Study the case of KodakThe so-called 98 Agreement is known as a deal that doomed Kodak, the world-famous film manufacturer. Kodak was facing limited growth in the mid-1990s and sought a breakthrough in China, where Fuji had about 60 percent market share at the time. Kodak had to come up with a drastic strategy. Former CEO George Fisher met with then-Premier Zhu Rongji and offered to help insolvent state-owned film producers if Kodak’s market monopoly was recognized. Zhu, who was eager to reform state-owned corporations, accepted the deal, and Kodak and the Chinese government signed the 98 Agreement in March 1998.
It seemed like a success at first. Kodak gained more than 50 percent of the Chinese market and set up 8,000 film development shops across China. It effectively drove away Fuji and took over China.
But it was a trap. Kodak invested $1.2 billion in government-owned corporations but could not save them. As Kodak was struggling in China, the global film industry was going digital rapidly. Kodak failed to ride the digital wave and collapsed. It was a disaster caused by its failure to diversify.
The higher a company becomes dependent on the Chinese market, the weaker it becomes locally. Chinese media often bet on foreign companies. This year, Volkswagen, Apple, GlaxoSmithKline, Fonterra (New Zealand’s leading multinational dairy company) and Samsung Electronics have all been attacked.
Regardless of the circumstances, the companies had to openly acknowledge their faults and accept the demands. As a result, Volkswagen recalled its vehicles, and Apple CEO Tim Cook issued an apology letter in Chinese. Samsung also had to post a letter of apology on its Web site. They had no other choice because losing the Chinese market is too fatal to the performance of their companies.
In fact, many Korean companies are experiencing disastrous failures from concentrating on the Chinese market. STX Dalian Shipyard has become the biggest obstacle to the recovery of the embattled STX Group. The conglomerate failed to read the trend of the global market and invested $2.8 billion on a shipyard in China four years ago.
Without a clear and farsighted strategy on the plant’s operation, STX made a 100 percent investment, and the outcome was catastrophic. The prospect of selling the shipyard is uncertain, much less retrieving the investment the company made in China. It may have to abandon the shipyard in China and leave.
Yet companies still make major investments in China. Posco is making a multi-billion dollar investment using its Finex steelmaking process in Chongqing. I wonder whether the decision has been made based on a full understanding of global market trends, funding and technological capacity.
Despite concerns for surplus supply, Samsung and LG are also either building or have completed new LCD factories in China. Samsung is building a $7.5 billion semiconductor factory in Xian, central China. Meanwhile, jobs are scarce in Korea. Are they doing business right? Is China worthy of such a high stake? We need to study the case of Kodak.
The author is the director of the China Institute of the JoongAng Ilbo.
BY HAN WOO-DUK