The Red and the Yellow
Talking Shop
Hot Cup, Hot Trend
The Red and the Yellow

By staff reporter QIU JIANGHONG

The China film market is based on the so-called battle of the yellow, green and red. Yellow is American Kodak, green Japanese Fuji color, and red China's Lucky film, local counterweight to the two world-famous foreigners.

At 18 yuan (about US $2) a roll, Kodak film is cheaper in China than anywhere else in the world, but only because Lucky film retails at 13 yuan. Kodak's professional reversal film, on the other hand, costs 70 yuan (about US $8.50) as Lucky does not produce it. The Chinese thus save about 1 billion yuan a year on their photographic expenses thanks to Lucky, and so should pay it due respect, even if they do prefer to buy Kodak or Fuji film.

Lucky was first produced by a state owned enterprise set up in the 1960s whose many laurels include having produced the first cine film, and that used to record aviation and space flight. It also formulated the technological process of developing and printing Chinese color film. The Chinese called the national enterprise's dogged rejection of all attempts to acquire it in favor of continuing to compete with its foreign rivals the "Lucky phenomenon."

But in autumn of 2003 this phenomenon took on a different dimension when a 20-year cooperation agreement between Lucky and Kodak was endorsed, giving the Eastman Kodak Company 20 percent of China Lucky Film Corporation stock in return for bankrolling, technology and equipment. Certain economists see the latest Lucky phenomenon as another indication of the need for national enterprises to alter drastically their marketing approach in the face of increasing competition since China's WTO membership.

Pressure on National Brands

At the foot of Fragrance Hill near Beijing is a photo print workship that sells all kinds of film. Its owner says the most popular ISO100 film is Kodak, followed closely by Fuji. Despite being the cheapest, Lucky film makes up only 20 percent of sales.

Why the preference for a foreign rather than national brand? One tourist who owns a relatively cheap camera and buys Kodak film says, "I don't know which is the national and which is the foreign brand. Buying the more expensive film makes me feel assured."

A professional cameraman says, "To the professional eye, the silver granules in Lucky prints are coarser than Kodak or Fuji film, but this should not bother the lay photographer." In his opinion, the reason why consumers choose Kodak or Fuji over Lucky is, ironically, because of Lucky's low price. He explains, "Any film can produce a bad picture if the camera is bad or technique flawed, but people mistakenly assume that expensive film will always produce perfect prints."

At the end of last century, the Eastman Kodak Company purchased and developed five Chinese manufacturers of photosensitive materials and magnetic recording media. One of them was on Xiamen, and only four months after resuming production it generated 128 million yuan in taxes, leaving Lucky's profits way behind.

Having lowered its production costs and retail prices since going into local production, Kodak was confident it could squeeze Lucky out of the picture in a few years. Lucky was powerless to rise to the challenge by lowering its prices as they were already at rock bottom. So what should it do, give in or soldier on?

Cooperating with a Foreign Brand

Lucky's general manager Du Changtao would not allow this national brand to go under. To his mind, rejecting offers of acquisition did not necessarily rule out cooperation with a foreign concern.

Lucky's successful cooperation with Epson, enabling it to produce digital images on Epson equipment proved the wisdom of this reasoning.

But cooperation with Kodak represents a much larger stride for Lucky as equities, as well as technology and equipment, are involved. It also means that Lucky will no longer be a 100 percent national corporation, as Kodak gets 20 percent of Lucky stock.

According to their agreement, Lucky gets an emulsion product line for color output and capital and technological support for upgrading its film base and coating production line. Kodak will supply Lucky with 100 million dollars in capital and has guaranteed to upgrade Lucky technology to a level where it can produce world class film.

Lucky will also benefit from Kodak's huge retail network and advanced management expertise. The American giant Kodak has more than 7,000 retail and printing outlets in China, compared to Lucky's 3,000. Kodak will in addition give specialized technical training to Lucky staff.

A New Concept of National Corporation

There were reports that Lucky held negotiations with Fuji before agreeing to cooperate with Kodak. So how did yellow beat green? Du did not answer this question directly, instead stating the three conditions under which Lucky agreed to cooperate with foreign corporations. They were that Lucky retains the majority of stock, self-governing rights, and continues to use its brand name.

Says Du, "We will not abandon our national brand image. The purpose of cooperating with a foreign corporation is to adapt to the new market situation and improve the quality of our products."

Retaining the majority of stock is obviously the key condition. According to the agreement, Kodak will not buy up Lucky stock on the market, as it will be awarded 20 percent of all stock. Lucky can continue to control its corporations since it retains a level of 43 percent of all stock. "Lucky's fortunes continue fair," says smiling Du.

Lucky corporation staff are busier and even more confident. "Our jobs have survived only because the enterprise has," says Mr. Wang, a veteran worker. "I am delighted at the prospect of our cooperation with Kodak, and I think it will be lucky for all concerned."

Table I: Market Situation of Ordinary Color Films in China

Brand

Kodak

Fuji

Lucky

Others

ISO100

ISO200

ISO100

ISO200

ISO100

ISO200

 

Price (RMB yuan)

18

24

18

24

13

18

 

Market Share

40%

30%

20%

10%

NoteThe price is confined to the Beijing market. The market share is based on the data provided by the Kodak's Beijing Representative Office.

Table II:The Change of Lucky Equity Share

Shareholders

Lucky Group

Kodak

Share in circulation

Kodak Investment

Kodak China

Share

Before the change

63.16%

   

36.84%

After the change

43.16%

13%

7%

36.84%

20%

Note: The data is based on Lucky Film's equity share change statement.