY2012) aiming at enhancing corporate value by recovering the trust (heavily suffered from the scandals) & restructuring the management. The long-term vision - 16CSP (since FY2019) aiming at strengthening foundation & developing an active business portfolio for sustainable growth & being global market leader in medical business. Six key strategies are (Olympus-

SID


global.com, 2016a):

Taking action to grow business

Acquiring resources in a timely way & optimally leveraging those resources

Advanced forward-looking preparations.

Pursuing business efficiency improvement.

Enhancing global & group-wide management.

Strengthening QA / RA & internal control. Promoting compliance.

Technologies

(indicated by R&D

activities)

Recognizing the key changes within each era & considering competition as an opportunity to enhance the business, Fujifilm has conducted a comprehensive review of the R&D structure since FY2006 & is improving the cross - organizational fusion of the company’s diversified list of technological capabilities. (Fujifilmholdings.com, 2016d)

Investing significantly in R&D together with other growth investments (e.g., M&A). R&D activity is implemented in a strategic way which focuses on identifying technology benefiting the existing three core segments. In FY2015, R&D activities based on this approach recorded a considerable YOY rise of 26.0% in R&D expenses (Olympus-global.com, 2016c)

Cost effective process

As stated in VISION 2016, Fujifilm intends to enhance profitability by cost reduction across all segments, especially in medical & graphic systems (E.g., integration of optical device and electronic imaging businesses) (Fujifilmholdings.com, 2016f)

Reviewing cost reduction & significant curtailment of indirect expenses is one of the company’s basic objectives. That strategy aims at enhancing profitability on the group-wide basis via broadly reviewing cost structure. (Olympus-global.com, 2016d)

Financial position

(for FY2015)

ROA: 3.6% ROE: 5.8% Operating margin: 7.7% Debt-to-Equity ratio: 14%

(Morningstar.com, 2016b)

ROA: 6% ROE: 17% Operating margin: 13% Debt-to-Equity ratio: 71%

(Morningstar.com, 2016c)Manpower Number of employees: 31,540 people Number of employees: 79,235

SID


(at the end of FY2014 – the latest update available)

(Fujifilmholdings.com, 2016e)

people (at the end of FY2014 – the latest update available)

(Olympus-global.com, 2016e)

1.3. Organizational structure & culture analysis

The McKenzie 7S Framework is the chosen approach to analyze both organizational structure and culture. The McKenzie 7S consists of both hard & soft factors. Whereas, strategy - structure - systems are classified as the framework’s hard factors. The soft factors are shared values - skills - style - staff. The hard factors are influenced & controlled directly under Nikon’s management. In the other hand, corporate culture is the main issue influencing the soft elements which are more difficult to direct.

Table 3: McKinsey’s 7S model

McKinsey’s 7S model

HA

RD

EL

EM

EN

TS

Strategy Achieving & sustaining Nikon’s objective of becoming a truly excellent worldwide opto-electronics & precision technology company via Nikon’s key growth strategies according to segments & the strategic consolidated at the group level (i.e., Medium-Term Plan).

Structure Structured flow chain of command

Systems Nikon operates a flat structure which is a horizontal organization consisting of both Group companies in all countries & the management committees.

SOFT

EL

EM

EN

TS

Shared values

The core values play as the foundation on which all activities of company made. These also indicate the way that employees, dealers & suppliers will support Nikon to pursue and maintain the company’s vision. Nikon's philosophy summarizes the core values which is the shared value of the firm.

Skills In the Nikon Group, technical innovation is fast changing, & long - term education / training are crucial to employees’ development.

Style Participative style is a managerial style in which the company’s employees are encouraged to evolve in the company’s decisions (to a certain level).

Staff Recently, the Nikon Group has paid more attention to employees who have relevant expertise & skills, and retaining these personnel is important to overcoming the fierce competition in the market.

On a regular basis, the training courses were taken place in Nikon. Moreover, Nikon’s employees are encouraged to move around to company’s position to have the chance to work with their best potential.

SID


The following table indicates the factors alignment pertaining to Nikon.

Table 4: McKinsey 7S factors pertain to Nikon

Factors Aligned

StrategyDeveloping new business segments, Product development (through intensive R&D), Cost reduction

YES

Structure Hierarchical Structure YES

SystemOrdering or upgrading processing & control, customer relationship management, human resources management & planning system.

YES

SkillsBuilding up the employees’ skills which are highly aligned with Nikon’s operations.

YES

StaffDefining a common policy of human resources management. However, diversifying the policies which best fits diffenrent group of employees.

YES

Style Participative style YES

Share Value

Enthusiasm & excellence YES

SID


CHAPTER 2 – MARKET ANALYSIS

2.1. Marketing strategies

In case, marketing strategy could be described as the effective way that company focus its resource to raise customers awareness, build the customer engagement activities. More detail, this marketing strategy would be built around 4 P’s such as product, place, price and promotion. Applied in Nikon, it is following the global marketing strategy through its offices in these markets. In case, it is developing strategy marketing planning into central communication hub, which helps them efficient execute marketing campaign (Nikon.com, 2015). All of its marketing strategy would be described carefully in the table below.

Table 5: Marketing strategy

Change & innovation The Global Marketing Strategy would be a step toward address and adapt the change of camera and mobile imaging industry. In which, it would open and extend new division while improving its global competitiveness by recruit talents from international markets

Centralized the international communication outside Japan

The communication message would be consistent globally from media planning, and market research to gather customer insight.

Story telling The marketing message would focus on the passion related to emotional strategy, which is close to customer insight, who seek to capture the image wonderfully

2.2. Business segmentation of three companies

During the period from FY2011 to FY2015, the revenue by business segments of three companies are illustrated as in the figure 5.

In the mutual business segment - Imaging products (red columns), Nikon was the leader accounted for 55-65% the compiled market of three companies. The leading position of Nikon has been maintained during these years; however, the market share has been gradually declined (FY2011: 57%; FY2012: 65%; FY2013: 59%; FY2014: 57%; FY2015: 55%). In the other hand, the market position of Fujifilm has been improved: FY2011: 31%; FY2012: 26%; FY2013: 32%; FY2014: 35%; FY2015: 37%). In the recent three years, the market share of Olympus was stable at 8%.

Medical is a new business segment which has been developed by Nikon and just made revenue in FY2015. Whereas, this segment is the strongest area of Olympus with rapid growth rate & large proportion in the revenue profile (FY2011: 41%; FY2015: 76%). In

SID


another business segment – Instruments, Olympus also achieved higher revenue than Nikon (FY2015: Olympus: ¥102b, Nikon: ¥77b).

Figure 5: Revenue by business segment

FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15NIKON FUJIFILM OLYMPUS

-

200

400

600

800

1,000

1,200

1,400 Bi

llion

JPY

Source: Nikon.com (2016g); Fujifilmholdings.com (2016g), Olympus-global.com (2016f)

2.3. Marketing plan – global scenarios

In case, the marketing plan to boost the promotional campaign would be implemented through magazine, newspaper, email blast and direct mail and online banner globally. Basically, Nikon would develop the monthly advertising in several different spot and size, applies the digital and PC photo. Both email and direct mail strategy would be combined with local retailers in which collect the customers data for easily transferring information. Finally, Google, Facebook and Yahoo ads are also added placement to follow potential customers through the number of clicks. Besides that, online banners is also applied. Then, it is also applied the re-target online campaign. For instance, it people clicks to the Nikon ads, the ads would follow them in the next time.

