Eastman Kodak company is a multinational corporation founded by George Eastman in the late 1800. The company had a manufacturing base of equipments, supplies and systems in professional imaging; films, digital camera, printers, scanners and photographic chemicals.
In 1980s the company started facing a lot of competition in photography leading to a decline in its product demand due to technological breakthroughs by other firms. However, Kodak instituted several measures which included looking for broader international market strategy.
Eastman decided to remake itself due to the uncontrolled losses it had been facing on its sales and market share in photo imaging. It was important for Eastman to diversify its market range by entering into additional markets with a variety of products and quality finishing.
We can analyze the environment of Kodak company using the Porter’s five forces model. The model was developed by Michael E. Porter of Harvard Business School in 1979. He developed a model of pure competition.
His analysis used concepts derived from industrial organizations that determined the level of competition thus attractiveness to the market. (Grant 2005) The attractiveness of a company in this context is its level of its profitability. Unattractive companies are as a result of these forces which drive a companies profitability downwards. These forces Porter refers to then as micro-environmental elements. Porter defines macro-environmental forces as those forces that affect a companies ability to serve its clients and make profits at the same time. Strategic managers who are keen in developing an edge over rival firms can utilize the Porters five force model to understand the industrial context one is operating in. (Porter 1979)
Rivalry between firms is brought about by competition in the traditional economic model. Firms in the modern world strive for competitive advantage over their rivals through expansion of profits. When rivalry intensifies between firms a counter response is elicited by the other firm in response. In this pursuit, firms can choose a number of competitive moves.
Some of these moves may include changing of prices mostly by lowering them giving firms a temporary advantage against their rivals. This is what happened with Kodak when they realized that other smaller companies were emerging in the market. This created advantage for them to survive amidst many challenges.
Improving product quality is the other way of fighting rivals. This involves giving the best either at a cheaper price or at the same price as the rival company. This strikes a level ground and the decision is left with the customers. (Porter 1979)
Rivalry in the market can also be facilitated by slow market growth. In this respect, the Kodak company evolved as the only photo production and photo accessories company since the late 1800s. This rivalry is aggravated by low switching cost by customers from one company to the other. This results to a struggle to capture the customers again.
The threat of substitutes or products that the substitute company produce is the second force. These substitutes exist when there is a radical change in demand affected by the price change of a substitute product. (Symonds 2006) The competition of products between companies comes from the products of newly established company. The threat of substitutes comes from prices of commodities which can substitute the other but not rivals in themselves. To the Kodak company, photo production using a cheap paper by another company was a threat. Quality paper from the Kodak company was expensive although it durable while that from other companies is cheaper and of low quality thus less durable. The occurrence of these cheaper substitutes acted as a major challenge to the Kodak company.
The buyer power and their impact to customers on a producing company is a major force in determining competition between companies. In a situation where there are many producers and one buyer, the buyer sets the price. This is rare but buyer’s most of the times fit the number of producing companies. Buyers become weak on their role when they have no influence on setting prices of commodities. Regarding the Kodak company, when buyers realized that they had no powers nor influence to fix prices, they later changed to alternative cheaper markets.
The supplier power is the influence by the source of key raw materials. Suppliers provide industries with materials for creating products. Influence from suppliers can affect prices of raw materials to capture some profits from the company. Most suppliers in Eastman Kodak company were after the outstanding profits the company thus their supply costs were high. When new companies started they were utilizing the least cost of production to have cheaper commodities so as to have a health competition with Kodak company through better prices. At times, the Kodak company was forced to retire its employees unconditionally to reduce expenses.
Barriers of entry which limit other companies from running parallel business is another method of analyzing the Kodak company. This is aimed at protecting high profits and is done through government regulations. Other companies are likely to venture to a form of business because they look forward to high profits. In the context of the Kodak company, the greatest barriers which limited other companies from this kind of business were the minimum efficient scale. This means the cost of production and the expected profits. With the firm existence of Kodak, not unless through technological advancements, other companies would not make as much profit as Kodak did because raw materials were the same and Kodak had now expanded to most parts of the world. It was after new technology came when Kodak with its “old” technology started facing competition.
The elements of macro-environment facing the Kodak company can also be refereed to as the external factors facing the company. These include the macro-economic matter, technological change, legislation and social-cultural change. This also includes change in the market place and competitive situations. These external factors of a company can also be classified as PEST. The acronym describes the framework for the analysis of macro-environmental factors. The acronym stands for;
The political factors here included the government regulation on the industry and related legal matters. These include both the formal and informal rules under which the industry operates. The Kodak company operated in a context where there was trade liberalization and every one had a right to run a business according to the laws of the United States.
The economic factors which affected the Eastman Kodak company can be traced back in the 1970s when competitive pressure from the Japanese and domestic economic problems slowed down its product demand. (Wildstrom 2007) This forced the Kodak company to reduce its workforce to cut down its costs. The company in 1997 faced another brutal price war when the U.S market and the Asian markets were facing a crisis by then. This reduced its market overseas. The company was once again loosing $440 millions for the year. Workforce reduction was necessary to cut more than $1 billion from annual costs.
The major challenging environment that Kodak faced was of technological innovation that were at high speed than that of Kodak itself. Gone were the days when people relied on paper photos as the only way to view images. Nowadays, one can view photos in in a camera, laptop, mobile phones or even in a TV. It was even considered simpler and cheaper to utilize on line retail photo finisher. However, Kodak was looking forward to a higher end of the home market by beating competitors on quality products.
This technological advancement serves as a major threat to Kodaks reduced market and increased competition. New coming companies like Fuji were highly adopting these new technologies pulling away most of the customers from Kodak. Kodak had not fully adopted to digital technology but still utilized ink paints which seemed to have lost market. (Porter 1979) People started viewing photo production in labs as a lucrative market and retail services were upcoming at lower costs for heavy users.
The opportunities that Kodak had were the good reputation among the people of the U.S and the whole world. To face the competition, Kodak needs to adopt to the changing technology and face the competition wisely even by lowering prices to maintain its customers. Mr Perez as the CEO needs to downsize Kodak’s film business and find buyer for its imaging unit then start making money on digital photography. Perez should expect the company’s operating margins to hit 9% by the end of 2008 from digital photography.
Grant, R. M. (2005) Contemporary strategy analysis: Oxford (UK), Blackwell publishing ltd.
Porter, M. E. (1979)Principles of achieving superior performance: Boston, Harvard business school press.
Porter, M. E. (1979) How competition shape strategy: New York, The free press.
Symonds, W. (2006) Kodak Rewrites the Book on Printing. Business Week. New York: September 4, 2006., Issue 3999; page 83.
Wildstrom, S., H. (2007). Kodak Moments for Less. Business Week. New York: May 14, 2007., Issue 4043; page 24.