That is my favorite piece of Buffet's writing, for a different reason:

> Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so looked like an immediate winner.

> But the promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs became the baseline for reduced prices industrywide.

This is a great illustration of why capitalism is not inherently innovational. If it is cheaper to exploit workers than to automate, the market will exploit workers instead of automating.

I am not so sure Kodak had any other developed businesses where they could have re-allocated so much capital. Something similar seems to be happening with Yahoo now.

In a sense they did - with Eastman Chemicals, which was also founded by George Eastman and which was spun off in 1994? It is a Fortune 500 company with around 20,000 employees.

One way to survive international competition is to ship heavy bulk stuff. I clicked around Eastman's site and reading between the lines their revenue is about $9B and figure a buck per pound accurate to one sig fig so they're shipping maybe ten billion pounds of product annually.

Now China's entire export economy to the entire world is only thirty-something million TEU annually. Figure 50K pounds cargo per TEU and compare, and if I did the math right in my head, one obscure lube oil and plastic resin company sells about 1% of China's total worldwide export capacity.

(All of the above is accurate to about one sig fig, and if China has finally topped 40 megaTEU thats all very nice but doesn't fundamentally change the conclusion anyway)

I mean, that's not realistic to ship across the planet, just too much of it, too heavy, global shipping isn't "big enough" to eat low value product.

Now something high value per pound like photographic film, Kodak would be out of business today in the USA anyway even if film were still in business. Ready to use photo film has a high enough dollar per pound density to be worth shipping across the world.

Taking this to the geographic extreme, some of the most competitively solid businesses are things where you just can't move the product very far. I'm thinking quarries* and trash.

*The exception being highly sought after material not available nearby.

That's an incredibly clearly written letter. It's amazing. If only more businesses communicated that way. But then of course most have reasons to obfuscate the situation...