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Kodak denies monopolistic accusations
2004-06-08
China Business Weekly
It is great for a company to be the dominant player in its market area, but being No 1 doesn't come without headaches.
US-based imaging giant Eastman Kodak, which commands 50 per cent of China's film market, was accused last month of monopolistic practices in its China operation. But Kodak last week issued a statement, arguing that the company has never done anything to circumvent the normal processes of market competition.
"Customers make the decision when they purchase films, and Kodak wins the market with high- quality products and services," the statement said.
Ying Yeh, Kodak's vice-president said there are various film brands in the market, such as Lucky, Fujifilm, Konica and Agfa. "Kodak has never limited customers' choice," she said.
"It is not right to accuse a company of monopoly simply because it has won 50 per cent of the market. Different sectors have different situations," she said.
According to a report issued by the Fair Trade Bureau of the State Administration for Industry and Commerce (SAIC), some multinational companies command "obviously dominant" positions in the market and use their advantageous positions to curb competition.
The report -- the first of its kind in China since the country started attracting foreign investment in 1978 -- also named some companies, including Kodak and Microsoft.
SAIC said multinationals consolidate their positions through mergers and acquisitions, and mentions "Agreement 1998," signed by Kodak and the National Development Reform Commission, the then State Economic and Trade Commission and the then Ministry of Foreign Trade and Economic Co-operation.
Under the agreement, Kodak undertook to invest a total of US$2 billion to acquire all domestic imaging factories except Lucky Film. On its part, the Chinese Government agreed not to allow the establishment of any other joint-venture in the country's imaging sector from 1998 to 2000.
Insiders say the agreement gave Kodak three golden years to develop its China market free of foreign competition.
Statistics indicate that Fujifilm, Kodak's major competitor in China, had a 48 per cent market share before 1998. However the percentage dropped to 15 per cent last year, as a result of Kodak's rapid progress.
"The real purpose for Kodak spending that money was not to acquire domestic factories, but rather to win precious time to expand in China," an insider said, on condition of anonymity.
Yeh thinks the accusation is "unfair." "We signed the agreement out of good will -- helping the ailing factories and improving China's imaging sector."
Kodak introduced advanced technology and management systems in China. A large part of the products the company makes in China are exported. For example, 90 per cent of the disposable cameras produced in China are exported, according to Yeh.
She added that governmental departments approved the agreement, and that Kodak's acquisitions were legal.
Tian Geng, public relations manager of Kodak, does not think the company is in trouble, because the "Agreement 1998" did not violate any fair competition rules.
He told China Business Weekly that an important article in the agreement has been ignored: after 1998, foreign firms were free to seek partnerships with Lucky Film, the only domestic film producer.
"It is not the fault of 'Agreement 1998' that they (other foreign firms) have not joined hands with Lucky," Tian said.
Kodak last year acquired 20 per cent of Lucky's shares and promised not to purchase the company's remaining tradable shares.
"Kodak respects Lucky. And Kodak wants to help Lucky to improve its strength, but we are still competitors," Yeh said.
Company statistics indicate that Kodak revenues in China last year were US$1 billion, up 12 per cent year-on-year. Lucky's revenues were 560 million yuan (US$67.63 million) last year, down 25.7 per cent year-on-year.
No matter whether Kodak is monopolizing the market or not, analysts suggest that China urgently needs to formulate an anti-monopoly law.
Lu Fu, a professor with the China University of Political Science and Law, said the report shows that a complete set of laws on monopolistic practices and unfair competition are urgently needed in China.
While continuing to welcome investment, China is learning about the potentially negative effects of the presence of multinational giants in the local market place, he said.
He said anti-monopoly legislation and revision of the existing unfair competition law are necessary steps to curb unfair competition practices of multinational companies.
Existing laws lack provisions against practices that curb competition, such as bundle selling, setting unfairly low prices to squeeze out competitors and price discrimination, he said.
At present, there is no law in China regulating monopolistic practices. Drafting of such a law started in 1994, but it has not yet been completed and put in effect.
Some relevant provisions exist but are scattered in many other laws and regulations. The main ones are the 1993 Law Against Unfair Competition, the 1998 Price Law and the 2000 Bid and Tender Law.
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