Search for profit Kodak-style exposes waste of penny-pinching

IN THE MAIN entrance of Kodak's X-ray film factory in the eastern Guangdong port city of Shantou, a large map shows the location of various office buildings, workshops and industrial facilities such as an oil-fired burner and a water-treatment plant.

Most of the structures are within a large, walled perimeter and were once wholly owned by Shantou Era Photo Materials Industry, one of the mainland's few surviving film producers.

However, in March 1998, the map had to be redrawn. This was when Kodak paid US$380 million for assets belonging to three failing state-owned enterprises, including Shantou Era, Xiamen Fuda and Wuxi Aermei. The assets Kodak acquired from Era were injected into Kodak (China) - a Shanghai-based joint-shares company 80 per cent owned by Kodak. Four Chinese companies hold the remaining 20 per cent.

On the map, the assets acquired by Kodak are shaded to distinguish them from those still belonging to Era. In the compound, the distinction is rather more stark: a wall has been built to separate Kodak's holdings from Era's. Kodak also absorbed 500 members of Era's 3,000-strong workforce to man its new facility.

Before Kodak acquired its Shantou plant, Era was struggling. It had halted production of X-ray film in 1990, while its consumer-products operation made only black-and-white camera film. Using some of the money Kodak paid for its mothballed X-ray film operation, Era is upgrading its consumer products to include colour film.

By buying a sliver of a failing state company and then injecting the capital, technology and managerial expertise to turn it around, Kodak's Shantou facility is essentially an experiment in state-owned enterprise reform. Its apparent success could serve as a useful model for unlucky bureaucrats all over China saddled with the thankless task of resuscitating local state firms.