Tuesday, January 24, 2012

Was the Bankruptcy of Kodak Inevitable? Yes, Any Firm that Had the Management Team of Kodak Would Have Gone Bankrupt

Fuji Film, Kodak’s Main Competitor is Thriving under Good Management

How Can That Be, Doesn’t America Have the Best Business Management?

The filing of bankruptcy by the Eastman Kodak company was inevitable.  The company looked at the digital revolution in technology and saw nothing.  After all Kodak was the leader in film cameras and film, and nothing was ever going to replace those two things in American life.  The irony of course was the Kodak was one of the pioneers in digital technology.

Capitalists quite often invent the technology that destroys their own business.

Eastman Kodak is a picture-perfect example. It built one of the first digital cameras in 1975.

The decline of Kodak can be documented

Kodak’s revenues peaked at nearly $16 billion in 1996 and its profits at $2.5 billion in 1999. The consensus forecast by analysts is that its revenues in 2011 were $6.2 billion. It recently reported a third-quarter loss of $222m, the ninth quarterly loss in three years. In 1988, Kodak employed over 145,000 workers worldwide; at the last count, barely one-tenth as many.

and is directly tied to the failure of the firm to leave film cameras and film and go in a different direction.  How do we know that, because its technological twin, Fuji Film did just that.

While Kodak suffers, its long-time rival Fujifilm is doing rather well. The two firms have much in common. Both enjoyed lucrative near-monopolies of their home markets: Kodak selling film in America, Fujifilm in Japan. A good deal of the trade friction during the 1990s between America and Japan sprang from Kodak’s desire to keep cheap Japanese film off its patch.

What did Fujifilm do?  Well they did what a company with intelligent management would have done, they diversified out of film.

Fujifilm diversified more successfully. Film is a bit like skin: both contain collagen. Just as photos fade because of oxidation, cosmetics firms would like you to think that skin is preserved with anti-oxidants. In Fujifilm’s library of 200,000 chemical compounds, some 4,000 are related to anti-oxidants. So the company launched a line of cosmetics, called Astalift, which is sold in Asia and is being launched in Europe this year.

Fujifilm also sought new outlets for its expertise in film: for example, making optical films for LCD flat-panel screens. It has invested $4 billion in the business since 2000. And this has paid off. In one sort of film, to expand the LCD viewing angle, Fujifilm enjoys a 100% market share.

So no, the demise of Kodak was not inevitable.  Well it was inevitable with a management team that proved so inept that it ran one of the bluest of the blue chips into the ground.

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