CASE ANALYSIS FUJI VS KODAK

PRESENTED BYAdarsh Sheth

Purushottam KalantryIBS Mumbai (08-10)

Introduction to the Case

Kodak’s revenues were down from $15.97 bn in 1996 to $14.36 bn in 1997 and net earnings fell from $1.29 bn to just $5 mn

More than 5 percent points decline in the US marketshare (from 80.1% to 74.7%)

Analysts felt that Kodak had underestimated its competitors especially Fuji Photo Film

Fuji entered the market in the mid- 1990s with 10% marketshare and increased it to 17% in 1990s

Aggressive marketing by Fuji brought down prices significantly

Contd…

In the late 1990s, the rivalry between Kodak and Fuji further intensified

Analysts felt that Kodak should not take its home market for granted as Fuji had become the world’s second largest manufacturer of photographic film and paper after Kodak

Fuji was not just winning over cost-conscious consumers but also steadily eroding Kodak’s lead in the professional photography market

Background

George Eastman founded Eastman Kodak Company in Waterville, New York

Existing photography methods were cumbersome

Photographic images were made on heavy, fragile glass plates that had to be coated with a wet emulsion just before picture was taken

Pioneered and patented the dry plate process

About FUJI

Founded in 1934, with its headquarter at Tokyo, Japan

Entered the US market in 1964 as a supplier of private label films

Focused on providing quality and innovative products at cheap price

Was the market leader in Japan, world’s second largest market for photography products

Reasons for Success

Built a reputation for quality and innovative products

Gained market share by offering products at prices lower than that of Kodak’s

Consumers viewed the company as Customer-oriented

Regular introduction of new products, promotions and slashing of prices

Kodak’s defensive strategy vs. Fuji’s offensive strategy

FUJI STRATEGY

Fuji appears to price its product much higher in the domestic market Gives Fuji cash flows Allows them to price low in the export market

Fuji’s Strategy

• Established a Production plant in US Cost Efficiency

• Reactive Follower

• Customer & Quality were the prime focus CLV & CRM

• Distribution Strategies

• Compatibility with Kodak Cameras & Films

• Aggressive Marketing

FUJI’S PROS

Fuji’s chances for future growth-

• Fuji is attacking market leader by out innovating Kodak in almost every sphere.

• Fuji looks to be more in line with customer needs and have a great distributor network.

• The high spending on R&D has reaped results in the past and might do the same in future.

• Digital technology seems to be the future of photography. Fuji will do well to concentrate on this.

FUJI’S CONS

Fuji has to overcome following disadvantages

• They have concentrated on long term strategy and their profits are low as of now.

• Their market share might stagnate because of counter offense by Kodak with much higher profits.

• Might result in low performance in the eyes of stakeholders• It is still not seen at par with Kodak in US market.

KODAK

1884- Roll of film

1887- Manufacturing cameras and started operations in London

Mid 1890-Company owned distribution outlets

1900-Entered Japan and set up its first distribution outlet in 1905

1924-Eastmen retired and became the Chairman of the Board of Directors

Decreased Brand Loyalty in the early 1970s. Growth rate slowed by 2%-4% for Kodak

1981-Sony Launched Mavica, a filmless electronic camera which would display pictures on a TV screen

Kodak reduced the price of its films

In 1980s, Japanese players developed 35 mm autofocus cameras. In response Kodak launched small disk cameras, which used film disks instead of film rolls.

Kodak in Japan

Kodak entered Japan in 1905 Never took market seriously

1977 Strengthened distribution and marketing system Joint venture (Kodak – Nagase) Created Subsidiary (Kodak – Japan) Increase employee from 12 to 4500

Access to camera stores went up – 30k to 60k

Kodak in Japan

Large no of Fuji Exclusive stores

Late 1970s Joint venture Bandai (Toy Mfg) – single use camera Setup own R&D and support center Kodak Symposium

Improved Kodak image

Kodak in Japan

1980’s Concept of Minilabs

Got advantage over Fuji Introduced “Panoramic Disposable Camera” Increase control on S & D system Bought Kusuda Business Machines

Controlled 150 labs against 250 by Fuji

Kodak in Japan

Late 80’s Advertised heavily Introduced waterproof disposable camera Introduced Print film – Ektar

In all company spent around $500 million

Despite, Company failed to attract consumer

Kodak in Japan

1994 Introduced single use Camera – Falcon Advertised this product unconventionally

Became one of the best photographic product of the year in Japan

KODAK DIVERSIFICATION

Kodak is more diversified than Fuji

Revenue% and ROS per segments Revenue ROS 87-89 90-92 87-90 90-92Imaging 40.0% 36.9% 16.9% 15.3%Information 23.5% 20.8% 1.9% -6.9%Chemicals 18.7% 19.2% 17.6% 14.5%Health 17.8% 24.5% 16.3% 1.5%

Has Diversification been a good thing for Kodak?

