Rival Technologies: Film cameras v Digital cameras - Essay Example

?Rival Technologies: Film camera v Digital camera Introduction Manufacturing is one of the areas where modern technology has been remarkably influential and as a result, several firms have heavily invested technological solutions to provide better quality, relevant and more competitive products. This has radically redefined the face of industrial competition with companies that have taken a quick uptake to technology reaping significant benefits while those that have been slow to adapt have taken major hits concerning profitability and market position. This is amply demonstrated through a critical examination of Kodak and Fuji, two firms that are involved production of cameras and photography equipment but separated by the fact that Fuji established itself on a digital platform while Kodak built its success on what could be referred to as an analogue one. Digital photography is considerably to use, store and print and most of the present amateur consumers prefer it to the relatively more cumbersome analogue photography that requires one to use darkrooms and cumbersome chemical reagents to produce a picture. Millions of individual world over still use their film cameras, these make up a substantial segment of the potential market for digital technology, the rivalry is intensified by the fact that digital technology can only reach its zenith by replacing the analogue. Digital technology, has radically revolutionized the field of contemporary photography been and it is arguably set to replace chemical based imaging in the near future (Munir & Phillips, 2002). This paper critically examines the relationship and struggle for dominance between Kodak and Fuji by providing a historical and contemporary analysis and critically analysing their strategic manoeuvres through the theories of disruptive technology and product life cycle. Background When Kodak’s founder George Eastman, invented and patented the dry plate formulae in 1880, he founded the Eastman Kodak company, which replaced traditional glass photographic plates with film. (Gavetti, Rebecca & Giorgi, 2005). However, in the 80’s firms like sonny developed the concept of digital imaging which were slowly beginning to change the face of the photography industry, Kodak diversified itself into other ventures such as clinical diagnostics, mass memory and vitro blood analysis systems (Munir & Phillips, 2005). On the other hand, Fuji Photo film Co. is a Japanese firm headquartered in Tokyo, founded in 1934; it manufactured photographing materials and film for movies as well as dry plate and photo imaging paper (Gavetti, Rebecca & Giorgi, 2005). In the 1960s, it shifted its focus to looking for digital solutions and working with Xerox. Core Competencies and Strategies Kodak has been described by many business analysts as having been the google of its day, it had vast resources a market share of over 90% in film and 85% in camera sales as well as some of the best technical talent in the market. Kodak was enjoying near monopolistic dominance and this appears to have lulled its management into a false sense of security and invincibility such that they did not make a lot of effort to strengthen their market position in the face of threats and opportunities. Fuji understood that Kodak’s main source of revenue and dominance lay in its specialization in film production and sales, therefore they developed high quality film that they sold for over 20% less than Kodak. Ergo cutting off Kodak’s film customers, it eroded the giants brand loyalty since clients who bought film from Fuji were also likely to buy other products such as cameras from the same firm. The competition between Fuji and Kodak was slowly turning into a bitter rivalry and this was exemplified by the law suit Kodak brought against Fuji in 1984 accusing it of working with the Japans government to frustrate its efforts in Japan (Bounds, 1995). Kodak argued that by having a global market share of over 70%, in world camera sales, it should have more than the 10% it had in japan and sought to have the United States impose restrictions on Fuji in the US. This was based on the allegation that since it had been colluding with the Japanese ministry for international trade to lock them out of Japan (Kaslow, 1995). In an interesting reversal corporate stereotypes, Kodak retrospectively acted like a stereotype conservative and change resistant Japanese firm while the Japanese Fuji acted much like a dynamic and American one (Schumpeter, 2012). One of the reasons it was unable to capitalize on the digital revolution was its application of the razor blade strategy; this involves selling a product at a low price or even loss so as to encourage the sales of a complementary product at a high profit margin. Kodak which had established itself as a supplier of film had launched this by selling many low cost cameras. Therefore they failed to capitalize on digital technology out of fear of “cannibalizing” their own products since film which was their primary business would be rendered obsolete if they supplied their customers with digital cameras. Instead of directing their efforts towards revolutionizing their products, they focused on improving the quality of their products oblivious to the fact that analogue technology was on its way out. This however turned out to be a fatal error businesswise as their competition took the opportunity to flood the market with digital technology and slowly edge out the analogue cameras and capturing a huge share of the Kodak customer base. Kodak tried to recover its position by investing billions on the digital market, it turned out to be too late since as is often the case with disruptive technology, the initiating firm makes too much progress riding on the novelty of the new ideas for incumbents to catch up easily. It therefore happened that in the same way Kodak was synonymous with photography, Fuji became synonymous with digital photography and the customer loyalties and preferences radically changed in favor of the latter. Kodak seemed to believe their core competence lay in the brand marketing; therefore, they could simply collaborate or buy off any firm and use the latter specialization for their own production instead of specializing in in-house solutions. However, these proved erroneous for several reasons, theoretically, core competences should be skill or capability rather than a resource that a company owns (Mooney, 2007; Wanga, Hing-Po and Yongheng, 2004). Despite the fact Kodak’s brand, marketing was a useful skill, it had become more of a resource and the brand popularity had more to do with its dominance rather than advertising. For any brand to be successful, they needs must invest in acquiring and accurate understating of customer needs and habit