Japan

Fujifilm's views on Kodak's procedure under the section 301 petition

FUJIFILM'S REBUTTAL REGARDING THE ALLEGED "DISTRIBUTION BOTTLENECK"

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INDEPENDENT RESEARCH REVEALS FALSE KODAK CLAIMS ABOUT JAPANESE FILM MARKET

TOKYO, DEC. 21, 1995 -- Fuji Photo Film Co., Ltd. today announced evidence which proves conclusively that the centerpiece of Kodak's charges about the Japanese film market, and the basis of its attempts to manipulate the U.S. government, are a sham.

For months, Kodak officials have charged that an alleged distribution bottleneck in Japan prevents its film from reaching Japanese consumers.

Today, in documents submitted to the Office of the U.S. Trade Representative in Washington, D.C., Fujifilm revealed the results of an independent market survey which proves that these charges are false.

This independent research shows clearly that Kodak film is widely available, not only in large cities like Tokyo and Osaka, but throughout Japan.

Moreover, contrary to Kodak claims, its film is sold not only in large stores, such as discount stores and supermarkets, but even in photo shops supposedly "controlled" by Fujifilm.

The bottom line of this latest market research is that in photo shops, supermarkets and discount stores, which represent 73% of film sales in Japan, Kodak has extensive access.

The research also further supports Fujifilm's contention that the real reasons for Kodak's difficulties in Japan are not some imaginary conspiracy of government and industry, but very practical realities:

  • Japanese consumer perception of superior Fuji quality
  • Fujifilm innovation -- getting new products to market up to two years faster than Kodak
  • Kodak mistakes in re-organizing its distribution network "There can no longer be any question that Kodak's allegations are wrong," said Fujifilm Senior Managing Director Masayuki Muneyuki.

"Fujifilm has presented conclusive evidence that Kodak film is available in retail outlets accounting for the vast majority of total film sales in Japan."

17% of all retail film outlets in Japan represent 73% of total sales volume. This means that the key to good market access is not the total number of outlets, but the number of high volume outlets to which a company has access.

Among the major revelations of the latest research are:

  • Of all Fujifilm Tokuyakuten (primary distributors) customers, 78%--- accounting for 87.3% of the total sales volume of all primary distributors --- already carry Kodak film or have an existing relationship with a Kodak supplier.
  • Even among dealers who purchase and re-sell film, Kodak market access is impressive. About 80% of the sales volume to such resellers goes to resellers who either carry Kodak film, or have links to a Kodak supplier.
  • In photo shops, where Kodak has claimed that Fujifilm restricts its access, the truth is that Kodak has the best market coverage of all.Kodak film is available in shops which, on a regional basis, represent between 74.0 and 91.8% of total sales volume among photo shops in Japan.

"The market research presented today not only proves that Kodak's claims are false, but should provide the basis for a termination of this case," said Fujifilm's attorney, William Barringer.

"In any event, it provides further support for Fujifilm's position that the only proper way to resolve this case is before a neutral fact-finding group," Barringer said.

EXECUTIVE SUMMARY

The very heart of Kodak's case involves a "distribution bottleneck" by which Fujifilm allegedly keeps Kodak off Japanese retail shelves. This complaint has emerged as the major focus of what Kodak wants from the Section 301 case: access to the Fujifilm primary wholesalers (the so-called "tokuyakuten") to enable Kodak to reach Japanese consumers.

With this submission, Fujifilm provides new and compelling factual information -- the results of extensive surveys assisted by experienced market research firms -- that demonstrates Kodak is dead wrong. Kodak may try, but it cannot hide from these facts:

  • The vast majority of customers of the Fujifilm tokuyakuten already carry Kodak or have an existing relationship with a Kodak supplier. According to a survey of the tokuyakuten's customers, 78 percent of them -- accounting for 87.3 percent of the tokuyakuten's total surveyed sales volume -- either carry Kodak or have ready access to it. This degree of penetration applies equally throughout Japan, not just in Tokyo and Osaka. There can be no "bottleneck" blocking Kodak's access if the tokuyakuten's customers already carry Kodak.
  • The tokuyakuten are not an "essential facility." Indeed, although there are many outlets in Japan, 17 percent of the outlets represent 73 percent of the sales volume. The survey results demonstrate that Kodak has substantially penetrated these high volume outlets.
  • Kodak is carried by a wide range of secondary dealers and those dealers thoroughly cover the entire country of Japan. Indeed, if one considers the effective sales areas of only 17 of the 91 dealers listed in "Rewriting History," these alone provide coverage for all of Japan.
  • In the survey of tokuyakuten customers, we separately identified those customers that provided a significant reselling function (secondary dealers, photofinishing labs, and those who resell to small outlets such as resort shops). Approximately 80 percent of the sales volume to those resellers goes to resellers either carrying Kodak or having an existing relationship with a Kodak supplier.
  • In a third party survey of Kodak availability in retail outlets, the results show Kodak widely available throughout Japan. Kodak is present in outlets accounting for between 56.4 and 77.4 percent of total film sales volume, depending on the geographic region. This finding fundamentally undermines Kodak's case.
  • Kodak's best coverage is in photo shops, the outlets where Kodak alleges the greatest degree of Fujifilm control. Depending on geographic region, Kodak is available in photo shops representing between 74.0 and 91.8 percent of total sales volume for this outlet type.
  • Consumer preference survey results corroborate what the coverage survey results show: that in any one region of Japan no more than 17 percent of consumers cite lack of availability as a reason not to purchase Kodak film. The vast majority of Japanese consumers do not perceive any problem with Kodak's availability at the retail level.

The evidence provided in this submission shows that the alleged "distribution bottleneck"-- the centerpiece of Kodak's case -- is a sham. The bottom line is that Kodak is widely available in Japan: not just in Tokyo and Osaka, but all over Japan; not just in large discounters, but even (and indeed especially) in the supposedly Fujifilm-affiliated photo specialty stores. Where Kodak is not available, not much buying and selling goes on. Kodak is available where it matters -- where the substantial volume of sales take place.

This new evidence utterly destroys Kodak's case and lends further support to the issues discussed in Section IV of "Rewriting History": the reasons for Kodak's difficulties in Japan have to do with issues like brand preference, home team advantage, innovation, quality, and Kodak's own mistakes in Japan -- not some public-private anticompetitive plot.

TABLE OF CONTENTS

DISCUSSION

A. A Survey of The Tokuyakuten's Customers Shows That There Is No "Distribution Bottleneck"

  1. Most of the tokuyakuten's customers already carry Kodak
  2. The retail market structure in Japan does not impede Kodak's access to the retail store shelf
  3. If the tokuyakuten carried Kodak brand film, they would be competing directly with Kodak Japan

B. Kodak Obscures The Broad National Coverage Provided By The Secondary Dealers

  1. Kodak improperly narrows the sales range of the secondary dealers
  2. Kodak improperly narrows the universe of secondary dealers
  3. Kodak in fact enjoys broad coverage in the secondary dealer channel 25

C. Kodak Is Widely Available On The Retail Store Shelf In Japan

  1. Coverage survey results show wide availability of Kodak film in Japan
  2. Consumer preference survey results also show that availability is not Kodak's problem

CONCLUSION

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