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Kodak versus (Code: c171)

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Kodak versus
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 Read the case given below and answer the questions given at the end.

 

 

CASE STUDY 1


Kodak versus Fuji in 1995


Kodak started selling photographic equipment in Japan in 1889, and by the 1930s it had a dominant position in the Japanese market. Then came World War II and the subsequent occupation of Japan. In the aftermath of the war, US occupation forces persuaded most US companies, including Kodak, to leave Japan to give the war-torn local industry a chance to recover. Kodak reluctantly handed over the marketing of its products to Japanese distributors. Kodak was effectively priced out of the market by tariff barriers. Over the next 35 years, Fuji gained a 70 per cent share of the market while Kodak saw its share slip to a miserable 5 per cent. During this period, Kodak limited much of its activities in Japan to the sale of technology. To quote Albert Sieg, who headed Kodak's Japanese operations from 1984 until the early 1990s, 'Like most American companies (in the 1950s and 1960s), we were content to sell technology to the Japanese to make money, and we did. We sold technology to Fuji Photo Film and Konica and anybody who came to our door. That was the way we decided to make money in Japan. It was also a judgment - obviously not right - that we did not need to worry about the Japanese as a competitor'.
This situation persisted until the early 1980s when Fuji launched an aggressive export drive, attacking Kodak in the North American and European markets where for decades Kodak had enjoyed a lucrative dominance in colour film. Fuji's onslaught squeezed Kodak's margins, took market share, and forced the company to slash costs. Wth their backs to the wall, Kodak's top executives admitted that their company faced a global challenge from Fuji that would only grow. Deciding that a good offence is the best defense, in 1984, Kodak set out to invade its rival's home market. Over the next six years, Kodak spent an estimated $500 million in Japan. At a time when Fuji was committed to heavy spending on promotion abroad, Kodak outspent Fuji in Japan by a ratio of more than 3 to 1. It erected mammoth $1 million neon signs as landmarks in many of Japan's big cities. It sponsored sumo wrestling, judo and tennis tournaments and even the Japanese team at the 1988 Seoul Olympics, a neat reversal of Fuji's 1984 coup when it won the race to become the official sponsor of the Los Angeles Olympics. Kodak realized that to make any headway in Japan, it had to control its own distribution and marketing channels. Rather than go it alone, Kodak established a joint venture with its distributor, Nagase Sangyo, an Osaka based trading company specializing in chemicals. Kodak also realized that it would not succeed in Japan unless it thought and acted just like a Japanese company. Today, apart from a small unit that liaises with Kodak's headquarters in Rochester, New York, all Kodak's employees in Japan are Japanese, complete with a Japanese boss and Japanese management. There are only 30 foreigners among Kodak's 4,500 employees in Japan. So thoroughly Japanese has Kodak become that it even has its own keirestu (family of suppliers with cross holdings in each other).All this activity has brought success. Between 1984 and 1990, Kodak's sales in Japan soared six fold to an estimated $1.3 billion. Kodak's share of sales to amateur photographers has grown by a steady 1 per cent each year for the past six years. Kodak now has a 15 per cent share of that market and may well overtake second place Konica within the next few years. Kodak's success has been even more impressive in Tokyo, where it now has 35 per cent of the amateur market. In addition, Kodak now has 85 per cent of the market for medical X-ray film and photographic supplies to the graphic arts and publishing industries. Perhaps the most important effect of Kodak's Japanese thrust, however, is that Fuji's margins in Japan have been squeezed. Kodak has put Fuji on the defensive, forcing it to divert resources from overseas to defend it at home. By 1990, some of Fuji's best executives had been pulled back to Tokyo.All this success, however, was apparently not enough for Kodak. In May 1995, Kodak filed a petition with the US Trade Office that accused the Japanese government and Fuji of "unfair trading practices'. According to the petition, the Japanese government helped to create a 'profit sanctuary' for Fuji in Japan by systematically denying Kodak access to Japanese distribution channels for consumer film and paper. In Japan, unlike in the United States, film manufacturers do not sell directly to retailers and photofinishers; in between stand the distributors. Kodak claimed Fuji had effectively shut Kodak products out of four distributors having a 70 per cent share of the photo distribution market. Fuji has an equity position in two of the distributors, gives large year-end rebates and cash payments to all four distributors as a reward for their loyalty to Fuji, and owns stakes in the banks that finance them. Kodak also claimed that Fuji used similar tactics to control 430 wholesale photo-finishing labs in Japan to which it was the exclusive supplier. Moreover, Kodak's petition claimed the Japanese government had actively encouraged these practices.Fuji did not take these charges lying down. In a 585 page document called 'Rewriting History', Fuji stated bluntly that Kodak's charges were a clear case of the pot calling the kettle black. Fuji claimed that Kodak had locked up chunks of the US market through exclusive dealing arrangements with retailers won by upfront payments and rebates. Among other charges, Fuji's document claimed Kodak had an exclusive agreement with Eckerd Corp., the fourth largest photo retailer in the United States, that Kodak paid rebates of $2.7 million per year to the Army and Air Force Exchange Services for an exclusive arrangement, and that Kodak offered Genovese Drug Stores Inc., a 144 store chain based in New York, $40,000 plus rebates if the Company promised to carry no brand of film other than Kodak. Kodak responded that while it did offer incentives, 'Retailers are free to carry other brands if they wish. These relationships are completely voluntary'.

Questions:
Q1. How might it be said that Kodak helped to create a competitor in Fuji Photo Film?
Q2. From the evidence given in the case, do you think Kodak's trading practices against Fuji are valid, or are they simply a case of the kettle calling the pot black?

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