Fuji Gets the Picture--It Won’t Open a Photo Lab

When Fuji Photo Film U.S.A. announced last week that it was indefinitely postponing the long-planned opening of its professional color film laboratory in Hollywood, the decision represented a stinging defeat for the large Japanese film manufacturer and a heady victory for a small local firm.

A&I; Color Laboratory, located just two blocks from the site of the proposed Fuji lab, had conducted a yearlong campaign to stop the Fuji operation.

A&I;’s owners, David Alexander and Mamoru Ishihara, wrote dozens of letters--to senators and congressmen, to then-Vice President George Bush, U.S. Trade Representative Clayton K. Yeutter, U.S. Ambassador to Japan Mike Mansfield and Los Angeles City Councilman Zev Yaroslavsky. They wrote to the Federal Trade Commission, the U.S. Embassy in Tokyo and a score of other professional color labs around the country. They even wrote to Japan’s prime minister, Noboru Takeshita, and to the Rev. Jesse Jackson.

They accused Fuji of deceptive and unfair competitive practices, of unethical conduct and of betraying the American small businessmen who helped the Japanese firm gain a foothold in the U.S. commercial film business.

Fuji Vice President Carl Chapman calls such accusations “absolute falsehood.”

“Fuji has never done anything deceitful,” he said.

The company says it was all a misunderstanding, fueled in part by simmering anti-Japanese sentiment in this country. In a statement released last Wednesday, Fuji said it decided to postpone the lab “rather than risk that this misunderstanding would affect Fuji’s fine reputation.”

Surprised at Victory

“I’m a little shocked right now,” Alexander said after learning of Fuji’s decision not to proceed with the lab. “We never expected to win this. They had all the money and power, and all we could do was keep telling our story. This wasn’t about business and competition, it was about what’s morally right and wrong. And it’s about a little guy fighting a giant.”

According to Alexander and Ishihara, the story began shortly before the 1984 Olympics, when two Fuji representatives first showed up at A&I;, looking for help.

The Japanese firm was about to launch a major assault on the U.S. commercial film market, long dominated by Eastman Kodak Co., whose pioneering research and development in the film processing field had practically invented the industry.

At the time, Kodak enjoyed a virtual monopoly in photo processing, film and paper sales in this country, controlling an estimated 85% of the business. Fuji’s share of the market was less than 5%.

Fuji, however, had a contract as the official color film sponsor for the Olympic Games and a brand-new blimp to hover over the Los Angeles Coliseum and carry the company name into millions of American living rooms.

What Fuji wanted from A&I; that day was assistance in making its film more palatable to the top rung of professional photographers, the men and women who produce the color pictures for magazine fashion layouts and ad campaigns, movie posters and record album covers--A&I;’s customers.

“They came to us and said, ‘Help us understand the America market, what American photographers want and appreciate. Please advise us about our film,’ ” said Alexander, himself a former professional photographer. “We didn’t see any harm in that,” said Ishihara. “They were a manufacturer, a supplier, and helping them produce a better film for our customers would benefit everyone.”

So, for the next four years, A&I; and other top professional labs around the country worked closely with Fuji technicians--granting them access to their production areas, running countless tests on Fuji film, providing Fuji with samples of their customized chemical mixes for analysis, pushing Fuji products to their patrons and even giving Fuji lists of their best customers.

Strategic Thrust

During that time, Fuji managed to double its market share to 10% of photo film and paper sales in the United States, according to B. Alex Henderson, an analyst for the Wall Street investment firm Prudential-Bache Securities.

“Fuji has a history of well thought-out, planned and executed entries into various markets,” Henderson said. “Their entry into the consumer film market in this country was a particularly adept move, a strategic thrust that really caught Kodak looking.”

Fuji’s targeting of the professional lab community was a clever move. Kodak was concentrating its energies on the much larger and more profitable amateur photographic market and was virtually ignoring the professional segment, according to lab owners.

“Kodak had become something of a complacent monopoly, and they were difficult to deal with,” said one lab operator. “If you had a problem or a technical question for Kodak, they might get back to you in six months. But Fuji really wooed us.”

“Fuji figured that if they got the pros to use their products, the amateurs eventually would follow,” said another owner.

The plan apparently worked. Kodak responded to Fuji’s inroads into the professional market by creating its own professional products division in 1985. Lab owners credit Fuji with making the industry more competitive and responsive.

Fuji’s relations with the color lab community began to sour last spring, however, after Alexander and Ishihara learned through industry sources that Fuji was planning to open up its own professional color lab just a stone’s throw away from their own.