Scope Explanation TimingMagazine Monthly advertising in

several spots. Publish globally on international magazines. Put the digital and pc photo

Newspaper Monthly advertising with This activities would be

SID


premium advertisement for 12 months

implemented during 12 months frequently

Email and direct mail Collect the data through combining with local retailers.

Doing frequently. Once time for every week

Online banner and ads placement

Using Google, Facebook and Yahoo ads to re-target customers.

This activities is implemented frequently.

2.4. Marketing mix with product life cycle & globalization driver

In this plan of Nikon on global scenarios, it would be divided into production, price, place and promotional strategy.

Product strategy

Functional features

It would follow the unique, which are camera pixel, high resolution, low-noise image and high rated sensor. Then, it would be lighting variations and well incredible images.

Unique Selling Proposition Improvement

Extend the memory card slot. One slot is Compact Flash mass storage card and the other is for Secure Digital memory card. Then, it allows users shoot video and picture while separating the two by putting the videos on one and the still images on the other.

Limited Warranty Commitment

Offer the toll-free number worldwide for users to call for support. Besides that, cooperate with local retailers and distributor to help customers easily contact.

Price strategy

The price strategy would be developed through the cost break down, include material, fixed cost combined as total cost per unit. Then, it would add tax and tariffs, transport, wholesaler mark and retailer mark up. Based on that, it would show the result of suggested retail price. Furthermore, Nikon also applied the creative pricing strategy by offering the discount for schools and photography business when purchasing more than one camera (Nikon Marketing, 2016). Then, it offered trade-in discount when trade-in used DSLR. In addition, it also offers a lot of discount on seasonal discount such as Christmas and Thanksgiving for additional percentage off. In case, it provides additional deals include lens, body kit, tripod, battery or memory card. Finally, students would have discount values 30% off.

Place (distribution) strategy

To reach potential consumers and maximize distribution channel, Nikon has promotion combined with local stores and partners to increase their budget while get them to camera feature in its promotion. Furthermore, Nikon would partners with UPS supply chain to provide to make the closely distribution network. Then, Nikon’s merchandise manufactures would be located at Korea, Japan, and Indonesia.

SID


Promotional strategy

There are two marketing major campaign, which are built for Nikon including print, online and mass media. In which, the target market would be divided into two groups. The first group is consumers who first-time purchase of SLR camera or just a hobby photographer wants to switch and upgrade his/her current camera. The second group is presented for students, especially study in photography field, purchase their own equipment. Hence, it would be two key message applied for these group.

- A special offer of bundled component including body kit and lens. - A coupon for people to buy additional package in the future.

2.2. Industry life cycle

Figure 6: Nikon market business life cycle

Source: Researcher’s work

According to Nikon’s Annual Report 2014, the company’s three key businesses (i.e., the Semiconductor Lithography Business, the FPD Lithography Business, and the Imaging Products Business) are at their maturity phase and have small prospects for abnormal growth in the medium term and long term. The challenging characteristics of businesses in the maturity phase are (i) reaching sales volumes peak; (ii) facing decreasing market share; and (iii) suffering from decreasing profit. However, Nikon can take advantages of some benefits being in maturity phase: (i) reducing costs; (ii) increasing to increase market share through differentiation.

In the other hands, the businesses numbered as 5, 6, 7, 8, 9, 10 in the above figure are at the introduction phase. The challenges of being in introduction phase are (i) having small / no market share; (ii) suffering from high costs and losses / no profits.

SID


CHAPTER 3 – FINANCIAL ANALYSIS & OPERATING ANALYSIS

3.1. Financial review / audit

The findings in this section are mainly provided on the basis of three companies’ data gathered from Morningstar.com (providing companies’ financial information from audited official financial statements) & the management discussion and analysis from the annual reports and business strategic report.

3.2. Benchmarking

In this part, financial performance & position of Nikon and its peers will be discussed. Nikon’s key performance indicators (KPIs) are benchmarked with the selected competitors, Fujifilm and Olympus.

By reviewing financial performance and position and benchmarking with other peers, Nikon can evaluate the gaps viewed from different aspects and assist Nikon in developing strategic plan & enhancing the current situation.

Table 6: Benchmarking

Criteria NIKON FUJIFILM OLYMPUS

Location Japan-based Japan-based Japan-based

Currency JPY JPY JPY

Product/ Services offering

Precision Equipment Business

Imaging Products Business

Instruments Business Other Businesses

Imaging solutions

Information solutions

Document solutions

Medical, Scientific Solutions

Imaging Information &

Communication Others

Profitability

(FY2015)

ROA: 1.9% ROE: 3.3% Operating margin:

5.1%

ROA: 3.6%

ROE: 5.8% Operating margin:

7.7%

ROA: 6%

ROE: 17% Operating margin:

13%

Employee growth

(FY2014)

25,415 employees 31,540 employees 79,235 employees

Cost / Expense

- Increasing SG&A- Decreasing COGS



Technology

R&D developmen

t

- Nikon had the lowest level of capital expenditure over sales (FY2015: 2.7%)

- Fujifilm (3.5%)- a stable / slightly

increasing R&D expenditure (FY2015: 76.5% of

- Olympus (7.0%)

The capital investment of Olympus has significantly increased in recent four years (3.8% in FY2012

SID


Capex - a stable / slightly increasing R&D expenditure (FY2015: 7.8% of revenue)

revenue) 7.0% in FY2015).

- R&D expenditure (FY2015: 9.7% of revenue)

Branches 75 273 139

Net asset value

572.2 billion JPY 2,232.7 billion JPY 357.3 billion JPY

Source: Nikon.com (2016g); Fujifilmholdings.com (2016g), Olympus-global.com (2016f)

3.3. Key Performance Indicators (KPIs)

Table 7: Key Performance Indicators (KPIs)

Areas Indicators CalculationLiquidity ratio

1. Current Ratio2. Quick Ratio

1 = Current assets / Current liabilities2 = (Cash + Marketable securities + Receivables) / Current liabilities

Capital structure ratio

3. Debt to Equity Ratio 3 = Total debts / Average Shareholders’ equity

Coverage ratio

4. Interest Coverage Ratio

4 = EBIT / Interest expense

Performance ratio

5. Asset Turnover6. Fixed Assets

Turnover7. Cash Conversion

Cycle8. Receivables

Turnover9. Inventory Turnover10. Days Payable

Outstanding

5 = Revenue / Average Total Assets6 = Revenue / Fixed Assets

7 = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding8 = Revenue / Average Account Receivables

9 = Cost of goods sold / Average Inventory10 = Account payables / (Cost of goods sold / 365)

Profitability analysis

11. Operating Profit Margin

12. Return on Equity13. Return on Assets14. Earnings per Share

11 = Operating profit / Revenue

12 = Net income / Average Shareholders’ equity13 = Net income / Average Total assets14 = Net income / Total outstanding shares

Innovation 15. Capital spending16. R&D investment

15 = Total capex (capital expenditure) / Revenue16 = R&D expenditure / Revenue

Source: Investopedia (2016)

