If you follow business news in chaotic times, you expect surprises. But seldom do you see one like this.
Kodak, the ancient photography company in Rochester, was huge and highly-profitable when people had to buy film to take pictures. Kodak made film that every family needed to record social gatherings. It was a mammoth business that nobody ever thought would end.
But along came digital photography -- and, stupidly, Kodak failed to see the writing on the wall. Its management, in a classic case taught in business school, didn't adapt or even recognize the existential threat digital technology posed to its core business. As a result Kodak was decimated. In 2012 things were so bad they had to declare bankruptcy. Since then Kodak has limped along on nothing but fumes. With only meagre IT to sell, Kodak's stock price sat flat at $3 a share for years.
Then, suddenly, resurrection. From an unexpected place with weirdness all over it. This week the federal government announced it is giving Kodak, the film company, $765 Million to manufacture ingredients for generic drugs. 3/4 of a Billion dollars? Drugs? What?!
The ostensible justification for this largesse is to bring drug-manufacturing back to the U.S. from China where almost all drugs are produced. Obviously, however, Kodak (and all American companies) can't compete with Chinese manufacturers on price so it's clear Kodak drugs will cost 30-50% more than their foreign competition. That's where government support matters: the U.S. government is committing to spend your taxpayer money propping up a less-efficient, more costly company simply to have drugs made here instead of elsewhere.
Kodak stock shot up from $3 a share to $60 a share. It's sliding down since then to $45 and now $30.
Weird, right?
Rochester is a once great city that really needed this shot in the arm. It may cost more and I do not like big brother calling the shots but we cannot be dependent on China for these critical products
ReplyDeleteWhat weird times - distilleries making hand sanitizer, kodak making medications, and now it's not only recommended but required to cover your face everywhere!
ReplyDeleteOddly enough this post makes me think about the cotton industry. I can't remember the full jist of it, but basically the govt has paid off cotton farmers not to produce so manufacturing can buy outsourced cotton at lower rates.
I think we are going to see a lot of revamping of businesses. Funny thing about masks and Canada buying them from 3M in US, the pulp used to make the masks actually is exported from a pulp mill on Vancouver Island and we can't get masks. There is talk about keeping the pulp here and dialing up factories to make masks so we don't have to deal with shortages. Times are changing and countries need to make sure they have factories to supply PPE and medications.
ReplyDeleteHow strange! I hadn't heard about this at all! Greed has led to countries losing all their homegrown industries and now they are starting to realise this.
ReplyDeleteYup. Exactly.
DeleteI don't have much of a head for business, but that does seem strange. Kind of annoyed that the government is bailing out a business rather than, I don't know, using that money to help prevent food/housing insecurity. Just my two cents!
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