“I was floored; I just couldn’t believe it,” said Ishihara, who says he’d formed a close friendship with one of Fuji’s executives, Ted Nakagami, the head of the company’s technical products division.

“The same week they had people in our lab, examining film coming out of our dryers, they were negotiating to lease space up the street from us,” said Alexander. “We helped them and they betrayed our kindness. They should have come to us like men in the beginning and told us what they were doing, instead of lying to us and having us find out about it on our own. It was a corporate policy of deception. That’s what we are objecting to, not the competition. We welcome fair competition.”

Alexander wrote a letter of protest to Koichi Yasunaga, Fuji’s executive vice president of U.S. operations. Written in the style of a Japanese fable, the letter was soon circulating among the professional lab community. It began:

“A stranger knocks at your door telling you he is hungry. That seems true enough so you invite him in. You share your food with him. He eats ravenously, appreciatively. He bows in gratitude. You tell him how glad you are to share with him, as he continues to bow. Enjoying his company, you relax with him. Later, after he has left, you discover that he has stolen your pots and pans.”

“He (Alexander) is very eloquent, I’ll give him that,” said Chapman.

Mystique of Planning

Chapman takes issue with allegations that Fuji’s “infamous visits,” in Alexander’s words, to professional color labs around the country were unethical and deceptive.

For one thing, contrary to Alexander’s belief, there were no plans prior to September, 1987, to open a Fuji professional lab, Chapman said. “This mystique that because this is a Japanese company, then this all had to be carefully and secretly planned, is a lot of bull.”

According to Chapman and other Fuji executives, the lab was intended primarily as a technical research facility for new product development and testing. While they acknowledge that the lab would have taken in photo-processing business from professional photographers, they say it would not have actively solicited business and would have offered higher prices and slower service than other professional labs in the area, so as not to steal their business.

The problem was, having learned of Fuji’s lab plans after the fact and from sources other than the company, the professional color lab community just didn’t buy Fuji’s assurances. A number lab owners began retaliating by pulling Fuji products out of their businesses.

Letters of protest streamed into Fuji’s U.S. headquarters in Elmsford, N.Y. Fuji executives conscientiously answered each letter, but their polite, dispassionate replies only seemed to further anger the lab owners.

“We are establishing our new lab not to compete with you, but to be able to do some of the necessary new product testing and development without burdening you,” Yasunaga wrote in reply to one angry lab owner.

To another: “Our new lab is intended to serve primarily as a test facility and model lab so that we can provide information to, and begin to return the many kindnesses of, our professional lab customers who have been so helpful during the launch of our professional photographic and photo finishing products.”

‘Thanks a Lot’

And to A&I;: “I hope I have assured you that it is not our intention to betray your past kindnesses, but to repay them.”

Alexander called the replies “insulting.” Several others called them “doublespeak.”

“They were going to repay our kindness by opening up a lab down the street? Well, thanks a lot,” said Ishihara.

In interviews before Fuji’s announcement last week, the anger among some lab operators was almost palpable.

“I don’t believe anything they tell me,” said one lab operator who asked not to be identified.

“I don’t buy product from them or sell for them anymore. They are not welcome here,” said Tommy Morgeson, owner of Dallas Photolab.

“My comment is, if they want to be in the processing business, then I don’t need Fuji at all,” said Rex Jobe, owner of the Color Place in Dallas.

“I’ve told my people at the front counter to start pushing Kodak products,” said Peter Miller, president of New York Film Works in Manhattan. “Now I have to approve any sale of Fuji products to a customer, and no Fuji representative can come in here without supervision and my approval.”

According to Miller, Fuji representatives originally came to his lab in the mid-1980s, “telling us we were the best lab in the world and saying they wanted to work with us.”

“They really knew how to manipulate people, being very nice and stroking your ego to get what they wanted from you. And I was a fool and opened up--a normal fool, I guess, since it worked with a few others. They got help from me--a lot of film processed for nothing, client lists, personal introductions to photographers. They were in here on a regular basis for three or four years.”

“At this point, I think I’d only let them in my place under armed surveillance,” Miller said.

A number of lab owners said they suspected that the proposed Los Angeles lab was just the first step in a Fuji plan to enter the professional color lab business in a major way by opening similar labs in other cities--a scenario that Fuji has flatly denied.

“They are positioning themselves two blocks from the best and largest professional processing facility on the West Coast. I’d call that targeting,” said David Ross, owner of Ross/Ehlert Photolab in Chicago. “It’s scary to me because they came into my lab the same way they did David Alexander’s, and if they were to do the same thing with me, I’d be screaming and yelling, too.