SID


3.4. Financial & Operational analysis

The fifteen KPIs under six categories of Nikon and its peers are calculated and presented in Table 8:

Table 8: The calculated financial ratios of three companies from FY2011 to FY2015

Company Nikon Nikon Nikon Nikon Nikon Fujifilm Fujifilm Fujifilm Fujifilm Fujifilm Olympus Olympus Olympus Olympus OlympusIndicators FY2011 FY2012 FY2013 FY2014 FY2015 FY2011 FY2012 FY2013 FY2014 FY2015 FY2011 FY2012 FY2013 FY2014 FY2015

Liquidity ratio Current Ratio 1.8 1.9 2.3 2.4 2.3 1.9 2.9 3.0 3.1 2.9 1.6 1.7 2.1 1.5 2.0

Quick Ratio 0.8 0.8 1.3 1.4 1.2 1.2 1.9 2.1 2.3 2.1 1.2 1.2 1.5 1.0 1.3

Capital structure ratio Debt/Equity 0.15 0.13 0.19 0.15 0.16 0.01 0.17 0.16 0.14 0.15 11.85 2.84 1.05 0.71 0.69

Coverage ratio Interest Coverage 84.1 48.6 56.3 26.0 25.3 27.1 28.3 38.6 44.2 45.5 0.3 2.4 2.4 2.0 10.0

Performance ratio Fixed Assets Turnover 7.4 6.9 6.1 5.6 6.0 3.9 4.0 4.5 4.7 4.7 6.3 5.8 5.4 5.4 5.1

Cash Conversion Cycle 107 119 127 142 144 115 132 122 123 127 54 76 136 147 152

Receivables Turnover 7.1 7.4 7.5 6.6 7.1 4.4 4.1 4.2 3.9 3.8 5.8 5.4 5.1 4.6 4.6

Inventory Turnover 2.3 2.5 2.5 2.2 2.1 3.7 3.5 4.0 4.2 4.2 4.8 3.6 2.8 2.7 2.5

Payables Period 105 77 70 80 83 67 61 57 59 58 85 93 68 70 77

Profitability analysisReturn on Equity % 14.4 9.2 9.0 3.3 4.0 2.5 3.0 4.2 5.6 5.8 - 47.0 8.3 5.7 - 2.6 17.0

Return on Assets % 7.0 4.9 5.2 1.9 2.3 1.6 1.9 2.6 3.5 3.6 - 4.8 0.8 1.4 - 0.8 6.0

InnovationCap Ex as a % of Sales 3.9 6.1 3.3 2.6 2.7 5.6 5.0 3.9 3.4 3.5 4.2 3.8 4.6 5.4 7.0

R&D Ex as a % of Sale 6.8 7.5 7.6 7.6 7.8 7.5 7.9 7.6 6.7 6.5 7.9 7.2 8.5 9.4 9.7

Source: Morningstar.com. (2016a), Morningstar.com. (2016b), Morningstar.com. (2016c)

SID


The discussion under each aspect of financial analysis is as follows:

Table 9: Financial ratios analysis

No. Aspects Discussion

1.

Liquidity ratio

Liquidity ratios assess the ability of Nikon / Fujifilm / Olympus to pay off the company’s short - term debts. Generally, the larger the proportion of liquid assets to short - term liabilities the stronger capability of the companies could pay off their dues (interest, partial principal…) in the near future.

The liquidity of Nikon indicated by current ratio & quick ratio is considered as good. Because the ratios in recent three year were always higher than 1.0. The same quality of liquidity can be observed at Fujifilm & Olympus.

Nikon & its competitors have had strong liquidity.

2.

Capital structure ratio

The debt-equity ratio is one of popular ratios in assessing the financial risk degree faced by a firm. Generally, the higher the debt amount employed by the firm the greater the financial risk of bankruptcy.

In the analyzing period, Nikon had a stable low D/E ratio. This indicates the company is employing a relatively small financial leverage and possessing a healthy equity position. Among two peers, Fujifilm had the same capital funding strategy as Nikon. In the other hand, Olympus is the one that pursued an aggressive capital structure. The current D/E ratio of Olympus is 0.69 – significantly higher than Nikon (0.16) and Fujifilm (0.15). However, Olympus D/E ratio has also dramatically declined annually from the ratio of 11.85 in FY2011.

Nikon & Fujifilm have employed a low level of debt, in contrary to Olympus

3. Coverage ratio The interest coverage ratio is a useful tool in identifying the capability of a firm in paying for the due of interest expense charged on its outstanding debts. Generally, the smaller the ratio, the higher the interest burden suffered by the firm. Generally, if the interest coverage ratio is equal or below 1.50, a deeper investigation relating to the company’s capability to pay for interest expense should be implemented.

Among three companies, Nikon is the only one that has this ratio declined over years. However, the level of this ratio remains high (FY2015: 25.3). About Fujifilm, the ratio increased over year and reached 45.5 in FY2015. Olympus also an increasing ratios

SID



over year along with the significantly reducing D/E ratio.

All companies are all in good condition to pay for their interest expense.

4.

Performance ratio

In all manufacturing firms, the fixed assets investment (capital expenditure – capex) contributes to the largest element of the total assets. The fixed assets turnover ratio assesses the level of efficiently utilizing those important assets. Generally, the higher the fixed assets turnover value, the better.

In recent three years, Nikon had an increasing Fixed-Asset Turnover – indicating that Nikon’s fixed assets’ (i.e., PP&E) productivity in term of generating sales has been improved. This ratio is stable in Fujifilm and declining in Olympus. The decrease in Olympus is not a negative indication because in FY2015, Olympus had a considerable capital expenditure (Capex of Sales = 7.0% >> the ratio in FY 2014: 5.4%).

Nikon is the company that best utilize its fixed assets among three companies.

Cash Conversion Cycle (CCC) is a financial tool expressing the number of needed days in which a firm sells inventory, collects receivables & pays the accounts payable. Put it simple, the shorter the CCC, the more liquid the firm’s WC (working capital) position is.

All three companies were observed with increasing cash conversion ratio. This means there are more days companies cash is remained in the production & sales processes of their operation. In FY2015, Olympus has the highest increase (by 5 days ~ +3.4%). While Nikon increased by 2 days ~ 1.4%; Fujifilm increased by 4 days ~ 3.3%. The reason in case of (i) Nikon: slightly decreased in inventory turnover; (ii) Fujifilm: slightly decreased in receivable turnover & increased in payables period; (iii) Olympus: decreased in inventory turnover & significantly increased in payables period.

All companies had experienced an increasing cash conversion cycle. Nikon should pay attention to its decreasing inventory turnover.

5. Profitability analysis ROA indicates the efficiency level of a firm’s management

which is utilizing the firm’s total assets to generate return. In the same logic, ROE indicates how much the company’s shareholders earn for their investment in the firm’s common

SID



stocks - utilizing the equity base. Generally, the higher the ROA, ROE ratios, the better.

Among three companies, Fujifilm had the best performance with sustainably increasing ROA, ROE in 5-year period. In the other hand, Nikon experienced high level of ROA, ROE in FY2011 (7.0% and 14.4% respectively), however, the profitability ratios declined significantly over time and down to 1.9% and 3.3% in FY2014. A positive signal that in FY2015, ROA and ROE improved to 2.3% and 4.0%. Even though Olympus currently has the highest level of ROA, ROE (6.0% and 17.0% respectively), the company’s performance was not appreciate as Fujifilm due to unsustainable & highly fluctuated profitability ratios.

