The Excellent Global Corporation Plan

The Excellent Global Corporation Plan

Based on the corporate philosophy of kyosei, the Excellent Global Corporation Plan is a medium- to long-term management plan with the goal of building a corporate group that continues contributing to society through technological innovation, aiming to be a corporation worthy of admiration and respect worldwide. In the five-year first phase of the plan, which began in 1996, Canon inculcated in the Group the concepts of profit orientation and total optimization, introducing production reforms by means of the cell production system, and cash flow-based consolidated business performance evaluation. In the second phase of the plan, which began in 2001, they have aimed to become No.1 in all our businesses and strengthen our research and development capabilities. During this phase they have achieved tremendous results, including development reforms and the in-house manufacturing of key components.

Strategy 2005 …

Cannon has formed some strategies for 2005 and achieved some out of them.

Integrating development, manufacturing, and production to achieve competitive advantage

Canon's relentless pursuit of reforms has entered a new phase: greater cost efficiency through the integration of development and production. Their next challenge is "prototype-less design"; namely, striving to eliminate the need for physical prototypes. Furthermore, while pressing forward with reforms in parts procurement, They are putting their

strength into factory automation to further enhance in-house production. In this way, Canon aims to establish a highly competitive production system by seamlessly integrating development, production engineering technologies, and manufacturing technologies.

Boosting R&D capabilities to create new businesses

In 2005 Canon will accelerate the development and commercialization of display devices. In particular, They will speed up preparations for mass production at SED Inc., the joint venture company they have established with Toshiba Corporation. Meanwhile, they will promote the development of autonomous Group companies, notably sales companies and manufacturing subsidiaries in North America and Europe. They will also continue to promote activities giving rise to Canon's next-generation businesses, pursuing their search for new business domains while exploring new development and commercialization of proprietary key components.

Enhancing global sales and marketing

Economic globalization and dramatic advances in information technology are greatly changing the structure of markets around the world. In line with these changes, Canon U.S.A., Canon Europe, Canon China, and Canon Sales in Japan have carried out the restructuring and consolidation of Group companies in their respective regions to increase the efficiency of sales networks, and to upgrade information systems and distribution networks. In 2005, they are aiming to complete the sales and marketing structure reforms they have pursued till date.

Fulfilling corporate social responsibility

Social responsibility begins with awareness on the part of each individual. With regard to environmental responsibility, they aim to achieve the goals set forth in Factor 2, a comprehensive benchmark indicator of the environmental sustainability of the Canon Group culminating in 2010. To ensure continued sustainable development for the company, they will further strengthen corporate governance and compliance.

Charting a course for healthy growth through selection and concentration on R&D

Phase II of our Excellent Global Corporation Plan, a blueprint of long-term management objectives to be met in 2005, contains four goals, one of which is "building up R&D strength to enable Canon to continually create new business opportunities.

In fiscal 2004, research and development expenses totaled Ґ275.3 billion, an increase of Ґ16.2 billion from the previous fiscal year, corresponding to 7.9% of consolidated net sales. Because the sales growth rate exceeded growth in research and development expenses, the ratio of such expenses to net sales declined compared with fiscal 2003. Looking at figures for individual business segments in fiscal 2004, investment in business machines was Ґ120.9 billion, or 43.9% of total research and development expenses, while investment in cameras was Ґ35.5 billion, or 12.9%.

Canon has achieved tremendous results in its quest to become a truly excellent company through a strategy of selection and concentration. While working to bring Phase