“I’d like very much not to believe they’re going to open other labs,” Ross said, “but I don’t trust them very much and would be very apprehensive about letting them in here again.”

Full Disclosure

According to Arsenio Lopez, owner of the New Lab in San Francisco: “In the beginning, we welcomed Fuji with open arms,” “We were one of the first labs to apply for a Fuji dealership. We placed an order for $4,000 worth of film and handed it out to our clients free of charge.

“We cooperated with them so that we could be on forefront of knowledge of what their film did, thereby enhancing our position in the marketplace,” Lopez said. “We showed them tests that we’d done, gave them a picture of how film was being used by our customers, fulfilled their every request, even pointed them in the direction of clients, going through our Rolodex and picking out the people they should see.”

Lopez first got wind of Fuji’s plan for the lab at the Photographic Marketing Assn. trade show in the fall of 1987, he said. “Several people came up and told me that Fuji had purchased a big film processor, what we call a dip and dunk machine, the key component of a commercial lab. And they had selected one of the largest and best machines. I wouldn’t think they’d need a machine like that for a research lab.”

Lopez said that when he confronted Fuji representatives at the show, “they said they knew nothing about it.”

Lopez told Ishihara what he’d learned, Ishihara went to Fuji’s Nakagami and demanded to know what was going on “and he admitted that it was true,” Ishihara said. “He said he was sorry, but he’d been ordered not to say anything about the lab,” Ishihara said.

Tim Mathiesen, Fuji’s technical manager, called it “unfortunate” that news of the lab leaked out the way it did. “We had every intention of making a formal announcement and telling everyone at the same time,” he said. “But some people just found out before we were ready.”

Mathiesen said the site of the Fuji lab was determined by the fact that Hollywood is the center of the photo lab industry in Los Angeles. “There are 20 to 30 labs in the area and we wanted to be nearby so we could better serve the photographic community.” The building two blocks from A&I; “was not even our first choice,” he said.

The professional lab was to be just one part of the Fuji Film Professional Center, which opened in December. The $1-million facility also houses a technical communications center that provides information, seminars and training services to photographers and professional labs around the country, according to Fuji. Only the professional lab portion of the operation has been put on hold, the company said.

Sensitive to Public Opinion

In an interview at the professional center last week, Chapman acknowledged that it was the growing bad feeling among lab owners that caused the company to postpone the opening of its professional lab.

“We were simply unable to convince the industry of our good intentions, and we didn’t want to continue this verbal battle,” he said. “We feel that we are a good citizen, that we are responsible and that we have been wrongly accused.

“We are very sensitive to public opinion,” he said. “And we know that the Japanese are taking some hard shots these days. Like the real estate thing. There are a lot of countries with more U.S. investment, but all you ever hear about are the Japanese.

“The Japanese are easy to dump on because they look different,” said Chapman, who has worked for Fuji for 18 years. “I fought against Japan in World War II, so I have as much right to be anti-Japanese as anyone. But some of the letters I’ve read from lab owners and some of the things I’ve heard said make me ashamed.”

Indeed, in interviews with lab owners, anti-Japanese sentiment surfaced time and again in phrases like “sneak attack” and descriptions of Fuji’s tactics as “warlike.”

“We don’t need to be pulling out swords and hand grenades, but that’s how they act,” said one lab owner. “And it’s not just Fuji, it’s all the Japanese companies.”

Another operator pointed out that he was talking to a Times reporter on Dec. 7. “This is Pearl Harbor Day,” he said. “And that’s what’s happening here again. Only the scale is different.”

“People in this country can be so reactionary, and it’s very painful for me to be associated with that sort of feeling,” Ishihara said. “I’m a Japanese-American and my partner is a Jew, so we know all about prejudice. I’m a war baby. I was sent to a relocation camp with my parents when I was a toddler. I know what’s it’s like to be called a slant-eyed Jap growing up.”

However, both Alexander and Ishihara insist that it was Fuji’s actions, not their protests, that stirred up already existing anti-Japanese feelings in the photographic community.

Peace Offerings

In the aftermath of Fuji’s decision to postone the lab, both sides appeared to be offering olive branches.

“I think it was a courageous decision on their part, and one I’m sure was not easy for them to make,” Alexander said. “We think the technical communications center will be a very positive thing for Fuji and the entire industry. All we ever asked was that they not take in any commercial film business.”

“I can understand their concern,” Chapman said. “They’re just trying to protect their business.” He conceded that the “timing” of the Fuji lab “was not great.”

“I’m disappointed,” he said. “To spent 10 years trying to build a relationship (with the color lab community) and then lose it in eight months is not much fun, I can tell you that.”