Question

The Eastman Kodak Company, commonly known as Kodak, is an American technology company that concentrates on imaging products, with its historic basis on photography. Kodak began to struggle financially in the late 1990s as a result of the decline in sales of photographic film and its slowness in transitioning to digital photography. In August 2012, Kodak announced the intention to sell its photographic film (excluding motion picture film), commercial scanners and kiosk operations as a measure to emerge from bankruptcy.

Based on the analysis and management of Kodak, discuss with clear reasoning to the FIVE(5) stages of industrial life cycle with clear illustration of an example for each stages.  

In the imaging photography industry, evaluate the five factors that determine an industry’s intensity of competition. Based on this analysis, what are your expectations about the industry’s profitability in the short run (1 or 2 years) and the long run (5 to 10 years)?

If you have RM 1 Millions to invest, would you invest in this company. Perform a further analysis in a structured way to help you make better investment decision.

Answer 1

Stages of industrial life cycle:

1. Development:

For any industry to work, there is a need for a product or a service. The industry needs to develop a product or a service to start the business. This phase includes research and development, product designing, test runs etc. For example, the robotics, nanotechnology are some industries which are in development phase.

2. Introduction

The product or service ,so developed, is then launched into the market. The consumers are introduced to the product or service. Introduction phase includes marketing, advertisement, sample sale, sale outlets etc. Example, automation industry has been introduced. The people are becoming aware of the new tools available in the market which can reduce workload.

3. Growth

After the launch of the product, the industry comes into the phase of growth. Here, it experiences increase demands, higher productions, lower costs, higher returns. Until this phase, the industry does not face much competition as the product is new. Example, electric vehicles is growing popularity in market due to lower fuel cost and for being environment friendly. The demand is high and therefore production for the vehicles have been increasing.

4. Maturity

After some time, the market becomes stable. The demand is met, therefore, the growth ends. Usual sales and usual profits are earned. The competition is high and the product is no longer new for the market. Example, the banking sector is now a mature sector. The growth is very low, the profits are stable.

5. Decline

With passage of time, a new technology develops. The people are now attracted to the new product which has launched. Therefore, the demand and market for the product reduces and the production starts going down. Example, the compact disk industry, the landline telephone industry is on decline after the introduction of pendrives or mobile phones.

In the imaging photography industry, the following can be identified:

1. Introduction of high quality cameras in mobile phones - With the introduction of high resolution cameras in mobile phones, demand for photography companies have reduced substantially. People can now click the photos on their own.

2. Cheaper digital cameras available in the market - The cost of digital cameras have substantially reduced in the period of years, die to which the competition in the photography industry has increased. Photography is now considered a low investment business idea.

3. Digitalisation of the photos - Earlier, printing and scanning of photos were needed as the photos were maintained in physical forms. With the introduction of cloud services and better storage capacity devices, the demand for such services have gone down.

4. Passtime activity - Photography has also introduced itself a passtime activity, due to which many freelancers have taken down the demand for these services. They take up photography as a fun activity, reducing the value of commercial photography.

5. Changing technologies - The technology is fast changing. The photograghy industries need to invest a lot to keep up with the new devices and updated models coming in the market.

In view of above, the profitability of Kotak is most likely to stabilise in the short run if it keeps up with the technology. In the long run, considering the industry to be highly competitive and declining trend, it will be advisable for the company to explore for alternatives in the market.

I, as an investor, woul avoid investing in the company, considering it is on the verge of bankruptcy and also the trends of the industry mentioned above.