Case Study KODAK Vs FUJI Eastman Kodak Co.

Armed with a machete, Eastman Kodak Co. Chairman Colby H. Chandler marched into a meeting with his top 75 managers last month and begun whacking away at a wooden crate. His subordinates were dumbfounded. Usually, the diminutive Mr. Chandler emphasizes a point with intricate graphs, and he rarely raises his voice. But after Kodaks second quarter profit plunges 85% -and shocked Wall Street only a tantrum, a vivid demonstration of how he wanted to cut costs, would suffice. Theres no working the middle course in wartime, Mr. Chandler asserted, borrowing a line from Winston Churchill. The 64-year-old executive, embarking on his fourth restructuring of the company in six years, know that it is his last chance to prove his leadership before he retires next May. Already, Kodak watchers are shaking their heads, wondering why he needs four tries to accomplish essentially one job: cut costs. Is he simply the leader of a gang that cant shoot straight? They ask.

At the same time, Kodak has been reluctant to shed products with little growth potential. For example, the carousel slide projector, a Kodak innovation that is experiencing slow growth, does not generate big profits, but Mr. Chandler is reluctant to part with it. I have a soft spot in my heart for it, he explains. And how could Kodak lightly abandon motion-picture film, even though the products long-term growth is threatened by videotape and high-definition television? Tears ago, moviemakers sought Kodaks help in improving film; Kodak responded, and shelves lined with Emmy and Oscar awards hail its achievement. Theres only one Kodak in the U.S., says John Larish, a former employee. People expect them to continue doing certain things. Certainly, Kodak faces a dilemma hamstringing many American conglomerates: it must hold down prices or risk losing market share to foreign competitors. But, at the same time, investors are demanding hefty returns now.

KODAK but why in Japan? 1. TECHNOLOGY Most of new photographic technology originates in Japan GAINTS ARE MINOLTA AND FUJI 2. DEFENDING HOME MARKET SHARES! FUJI must devote heavy resources to defend its home turf against, KODAKS attacks, thus it will have fewer resources to use against KODAK in USA. 3. HUGE MARKET OPPORTUNITY a) Japanese are camera crazy! b) $ 2 bn film and photo paper market, 2nd in size (to USA Market) c) KODAK will better understand Japanese MFG., MKTG speciality and apply it to US and other markets (learning organization) d) It is thoroughly out paced by Japanese technology they innovate into every known product variant : Digital cameras, Video camera, processing, color processing (a bread & butter business for KODAK) 4. FUJI hits KODAK in US a) Fujis offer high Quality color films at 10% lower prices. b) Beats KODAK to the market with High- Speed films. c) Out bid KODAK to become the official film of Los Angeles 1984 OLYMPICS (Summer Games a major Marketing coup! d) Share grew to over 8 % in the huge US Market, and on to 15% e) FUJIs Sales growth 20% per year in US, much faster than overall market, growth. AND KODAK 1) For Over 100 years, KODAK is known for easy to use Cameras, High quality films, solid profits, represented brand.

2) KODAK Defends Market i) With sales flattened and profits decline ii) Outpaced by innovative competitors iii) Improved one hour processing Labs and other products and when Japanese entered Kodaks Color film a bread and butter are they sat up finally and acted. iv) Fought back fiercely to protect home M-S: Matched FUJIs lower prices out spent 20:1 on S.P paid $ 10M to sponsor 1988 SEOUL OLYMPICS + rights for 1992 Barcelona Olympics too. By 1990 stabilized at 80 % market share. Took the battle a step further INCREASE PRESENCE IN JAPAN!

3) KODAK in JAPAN: i) A separate Subsidiary KODAK JAPAN LTD. ii) tripled staff in Japan iii) Japanese distributor Japanese Sales and Marketing Staff iv) Invested in a new technology Centre and took over a large research facility v) Increase S.P expenses. vi) Sponsorship of TV talk shows, SUMO wrestling and other events. 4) BENEFITS FOR KODAK i) ii) iii) big opportunities for increased sales/ projects $ 2 bn market, 2nd only to US in film and paper. While trying to expand market size A dominant firm must defend its current business from rival attacks Coke must guard against PEPSI GILLETTE against BIC HERTZ Vs AVIS MC DONAL Vs BURGER KING G.M Vs FORD KODAK Vs FUJI

FUJI TACTICS:

i) ii) iii)

Statue of Liberty renovated Fujis blimp flew (rival Kodak!) had mounted an exhibit at site. Forces KODAK to cut prices Japanese invention of FILMLESS Camera (CANON, SONY and MINOLTA) takes video pictures, turn into a hard copy or erase followed by an even harder blow digital cameras and chemical less processing.