Nikon has improved its profitability in the most recent year.

6.

Innovation

All companies had increasing percentage of capital expenditure over sales. This trend of innovation can be observed in the digital camera industry due to the fierce competition, the fast changing business environment & the threat from smart phone.

Nikon had the lowest level of capital expenditure over sales (FY 2015: 2.7%) in comparison to Fujifilm (3.5%) and Olympus (7.0%). The capital investment of Olympus has significantly increased in recent four years (3.8% in FY2012 7.0% in FY2015).

R&D Investment

Except for Fujifilm, both Nikon & Olympus have a stable / slightly increasing R&D expenditure. For FY2015, the R&D expenditure as a percentage of net sales of Nikon, Fujifilm & Olympus were 7.8%, 6.5% & 9.7% respectively.

In term of Nikon, the Core Technology Division acted as the main element in the technologies collaboration on a company - wide basis. Looking for the opportunities of M&A to achieve state - of - the - art technologies. In recent three years, there was no reduction in R&D expenditure – an important evidence of the company’s priority in R&D investment.

SID


3.4. Cost analysis The cost structure of three companies are broken down as in Table 10. Nikon & Fujifilm have the same proportion of cost of gold sold (COGS) of 60-65% of revenue. While the COGS proportion at Olympus is 33-55% of revenue. The differences mainly resulted from the differences in business segments. All companies were observed with decreasing COGS during the nearest 5-year period. This positive sign is a result of the intensive cost reduction implemented & the achievements from R&D activities.

In the other hand, the operating expenses (SG&A) has an increasing tendency, especially in Nikon. However, this increase in SG&A should not be viewed as a negative sign. Because, given the efficiency of the company’s cost reduction program & the intensive investment in new business (e.g., Medical business) which cannot result in profitability in a short time. The unfavourable increase in SG&A of Nikon is expected to reduce & disappear in the near future due to the increasing profitability of new businesses.

Table 10: Cost structure

Cost structure Nikon Nikon Nikon Nikon Nikon Fujifilm Fujifilm Fujifilm Fujifilm Fujifilm Olympus Olympus OlympusOlympus Olympus

FY2011 FY2012 FY2013 FY2014 FY2015 FY2011 FY2012 FY2013 FY2014 FY2015 FY2011 FY2012 FY2013 FY2014 FY2015

Revenue (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

COGS (%) 61.7

65.7

64.3 62.1

61.4

60.5

61.6

62.3

61.4

60.8 54.8 49.2 38.3 35.9 33.5

Gross Margin (%) 38.3

34.3

35.7 37.9

38.6

39.5

38.4

37.8

38.6

39.2 45.2 50.8 61.8 64.1 66.5

SG&A (%) 29.6

29.3

29.3 32.9

34.1

34.4

33.3

32.0

31.7

31.5 41.0 46.1 51.5 52.2 53.5

Operating Margin (%)

8.7

5.1

6.4 5.1

4.5

5.2

5.2

5.8

6.9

7.7 4.2 4.7 10.3 11.9 13.0

SID


CHAPTER 4 – ENVIRONMENT ANALYSIS

4.1. Business environment factors

The researcher analyzed Nikon’s micro & macro business environment within the digital camera industry by using the PESTEL and Porter’s 5 forces model.

4.2. Macro - PESTEL analysis

Table 11: PESTEL analysis

Factors Discussion

Political forces In new established countries (i.e., countries that Nikon recently has representative offices, overseas branch), the company is expected to gain benefits from those countries’ government policy & legislation which aim at attract new investors. Actually, Nikon is present in Europe, America and Japan. This is because of the political stability of these countries. However, the company also has plan to expand its existence in other emerging countries to gain market share & benefits from encouraging policy & legislation

Economical forces

At the moment, the worldwide economy has still been fully recovered from being adversely impacted form the U.S financial crisis. However, positive signals are also reported from several areas (e.g., the US). In order to deal with this crisis, Nikon had to revise its operation & business to improve the sales number. In addition, the proportion of low income consumers who can afford a trustworthy camera has increased significantly and needs to be noticed by Nikon.

Social/Cultural forces

The social needs of cameras becomes more & more significant, especially given the development of smart phones. In this context, Nikon has a disadvantage when the company mainly produces expensive professional cameras. Thus, aiming at integrating the social/cultural external force, Nikon has started manufacturing more affordable cameras to the mass. In addition, Nikon has already worked on enhancing the social awareness.

Technological forces

With rapidly changing technology, Nikon has to keep pace with new technology in order to be competitive in the market. This has been witnessed by the elimination of traditional film camera to the latest SLDR camera. Furthermore, Nikon has invested massively in research and development in order to have a competitive advantage in the imaging industry.

Legal forces Typically, there is no specific legal requirements when purchasing digital cameras on the worldwide markets. However, photography is banned in particular places because of security & cultural issues. In the context of

SID


Nikon, that problem is not significant as most of Nikon’s users are professionals.

Environmental forces

Given the increasing global awareness of climate change, Nikon aims at using recyclable materials in manufacture to decrease the CO2 emissions’ effects.

Based on the PESTEL analysis, the first element – political forces, is favorable to Nikon because all of its main markets (i.e., Europe, America and Japan) have well-established & stable political legislation. Given the economic slowdown due to the U.S financial crisis seems to be unfavorable to most of corporation including Nikon. In term of social awareness, Nikon has already worked on promoting the company’s brand. Given rapidly changing technologies, Nikon must keep pace with new technologies & innovation to maintain being competitive. For Nikon, legal forces do not constitute a problem because its customers largely are professional photographers. Moreover, Nikon has paid attention to green marketing - one of the notable trends of modern businesses.

4.3. Micro - Porter’s Five forces analysis + 3 forces

Table 12: Porter’s Five forces analysis

Forces Discussion

Competitive Rivalry – HIGH

High concentration ratio: with the largest profits owned in the industry are the "Big 3" Canon, Nikon and Sony. Other competitors Pentax, Olympus, Kodax, Samsung, Panasonic, Casio, Fujifilm.

The digital camera market is a mature market & highly saturated with declining level slow growth.

The industry which is capital intensive, the existence of automated machinery manufacturing camera has been increased.

Competitive rivalry is considerably tense and aggressive. The development of a particular product is soon matched by other products from other brands.

Threat of Entry – LOW Due to large economies of scale, the threat of new entrants is low.

Significant investment in long – term assets (both intangible & tangible) are required.

The switching cost is high. Thus, new entrants will be soon ignored by the increasing choosy customers.

The long - established brand is definitely important to customers when choosing a professional tool.

Power of Suppliers – LOW

The requirements of corporate social & environmental responsibility is taken seriously in Nikon. The rules will be

SID


also applied to its suppliers. Moreover, Nikon has full in - house production of

materials, tools & equipment.

Power of Buyers – LOW Customers’ bargaining power is low for both B2C (retail) and B2B (whole-sales).

B2C:o The concerns about quality of the customers when

purchasing professional tools is significant. There is no way that price traded for quality.

o High switching costs (E.g. the collection of Nikon lenses are not likely to compatible with other camera brands.

