Korea Electric Power (KEPCO) is a state-owned utility company founded in 1961. Initially, it was known as Seoul Electric Company from 1898 to 1961. It is based in Naju, South Jeolla, and South Korea. It was listed on the Korea Stock Exchange in 1989 and on New York Exchange in 1994(KEPCO, 2021). It operates in South Korea, although Company is involved in projects in 13 countries in the world. The Company is known for the generation, transmission, and distribution of electricity in the country. It produces power for Hydro Plants, Fossil Fuel Plants, Nuclear Plants, and Wind Farms. It is collaborating with IT firms for smart grids. Porter’s five forces model is used to analyze the operational risks it faced and threats it is exposed.
Competitive Rivalry in the Market
The Utility distribution business assures good returns. Energy utilities fall under the category of commodities. The demands for commodities are usually steady, and it is something that is constantly required. The growing economy of the country means increasing demand for energy. KEPCO is the sole electric utility company in the country. The state backs the Company. KEPCO act as the industry leader and controls the market. KEPCO has earned $ 49.639 billion and a profit of $5.898 billion (Nikkei Asia, 2021). Due to the leading producer and distributor in the country and backed by the state, no other company is competing in any capacity against KEPCO. There isn’t any competition against it.
Threat of Substitutes
The advancement of technology is evolving the utility energy industry. The increase in the global population is the driving force behind the growth of the sector. The consumption has grown exponentially. Fossil fuels are depleting at a higher rate than expected; at that rate, only coal will be available beyond 2042 (Shafiee, S., & Topal, E. 2009). The industry is venturing into renewable energy sources such as solar energy and wind energy. The distribution companies are exploring intelligent grid systems to reduce the power losses during transmission. KEPCO has partnered with IBM for innovative grid solutions in the country (IBM, 2011). KEPCO is also investing in wind farming in the region. There is a threat against its nuclear power system. Activists are protesting against it after the meltdown at Fukushima Nuclear Plant in Japan. The threat level is low.
The Threat of New Entrants
The electric utility industry is highly regulated. Higher capital investment is required to enter the industry. The main barriers to entry in any industry are capital requirement, product differentiation, regulatory requirements, and economies of scale (Grant, 2010). The government has strict oversight protocols because of the involvement of the general public. The cost of the utility is often decided by regulated bodies, which affect the Company’s profitability. The companies cannot set their desired profit margins. Due to the sole Company in the country, restriction on pricing of utility with stringent compliance requirements. It makes it difficult for companies to establish their business in the country, and thus the threat of new entrants remains low.
Bargaining Power of Buyers
Buyer can exert the power of the products it purchases from the industry are standard or undifferentiated. The buyers, sure that they can always find alternative suppliers, may play one Company against another (Porter, 1979). Buyers exercise higher bargaining power if there are available options. The buyers can’t exert any influence because they don’t have anything to a bargaining chip in this case. The buyers of the energy utility company are commercial entities and domestic users. The state-provided subsidy is the only leverage buyer gets, either in tax relief or bill reduction. Commercial users get grants from the state. In this case, there isn’t another option available for the users. KEPCO is the only energy utility company. They need to depend on their products because of the unavailability of any other viable solution. States can exert their power to bring the tariff down from companies. Considering the available facts, buyers have no or low bargaining power.
Bargaining Power of Suppliers
The suppliers can exercise high bargaining power if few suppliers are there, and they are offering a specialized product. The supplier can reduce the Company’s profit if there are many buyers (Martin, 2019). The energy utility industry’s leading suppliers are distributors and raw material providers. Distributors bring the consumer to them. They can dictate a better deal because of their clientele. If the distribution company has a vertically integrated supply chain, it will help them a great deal. KEPCO is a vertically integrated Company. It is the only company that controls the production, transmission, and distribution of electricity. It controls everything. Usually, suppliers have high bargaining power due to their unique position, but they don’t hold any power against it.
References
Grant, R. M. (2010). Contemporary Strategy Analysis. 7th Edition.
IBM. (2011). IBM Expands Global Intelligent Utility Network Coalition to Advance Smart Grid Development. Available at: https://www-03.ibm.com/press/us/en/pressrelease/34006.wss
KEPCO. (2021). Overview. Available at: https://home.kepco.co.kr/kepco/EN/A/htmlView/ENAAHP001.do?menuCd=EN010101
Martin., M (2019) How Porter’s Five Forces Can Help Small Businesses Analyze the Competition. Available at: https://www.businessnewsdaily.com/5446-porters-five-forces.html
Nikkei Asia. (2021). Utilities – Korea Electric Power Corp. Available at: https://asia.nikkei.com/Companies/Korea-Electric-Power-Corp
Porter., E. M (1979) How Competitive Forces Shape Strategy. Available at: https://hbr.org/1979/03/how-competitive-forces-shape-strategy