so they can predict their behaviour and adjust their products appropriately to fit with them (Von Hippel, 1986). One of the main factors that changed the fortunes of Kodak was the changing customer attitude; Kodak had ignored Fuji’s incursion into the country by assuming their customers would remain loyal to them and not buy from the Japanese firm. As it turned out, American customers have no reservations about buying foreign products if the think they are getting a good deal. This assumption had resulted in Kodak focusing more on developing its customer image and less on adapting to new technology in the photography industry. This proved to be a costly mistake because in as much as it had and still has a larger market share (Finnerty, 2000), advertising can never be viewed as a substitute for innovation, Fuji clearly understood this and they took pains to develop and popularize their products especially digital technology and promoted the products not the company (Wudunn, 1996). By aggressively marketing digital technology and attempting to gradually phase out film in amateur photography (Desmond, 1997), Fuji was essentially engaging Kodak in a revolution style standard war. This happens when a firm introduces technology that is incompatible with the competitors existing systems and therefore forces the rivals to either upgrade or bring driven out of business. Kodak had established itself as a film manufacturer and most of its profits and relevance was based on that, therefore when Fuji availed and popularized digital imaging Kodak, was forced to make radical changes (Christopher, 1987). One of this was collaborating with firms such as HP so that they develop digital imaging and remain in relevant in the predominantly digital photography market. Theoretical Models One of the theoretical models that could be used to study the competition between the two firms is the Product life cycle theory which explains the international patterns that affect technologically intensive products like the Kodak and Fuji ones have become of late (Vernon, 1966). Fuji also consolidated its Japanese market, which was both strategically and economically critical in the global photography industry (Mark et al., n.d). Among the tactics used was to ensure they controlled their distribution network thus improve effectiveness as opposed to using third parties like Kodak was doing (Wudunn, 1995). However, the most effective strategy involved culturally adjusted marketing skills, they ensured to sell their products at relatively higher than Kodak playing on the assumption that Japanese people conventionally associated high cost with high quality. Therefore, when Kodak tried to improve its market shares in Japan by reducing their prices, they ended up reducing their sales even more owing to the negative association attributed to low pricing (Tsurumi and Tsurumi, 1999). Christensen’s ( 1995) theory of disruptive technologies makes apt lenses through which to examine the falling fortunes of Kodak following the digital revolution, as it is focused on the plight of incumbent firms that are facing revolutionary technology (Lucas and Gor, 2009). The outlook of the customer base as also changing since the advent of the technological and computer revolution was afoot, many people were excited about the opportunities that digital and computer technology portended and this made Fuji the natural choice due to its digital association. Ironically, Kodak had used the same technology to phase out competition in its formative years when Eastman developed the film, which replaced photo plates and consequently destabilized most of the companies dealing in photography equipment (Swanson, 2003). Digital technology placed Kodak in a very difficult position and their slowness on the uptake resulted in their underestimating the seriousness of the change or the speed with which the customers would embrace this technology. Research and development Research and development standards have become a critical part of business today and to remain competitive (Coombs, 1996), firms must invest heavily in researching and developing the most practical and effective methods of developing technological competence (Quelin, 2000). Despite Kodak’s past attempts to diversify their production, they were notably unimpressive concerning application of R& D strategies, in the 80’s instead of focusing on new ways through which to develop the photography businesses they opted to move to other fields such as pharmaceuticals. This was because mistakes can be costly in the film industry and to avoid them they seemed to avoid innovation all together when film sales started dwindling, Kodak begun to suffer since they lacked competent in-house solutions. In order to produce new technology, it had to collaborate with other firms and ultimately share profits while Fuji did everything in-house. In an attempt to compensate, Kodak developed their own digital camera and a photo CD that was not only expensive but also impractical as it required clients to buy high priced decoders as well as it was not readable by conventional DVDs... Essentially, standards are supposed to promote interoperability (Simcoe & Stuart, 2009), Kodak’s attempt at radical innovation in this case proved counterproductive since very few were willing to adjust their budgets to accommodate their runaways standards. Today, Kodak is faced with a financial crisis that is widely expected to result in its demise; conversely, through years of strategic adaptation, Fuji has transformed itself into a solid economic powerhouse. This is evidenced by its market capitalization of $ 12.6 Billion compared to Kodak’s $220 million; in addition, over 40% of the photofinishing market in America is controlled by Fuji while Kodak only has 15%. Conclusion Kodak despite being the market leader in photography with resources and a market far ahead of its competition gradually lost ground by trying to stick to old technology in the face of inevitable change (Bandler, 2004). Conversely, Fuji realized the potential in digital imaging and hit the ground running; it made, and continues to make inroads into Kodak’s local and global market share (Alec, 1999). Today, the iconic powerhouse is faced with the looming threat of corporate demise, a price it has to pay for staying behind instead of racing ahead of technological innovation. Ultimately, it is unequivocal that change in the photography, and indeed any other industry is not only inevitable but also highly deterministic of the fates of the players involved. The main lesson that one learns from the fate of Kodak is that standards in as much as they can be disruptive to business in the short run are crucial for the sake of retaining long-term relevance (Shapiro and Varian, 1999). 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