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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.

Indeed, life on either side of the wall separating the old Era from the new Kodak could not be more different.

On the Kodak side of the wall, for example, there is a plaque on which Kodak's five core corporate values have been carved - 'respect for the individual', 'uncompromising integrity', 'trust', 'credibility' and 'continuous improvement and renewal'.

Xu Guanghua, Kodak's deputy general manager, said: 'At Era we usually just talked about making a contribution to the country.'

Mr Xu was a vice-general manager at Era before being poached by Kodak.

'I was also a vice-party secretary [at Era]. Does that scare you? The wages were a lot less at Era and the rhythm was a lot more relaxed. [At Kodak] we are a lot busier. But the training is very good. You can improve yourself very quickly.'

Yet, some attitudes among Kodak's former state employees had been harder to change, said Shantou plant general manager Gary Butler.

Mr Butler noted that some of his employees, used to working at a state-held company where money was forever in short supply, did not initially comprehend Kodak's decisions to 'waste' money on, for example, a cleaner and more efficient oil-fired burner when the old coal-fired one was still serviceable.

'The reaction was: 'Why did we spend all that money on a new oil-fired burner? We didn't need to',' he said.

In part, such attitudes were reinforced by neighbouring factories that were obviously making no effort to reduce their pollution.

A power plant near the Kodak factory, for example, continuously spews forth a tar-black column of smoke. It is so bad that Kodak employees probably should not wear their whites when using the company tennis court. When the wind blows from a certain direction, black ash from the power plant's smokestack rains down on them.

Kodak also runs its waste water through a state-of-the-art treatment facility, while Era just dumps its run-off in a nearby river with minimal treatment. After it is processed, Kodak's waste water is clean enough for goldfish to live in.

Indeed, with a few additional refinements Kodak employees will soon be able to drink their plant's run-off after it has been treated.

But eventually Mr Butler was able to impress on his employees the fact that it is possible to save money by spending money.

'Kodak is not a dumb company. We do these things for a reason,' he said.

The increased efficiency of its oil-fired burner, for example, will generate considerable savings over time.

More concretely, the water treatment plant captures silver used in the film-manufacturing process which Kodak can then resell, more than repaying the original cost involved in building the treatment plant.

Era may think it is saving money by not investing in a water treatment plant or even - as is possible - by paying to use Kodak's facility.

Instead, it is quite literally pouring silver down the drain.