FUJI Vs KODAK FUJI the most beautiful Mountain in Japan the name itself has a pleasant association. KODAK: a) In 1998, KODAK marketed a disposal camera FLINGs it sold poorly & its name engaged environmentalists b) In 1990, it devised 2 new versions a double lens camera that can take wide angle shots another an under water version Renamed them FUN SAVER It did sell well, but still displeased the greens because 100s Landed in Landfills c) In 1991 it again modified product the new version was disposable designed to be dis-assembled and re-cycled the dealer would handle in for KODAK some parts were re-used 10 times 87 % of 30 million sold are recycled. This is the case of external factors impacting KODAK and their response! 1995 Technology was into VERY HIGH CLARITY & RESOLUTION TRANSMIT IMAGES & TEXT BPC Develop down stream online, Newspaper, Magazines developed Exclusive Technology all into it FUJI, CANON, KODAK ATTITUDES Shape Buying behavior, KODAK ADVANTIX camera has the following customer beliefs: 1) 2) 3) 4) 5) Takes clear pictures Easier to switch back form wide angle to regular shot Feeling that Kodak is a good brand. Its desirable because it is the official camera of the Olympics Cognitive beliefs create a predisposition to buy.

FUJI Fuji forced Kodak to move out of 35mm segment Cost of PLUGGING HOLESwith variants is high just to fill Shelves the cost of failing to do so is higher
KODAK SALES TRAINING Recruit thru campus (separate sales force) interview (cameras, copiers price range $ 18000 - $ 105000) 10 weeks programmes class room work Real and simulated sales calls technology sessions probing the innards of the equipment, intense, and a good preparation for the real world. Suburban territory advance to some major accounts + potentials + 40hr week. What ever takes to satisfy the customers sell benefits WITHOUT SLAMMING a rival firm bad mouthing them is unprofessional, it could come back to haunt you.

Market Challengers rarely rely on just one element of strategy 1. Price discounting 10 % cheaper on film and paper on same quality: 2. COST REDUCTION Puts pressure on domestic manufacturer. It has to 1. Upgrade quality 2. Reduce price too attacker comes with QUALITY, RELIABILITY & PRESTIGE 3. PRODUCT PROLIFERATION 4. Improved Service 5. Distribution Innovation 6. Intensive S.P 7. Product Innovation all rapid fire!

EASTMAN KODAK CO. Inc. has the 4th restructuring in 6 years Cut COST ANY WHICH WAY! CHURCHILL SAID There is no working the middle course in wartime
FORTUNE 500 (200/ ranking)2005 KODAK $ 13829 BN / Profit 0.556 [446] FUJI Photo film $ 23.516 bn / Profit 0,786[227]

TECHNOLOGY TODAY Photography in a different Digital Camera down load into PCs hard disc find the picture upload to www.shutterfly .com prepare a photo greeting card e-mail as an attachment (Adobe or Photoshop) print it on your color printer. MINOLTA DIMAGE 7 1st to crack the 5 mega pixel barrier, 7X optical lens, special imageediting software 1BM microdrive storage huge files 12-bit AD conversion. F/2.8 Zoom Best of the year 2001 ($ 999.00 price tag). KODAK Rochester, USA 1) Profits in 1998 were also 1.4 bn + on 17 bn$ sales Polaroid corp. Successful instant camera patent suit vs. KODAK a few bn. $. Poison + pill employment in 1988: 145300! (STERLING DRUGS) floppy discs, aspirin, artificial snow! Carousel Slide

The Numbers 2001 13.994 bn 2000 = 16.8 bn$ Profit $ 1.407 bn (1.5) Assets 14.212 bn Equity 3.428 Employees 78400 FUJI Photo Co. 2001 $ 13.027 bn $ 2000 $ 12.500 bn $ Profits 1.066 bn (+40%) Assets = 22.586 bn Equity 2.799 bn Employees 70722

projectors Motion picture film (videotape & hi definitions TV Killed it)

1. PRICE SETTER Once dictated price on film, flash cubes till Fuji Change all that! NOTHING IN THE WORLD IS SIMPLE ANYMORE SAYS COLBY CHANDLER CEO in 1990 You Pay A TERRIBLE PRICE TO BUY MKT. SHARE BACK 2) KODAK IN JAPAN: Till 1985, the print on films boxes was in English BATTLE IN JAPAN WAS LOST NOT BEING THERE earlier. And FUJI in USA. FUJI ware Houses never stocked all products like KODAK, but relied on overnight air shipments (high freight expense but low inventory cost and faster deliveries. (Source wall street Journal 19-9-1989 & FORTUNE 30.7.2001) Logistics Goof up by KODAK: Kodak launched a national campaign for a new instant camera, before it had delivered enough cameras to stores customers switch to POLOROID! BUT a dominant brand gets preferred Shelf Space. Price Goof up Fun time was lower price film but not low enough to reach competitors Regular Started buying this brand instead Cannibalizing so it with drew quick.

