Kodak External Analysis

INTRODUCTION

Even though Eastman Kodak is the leader in digital camera sales, all is not well. Film has always been a high-margin product for Kodak but as this part of the business is rapidly shrinking it's time to look to new products and markets. For the first quarter of 2005, Eastman Kodak reported a $142 million loss. While it may appear Kodak is in dire straights, they are taking actions to establish themselves in the digital printing market. With the leadership of new CEO, Antonio M. Perez, Eastman Kodak is ready to forge ahead to once again become an industry leader. Are they on track to meet their vision? By analyzing the current environment including the macro environment and evaluating how they have managed their environment, then identifying threats and opportunities in the environment and comparing and contrasting that information with its competitors, it will show they are on track to become a major player in the digital printing market. In addition, based on the analysis, recommendations will be made on how they can insure they stay on track.

ENVIRONMENT ANALYSIS

This environment analysis will be accomplished using Porter's Five Forces Model. The model is an "outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value) of an industry structure." (www.12manage.com 2007) The five forces that are examined are entry of competitors, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing players.

The entry of competitors is always an issue when dealing with new technology. Often, new technology is developed by an individual looking for a better way to do something. The problem for these individuals is being able to become a viable player due to limited capital and positioning to enter the market. While developing their own new technology, Eastman Kodak must remain alert to new technology being developed elsewhere that they may be able to acquire to strengthen themselves. With Xerox, Hewlett-Packard, Lexmark and other major companies already established in the market, it will be difficult for new companies to enter the market and make a substantial impact.

The threat of substitutes is an area that Eastman Kodak cannot ignore especially in the production and launching of their new consumer inkjet printers. Where other companies such as H-P and Lexmark are relying not on the profit margin from the printer itself, but the profit margin on replacement cartridges, Eastman Kodak is marketing a quality printer, affordable cartridges, and quality paper combination to produce the highest quality prints. "If consumers buy Kodak's economical Photo Value Pack, which combines paper and ink, the cost print is about 10 cents, vs. 24 cents for HP's comparable package." (Hamm. 2007) Since Kodak is counting on the package as a whole they must ensure the marketing tells the story that it is truly a combination of its products that produce the value and quality. The concern they should have is the same as HP, Lexmark, Epson and other major producers of consumer printers is that the generic replacement cartridges and ink refill market is very strong. While the cartridges may not produce the same quality as the name brand, at this time, the quality difference is not great enough to drive customers from brand name to generic.

Another major force is the bargaining power of the buyers. Eastman Kodak is entering the consumer printer market which is full of competitors who produce products that allow the consumer to have significant buying power. As mentioned earlier, most producers rely on their profit margins from the sale of replacement cartridges versus the printer itself. With companies producing quality printers at extremely affordable prices and often providing significant rebates, the buyers have a lot of power. When you throw in the fact that there are numerous generic replacement cartridge suppliers and companies that refill cartridges and provide refill kits for sale, the buyer gains even more power. Eastman Kodak is aware of this and even thought they are launching into the consumer printer market, they are also making a play in the commercial printing market where the bargaining power of the buyer is not as great.

The bargaining power of suppliers is more significant to Eastman Kodak than its competitors who develop and produce most of their own parts. In an effort to get its printers on the market quicker, Eastman Kodak developed its printers using "off the shelf" parts. "They worked with technology partners such as chip-design specialist SigmaTel, Inc., rather than trying to design everything from scratch." (Hamm. 2007) While this tactic did allow for faster development and lower development costs, the reliance on suppliers for the parts to manufacture the printers gives the suppliers greater buying power. Compared to the traditional manufacturing by others in the market that develop and produce most of their own parts, while risky, could pay off for Kodak in the long run.

Of the five forces, rivalry among competitors could be the most significant. As with most technology, change is fast and furious. The play for more shelf space, bundling of printers with the computers, discounts, and rebates makes this market extremely competitive. Kodak's CEO, Antonio Perez, says he has no special rivalry with HP, but considering the fact that "during his 25-year run at HP, he spearheaded the explosive growth of HP's printer business into a highly profitable $10 billion giant" (Symonds. 2005), some may disagree. "HP spends about $1 billion a year on printer research and development alone. Industry analysts expect HP to sit back and wait to see if Kodak's new machines get traction. If they do, HP could respond with selective discounting." (Hamm. 2007)

MACRO ENVIRONMENT

When examining the macro environment it is important to look at the political, economic, social, and technological components of the macro-environment. For the most part, Kodak is on par with its competitors in relation to political issues. The regulation and de-regulation trends, social and employment legislation, tax policy and trade and tariff controls, and environmental and consumer-protection legislation apply equally to all the major competitors in the digital printing industry.

Economically there are some significant disparities. The major difference is in the stage of the business cycle. While Eastman Kodak is a well established company, with decreasing emphasis on film and an increased emphasis on digital printing, they