B2B:o The whole-sales customers also have motivation to

sell well-established global brands. Nikon is a strong brand-name. Thus, Nikon cameras are crucial to the whole-sales buyers’ (both online & non-online retailers) profitability.

Threat of Substitutes – HIGH

Low threat of substitution Smart phones with camera functions which are already

offering the basic need of capturing an image.

Deregulation – LOW Given higher attention of public and governments at global warming, climate changes & environmental pollution, manufacture companies are often regulated more strictly.

The investment policies for FDI capital in emerging countries (e.g., China, Vietnam, etc.) will be not as favorable for FDI companies as in the early stage of attracting FDI capitals.

Globalization – HIGH Globalization is changing its shape & form with the balance of power shifting to Asia & rapid changes in the modern workforce.

New emerging global technological adoption within a short time span is requires.

Digitization – LOW For Nikon operating model perception digitization won’t make any much impact.

Based on Porter’s competitive forces analysis, Nikon has to deal with (i) high level of competitive rivalry; (ii) low level of threat of entry; (iii) low level of power of suppliers; (iv) low level of power of buyers; (v) high level of threat of substitutes; (vi) low level of reregulation; (vii) high level of globalization; and (viii) low level of digitization. The detailed ideas supporting those assessment is presented in the following table.

SID


SID


CHAPTER 5: SCENARIO ANALYSIS

5.1. Introduction to scenario

In this section, several scenarios will be simulated to analyze the impacts of input factors on (i) operating income & (ii) operating profit margin. The assumptions will be made on two input factors (i.e., GDP growth rate; Inflation rate) for FY2016 & FY2017. Then, other assumptions will be made about the impacts of input factors on (i) revenue & (ii) operating expenses (two direct components calculating operating income & operating profit margin). For example, assuming that for 1% increase in GDP growth rate, the revenue will increase by 3% & for 1% increase in inflation rate, the operating expenses will increase by 1%, etc. Based on the assumed movements of factors, the movements of operating income & operating profit margin will be identified.

5.2. Assumptions

The used assumptions on GDP growth rate & Inflation rate are the estimates of IMF for FY2016, FY2017, disclosed in World Economic Outlook Report “Too slow for too long” published April 2016.

Table 13: IMF’s estimates relating to advanced economies’ real GDP growth rate & inflation

Projections

Fiscal year 2011 2012201

3 2014 2015201

6 2017Inflation (Consumer Price Index) (%) 2.7 2.0 1.4 1.4 0.3 0.7 1.5

Real GDP growth rate (%) 1.7 1.2 1.2 1.8 1.9 1.9 2.0

Source: Imf.org. (2016)

The used inflation rate & real GDP growth rate assumptions are advanced economies (notably the US, Eurozone & Japan) instead of Japan only. Because a large proportion of Nikon revenue & products are generated & manufactured globally, especially in advanced economies.

The assumptions in three created scenarios are as follows

Table 14: Assumptions of three scenarios

FY2016 FY2017

Assumptions Scenario 1Worst case

Scenario 2IMF's

estimatesScenario 3Best case

Scenario 1Best case

Scenario 2IMF's

estimatesScenario 3Worst case

Inflation (%) 1.05 0.70 0.35 2.25 1.50 0.75Real GDP growth rate (%) 0.95 1.90 2.85 1.00 2.00 3.00

Revenue growth rate / Real GDP growth rate 0.2 0.2 0.2 0.2 0.2 0.2

Operating expenses growth rate / Inflation 0.5 0.5 0.5 0.5 0.5 0.5

SID


SID


There are three scenarios which are:

- Scenario 1: Worst case: Inflation rate increases by 50% and real GDP growth rate decrease by 50% compared to the base case for FY2016, FY2017.

- Scenario 2: Base case: Inflation rate and real GDP growth rate: Same as IMF's estimates for FY2016, FY2017.

- Scenario 3: Best case: Inflation rate increases by 50% and real GDP growth rate decrease by 50% compared to the base case for FY2016, FY2017.

Even though in recent three year, Nikon’s revenue & operating expenses declined by 6.5% on average, the researcher expects slight positive growth rates in both revenue & operating expenses. Based on the expected favorable impacts of focusing on technologies, R&D, cost reduction, assuming that

- Revenue growth rate = 20% Real GDP growth rate.- Operating expenses = 0.5% Inflation growth.- The growth rate of revenue > the growth rate of operating expenses.

5.3. Scenario analysis

The results of three scenarios are as in the following table and figure:

Table 15: Three scenarios analysis

Indicators FY2014 FY2015+/-

FY2015/FY2014

FY2016 +/- FY2016/FY2015 FY2017 +/- FY2017/FY2016

Scenario 1

Worst case

Scenario 2

IMF's estimates

Scenario 3

Best case

Scenario 1

Best case

Scenario 2

IMF's estimates

Scenario 3

Worst case

Scenario 1

Best case

Scenario 2

IMF's estimates

Scenario 3

Worst case

Scenario 1

Best case

Scenario 2

IMF's estimate

s

Scenario 3

Worst case

Revenue 857,782 822,915 -4.1% 824,479 826,042 827,606 0.2% 0.4% 0.6% 824,561 826,207 827,852 0.0% 0.0% 0.0%

Operating expense 814,370 786,214 -3.5% 790,342 788,966 787,590 0.5% 0.4% 0.2% 795,059 792,111 789,162 0.6% 0.4% 0.2%

Operating profit 43,412 36,701 -15.5% 34,137 37,076 40,016 -7.0% 1.0% 9.0% 29,502 34,096 38,690 -13.6% -8.0% -3.3%Operating profit margin 5.1% 4.5% -11.9% 4.1% 4.5% 4.8% -7.2% 0.6% 8.4% 3.6% 4.1% 4.7% -13.6% -8.1% -3.3%

SID


SID


Figure 7: The operating profit & operating profit margin for FY2014, FY2015, FY2016 (est.) & FY2017 (est.)

Scen

ario

1W

orst

cas

e

Scen

ario

2IM

F's

estim

ates

Scen

ario

3Be

st c

ase

Scen

ario

1Be

st c

ase

Scen

ario

2IM

F's

estim

ates

Scen

ario

3W

orst

cas

e

FY2014 FY2015 FY2016 FY2017

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

43,412 36,701 34,137 37,076 40,016

29,502 34,096

38,690

5.1%4.5%

4.1%4.5%

4.8%

3.6%4.1%

4.7%

Operating profit Operating profit margin

As illustrated in the above table & figure, the estimated operating profit will increase by 1.0% and 9.0% in FY2016 (est.) under the S2 – Base case and S3 – Best case, respectively. In the other hand, a decrease by 7.0% can be observed in the S1 – Worst case. Sharing the same pattern of movement, the operating profit margin’s growth rates in FY2016 (est.) under the S1, S2, S3 are -7.2%; 0.6%; 8.4% respectively.

