China focus

Many major Japanese companies seem to coincide their China entries with Chinese State leaders' visits to Japan.

In 1978, when China embraced the reform and opening-up policy, Japan was the destination for many State leaders who were eager to introduce advanced technology and management practices to jumpstart China's stagnant economy. A visit by Deng Xiaoping to Panasonic in 1978 sparked the Japanese conglomerate's investment in China and another factory tour to Canon in 1979 by Deng Yingchao, the widow of late Premier Zhou Enlai, was a prelude to the precision equipment maker's foray into China.

So when former vice-premier Yao Yilin visited Fujifilm in 1983, it seemed a bit late for the film maker, which launched its first China office only in 1984.

Fujifilm caught the slow boat to China but it was not uncharted waters, according to Koji Yokota, who holds the helm for the firm's China operation. "In terms of direct investment, we lagged behind (other Japanese firms). But we were one of the very first to do business with China," he says.

In 1963, Fujifilm sent a group of technicians to China to investigate the local cinefilm and X-ray film market and in the following year their Chinese counterparts paid return visits to Fujifilm. After that the firm began exporting cinefilm, print film, color film, X-ray film and photography equipment to China.

That gave Fujifilm the upper hand even though its direct investment didn't start until the 1990s. Years of brand penetration made Fujifilm a Chinese household name in the late 1980s when cameras and film became affordable for an increasing number of Chinese, thanks to the reform and opening-up policy.

"We adopted a three-step strategy in China," Yokota says. "First, we dealt with exports and imports with the country. Then we started direct investment in China in the 1990s by setting up factories. Third, in 2001 we established a regional headquarters in China and started running our local business as a strategic market.

"All these steps are in line with the process of China's reform and opening-up. I think every step was steady and well-researched and planned."

Green vs yellow

During the late 1980s and mid-1990s, Fujifilm dominated China's film market and for a time its share reached as high as 70 percent. Its green packaging became an industry icon.

However, it found the China market chilly by 1998. At that time, all seven major local film makers were in the red with combined losses in the billions of dollars. With a planned economy still dogging China, the government was eager to turn the corner by pushing local companies to form joint ventures.

Fujifilm was already negotiating with a Shanghai company to form a joint venture in hopes of localizing its film manufacturing. But Eastman Kodak was more aggressive.

With an endorsement from Chinese premier Zhu Rongji, Ying Yeh, the chief negotiator for Kodak and a former US diplomat, finally sealed an exclusive deal with the Chinese government under which Kodak would form joint ventures with six of the seven major local companies.

That marked a big setback for Fujifilm by putting the brakes to its localization efforts. The firm, in 1994, set up a factory in Tianjin to produce lenses, followed by a factory in Suzhou in 1995 for cameras. In 2001, it founded a print sheet manufacturing facility in Hebei province. It had been counting on a joint venture to locally produce film.

Fujifilm's plan was disrupted by the exclusive deal and Kodak's yellow packaging started to prevail in China. Localization was crucial as duties on imported film were as high as 67 percent before China's entry to the World Trade Organization in 2001. After the deal was signed between the Chinese government and Kodak, Fujifilm's market share dropped to around 10 percent in 2005.

Windfall out of woes

However, Kodak soon stumbled in its sprawling traditional film manufacturing businesses as cameras went digital.

For Fujifilm, it presented a windfall. "The agreement in 1998 (between Kodak and the Chinese government) was an outcome with a very unique historical context," says Yokota, who was head of Fujifilm's Beijing office when the agreement was signed. "It's true we lost the opportunity to invest in traditional film manufacturing in China, but it also gave us an opportunity to make a digital maneuver."

Fujifilm's Suzhou factory began producing digital cameras in 1997, a year before the exclusive deal was signed between Kodak and the Chinese government.

In 2005, Shigetaka Komori, president and CEO of Fujifilm announced that the Suzhou plant would replace its facility in Japan, to become the firm's largest digital camera production base in the world.

Last year the company announced it would fully transfer its digital camera production from Japan to China. That has helped the firm stay a step ahead of Kodak at a time when digital photography prevails.

Now Fujifilm is the world's fourth largest digital camera-maker, the world's biggest supplier of specialized film for liquid-crystal-display screens and a leading producer of image-sensing chips used in digital cameras and camera phones.

In China's consumer digital camera market, Fujifilm still lags Sony and Canon, partly because its designs failed to meet local tastes and its marketing campaigns were not aggressive adequately.

Yokota, who became Fujifilm's China chief in 2006, is now revamping the firm's design and sales pitch to boost market share.

However, digital photography is not the only thing Yokota is counting on to boost sales in China. In fact, digital imaging accounts for only about 20 percent of Fujifilm's total revenues, with information technology and document processing making up the remaining.

In 2006, Fujifilm announced it would form a $267 million joint venture with Shanghai-based SVA Electron Co to make colour filters used in liquid crystal displays.

That came at a time when many Japanese companies tried to consolidate their China operations by reducing the number of joint ventures in the country.

"Whether it's a joint venture or a wholly-owned subsidiary, we are growing with China, which has become a strategic market for Fujifilm," says Yokota, adding that Fujifilm has invested more than $300 million in China since it entered the country.

(China Daily 03/31/2008 page6)