Term Paper: Kodak and Fujifilm

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Kodak & Fuji

Eastman Kodak has long been a major player in the photography industry. For much of the 20th century, the company dominated the industry in the United States. The company was founded by George Eastman in 1888 and rose to prominence shortly thereafter. The company struggled, however, once Japanese films began to arrive on the market at a lower price point that Kodak film. Kodak had grown comfortable with its near monopoly in the industry and was not accustomed either to being an innovator or to being a low cost producer. It soon found itself sharing the market. It tried to grow through acquisitions but there was discussion that the company's traditional management practices were stifling innovation, even when it bought an innovative company (Hitt, Hoskisson, and Harrison, 1991).

Further changes came to Kodak in the 1990s with the popularization of digital photography, followed by the Internet and smartphones. As the pace of the industry has increased significantly, Kodak has struggled to match that pace. The company today faces a poor financial situation. It has substantial pension obligations as the result of having thousands of workers during its heyday, but the company today is much smaller, having struggled to stay out front of the digital revolution. Today, Kodak has essentially re-invented itself as an imaging company.

Fujifilm was founded in 1934 as a photographic film manufacturer. The company grew to prominence in its native Japan. By 1965, it had entered the American market, selling film as an exporter, and in 1966 entered Europe via West Germany. The company has expanded its products to things like batteries and medical imaging and printers over the years. As with Kodak, Fuji was not a fast mover on the digital revolution and only began investing in digital later on. More recent diversification has taken Fuji into the pharmaceutical business and it has increased the pace of international expansion, trying to leverage growth in emerging markets.

The two companies clashed in the 1990s over access to the Japanese market for Kodak. While Fuji had relatively easy access to the U.S. market, Kodak never could figure out the Japanese distribution system, and argued that this constituted an illegal trade barrier (Baron, 1997). This case highlights a key difference of the management of these two companies during the film era. Kodak preferred to utilize its substantial North American manufacturing capacity and enter foreign markets via exporting and trying to manage its own channel. Fuji has always been oriented towards local production even in emerging market countries, something that gives that company a much greater presence and better access to the full range of distribution channels.

Differences

In addition to the strategy regarding local production there are two key differences between these two companies in evidence even today. Neither one responded particularly well to the digital photography revolution, but Fujifilm today is a diversified entity that have found niches in other imaging categories, but has also proved willing to enter entirely new businesses. It is too early to tell if this will be successful, but the approach is completely different from that of Kodak.

Kodak's approach remains relatively conservative. While rebranding the company as an imaging firm, Kodak management has effectively presided over the dramatic shrinking of the company. Its approach has avoided unrelated diversification. While today that might be a reasonable strategy given the firm's competencies, a look into the past shows just how risky this concept is. At one point, Kodak had a virtual monopoly on film in the U.S., at a time when cameras only used film. During this period, management did not do any diversification, but instead chose to milk the cash cow that their market position gave them. Yes, this allowed Kodak to build up cash, but it did nothing to position the company for the future. There was no innovation and this conservative -- even lazy -- approach to business would come back to haunt them later. Not only were they unable to diversify to protect against threats to their main business -- they had three decades to deal with threats in between Fujifilm's entrance to the U.S. market and the rise of digital photography, and yet Kodak management did nothing. As a result, when they needed to be an innovative, fast-paced company they simply lacked the ability to be that. Kodak's fall from grace directly reflects the conservative management policy, and while the company has tried to address that culture today, it has only been able to make some partial improvements.

Corporate Social Responsibility

McWilliams and Siegel (2001) posit that companies set their Corporate Social Responsibility using cost-benefit analysis, only going as far as will benefit the company. An analysis of the social responsibility statements from these two companies would seem to support that contention. According to the company's website -- a good source for these sorts of things -- Fujifilm's commitment to social responsibility that it "is adapting and innovating -- in our products, in the way we work, and in our interaction with the world. We are embracing change and diversity to become a more effective force for a better future." This statement is fairly empty, and certainly gives the reader no idea of what it is that Fuji is actually doing. Yet the words are clear -- what they are doing is related to allowing the company to be a more effective force. Fujifilm may well believe that it can improve its workforce by embracing diversity, but it is not embracing diversity because it is the right thing to do. Embracing change is a fundamental business strategy that is entirely unrelated to corporate social responsibility. The company's diversification efforts are embracing change but do not necessarily contribute to a better world Fujifilm seems to have a social responsibility statement mainly because it is supposed to have one, rather than because it has a firm, concrete commitment to the sorts of actions that would constitute exceptional corporate social responsibility.

Kodak is a little bit more forthcoming with its details, outlining its approach to governance, health and safety, the environment, diversity and community affairs. Yet, its statements are as empty as Fujifilm's. The company uses terms like "stewardship" and "engagement" but this are little more than lip service to serious issues. Being responsible for the company's assets is not stewardship, it is a basic management function. It is the same for engaging customers and suppliers. Kodak's corporate social responsibility program is a veneer, intended to convey the appearance of action, but without any concrete action taking place.

What action that does take place is the bare minimum -- something to hold up to the public to show that it is trying.

Neither one of these companies is anything close to effective or an innovator or a leader with respect to corporate social responsibility. They are willing to give the appearance of being responsible, most of what they claim to do consists of things a well-run business should be doing anyway. Thus, if the company is doing something, it is likely to support the company's profits anyway, and is not being done with the intent of making the world a better place. If the action has that effect, it is a bonus.

These approaches, being non-approaches, have had no real effect on profitability. There are no specific programs nor evidence of outcomes from social responsibility. If these companies earn profits, that is strictly the result of their business activities and not related to their minimal efforts at corporate social responsibility.

Changing Market Conditions

As has been noted, both of these companies have faced significant changes to their market conditions. Since the mid-1990s, the photography market has undergone multiple changes. After a century where the only major innovation was color, the industry has moved from digital cameras to smartphones and online image processing. Both Kodak and Fujifilm were slow to respond to these trends, and have suffered as a result. Fuji has maintained a presence in digital cameras, allowing it to still win earnings from photography. Kodak has effectively ceded the photography market to other firms. However, neither is a major player in the smartphone industry nor in the photo processing software industry. Both have been forced to move on to other forms of imaging, leaving the consumer market mostly to other companies.

This diversification has not been sufficient for Kodak, and the company's struggles are well-documented. Kodak finds itself in a position where it is able to make small profits, but is far too small a company for its pension obligations. It simply did not save enough of its earnings from the cash cow years for a rainy day. Fujifilm has been more successful over the years, and this has allowed it to continue to expand its operations. Further, Fujifilm has embarked on unrelated differentiation in order to add new incomes streams. This approach from management has been more aggressive, but some of these new ventures like pharmaceuticals are too young for the effectiveness to be determined.

Kodak, in… [END OF PREVIEW]

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