In FY2017, the inflation is expected to considerably increase by 114%, while the GDP growth rate is expected to slightly increase by 5% according to the IMF (S2 – Base case). Thus, the expected impacts on the operating profit will be negative as the increase in revenue (marked to the GDP growth rate) is much lower than the increase in operating expenses (marked to the inflation). Thus, the estimated operating profit will decrease by -13.6%, -8.0%, -3.3% in FY2017 (est.) under all three scenarios (S1, S2, S3 respectively). Moving in the same pattern, the operating profit margin’s growth rates in FY2017 (est.) under the S1, S2, S3 are -13.6%, -8.1%, -3.3% respectively.

5.4. Results with risk coverage process

At Nikon, there are five committees were established to handle main risk exposed by the company (e.g., labor practices, conflict minerals, environmental problems, etc.)

The company has increased its presence worldwide in the Americas, Europe, Asia, Oceania and Middle East (Nikon.com, 2016a). For years, the overseas sales of the Group have contributed a significant part in the total sales (about > 80%). Thus, the main risk exposure of Nikon which should be considered in this scenario analysis is the currency risk. With a significant income which is not denominated in the domestic currency – JPY, Nikon is under the risk of translating income into JPY given a depreciation case. To deal with this problems, Nikon can involve in derivatives (e.g., forwards, futures, options, swaps) to hedge these risks.

SID


CHAPTER 6: FINDINGS

After conducting this research, there are several findings (both positive & negative points of view) were reached, which are:

No.

Point of view

Findings

1. Positive In imaging products business segment, Nikon surpasses Fujifilm & Olympus in term of brand-name, products portfolio & technology.

2. Positive Nikon established the Medical Business Development Division to enhance the Group’s business development & establish new business pillars (e.g., Medical Business).

3. Positive Nikon actively participated in corporate venture capital projects with the aims utilizing external resource in the ways of M&A & developing new business pillars.

4. Positive Nikon possesses a wide range of advanced technology, product & service based on opto-electronics & precision technology.

5. Positive Effectively & seriously launching the Medium-Term Plan with lots of new ideas & objectives

6. Positive Nikon has a detailed strategy for its imaging products business segment, which are:

- Launching innovative new products- Introducing new marketing strategies- Gaining new depth &exposures in emerging markets- Cost reduction

While Fujifilm & Olympus also indicated but not strongly focused in their medium term plan.

7. Positive Nikon has a new point of view which can be a breakthrough in its business. In the past, Nikon only focused on the idea of using Nikon’s unique technology in developing, manufacturing, & marketing products (i.e., a hardware-oriented strategy). Recently, the company has realized that establishing distinction in hardware alone has limit given the fast changing business environment. Thus, Nikon admits the need of adding application software to the hardware & that has been Nikon’s mainstay to “evolve into a solutions-oriented business model and sustain growth”.

8. Positive Recently, the Nikon Group has paid more attention to employees who have relevant expertise & skills, and retaining these personnel is important to overcoming the fierce competition in the market.

SID


No.

Point of view

Findings

9. Positive In term of KPIs: The liquidity of Nikon indicated by current ratio & quick ratio is considered as good (always higher than 1.0).

10. Positive In term of KPIs: Nikon also had a stable low D/E ratio. This indicates the company is using less leverage and has a stronger equity position.

11. Positive In term of KPIs: Nikon is in good condition to pay for its interest expense

12. Positive In term of KPIs: In recent three years, Nikon had an increasing Fixed-Asset Turnover – indicating that the productivity of a company's fixed assets (property, plant and equipment or PP&E) with respect to generating sales has been improved. Nikon is the company that best utilize its fixed assets among three companies.

13. Positive Nikon has improved its profitability in the most recent year (i.e., increasing in ROA, ROE)

14. Positive Nikon is the company that best utilize its fixed assets among three companies.

In recent three years, Nikon had an increasing Fixed-Asset Turnover – indicating that Nikon’s fixed assets’ (i.e., PP&E) productivity in term of generating sales has been improved. This ratio is stable in Fujifilm and declining in Olympus. The decrease in Olympus is not a negative indication because in FY2015, Olympus had a considerable capital expenditure (Capex of Sales = 7.0% >> the ratio in FY 2014: 5.4%).

15. Positive Except for Fujifilm, both Nikon & Olympus have a stable / slightly increasing R&D expenditure. For FY2015, the R&D expenditure as a percentage of net sales of Nikon, Fujifilm & Olympus were 7.8%, 6.5% & 9.7% respectively.

In recent three years, at Nikon, there was no reduction in R&D expenditure – an important evidence of the company’s priority in R&D investment.

16. Positive Nikon & its competitors were observed with decreasing COGS during the nearest 5-year period. This positive sign is a result of the intensive cost reduction implemented & the achievements from R&D activities.

17. Positive Nikon has plan to expand its existence in other emerging countries to gain market share & benefits from encouraging policy & legislation

18. Positive Aiming at integrating the social/cultural external force, Nikon has started manufacturing more affordable cameras to the mass

19. Average For years, the overseas sales of Nikon have contributed a significant part in the total sales (about > 80%). This fact indicates that Nikon has been

SID


No.

Point of view

Findings

spreading its business globally enough.

20. Average Nikon operates a flat structure which is a horizontal organization consisting of both Group companies in all countries & the management committees.

21. Average Participative style is a managerial style in which the company’s employees are encouraged to evolve in the company’s decisions (to a certain level).

22. Average In the mutual business segment - Imaging products, Nikon was the leader accounted for 55-65% the compiled market of three companies. The leading position of Nikon has been maintained during these years; however, the market share has been gradually declined. In the other hand, the market position of Fujifilm has been improved. In the recent three years, the market share of Olympus was stable.

23. Average All companies had increasing percentage of capital expenditure over sales. This trend of innovation can be observed in the digital camera industry due to the fierce competition, the fast changing business environment & the threat from smart phone. Nikon had the lowest level of capital expenditure over sales (FY 2015: 2.7%) in comparison to Fujifilm (3.5%) and Olympus (7.0%). The capital investment of Olympus has significantly increased in recent four years (3.8% in FY2012 7.0% in FY2015).

24. Average The operating expenses (SG&A) has an increasing tendency in Nikon. However, this increase in SG&A should not be viewed as a negative sign. Because, given the efficiency of the company’s cost reduction program & the intensive investment in new business (e.g., Medical business) which cannot result in profitability in a short time. The unfavourable increase in SG&A of Nikon is expected to reduce & disappear in the near future due to the increasing profitability of new businesses.

25. Negative The level of profitability (indicated by ROA, ROE) is lower than its peers.

26. Negative In recent four years, Nikon’s consolidated net sales gradually declined. Compared to the previous year, in FY2015, net sales dropped by 12.5% to ¥858m while operating income decreased by 31.0% to ¥43.4b (Nikon.com, 2016e).

27. Negative The digital camera market is a mature market & highly saturated with declining level slow growth.

The imaging product business has consistently contributed to Nikon with the proportion of about 70%. However, over years, the contribution of this

SID


No.

Point of view

Findings

business segment has been gradually shrunk.

According to Nikon.com (2016f), among business segments, net sales from imaging product business shown the poorest performance in term of net sales dropped by 11.2% YoY to ¥520.5b while operating income declined by 19.3% to ¥45.8b.

28. Negative In FY2015, Nikon had the Cash Conversion Cycle increased by 2 days ~ 1.4%. The reason in that there was a slight decrease in inventory turnover. All companies (Nikon & its two competitors) had experienced an increasing cash conversion cycle. Nikon should pay attention to its decreasing inventory turnover. The reason in case of (i) Fujifilm: slightly decreased in receivable turnover & increased in payables period; (ii) Olympus: decreased in inventory turnover & significantly increased in payables period.