PRODUCT MIX INFO Products IMAGE Products IDEA GOOF UP IDEA Screened: it rejected Chester Carton copying m/c Xerox didnt and the rest is history Kodak, which once set prices at will on everything from film to flashcubes, has been forfeiting increases to stave off Fuji and others. Competition has been especially fierce in Kodaks key color print film and photographicpaper businesses. That partly explains why earnings couldnt keep pace with the healthy 9% growth in volume this year. Nothing in this world is simple anymore, Mr. Chandler says, adding: You pay a terrible price to buy market share back Yet, at times, top Kodak executives have ignored competitors strengths. When a manager began tracking Fuji, he discovered that the Japanese company had been quietly licensing Kodak technology from Kodaks patent attorneys, who didnt inform senior executives. Fuji also had a more efficient inventory systems in the U S While Kodak ware houses stocked almost all its products, Fuji relied on overnight air shipments, which increased freight expenses but sharply reduced inventory costs and delivered times. After he presented his findings about Fuji to senior management, however, the manager, who has since left the company, says he was told never to talk about it again. The message was, We dont want to hear that story, says the departed manager, who does not want to be identified because his wife still works at Kodak. The company declines to comment on the incident. Nor did Kodak always listen to its employees in Japan, who urged the company to assimilate Japanese ways. Instead, Kodak insisted on imposing its U.S. work policies and refused to offer standard Japanese benefits, such as housing assistance, according to a former Japanese manager. And until 1985, the print on its familiar yellow film boxes was in English. The result: although Kodak has gained 13% share of the Japanese color print film

market, employee turnover is high, and Japanese consumers acceptance of Kodak products is slow. Kodak acknowledges that it has broken with some Japanese traditions in terms of office layout and uniforms, and says its housing assistance isnt as high as other employees or even offered in all cases. However it believes that its salaries are generally higher and that it offers an attractive benefits package. President Whitmore says the battle in Japan was lost by not being there earlier. Until five years ago, Kodak executives rejected as too costly opening offices in the worlds second largest photographic market. The best we can do now is fighting it out, he says. We want to make them fight for every share point they got. While Kodak missed the mark in Japan, the jury is still out on Mr. Chandlers biggest, boldest move the Sterling Drug acquisition. That shocked investors who liked blue-chip Kodak for studiously shunning high debt- and all the more because Sterling promises slight short-term returns. The drug company does provide an entry into the fast growing pharmaceutical business, although Kodak stock has yet to rebound to preSterling highs. We wont know for sure if we did it right [buying Sterling] for another five years, Mr. Whitmore says, nothing that it takes at least that long to get new drugs on the market. Absorbing Sterling hasnt been easy. Kodak wanted Sterlings top managers for their marketing savvy and knowledge of drugs, but within a year most of them left. Among them was the highly regarded former chairman, John M. Pietruski. Colleagues say Mr. Pietruski, who declines comment felt slighted by Kodaks refusal to give him a broad seat. Pietruski would have been a big help to Colby. Hes the kind of guy who sees things as they are and not as they want them to be, a Sterling manager says, Kodak executives say they expected management resignations but werent prepared for problems with Sterlings flagship product, Bayer aspirin. Kodak assumed that Bayer would take off on reports that aspirin helps heart

patients. We didnt understand the business, Mr. Whitmore says. The big part is, Ive got a headache, and thats very competitive. To Kodak, even Bayer is a minor headache compared with the migraine that hit when Mr. Chandler realized how badly things were going this year. Kodaks first half ended just a month after the companys annual meeting in May where right before giving shareholders free lunch and cholesterol checks- Mr. Colby optimistically predicted a record 1989. Although he says he was surprised by the pervasiveness of problems, red flags were flying since the beginning of the year. But subordinates assured top executives that they could turn it around, Vice Chairman Samper says. Such was the case in information systems, where operating profits plunged 93%, after new high tech products stalled and over supplied customers cut orders. Now, Kodak is telling its employees be productive, or you are out. But how seriously the company means that isnt clear. Rather than making hard-nosed decisions about who will go in the 4, 500 employee cut-back, the company is seeking voluntary resignations with generous severance packages, dont sense a lot of fear, even after the latest announcement, says a former Kodak manager and now a consultant. In addition, securities analysts are already saying they dont expect how Kodaks profit to improve this year. They are lowering their second half estimates in anticipation of declines in operating profits in all Kodaks major business segments. Prudential-Bache Securities Alex Henderson reduced his 1989 forecast to $3.60 share from $ 3.70 a share, and says that may still be too high. In 1989, Kodak earned $ 4.31 a share, on sales of $14.03 billion. Mr. Chandler has only nine months before his retirement to turn things around, a time pressure that could explain his resort to machete dramatics at meetings. Mr. Whitmore explains: Were saying to managers, Watch me throw a tantrum, in hopes that theyll finally understand were serious. This case was prepared by Prof. Gautam Pherwani this also drawn partly from Source: Clare Ansberry and Carol Hymowitz, Last Chance: Kodak

Chief Ties for the Fourth Time to Cut Costs, the Wall Street Journal, Speptember 19, 1989 pp. 1, A8