Kodak Finds Barriers to Film Sales in Japan : Trade: Officials on both sides of the Pacific are scrambling to respond to firm’s study alleging unfair practices.
When George M.C. Fisher became chairman of Eastman Kodak Co. in 1993, one of his first questions was why the company had such a tiny share of the Japanese consumer film market.
In country-by-country sales reviews, Fisher recalled in a recent interview, Japan “stuck out like a sore thumb.” The giant film company based in Rochester, N.Y., boasted of a 70% share of the U.S. market and of at least 40% in Europe and the rest of the world. In Japan, Kodak was struggling to break 8%.
Fisher, who fought for access to Japanese markets when he headed Motorola Inc., was determined to find a reason for Kodak’s poor showing in Japan. The result is a 250-page document that is part legal brief, part business school case study and part detective yarn. The study, an angry company’s $1-million effort to prove Japan’s economy is rigged, has trade officials on both sides of the Pacific scrambling to respond.
The document, the product of nearly a year of detective work by Kodak-hired trade specialists, draws heavily on Japanese government reports and trade association newsletters to offer an extraordinary look into the inner workings of Japan Inc.
Kodak’s document depicts an economy in which government planners reshape entire industries--spoon-feeding some firms and putting the squeeze on others--to strengthen the nation’s ability to resist foreign competition. The document quotes liberally from Japanese trade association newsletters to portray a system that turns free-market capitalism as practiced in America on its head.
The chairman of a large film retailers association is quoted chiding members at a New Year’s gathering for doing too much to benefit consumers. “It is our duty to modestly re-examine our attitudes in order to eliminate excessive service,” the chairman said. Elsewhere, a Japanese government official is quoted as saying there are “good managed prices and bad managed prices.”
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The document says Kodak’s chief rival, Fuji Photo Film Co., gained almost complete control of Japan’s distribution system by strong-arming its four largest film wholesalers. Despite Kodak’s low prices and positive brand image, only about 15% of Japan’s film retailers carry the familiar yellow boxes. Over the past 20 years, Fisher said, unfair trade practices have enabled Fuji to amass a $10-billion fund to subsidize exports, costing Kodak $5.6 billion in lost revenue.
According to the Kodak study, bureaucrats at the Ministry of International Trade and Industry and regulators at the Japanese Fair Trade Commission, the government agency established to crack down on industrial collusion, worked to help Fuji stamp out price competition among distributors.
Fuji denies Kodak’s claims.
“The film industry is one of the most intensely competitive in Japan,” said Masayuki Muneyuki, a Fuji managing director. “We have never forced wholesalers to sever their relations with Kodak. Distributors and wholesalers have the right to choose which manufacturer they want to buy from.”
Last month, Fuji officials blasted Kodak’s petition as a “massive collection of press clippings” filled with “many erroneous conceptions” and “orchestrated with great craft and cunning.”
Ichiro Araki, a MITI spokesman, declined to comment on Kodak’s allegations. However, he acknowledged that MITI played an important role in directing the film industry’s postwar growth, but added that the ministry no longer exerts the tight controls of the 1960s and ‘70s. Many of the Japanese-language documents cited in the Kodak petition seem “quite authentic,” he said.
An executive of a German film manufacturer operating in Japan confirms some of Kodak’s complaints but faults the U.S. company for not fully exploiting alternative methods of distribution.
U.S. Trade Representative Mickey Kantor is expected to announce today that he will launch an investigation into Kodak’s charges. The petition “paints a compelling picture,” Ira Shapiro, the U.S. trade representative’s general counsel, told the Senate Finance Committee last month. “We are looking at it very seriously.”
Kodak’s difficulties in winning shelf space in the world’s second-largest economy illustrate that trade barriers can go beyond government tariffs and quotas and so cannot be easily resolved though World Trade Organization arbitration.
In the dispute over autos, Japanese officials blame high prices, shoddy quality and lack of vehicles with right-hand drive for U.S. auto makers’ failure to sell more cars in Japan. But Kodak film is cheaper for Japanese consumers than comparable Fuji products, and marketing surveys show most Japanese think Kodak film matches or exceeds Fuji’s quality.
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Kodak began doing business in Japan in the 1880s, and it sold the first transparent film in Japan. By the time military tensions forced withdrawal in the 1930s, Kodak was operating a thriving subsidiary with a wholesale and distribution network. Kodak was not allowed to return until 1975. Sheltered by investment controls and high import duties, Fuji quickly dominated the Japanese market.
MITI helped Fuji maintain that dominance, according to the Kodak petition, by bludgeoning the industry’s primary wholesalers into a relationship of financial subservience to Fuji.
That was engineered partly by government efforts to help design and implement a sophisticated rebate system that punished wholesalers who failed to meet strict sales and price targets set by Fuji. That blocked access to the main distribution system, according to the Kodak petition.
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To MITI bureaucrats, that was necessary to prevent the Japanese economy from being overwhelmed by imports. “The strengthening of this type of relationship of the special agent with the manufacturer is a defensive measure [against] the substantial advances of Eastman Kodak after import liberalization,” MITI explained to film wholesalers and retailers in a 1970 report published in a Japanese trade journal and quoted in the Kodak document.
Four primary wholesalers, or tokuyakuten , monopolize distribution of Fuji film in Japan, according to the Kodak study. Because they control distribution of camera products and accessories in addition to Fuji film, the document alleges, these four firms hold enormous leverage over Japan’s roughly 300 secondary wholesalers and thousands of retail outlets--and are thus able to resist price competition.
Kodak contends Fuji maintains an elaborate system for monitoring wholesalers’ and retailers’ compliance with pricing guidelines. Market research firms conduct spot checks of retail outlets, specially trained homemakers known as Fuji Color Ladies quiz proprietors of neighborhood camera shops, and in remote areas, according to Kodak, Fuji has deputized postal carriers to check prices.
In bringing the U.S. trade representative’s office into the dispute, Fuji charged Kodak with attempting to exploit anti-Japanese sentiment in the United States and “induce the American government to exert pressure on the Japanese government for the express purpose of expanding Kodak’s business in Japan.”
Kodak’s Fisher said he sees it differently: “The more people understand about this case, the more they’ll realize we’re on the side of righteousness.”