DISTRIBUTION NETWORK

JAPAN In 1977 KODAK tied up with the distributor Nagase & co in

Japan

Increased its workforce from 12 to 4500

Neglected the Japanese market earlier

JV with Bandai a leading Japanese toy manufacturer - co branding agreement

Conducted annual Kodak symposiumps in which the audience included university professors & researchers, customers & its partners

This was done to project itself as a technology intensive company

In 1980 introduced the concept of “minilabs” at certain retail outlets where the film can be processed much faster than other labs

Fuji products were sold through 216000 retail outlets

15% of them gave 75% of the total sales.

Fuji owned a controlling interest in 3 of the 5 major wholesalers

In response kodak bought Ksuda Business Machines a local distrubutor there

DISTRIBUTION STRATEGY

DIFFERENCE IN DISTRIBUTION

In US manufacturers sold directly to retailers & photofinishers

In Japan distributors acted as intermediaries

Fuji had strong ties 4 main distributors Asanuma, Misuzu, Kashimura and Ohmiya

Whereas Kodak had only 1 distributor – Nagase

Kodak claimed that the tie up of fuji with major distributors prevented other brands entry

Japanese government was supporting such monopolistic distribution set up

Fuji gave high commission to the distributors

FINANCIALS

1996 1997 1998 19990

2

4

6

8

10

12

SALES

Column1Column2SALES(MN $)Axis Title

SALES FELL 21.5 % IN 3 YEARS

1996 1997 1998 19990

2

4

6

8

10

12

R&D

Column1Column2R&D(MN $)Axis Title

1996 1997 1998 19990

2

4

6

8

10

12

SELLING EXPENSES

Column1Column2SELLING EXPAxis Title

1996 1997 1998 19990

2

4

6

8

10

12

PROFIT

Column1Column2PROFITAxis Title

“As the retail community shrinks they put pressure upon the suppliers to provide quality products at competitive prices, if one manufacture can’t perform then rises the another”

THE DISPUTE

Higher market share of Fuji in US but lower market share of Kodak in Japan

Kodak alleged Japanese government of favoring Fuji

Kodak filed a petition under Sec 301 referring to unfair trade practices

Allegations were - Price fixing, bribing retailers and wholesalers (Huge

rebates), association with photo labs.

FUJI’S STAND

Kodak was unsuccessful majorly because of its

- Poor marketing

- Negligence

- Bad management

- Short term vision and priorities

It talked of not being involved in any kind of unfair trade practices

ROLE OF WORLD TRADE ORGANISATION

US favored Kodak in WTO by saying that punitive action should be taken against Japan and stated “ Its not just Kodak but it can crate problems for any foreign player and the ultimate losers would be Japanese consumers”

In 1997 WTO ruled out all allegations by Kodak in absence of substantial proof.

Challenge faced by historical business model due to transformational change in the technology, i.e. Theory of Disruptive technology.

Kodak has experienced a nearly 80% decline in its workforce, loss of market share, a tumbling stock price, and significant internal turmoil as a result of its failure to take advantage of this new technology.

Integration of market and nonmarket strategies in a setting, involving market competition and international trade policy where governments serve as bargaining agents for firms.

CHANGING TRENDS

Changing customer - More accepting towards foreign brands - Found a bona fide competitor in fuji - Changing landscape for retail

The New Players - Especially Non Traditional competitor like Sony, HP, Casio

Global Market share Battles

US Market share Battles

Price wars

- Initiated by Fuji, but no after effects from Kodak

Sponsorship Battles

- Fuji, the Event Sponsor while Kodak, the Broadcast Sponsor (80’s)

Court Battles

- Had to go ahead because of weak Trade & Investment Ombudsman (Japan)

VARIOUS MODELS OR STEPS

Market Model incorporates structure of the market, demand &

supply

Enforcement of International Trade Agreement, i.e. Sustainable Concessions

Preference based bargaining

Non Market Model e.g. Common Agency

Kodak can anticipate market changes faster

Steps Kodak can take to protect its strategic advantage are - Full line strategy – Kodak should devote resources for digital

cameras and film processing. It is currently following counteroffensive defense. It can try

flank defense where it can use revenues from high end products to attack low end products.

Mobile defense – Kodak can look for new emerging markets. Since photo processing forms the largest chunk of revenues,

Kodak might do well concentrating on this segment besides high growth OTUCs.    

THANK YOU…!!