Kodak and Fuji are brands which are recognised worldwide but also have very high shares

in their
respective home markets. In the 1970s, Fuji took an aggressive competitor oriented stance against Kodak
in Europe, for example offering 25 per cent discount to photographic film retailers compared to the 17
per cent offered by Kodak. Fuji entered the American market in 1970 but made little progress until,
ironically, a major opportunity was gifted to it by Kodak. Kodak was seen as the natural official film
sponsor for the 1984 LA Olympic Games in Kodak’s base in Los Angeles. However, Kodak deemed the
price too high and Fuji subsequently committed $7 million to the event. Within months, Fuji was able to
open 50, 000 new distribution outlets in the US. Fuji’s twin strategy of building high consumer awareness
and offering attractive packages to dealers could be seen as a frontal attack on Kodak.

Kodak retaliated, using the counter-offensive strategy of attacking Fuji’s profit sanctuary, its home
market of Japan. The thinking was that this might cause Fuji to have to devote more time and resources
to the Japanese market, giving it less opportunity to attack Kodak’s key markets. Other motivations for
Kodak entering the Japanese market included its potential attractiveness. Japan offered a large number
of well-off consumers, whose culture resulted in a high propensity to take photos. Kodak had had a
Japanese distributor for some time but had failed to make a significant impression, with only 10 per cent
of the market compared to Fuji’s 70 per cent. Among the reasons were the fact that Fuji was the
‘comfortable’ choice for most consumers. Additionally, there was channel loyalty towards Fuji and
securing physical distribution in rural areas was particularly difficult for Kodak owing to the need to cope
with the large number of small shops and the mountainous terrain.

Kodak also believed that the Japanese market had been ‘protected’ for longer than necessary and
continued to lobby for the removal of what it saw as hidden, as well as overt, trade barriers, Kodak
claimed that Fuji used strong arm tactics and illegal rebates to control the four largest film wholesalers in
Japan. Fuji argued that the rebates were legal, being co-operative sharing of channel members’ pro-
motional budgets, and that Japan’s duty on imported film was zero while US duty on imported film was
3.7 per cent.

In 1960, Kodak was selling in Japan through one single trading house, Nagase & Co. In 1984, Kodak
created Kodak Japan Ltd, which absorbed Nagase’s division of Kodak products. This change of market
entry mode/servicing strategy from using a Japanese agent to foreign direct investment by establishing
its own wholly foreign-owned enterprise allowed Kodak to take more control of its Japanese business,
demonstrate greater commitment to the consumer, focus on its own objectives rather than the
distributor’s and put more resources behind its bid for a greater market share.

Kodak also built an R&D facility in Yokohama, which allowed it to become an insider within the critical
Japanese research stream and to develop products specific to the Japanese consumer. In fact, as seems
to happen frequently, one of these products subsequently became the global success Kodachrome Gold.
In 1986, Kodak listed on the Tokyo stock exchange and was undercutting competition even though its
product was imported. It also sold private label film to the Japanese Consumer Co-operative Movement
(2500 retail outlets) at an estimated 38 per cent discount on the price of its own brand. Attack and
counter-attack followed, including the flying of a dirigible, this time, over Fuji’s HQ in Tokyo by Kodak. By
1995, Kodak had developed its own network of photo processing laboratories in Japan, had 4300
employees and held over 8 per cent of the Japanese film market. However, Fuji employed almost 30 000
people and controlled 70 per cent of the Japanese market and 33 per cent of the world market almost
the same as Kodak.

Kodak still believed that it was denied full access to the Japanese market and, in 1995, it filed a 280-page
petition with the Office of the United States Trade Representative (USTR). As part of its case. Kodak
claimed that Japanese consumers were being exploited to the extent that wholesale prices in Japan were
3.1 times as high as in the US, 3.6 times as high as in the UK and 4.1 times as high as in Switzerland.

Fuji’s president retaliated in a press release that, ‘Kodak has violated all the standards of business ethics.
It has shamelessly made false allegations against Fuji in a self-serving attempt to use political pressure to
accomplish what its own lack of managerial effort and failed marketing strategies have not been able to
accomplish. As the dispute continued, the Japanese claimed that there was no government-business
conspiracy to restrict market access and that the increase in Kodak’s share, up to 18 per cent by 1983,
proved this to be the case. Ultimately the case was referred to the WTO, which, in December 1997,
found that the US arguments were not proven.

By this stage, the battleground emphasis had shifted to China. Fuji had been an early entrant into China
and was estimated by some observers to have around 38 per cent of the film market by 1995, compared
to some 36 per cent for Kodak. Kodak became more aggressive, for example offering $2000 to corner
shops to become Kodak Express outlets, so that by 1998, Kodak had 3700 outlets compared to Fuji’s
2000. It was also during 1998 that Kodak made the ‘killer’ move by announcing the $1.1 billion
acquisition (of which $700 million was earmarked for bringing the plants up to current global standards)
of three loss-making Chinese film and photographic product companies. Whilst It seems that Kodak
would have preferred to buy Lekai (China Lucky Film), the deal brought with it some key advantages.
First, it provided Kodak with volume production inside a market which was growing at 20-40 per cent per
annum. Second, this production would avoid the then 40 per cent import duty on film (which had meant
that an estimated 90 per cent of foreign film in China had been smuggled in). Third, Kodak gained much
goodwill from the Chinese government. Fourth, the deal precluded any other foreign film company from
manufacturing in China for four years.

In 1999, Kodak launched its ’99 000 yuan Makes you Boss’ campaign: 99 000 yuan (or roughly SUS12 000
at the time) referred to the money needed to open a Kodak franchise. In keeping with the theme, Kodak
also offered cameras to consumers for only 99 yuan. In 1995, China was Kodak’s seven- teenth largest
market and by 1999 it was the third largest. Kodak’s share was estimated at between 40-50 per cent,
while Fuji’s dropped to around 30 per cent. Underpinning Kodak’s success was an international business
and market entry mode strategy which gave it fast decision-making power, as well as great market
commitment. Kodak’s localised production and marketing contrasted with Fuji, for whom distribution
rights for China were held by the Hong Kong-based agent the Hong Kong Fuji Photographic Appliances
Company.

The war reached anotherr crescendo around Chinese New Year 2001. In one week, five Fuji stores in the
Shanghal subway were rebranded Kodak. Fuji retaliated by opening seven shops within the two-mile
stretch of Shanghai’s famous Bund waterfront and also reduced the price of a roll of film from RMB 19 to
RMB 13- below cost, according to some industry estimates.

Source Adapted from Finnerty (2000), The Economist (1998) and Chinaproducts.com (1998-2001))

Discussion question

1. The case above describes a 40-year battle between Kodak and Fuji. To what extent do the players
exhibit the characteristics of a global marketing strategy?