SID


CHAPTER 7: CONCLUSION

In the recent fiscal year, the Japanese economy – where three companies (Nikon, Fujifilm and Olympus) based, continued to recover. The world biggest economy – the U.S. economy remained to grow, underpinned by robust individual consumption, while the Eurozone continued be in the economic downturn. In developing economies, the growth rates were observed the slowdown. For years, the overseas sales of Nikon have contributed a significant part in the total sales (about > 80%). Thus, it is crucial for Nikon to assess the possibility & the strategy to maintain its competitiveness in the global market.

The report is conducted with two main objectives: (i) evaluating Nikon’s strategies & (ii) assessing the financial performance and position of Nikon in comparison with other two peers – Fujifilm and Olympus. Even though Nikon experienced high level of ROA, ROE in FY2011 (7.0% and 14.4% respectively), the profitability ratios declined significantly over time and down to 1.9% and 3.3% in FY2014. However, a positive signal that in FY2015, ROA and ROE improved to 2.3% and 4.0%. Given the information analysed in the report, the researcher concluded that Nikon can maintain its competitiveness in the global market.

Based on the conducted report, the researcher intends to analyse the financial performance of all companies operating in the digital camera industry to gain deeper understandings relating to the financial results from recent strategies implemented by these companies.

SID


CHAPTER 8: RECOMMENDATION WITH STRATEGIC MODEL

Being established in 1917, Nikon has been a leading Japanese optical instrument maker. For years, the overseas sales of the Group have contributed a significant part in the total sales (about > 80%). Before the boom of smartphones, the business environment of imaging products was not that harsh as at present, Nikon had no intention of expanding its presence into other new business. Products were not that harsh as at present, Nikon had no intention of expanding its presence into other new business. In this rapidly changing business climate, however, establishing distinction in hardware alone has its limits. Thus, Nikon perceived a need to add application software to the hardware & that has been the company mainstay to evolve into a solutions-oriented business model and sustain growth in the future.

The researcher has identified several recommendations by applying Kaplan and Norton's strategy map

Table 16: Kaplan and Norton's strategy map

FINANCIAL PERSPECTIVE

1. Cost reductiona. Reduce costs in design and manufacturing

processesb. Rebuild our business portfolioc. Fundamentally review production regime

2. Stabilized income for existing businesses: Semiconductor, FPD, Imaging

3. Accelerating income from new business (Medical & new business)

Performance targets

Billion JPY

Net sales by businesses

SID


Billion JPY

CUSTOMER PERSPECTIVE

1. Making efforts to strengthen relationships with customers.

2. Enforcing the Customer Relationship Management (CRM). This policy is centered on an approach we have called Customer Lifecycle Management (CLM), which emphasizes enhanced contact with the customer from the purchase of Nikon products throughout their life cycle.

Achieve 90% customer satisfaction.

Achieve 90% Customer retention

INTERNAL PERSPECTIVE

1. Implementing a better stock follow up system for to improve inventory management.

2. Eliminating any potential human error to increase efficiency.

Higher the inventory turnover or lower the inventory days: decreased by more than 30 days.

The number of error make <0.1% and the system audit control will be upgraded.

LEARNING & GROWTH

PERSPECTIVE

1. Improving cost culture perspective2. Continuing launching inside training for

employees3. Continuing to build up the relationship

80% inside training courses (planned at the beginning of the year) were made with effective results.

99% employees answers in the internal survey feeling satisfaction at work.

SID


between C-level and employees 99% employees’ answers in the 360 degree feed-back do not have unsolved agreement with their supervisors.

Objectives Measures & Targets

The following table contains initial guidelines associated with the above strategy recommended for Nikon in implementing the strategy

Table 17: Analysis Recommendation Implementation Steps

Step 1 One of the highlights in the strategy is cost reduction. Thus, Nikon should start with reviewing all the internal costs & expenses to evaluate the efficiency, need & appropriate costing level associated with those items. Any redundant costs & expenses need to be eliminated to enhance the business performance. Moreover, through this review, the efficiency in operation will also be assessed and some ideas to improve efficiency & productivity are expected

- Costs: Additional costs are expected from arranging meeting, forming specific groups for the purpose of cost reduction; raising awareness of employees; hiring professionals for consultancy, etc.

- Resources: All employees are encouraged to engage in the review.- Time scale: Implementing continuously- Feasibility: HIGH

Step 2 Paying attention to the market movement & the trend of customers’ need is continuously required given the fast changing business environment

- Cost: Frequent market research, buying comprehensive analysis reports, etc.- Resources: All employees, especially sales managers, R&D managers are encouraged to actively engage.- Time scale: Implementing continuously- Feasibility: HIGH

Step 3 Paying attention to the innovation, R&D investment, fixed capital is crucial to survive in fierce competition in the industry.

SID


- Cost: Frequent market research, M&A with venture companies / established firms to achieve state – of – the – art technologies.- Resources: All employees, especially sales managers, R&D managers are encouraged to actively engage.- Time scale: Implementing continuously- Feasibility: HIGH

Step 4 Closely monitoring & measuring the KPIs of the strategic model in an accurate, on time & speedy manner

- Cost: Establish a specific department for this purpose, buying software, etc.- Resources: Finance department, performance management division.- Time scale: As soon as possible- Feasibility: HIGH

SID


BIBLIOGRAPHIES

Fujifilmholdings.com (2016a). Fujifilm Group Corporate Philosophy. Fujifilmholdings.com. Available at: https://www.fujifilmholdings.com/en/about/philosophy/index.html Accessed 2 July 2016

Fujifilmholdings.com (2016b). Fujifilm report 2015 - Business portfolio. Fujifilmholdings.com. Available at: http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Business-portfolio.pdf Accessed 3 July 2016

Fujifilmholdings.com. (2016c). Progress and Initiatives of VISION 2016 Medium-Term Management Plan. Fujifilmholdings.com. Avaiblable at: http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Vision-2016.pdf Accessed 2 July 2016

Fujifilmholdings.com (2016d). Fujifilm report 2015 - Foundation to growth. Fujifilmholdings.com. Available at: http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Growth-foundation.pdf Accessed 4 July 2016

Fujifilmholdings.com (2016e). Fujifilm report 2015 - Financial highlights. Fujifilmholdings.com. Available at: http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Financial-Highlights.pdf Accessed 5 July 2016

Fujifilmholdings.com (2016f). Fujifilm report 2015 – Interview with the COO. Fujifilmholdings.com. Available at: http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/COO-Interview.pdf Accessed 7 July 2016

Fujifilmholdings.com (2016g). Fujifilm report 2015. Fujifilmholdings.com. Available at: http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Annual-Report-2015.pdf Accessed 8 July 2016

Investopedia (2016). Financial Ratios Tutorial. Auapps.american.edu. Available at: http://auapps.american.edu/schrenk/www/FIN230/FIN230-Readings/Investopedia%20Financial%20Ratios%20Tutorial.pdf Accessed 9 July 2016

Joseph, SJ & Mohapatra, S, 2009, Management Information Systems In Knowledge Economy, PHI. Accessed 20 July 2016

