NBR SPECIAL INVESTIGATION: Questions raised over massive $51m loss at Fuji Xerox NZ

Behind the scenes with Karyn Scherer and her investigation of Fuji Xerox

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Fuji Xerox, which claims to be the market leader in “document solutions,” revealed a staggering loss of more than $51 million this month on its New Zealand operation.

Accounts filed with the Companies Office show a plunge in revenue for the year ending in March, after nearly a decade of record sales.

Industry figures believe the plunge is linked to the sudden departure of two of its senior executives earlier this year.

They also believe it is the result of a vicious price war in New Zealand, which has raised eyebrows amongst its competitors and its own staff.

Fuji Xerox's customers include some of the biggest blue-chip companies in New Zealand, various government agencies, and many high-profile schools.

Click here for the full story (if you don't have a sub, click the links anyway and follow the prompts to claim a 30-day free trial. To subscribe, click here).

Part 1 - What’s been going on inside Fuji Xerox?

Part 2 - Fuji Xerox declines to respond to “rumours and innuendo”

Part 3 -  Fuji Xerox makes worldwide decision to change its auditor to KPMG

Part 4 - Fuji Xerox Japanese owners wanted ‘more, more, more’

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5 Comments & Questions

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I used to work in the IT industry ten years ago, and would occasionally partner with Fuji Xerox on some corporate deals. It was a common practice of the big photocopier/document/imaging companies to "buy" key accounts with special assistance from the head office in Japan. FX were by no means unique in this. The other companies could and would get big rebates or subsidies from the parent company to try to win Universities and top NZX companies.

Because the deals were inevitably financed through cost-per-copy contracts, there were all manner of creative accounting ways to ensure the NZ operations could cut prices to clients but show profits on the deal.

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To have an inkling of what has been going on requires an understanding of the changes affecting the copier industry. Better and much less expensive equipment, progress towards the less paper intensive office, networked multi-function devices replacing distributed machines and so.
One of the big changes is the trend for large volume users towards managed print solutions. This requires account managers rather than sales reps, people capable of building relationships and understanding customer needs. The old sales model of an aggressive commission driven rep signing up a customer for say 3 years, and then at year 2 rolling the contract for 3 more years (to 5 in total) with the pitch that you can have a better machine at the same monthly rate is doomed in the long run.

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I don't believe everything I read, but I know for a fact the price war was caused by the smaller providers like Sharp, Toshiba, Canon, Kyocera who forced Xerox and Ricoh and the market in general right down. Their gear and service is good which is what matters to the customer at the end of the day.

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Being the market leader and losing money? It doesn't happen overnight. If it did you'd be able to point to the deals that went South after a big spend.
The past maybe catching up with FX. The leaders left for overseas? Unfortunate that the slump was so large. This makes their tenure look like a gamble made on a house of cards. The cards fell last year.
Now what do we see of FX. The machines that eat paper and spit out emails and children school projects. The Xeroids sales team were the front line of FX. They all lined up and we're given a Christian Grey upgrade. Complete with flash cars and a ready supply of 80's sales techniques.
Those cars and suits don't get picked up at Hellensteins, they're paying big suit numbers with commissions that come from low margins on big numbers with false base volumes.
When volumes that print contracts rely on don't come in that's when the CFO calls the CEO and says I told you we'd save money!!
I think the volume based famous line of "no minimum volume" may have come home to raid the fridge.
But the number is too large to be just the wrong pricing model. It's a shrinking market too.
The government panel were promised volume and that panel promise outlines how irrelevant panels are.
We can't keep blaming the market for downfalls, so an investigation needs to follow the wrong process that led to this loss.
Show us all so we can learn from their mistakes.

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Questionable accounting perhaps? Booking revenue that wasn't collectable in the first place? Might be time to ask some hard questions of management and the auditors?

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