Risk Factors

(1) Impact of market competition and fluctuations

Shipments of office MFP bodies may continue to decline due to the streamlining of offices and longer replacement cycles.  The drop in office print volume due to the rising trend towards paperless offices and teleworking may impact the Group's financial performance for maintenance services. Third parties are selling substitute toner cartridges for laser printers and the earnings of genuine Canon products may be adversely affected if the sales volume of such products increases.
With the market for digital interchangeable lens cameras shifting from SLR cameras to mirrorless cameras, the market for digital interchangeable cameras may continue to shrink. In addition, the fall in the sales of inkjet printer units and ink cartridges may accelerate due to a decline in the printing volume caused largely by a decrease in color printing.
In the industrial equipment segment, orders received for semiconductor manufacturing devices and testing and measuring instruments are significantly affected by the condition of capital expenditure of semiconductor and device manufacturers. If the capital expenditure of such manufacturers decreases, the Group's financial performance may become sluggish.
In the Medical industry, the Pharmaceutical and Medical Device Act (formerly the Pharmaceutical Act) and various guidelines for the protection of medical information require us to develop a legal compliance system, ensure thorough quality control, and implement information security measures. While the Group has a comprehensive system in place to ensure compliance with laws and regulations, unanticipated risks may occur that prevent it from properly implementing the requirements. If this happens, its business with medical institutions and dealers who are engaging in sales of medical equipment to medical institutions may decrease.
In addition, because the Group receives products and services from its parent company, Canon Inc., and many other suppliers, it is exposed to the risk of not being able to receive an adequate supply due to incidents such as natural disasters and large accidents experienced by the suppliers. If such a situation arises, the Group’s financial performance may be affected by its inability to facilitate sales activities.

(2) System development

The Company undertakes the contracted development of systems in a broad range of areas to provide customers with a variety of solutions. To move projects forward, it establishes an internal deliberation system, implements project management and exercises carefully planned man-hours control. By doing so, the Company strives to prevent the occurrence of unprofitable projects and to reduce risks.
However, costs may increase if significant additional man-hours are required due to disagreements with customers regarding the understanding of specifications and progress. In this situation, the Company's business performance may be affected.

(3) Data center business

The Group established the Nishi-Tokyo Data Center to conduct a stock-type business, providing relevant services such as data center service, cloud service and system operation service. Data centers are expected to meet high standards in a range of features such as the quality of buildings, facilities, security and operation. Therefore, the data center was constructed on stable ground and is equipped with high performance facilities and an advanced security system. The Group acquired M&O certification^* in 2017 by leveraging its accumulated knowledge and expertise from years of data center operation. As a result, the data center also features the quality of operation that meets global standards certified by third party institutions.
However, if disasters such as earthquakes, large-scale flooding and fires, infectious diseases, operation errors, cyber-attacks and/or other detrimental events occur, concerned parties, including business partners, may suffer damages and losses due to the suspension of system operation and leak of important customer information. In addition, a decline in trust resulting therefrom may negatively impact the Group’s business operation, performance and/or financial conditions.

• *Global standards regarding the quality of data center operation defined by the Uptime Institute, a U.S.-based private organization.

(4) Information management

The Group holds various types of important information concerning the Group’s management and confidential information of many other companies and individuals, which is obtained through its services, including the provision of solutions to customers. The Group has established the Group Information Security Basic Policy and Group Information Basic Rules for the management of such information and has organized and operates a management system for information security, including thorough communication of the importance of information management to its employees through education, training and other opportunities as well as the implementation of system security measures and monitoring of progress. It also established rules defining relevant matters including selection standards and methods for checking safety management measure to manage and supervise the operation of parties to which operations are outsourced.
In addition, in conjunction with cyber-attacks, it established a system under which the prevention, detection and countermeasures at the time of occurrence are implemented by the CSIRT^*, an organization specializing in cyber security.
Despite taking such measures, if important information leaks to an external party due to cyber-attacks, etc., the Group’s affiliates and other relevant parties may experience serious damages and losses, and the Groups' business operation, financial performance and condition may be adversely affected due to a loss of trust in the Group.

• *CSIRT : Computer Security Incident Response Team

(5) Natural disasters and other calamities

In regions where the Group engages in business activities, those business activities may be impacted due to natural disasters such as earthquakes and typhoons, a serious outbreak of infectious disease, or similar situations. While Canon Marketing Japan Inc. has established backups for its facilities and information systems, there are no guarantees that these measures will allow the company to fully avoid damages due to various disasters, and in the event of such a disaster, the business performance or financial status of the Group could be affected. Additionally, the worldwide spread of the COVID-19 coronavirus still has disrupted supply chains and production activities, and depending on the impact on Canon Inc. and other business partners, it may not be possible to obtain adequate products and services.
The worldwide increase in vaccination coverage has enabled economic recovery and the resumption of economic activity, even in the face of spreading mutant strains of COVID-19.  However, if the pandemic spreads further or is prolonged, the global economy and business activities of the Company and its business partners may become stagnant and there may be a decline in willingness to make investments, or the Company's business activities may be restricted by  government mandate. This situation may adversely affect the Group's business performance, operating results, and financial position. In particular, the Group's business performance and financial position may be adversely affected if the printing volume of office equipment does not recover to the level anticipated by the Group as a result of the trend of shifting to remote work in the markets in which the Group operates.
Furthermore, the worldwide spread of COVID-19 is still disrupting production activities and supply chains, and depending on the impact on Canon Inc. and other business partners, it may not be possible to obtain the full range of products and services.

(6) Risk of bad debts

The Canon Marketing Japan Group is exposed to the risk of incurring unpredictable bad debt expenses due to a large number of transactions requiring payment collection after providing products and services. Therefore, the Group uses credit information from external credit agencies and other data to implement thorough credit management and takes measures such as factoring to hedge the risk. The Group also individually allocates an allowance for doubtful accounts depending on the status of receivable collection to hedge the risk of future bad debts. If, however, the Group suffers a large amount of uncollectible receivables due to an unexpected event, its financial performance and condition may be adversely affected.

(7) Relationship with the parent company

Canon Marketing Japan Inc. is a subsidiary of Canon Inc. (its voting rights ratio was 58.5% as of December 31, 2021) and holds exclusive rights to sell in Japan all products (excluding semiconductor exposure devices, liquid crystal substrate exposure devices and medical equipment) manufactured under the Canon brand by Canon Inc. Purchases from Canon Inc. still accounted for a large portion of total purchases made by the Company in the consolidated fiscal year under review.
Due to this condition, any substantial change in the management policies, business development, and other aspects of Canon Inc. may considerably affect business activities, the financial performance and condition of the Canon Marketing Japan Group. Moreover, if the advantage of Canon products in related industries cannot be maintained for any reason, the Group’s financial position may be adversely affected.