Morningstar.com. (2016a). Growth, Profitability, and Financial Ratios for Nikon Corp (NINOF). Financials.morningstar.com. Available at: http://financials.morningstar.com/ratios/r.html?t=NINOF Accessed 10 July 2016

Morningstar.com. (2016b). Growth, Profitability, and Financial Ratios for FUJIFILM Holdings Corp (FUJIF). Financials.morningstar.com. Available at: http://financials.morningstar.com/ratios/r.html?t=FUJIF&region=USA&culture=en_US Accessed 11 July 2016

Morningstar.com. (2016c). Growth, Profitability, and Financial Ratios for Olympus Corp (OCPNF). Financials.morningstar.com. Available at: http://financials.morningstar.com/ratios/r.html?t=OCPNF&region=usa&culture=en-US Accessed 11 July 2016

Nikon.com, (2016a). Delivering Nikon’s values to the world: Nikon globally expands its comprehensive power. Nikon.com. Available at: http://www.nikon.com/about/info/corporate/pdf/nikon2015e_3.pdf Accessed 12 July 2016

Nikon.com, (2016b). Nikon | Corporate Information | Nikon’s Philosophy. Nikon.com. Available at: http://www.nikon.com/about/info/philosophy/index.htm Accessed 14 July 2016

Nikon.com, (2016c). Nikon | Corporate Information | Business Domains. Nikon.com. Available at: http://www.nikon.com/about/info/domains/index.htm Accessed 14 July 2016

Nikon.com, (2016d). Mastering optical and precision technologies. Nikon.com. Available at: http://www.nikon.com/about/info/corporate/pdf/nikon2015e_5.pdf Accessed 14 July 2016

Nikon.com, (2016e). Nikon | Investor Relations | Financial Highlights. Nikon.com. Available at: http://www.nikon.com/about/ir/finance/performance/index.htm Accessed 17 July 2016

Nikon.com, (2016f). Consolidated Financial Results of the Year ended March 31, 2016 (Japanese Standards). Nikon.com. Available at: http://www.nikon.com/about/ir/ir_library/result/pdf/2016/16_4qf_c_e.pdf Accessed 17 July 2016

Nikon.com (2016g). Nikon Report 2015 (Year ended March 21, 2015). Nikon.com. Available at: http://www.nikon.com/about/ir/ir_library/ar/pdf/nr2015/15nikonreport_e.pdf Accessed 17 July 2016

SID

http://www.nikon.com/about/ir/ir_library/ar/pdf/nr2015/15nikonreport_e.pdf

http://www.nikon.com/about/ir/ir_library/result/pdf/2016/16_4qf_c_e.pdf

http://www.nikon.com/about/ir/finance/performance/index.htm

http://www.nikon.com/about/info/corporate/pdf/nikon2015e_5.pdf

http://www.nikon.com/about/info/domains/index.htm

http://www.nikon.com/about/info/philosophy/index.htm

http://www.nikon.com/about/info/corporate/pdf/nikon2015e_3.pdf

http://financials.morningstar.com/ratios/r.html?t=OCPNF&region=usa&culture=en-US

http://financials.morningstar.com/ratios/r.html?t=OCPNF&region=usa&culture=en-US

http://financials.morningstar.com/ratios/r.html?t=FUJIF&region=USA&culture=en_US

http://financials.morningstar.com/ratios/r.html?t=FUJIF&region=USA&culture=en_US

http://financials.morningstar.com/ratios/r.html?t=NINOF

http://auapps.american.edu/schrenk/www/FIN230/FIN230-Readings/Investopedia%20Financial%20Ratios%20Tutorial.pdf

http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Annual-Report-2015.pdf

http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/COO-Interview.pdf

http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Financial-Highlights.pdf

http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Growth-foundation.pdf

http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Vision-2016.pdf

http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Vision-2016.pdf

http://www.fujifilmholdings.com/en/investors/annual_reports/2015/pack/pdf/Business-portfolio.pdf

https://www.fujifilmholdings.com/en/about/philosophy/index.html


Olympus-global.com (2016a). 2016 Corporate Strategic Plan (16CSP). Olympus-global.com. Available at: http://www.olympus-global.com/en/common/pdf/plan_16csp_01e.pdf Accessed 18 July 2016

Olympus-global.com (201b). Olympus Report 2015 - Our business domains and key technologies. Olympus-global.com. Available at: http://www.olympus-global.com/en/common/pdf/ar2015e_2.pdf Accessed 18 July 2016

Olympus-global.com (2016c). Olympus Report 2015 - R&D activities. Olympus-global.com. Available at: http://www.olympus-global.com/en/common/pdf/ar2015e_10.pdf Accessed 19 July 2016

Olympus-global.com (2016d). Olympus Report 2015 - Medium-term vision (Corporate Strategic Plan) Olympus-global.com. Available at: http://www.olympus-global.com/en/common/pdf/ar2015e_04.pdf Accessed 19 July 2016

Olympus-global.com (2016e). Olympus Report 2015 - Financial section. Olympus-global.com. Available at: http://www.olympus-global.com/en/common/pdf/ar2015e_16.pdf Accessed 20 July 2016

Olympus-global.com (2016f). Olympus Report 2015. Olympus-global.com. Available at: http://www.olympus-global.com/en/common/pdf/ar2015e_A4.pdf Accessed 20 July 2016

Businesstoday.in (2016) Nikon India's Hiroshi Takashina shares his leadership style. Businesstoday.in. Available at: http://www.businesstoday.in/magazine/leadership-spotlight/nikon-indias-hiroshi-takashina-shares-his-leadership-style/story/186007.html Accessed 9 July 2016

Imf.org. (2016). World Economic Outlook: Too slow for too long. Imf.org. Available at: http://www.imf.org/external/pubs/ft/weo/2016/01/pdf/tblparta.pdf Accessed 10 July 2016

Nikon.com. (2015). Nikon | News | Nikon to establish Global Marketing Strategy Department in Singapore for the company's Imaging Business Unit. [online] Available at: http://www.nikon.com/news/2015/0803_singapore_01.htm Accessed 26 July 2016.

Nikon Marketing. (2016). Nikon Marketing Strategy. [online] Available at: http://rontayyab.com/downloads/Nikon%20Marketing%20Plan.pdf Accessed 26 July 2016.

SID

http://rontayyab.com/downloads/Nikon%20Marketing%20Plan.pdf

http://rontayyab.com/downloads/Nikon%20Marketing%20Plan.pdf

http://www.nikon.com/news/2015/0803_singapore_01.htm

http://www.imf.org/external/pubs/ft/weo/2016/01/pdf/tblparta.pdf

http://www.businesstoday.in/magazine/leadership-spotlight/nikon-indias-hiroshi-takashina-shares-his-leadership-style/story/186007.html

http://www.businesstoday.in/magazine/leadership-spotlight/nikon-indias-hiroshi-takashina-shares-his-leadership-style/story/186007.html

http://www.olympus-global.com/en/common/pdf/ar2015e_A4.pdf

http://www.olympus-global.com/en/common/pdf/ar2015e_16.pdf




http://www.olympus-global.com/en/common/pdf/plan_16csp_01e.pdf

Bap nikon final

Business

Transcript of Bap nikon final