Kansai Electric Power is a Japanese Energy Utility headquartered in Osaka, Japan. It was founded in 1951. It generates and transmits electricity in Kansai Region, Kobe, Osaka & Kyoto. The Kansai region is Japan’s second-largest industrial area. Its main business is electric power, heat supply, telecommunication, and gas supply. It has 84 subsidiaries and employees more than 18,000 people (KEPCO, 2021).
It is known for its electric power generation, transmission, distribution, and sales. KEPCO generates electric power from Thermal Plants, Hydro plants, Nuclear Plants, and Renewable energy resources. It also operates 20 projects in 13 countries in the world (KEPCO, 2021). Porter’s five forces model is used to oversee threats and Opportunities the company is exposed to.
Competitive Rivalry in The Market
Japan’s electric demand has increased post-war economic growth. According to JEPIC (2020), Electricity demand in Japan has either declined or remained unchanged since reaching 1,077.5 TWh in 2007, and in fiscal 2017 came to 977.4 TWh. The company faces competition among local energy utility providers. It’s part of one of Japan’s top 5 energy companies based on total assets (Statista, 2021). Tokyo Electric Power (TEPCO) and Chubu Electric Power (CHUBEN) are their major local rival.
TEPCO posted annual revenue of $ 55.3 billion in the fiscal year of 2020 (Nikkei Asia, 2021). CHUBEN posted annual revenue of $ 27.6 billion in the fiscal year of 2020 (Nikkei Asia, 2021). KEPCO earned a yearly income of $1.025 Billion for the year 2020 on the annual revenue of $ 29.157 billion (Nikkei Asia, 2021). Due to multinational companies’ presence, there is intense competition.
Threat of Substitutes
Japan’s local companies depend on Fossil Fuel for the production of the majority of electric power. According to EIA (2020), Fossil Fuel was used to produce over 70% percent of all the electricity produced in Japan in 2019. The energy industry is changing due to the concern of climate change. Japan shifted to fossil fuel after the 2011 earthquake, which resulted in increased emission of Greenhouse gases.
KEPCO established a 2030 mid-to-long-term strategy that aims to take a new leap forward in responding to the shift in the energy industry paradigm caused by the ‘Energy Transition,’ represented by the spread of eco-friendly energy Digital Transformation (KEPCO, 2021). The company is investing capital in producing renewable energy at a sustainable cost. Energy is required as a commodity, but its production method is changing. So the threat is against them is minimum as long as the company keeps investing in renewable energy products.
The Threat of New Entrants
Energy production acts as the backbone of the country, and whole countries depend on their product. The electric sector in Japan is governed by Electricity Business Act (EBA). EBA has allowed only ten energy utility companies to generate, transmit, distribute, and sell electricity (Dewar, 2019). The sector is under scrutiny after the Fukushima Disaster and. It makes that sector highly regulated and strict compliance for day-to-day operation.
Today’s important variable is the rigor regulators have applied in fulfilling their regulatory responsibilities, making the regulatory environment very complex and severe, leaving the energy companies grappling with ways to demonstrate, document, and report compliance (Metricstream, 2021). There is intense competition in the industry. Considering the competition, profit margins, compliance, and capital requirement threat of entrants remain low.
Bargaining Power of Buyers
The buyers of the energy are residential and commercial businesses. Energy is a commodity required by everyone. The buyers can exert their power if they can switch to another product. It depends upon the availability of the products. Buyers exercise higher bargaining power if there are available options. Suppose they can backward integrate themselves to make their product (Porter, 1979).
The buyers can exert any power because they don’t have anything to bargain for. The state-provided subsidy is the only leverage buyer gets, either in tax relief or bill reduction. Commercial users get subsidies from the state. Solar power is the alternate solution, but an individual can’t opt for solar power, and it also requires higher initial capital. 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 hold high bargaining power if they can provide unique products, and there are few suppliers. The supplier can reduce its profit if there are many buyers of its products (Martin, 2019). A lesser number of suppliers provides them higher power. The energy utility industry suppliers are the equipment suppliers, power distribution and transmission companies, and marketing companies.
The majority of the utility companies are vertical integration; then, they use that to their advantage. Large companies have a vertically integrated supply chain that protects them from supplier risk. Suppliers of the equipment can exert their power due to the importance of their product. Considering all the factors mentioned above, suppliers’ bargaining power, in this case, is low.
References
Dewar. J. (2019). Electricity Regulation 2020. Available at: https://www.nishimura.com/sites/default/files/tractate_pdf/ja/68173.pdf
EIA. (2021). JAPAN. Available at: https://www.eia.gov/international/analysis/country/JPN
JEPIC. (2021). The Electric Power Industry in Japan 2020. Available at: https://www.jepic.or.jp/pub/pdf/epijJepic2020.pdf
KEPCO. (2021). Company Profile. Available at: https://www.kepco.co.jp/english/corporate/info/profile/outline.html
KEPCO. (2021). Power Book 2020. Available at: https://www.kepco.co.jp/english/corporate/list/document/pdf/2020_en.pdf
KEPCO. (2021). Sustainability Report 2020. Available at: https://home.kepco.co.kr/kepco/EN/D/C/KEDCPP004.do?boardCd=BRD_000014&menuCd=EN040106
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
Metricstream. (2021). Regulatory Compliance – Creating an Enterprise Roadmap for the Power Industry. Available at: https://www.metricstream.com/insights/Regulatory_compliance_power_industry.htm
Nikkei Asia. (2021). Utilities – Chubu Electric Power Co., Inc. Available at: https://asia.nikkei.com/Companies/Chubu-Electric-Power-Co.-Inc
Nikkei Asia. (2021). Utilities – The Kansai Electric Power Co., Inc. Available at: https://asia.nikkei.com/Companies/The-Kansai-Electric-Power-Co.-Inc
Nikkei Asia. (2021). Utilities – Tokyo Electric Power Co. Holdings, Inc. Available at: https://asia.nikkei.com/Companies/Tokyo-Electric-Power-Co.-Holdings-Inc2
Porter., E. M (1979) How Competitive Forces Shape Strategy. Available at: https://hbr.org/1979/03/how-competitive-forces-shape-strategy
Statista. (2021). Leading electric power companies in Japan as of October 2020, by total assets. Available at: https://www.statista.com/statistics/868685/leading-companies-electricity-industry-by-total-assets-japan/