Mitsubishi Chemical Holdings Corporation is a Japanese holding company. It was formed in October 2005 from the merger of Mitsubishi Chemical Corporation and Mitsubishi Pharma Corporation (Mitsubishi Chemical Holdings, 2021). The company operates through the business divisions: Functional Products, Chemicals, Industrial Gas, and Healthcare. It is the leader in the chemical business.
The Functional Products segment sells electronics, displays, films, environment and life solutions, molding materials, polymers, chemicals, and new energy to domestic and overseas customers. The Chemicals segment markets methyl methacrylate, petrochemicals, and carbon. It employs more than 66,000 people and it has 666 subsidiaries and affiliates company. (Mitsubishi Chemical Holdings, 2021). Porter’s five forces model is a valuable tool to identify threats and opportunities faced by Mitsubishi Chemical Holdings in the chemical industry in the world.
Competitive Rivalry in The Market
The company’s major business segment is the chemical industry. The chemical industry has a fierce rivalry. The industry runners have global influence, and the economy of scale is high. It boosts the competition within the industry to be the market leader. The industry is growing steadily at the moment. It provides opportunities for companies to compete for a better share. The main rival of Mitsubishi Chemical is Japan-based Sumitomo Chemical, Shin-Etsu, and Fujifilm.
The company is ranked 1st based on total assets in the Japanese market which is around five trillion Japanese yen as of March 2020. (Statista, 2021). It is considered to be a part of world leaders in the chemical industry. It was ranked at the 8th number in the world based on revenue (Tullo, 2021). Mitsubishi Chemical Holdings posted a gross profit of $8.73 billion with a revenue of $30.714 billion (Nikkei Asia, 2021). The competition within the industry is increasing.
Threat of Substitutes
Substitute products offer customers different choices and allow them options within the industry and beyond it to products that may fulfill a similar need (Luenendonk, 2019). The threat of substitution is low; it is because of the two main reasons. First, the scale of the industry and the availability of alternatives. Second, the increase in demand for the product. The call for a more sustainable industry model is picking up voice.
The chemical industry accounts for over 30% of greenhouse gas emissions (Brudermuller, 2020). Japan emitted around 3.04% of the world’s greenhouse gases in 2019 which is following the downward trends for the last 2 decades (Ourworldindata, 2021). The company is investing in technology and evolving with time. It has set the goal to reduce the reducing GHG emissions through LCA and establishing technologies for the utilization of CO2 (Mitsubishi Chemical Holdings, 2021). The overall threat of substitutes is low in the industrial gas industry.
The Threat of New Entrants
The chemical industry is dominated by companies in Europe, the US, and Japan. The higher capital investment in production and innovation makes it difficult for startups. The newcomers must develop their marketing and R&D sections. It can avoid dependence on industry leaders. The startups must come with innovative products and better costs to compete with the market leader. The scale of the economy at which this industry operates makes is a hindrance. It makes it harder for startups to sustain themselves in the market.
Market leaders spend millions of dollars on R&D to innovate new products and stay ahead in the market. Its chemical division has over 8 R&D centers in Japan (Mitsubishi Chemical Corporation, 2021). The company is moving with time and using its resources to expand its business. The threat of the latest entrant against it is relatively low.
Bargaining Power of Buyers
The integrated industries such as oil and refining, healthcare, electronics maker, and the chemical industry are the buyers of the chemical industries. The integrated industries provide them bigger clientele and multiple channels to sell their products. Product quality, differentiation, and price can attract the buyer. The Bargaining Power of Buyers is high if the buyers are large; they can switch easily to another supplier who may be in numbers (Slater & Olson, 2002). Usually, chemical buyers are bulk buyers, and their product depends on the chemical products.
Therefore, it provides them a better bargaining chip. Product quality and differentiation can attract the buyer. Mitsubishi Chemicals provides products to nearly every industry globally, which provides its edge in contract negotiating. The company’s products are necessary for Major IT Industry, which is need of the time. All the factors mentioned above are the reason for low buying power in the industry.
Bargaining Power of Suppliers
The suppliers in the industry are the one who provides the production equipment for the industry and the human resources. The chemical industry is all over the world, and it has multiple suppliers. The production equipment is expensive and directly links with the quality of the product. The sector in which equipment is connected with the quality of the product and malfunction in it can cost huge losses (Porter, 1979). The supplier, in this case, became the backbone of the industry.
The companies need their services for regular maintenance and up-gradation after purchasing the equipment. The Companies may want to switch to another supplier because the market is full of alternative suppliers. However, they can’t due to the cost of switching is too high. The majority of suppliers are future integrated with the companies. The supplier, in that case, holds moderate power in negotiating the deal.
References
Brudermuller, M. (2020). How to build a more climate-friendly chemical industry. Available at: https://www.weforum.org/agenda/2020/01/how-to-build-a-more-climate-friendly-chemical-industry/
Luenendonk. M. (2019). Threat Of Substitutes – Porter’s Five Forces Model. Available at: https://www.cleverism.com/threat-of-substitutes-porters-five-forces-model/
Mitsubishi Chemical Corporation. (2021) R&D Network. Available at: https://www.m-chemical.co.jp/en/rd/org.html
Mitsubishi Chemical Holdings. (2021) Corporate Profile. Available at: https://www.mitsubishichem-hd.co.jp/english/group/outline/index.html
Mitsubishi Chemical Holdings. (2021) History. Available at: https://www.mitsubishichem-hd.co.jp/english/group/history.html
Mitsubishi Chemical Holdings. (2021) Medium- to long-term basic management strategy KAITEKI Vision 30. Available at: https://www.mitsubishichem-hd.co.jp/english/group/kv30/index.html#movie
Nikkei Asia. (2021) Process Industries – Mitsubishi Chemical Holdings Corp. Available at: https://asia.nikkei.com/Companies/Mitsubishi-Chemical-Holdings-Corp
Ourworldindata. (2021) Japan: CO2 Country Profile. Available at: https://ourworldindata.org/co2/country/japan
Porter., E. M (1979). How Competitive Forces Shape Strategy. Available at: https://hbr.org/1979/03/how-competitive-forces-shape-strategy
Slater, Stanley & Olson, Eric. (2002). A fresh look at industry and market analysis. Business Horizons. 45. 15-22. 10.1016/S0007-6813(02)80005-2.
Statista. (2021) Leading chemical companies in Japan as of October 2020, by total assets. Available at: https://www.statista.com/statistics/796100/leading-companies-chemical-sector-by-total-assets-japan/
Tullo. A.H. (2021) C&EN’s Global Top 50 for 2020. Available at: https://cen.acs.org/business/finance/CENs-Global-Top-50-2020/98/i29