Kodak, Fuji put focus
on loss of factory jobs

By JAY GALLAGHER
Albany Bureau
(Original publication: Jan. 25, 2004)

For 20 years, Patricia Archetko worked for the Eastman Kodak Co., long the economic anchor of the Rochester region.

But when the film giant decided to make single-use cameras in Mexico and China instead of Rochester during the summer, she found herself out of work.

"I'm 50, on my own, and my health insurance is about to run out,'' said Archetko, a Rochester resident who used to make about $600 a week from Kodak. "They took my job. China took my job away from me, and I'm an American."

But while Kodak found it too expensive to keep making the cameras in New York, resulting in the loss of about 500 jobs, its bitter rival, Fuji Film Inc., still makes them in the small South Carolina city of Greenwood, a former textile center not far from the Georgia border that is trying to remake itself as a high-tech manufacturing mecca.

Although global economic forces rather than New York business policy shaped Kodak's decision, the jarring comparison between the Kodak and Fuji single-use camera factories illustrates what has been happening in New York for decades: The state is losing manufacturing jobs at a more drastic rate than anywhere else in the country.

That trend has led to hardship for thousands of New Yorkers like Archetko, who have seen their economic security suddenly dashed.

Meanwhile, the Fuji plant is providing steady paychecks for people in South Carolina.

Todd Dalton, 38, is a Greenwood native who used to work at a textile factory. When it closed three years ago, he was hired as a supervisor in the Fuji camera plant, one of eight plants in the Japanese firm's complex on the outskirts of town.

"It worked out well for me that the job opened up just as my old plant was closing,'' Dalton said one day in the fall while taking a break at the plant.

"It allowed me to stay in my hometown and still make a good living,'' said the married father of one.

Kodak officials insist that their decision to ship the 500 jobs overseas had little to do with the cost of doing business in New York. But the company's top manufacturing official also said that the state's climate is not as good as that in other states where the company does business, and that New York regulations can present a problem.

In South Carolina, conversely, the state goes to extraordinary lengths to lure and keep manufacturers — even, in the case of Fuji, spending about $1 million in taxpayer money to send hundreds of workers back to Japan for six weeks of training. The state picks up the tab for air fare, hotels and all other expenses.

"It seems like a lot of money going out the door, but payback is well-paying, stable jobs,'' Fuji spokesman Craig White said.

New York has no comparable program.

During the fall, South Carolina Gov. Mark Sanford joined several of his colleagues from the Southeast on a trip to meet business and government leaders in Japan and China. He came back with a commitment from one Japanese company, Suminoe, to open a plant to make seat covers in South Carolina that will create 130 jobs. He also announced a $70 million deal between the Chinese Rail Ministry and Harsco, a South Carolina rail-track company. The governors make the trip every odd-numbered year; the Asian officials came to the Southeast in the even-numbered years.

New York has its own Japanese investment to brag about: $300 million that Tokyo Electron has pledged to spend on nanotechnology research in Albany. And an Israeli aviation company plans to move its aircraft-maintenance and repair facility from Miami to the former Rome Air Force base in Oneida County, creating about 500 jobs. Other foreign companies have also invested in the state.

But South Carolina has attracted more companies from overseas, relative to its size, than any other state. The 65 Japanese firms in that state have invested $5 billion and employ 19,000 people, the South Carolina Department of Commerce said. Overall, there has been $18 billion in foreign investment.

"It's not just tax incentives, it's the human issue that bonds Japan to the South,'' said Yuji Kishimoto, a professor of architecture at South Carolina's Clemson University who lived in the Boston area for a decade before moving south 23 years ago.

"It just feels more hospitable here,'' he said. "It's a slower pace, more welcoming people.''

That gives South Carolina an edge in trying to attract and keep manufacturing jobs, which were plummeting nationally before leveling off recently. Those jobs are being fiercely sought because they pay more than service-sector jobs, like retail sales positions and telemarketing.

Manufacturing jobs have been the backbone of the upstate New York economy — and the main way into the middle class in New York City for immigrants — for most of the past century.

They're so desirable because they're relatively well-paying and usually bring in money from outside the state. New York manufacturing workers made an average of $54,541 in 2000, compared with $38,317 for service workers, the state Labor Department said.

But New York has been losing the fight for manufacturing jobs for decades. The state lost almost 625,000 of them between 1975 and 2002, the federal Bureau of Labor Statistics reported. That's a drop of almost 44 percent, or five times the national rate.

The state added almost 2.4 million service jobs from 1975 to 2002, more than offsetting the decline in manufacturing employment. However, the slide in workers who produced goods helped to keep the overall increase in jobs in New York far below the national average in that time frame.

The November announcement that the Everlast sporting-goods factory in the Bronx was closing, eliminating 100 jobs, made a splash because its boxing gloves and other supplies are world-famous. But as Robert Ward of the state Business Council pointed out, the loss was nothing new in terms of the state's economy.

