Kodak's travails offer cautionary tale

In bustling Sanlitun in Beijing, there were few customers in a flagship store of Eastman Kodak Co last week.

"We are now a digital camera company and our shop offers various services," a member of staff told the Global Times. The shop can print photos on goods such as cups, shirts or bags, but the traditional printing services are not so popular these days.

Film has been largely pushed aside by the digital camera industry, and the 131-year-old Kodak is on the verge of bankruptcy, the Wall Street Journal reported earlier this month.

The paper said a source familiar with the matter had disclosed that Kodak was preparing to seek bankruptcy protection and is in talks with banks about raising the $1 billion in financing needed to keep it afloat during bankruptcy proceedings.

The company still hopes to mine its intellectual property portfolio to bring in some much-needed cash, but the report suggested that bankruptcy could come either this month or next, given the difficulty of finding a buyer for Kodak's patents.

Headquarter of Kodak announced last week that it has shaken up its business structure, realigning itself into two units from three, but analysts said this may not be enough for the company to save itself.

There was "no content on how Kodak can benefit from the reshuffling," Securities Times commented Thursday, and future prospects remain unclear.

The company announced a loss of $222 million in the third quarter last year and was warned of a possible de-listing by the New York Stock Exchange if its shares keep plunging.

Change of focus

Kodak once had two main rivals in China: Fujifilm and China's Lucky. In 1998, when Kodak nearly monopolized China's photosensitive material sector, Fujifilm was forced to seek development in other fields.

In 2005, Fujifilm developed its digital camera production base in Suzhou, Jiangsu Province into its largest global production base and three years later the firm bolstered its business in medical technology and services in China.

In 2010, Fujifilm began dabbling in the cosmetics sector, to the surprise of many consumers, but the move was still based on its core technology of film making.

The technology employed to keep films from deteriorating is similar to a method of slowing the aging of skin, Yoshisada Nakamura, a senior Fujifilm research manager, explained.

Today Fujifilm still runs its film business, although it has shrunk in recent years, Yu Ying, a member of the company's PR staff, told the Global Times.

Lucky Film, once dubbed "China's film king," began its strategic transition in 2005, when it recorded a record-low net profit of 22 million yuan, mainly due to the rise of digital imaging technology.

Today, the company's core business is optical thin film, which can be applied in products like flat-screen TVs and liquid crystal displays.

In September 2011, the company was bought by State-owned China Aerospace Science and Technology Corporation.

Due to pressure from Kodak, these two ventures were forced to make a business transition much earlier. "Though it is hard to say what future these two brands will have, they are surviving and in a better situation than Kodak," Lu Zhengwei, chief economist at Industrial Bank Co, told the Global Times.

The next Kodak?

Kodak's looming demise is a subject of sadness for Yuan Hang, a Beijing resident and keen photographer. Yuan said he loves Kodak film for its good quality and cheap price.

"It has been in my life since I was a kid and my family bought a camera for the first time. It was once a part of popular culture," the 28-year-old told the Global Times.

Though some have said Kodak's problems are simply a result of technological progress, Lu Zhengwei believes the company has shown a lack of foresight in judging the market. Ironically, it was Kodak that produced the first digital camera in 1975, but it never managed to capitalize on the new technology.

"Power keeps away a sense of crisis, which is dangerous for any business," said Lu.

Kai-fu Lee, CEO of Innovation Works, said that managers should understand that it is necessary sometimes to sacrifice short-term profits for long-term ones.

"Kodak was unwilling to encroach on its own market with its innovation but forgot that if it didn't do it, someone else would," Lee said on his Sina microblog last week.

In 2003, China became the second largest market for Kodak, but the company underestimated the growth of the domestic digital imaging technology market. Kodak China has also suffered from changing its president almost every year since 2009, 21st Century Business Herald reported.

The company is not the only giant to run upon hard times recently, as Nokia and Hewlett Packard can attest.

"Nokia clung to the old technology of its Symbian platform, which is less competitive compared with Google's Android," Wang Jun, a former mobile phone software developer, told the Global Times.

Meanwhile, even the digital camera sector is suffering from competition from the cameras installed in smart phones.

"Smartphones will continue to swamp the digital camera market, especially that of low-end digital cameras. Competition in digital cameras and smartphones is cut-throat and there is no way to stand out other than to keep on innovating," said Wang.

"Kodak's dilemma is a warning to Chinese businesses, especially bigger ones, which need to have more resolution than small ones when facing strategic transitions, as well as those who conduct less technological research than their global rivals," said Yang Qingshan, an expert with China Brand Strategy Association.