During the five years that ended in September, Ward noted, the state lost an average of 100 manufacturing jobs a day — a drop from 798,300 to 615,400, the U.S. Bureau of Labor Statistics said.

South Carolina, which has seen most of its once-dominant textile industry move out of the country, also lost manufacturing jobs between 1975 and 2002. But the drop of 15 percent was just one-third the rate of the New York loss. Recently, as the textile flight has accelerated, the rate of loss has matched New York's. But over the long haul, South Carolina has had far better success at attracting and keeping manufacturing jobs than New York.

An advantage that Fuji and other South Carolina firms have over New York is lower taxes. New Yorkers pay 12.3 cents of every dollar they earn in state and local taxes, compared with 10 cents in South Carolina, according to Economy.com, an economic-consulting firm. That puts New York second in the firm's ranking among states. South Carolina is 30th.

On Economy.com's index on the cost of doing business, South Carolina ranked 29th, almost five percent below the national average, while New York was eighth, 8.5 percent above the norm. Besides taxes, the ranking considers the costs of labor and energy.

New York's labor costs are higher than South Carolina's — 2.5 percent above the national norm, compared with 2.5 percent under the national average for the Palmetto State, according to Economy.com. But 10 states have higher labor costs than the Empire State, including Massachusetts, California, New Jersey, Pennsylvania and Michigan.

No employer in New York has shed more manufacturing jobs than Kodak. In 1981, the company had more than 60,000 workers in the Rochester area. It has announced plans to trim that number to between 18,000 and 19,000. Its revenues have plummeted from just over $20 billion in 1992 to about $12.8 billion annually now. (The company has shed some chemical and consumer-products businesses in the past 11 years.)

"We just aren't going to need as many people working in the company in Rochester in the future as we have today," Kodak CEO Daniel Carp told the Rochester Democrat and Chronicle Editorial Board in the fall after the company announced it was shifting its emphasis from its traditional film business to the already crowded field of digital photography.

The film business has been slipping for two decades, as people have shifted to the digital camera, which uses a computer chip rather than film to capture images. It is easier and cheaper to manipulate those images before they are printed, and the process bypasses film, the product that has sustained Kodak for more than a century.

An exception to the slide of the film business has been the growth of single-use cameras. Consumers have been enthusiastic about buying an inexpensive camera already loaded with film and then returning it to a photofinisher with the film still in it. They get back prints, and the camera goes back to Kodak, Fuji or other manufacturers to be recycled. About 400 million of them were sold last year, with Fuji and Kodak the biggest suppliers.

But the prices Kodak and Fuji could charge for the cameras began to plummet in the face of intense competition in the late 1990s.

"The (profit) margins are getting crushed," said Charles Brown, Kodak's head of global manufacturing. Five years ago, the cameras sold for $10, he said, but now sometimes retail for as little as $3 as cut-rate manufacturers moved into the field.

Starting in 2001, the managers and workers did their best to cut costs to keep the Rochester operation, at a plant on Lee Road in Kodak Park, competitive.

"We were pressed to produce more and more with fewer people," recalled Carmen Zoccali, 27, who worked in the plant for eight years before it closed. "It was hard, but we thought we were making progress.''

To Brown and other Kodak managers, the economics were stark: Labor costs are about one-tenth in China and one-quarter in Mexico of what they are in New York. While labor accounts for only 20 percent to 30 percent of the cost of the camera (materials and distribution are the rest), moving the manufacturing to China would make the cameras more profitable.

Brown said that while global conditions were the major factors in the decision to ax the Rochester jobs, business conditions in New York are far from ideal.

"We get tied up in the court system," he said. "We have a problem with frivolous, class-action lawsuits" in New York.

He cited a need for more "sensible environmental regulations," a reduction in paperwork and filing requirements, and lower taxes to improve the business climate and help lure good workers to the state and keep them.

Kodak has been fined millions of dollars by state and federal agencies for spills, toxic emissions and other environmental problems at Kodak Park in the past decade. Five families are suing the company for $75 million, claiming that emissions from Kodak facilities contributed to their children's developing cancer.

Brown said that emissions at Kodak Park have been cut by nearly 80 percent since 1987 and that the company has taken many voluntary steps to clean the environment.

"We believe our environmental record is a strong one,'' he said.

Fuji has not been cited for any environmental problems since it opened its doors in South Carolina in 1988, a state Environmental Conservation spokesman said.

Brown also said business conditions have improved since Gov. George Pataki took office in 1995.

In an interview, Pataki recalled that he talked to then-Kodak CEO George Fisher shortly after the governor was elected in 1994 about why the company built a new plant in Colorado rather than Rochester in the early 1990s.

"Yes, it's the economic structure of the state,'' Pataki recalled Fisher telling him, "and it's also regulatory. Colorado has very high environmental standards, as does New York. But we can get the plant done in six months in Colorado, and here it would have taken, if we were lucky, two and a half years. And in the market, we couldn't wait that long.''

Fisher, now retired, declined to be interviewed.

Less than two years after Pataki took office, Kodak took advantage of the improved business climate. It took the company less than a year to put up a new $200 million film-base manufacturing facility at Kodak Park, said company spokesman Christopher Veronda, largely because state permitting processes had been streamlined.

But the state's more business-friendly environment didn't affect Kodak's plan to close the Lee Road plant in the summer.

The decision may have looked logical from the managers' perspective, but it still shocked Mike Flanagan, 39, who had put in 14 years with the company and figured he would retire from Kodak.

"I was with the company all these years, never called in sick; then they call us and say, 'We're closing up shop,' '' said Flanagan, who is single and lives in Greece, just a few blocks from Kodak Park, the sprawling Kodak manufacturing facility. He made about $40,000 a year before losing his job.

"I'm a good worker. They won't fire me,'' Flanagan said he told himself.

Flanagan wants to become a financial planner, using the $5,000 educational grant Kodak gave him as part of his severance package. But he suffered a setback during the summer, when he was in a motorcycle accident. Still, he's determined to work for himself eventually.

"I don't want to work for a company again,'' he said. "I want to rely on a job I can do myself and not worry about a boss.''

"If (downsizing) hits you personally, you don't really care much about the high-level vision of things,'' Carp, the Kodak boss, acknowledged. "You care about you personally. So, we'll continue to have to deal with that in the way we always have, which is, offer people transition training where we can'' and give generous severance packages to those who are let go.

Flanagan and other laid-off workers got 60 days' pay plus two weeks' salary for every year of service or a total of 38 weeks in Flanagan's case. They also got paid medical benefits through the end of last year, and the educational benefits were also available.

Nobody is talking about severance packages at the 500-acre Fuji complex in South Carolina, where in March 2003 the photo company announced a $100 million expansion to increase production of new X-ray film.

It brings the investment by Fuji at the site to $1.4 billion since ground was first broken in 1988.

About $130 million of that was for Fuji's single-use camera plant, which opened in 1995. Neither Kodak nor Fuji will say how many cameras the Rochester and Greenwood plants produce annually. But one Wall Street analyst who follows the industry, Ulysses Yannas of Buckman, Buckman and Reid, estimated Fuji made 30 million of them a year in Greenwood and Kodak made 25 million in Rochester.

One reason nobody is talking about layoffs at the Fuji single-use camera plant is that there are so few people there in the first place.

While about 500 people were needed to keep Kodak's plant in Rochester operating around the clock seven days a week, the head count at the Fuji plant, which also never closes, is about 170.

A visit to the plant shows why: It seems almost deserted.

"No human hands touch these cameras from the time the plastic is molded until they're wrapped and packed for shipment,'' said White, the Fuji spokesman.

"We prefer to invest in people rather than machines,'' Kodak's Brown said, when asked why Kodak didn't go the heavy-automation route.

Those touring the Fuji plant have to be careful to avoid miniature train-like devices that shuttle parts from bins to machines and from one machine to another. What starts out as raw plastic — most of it retrieved from cameras that have been returned for recycling — and pre-made parts, such as the flash, move from one line to another in the 150,000-square-foot plant until they're ready to be shipped.

There are 35 or so "associates" at strategic points in the plant around the clock, mostly monitoring the machines, repairing them and making sure they're supplied with raw materials and parts. They make between $27,000 and $32,000 a year — good salaries by standards in that area.

One such associate is Kyle Neal, 35, an 11-year Fuji veteran who inspects the flash attachments Fuji buys to put on the cameras. He also repairs machines.

Like most of the other Fuji workers, Neal works an unusual two-week schedule: three 12-hour days, from 7:30 a.m. to 7:30 p.m., then two off; two 12-hour nights, from 7:30 p.m. to 7:30 a.m., then three off; two days on, two days off. Then the reverse of days and nights for the next two weeks.

Neal, who is married and has two children, 7 and almost 2, said he gets by on five hours of sleep.

"The only bad part is working nights and being away from my family,'' he said. On the other hand, "If I want to take off for a few days, I can.''

Donna Brooks, 34, another Fuji worker, keeps tabs on the machines that mold plastic.

"It's a long day,'' she said. On the other hand, with a 12-year-old daughter and an 8-year-old son, her schedule allows her to do some volunteer work at her children's school.

"Is the work demanding? Yes,'' said Peter Arnoti, head of the Greenwood Alliance, an economic-development group, and the key figure in luring Fuji to the area. "It's not all hunky-dory. It's not a punch-in, punch-out work environment.''

Allison McAlaster, 28, a mother of two children, 10 and 6, and a Fuji plastic-molding technician, would agree with that.

"I came from working in a doctor's office, so the night shift was really rough on me in the beginning,'' she said.

But she has a steady paycheck, good benefits and grandparents who watch her kids while she's at work.

"I feel very lucky,'' she said.