Mitsui Fudosan is Japanese property Development Company; it was incorporated in 1941 and is headquartered in Tokyo, Japan. The company is among the top 10 property developers in the country (Kirchenbauer, 2021). The company offers a wide range of services through its segments office buildings, retail properties and hotels and resorts. In addition, the company also operates in life sciences, space and environment institute and digital transformation.
The company has significant development projects; it has undertaken the redevelopment project in the Nihonbashi district, where the business has its originating roots. Mitsui also developed the “Gran Tokyo North Tower” office building at Tokyo Station. Mitsui Fudosan also did a significant project in New York that developed the 2.3 million square foot Exxon Building. Porter’s five forces model is an appropriate analytical tool to evaluate threats to Mitsui Fudosan and the opportunities it can potentially explore.
Competitive Rivalry in The Market
There is intense competition in the real estate development market. The Japanese market is already concentrated, with mega-corporations operating in the segment. Mitsui Fudosan’s significant competitors are Sumitomo Realty & Development, Nomura Real Estate Holdings and Daiwa House Industry (DHI). Mitsui Fudosan has reported $18.9 billion in revenue and a gross profit of $3.7 billion in 2020 (Nikkei Asia, 2021). In 2020, DHI was ranked at 311 among the Fortune 500 global companies; the company reported $2.1 billion in gross revenue of $40.2 billion (Fortune, 2021).
In 2020, Sumitomo Realty & Development reported revenue of $8.6 billion and a Gross profit of $2.7 billion with a profit margin of 15.41% (Nikkei Asia, 2021). Nomura Real Estate Holdings has earned a gross profit of $1.7 billion and revenue of $5.4 billion in the same fiscal year (Nikkei Asia, 2021). Therefore, the market is highly competitive.
Threat of Substitutes
The real estate development industry is rigid in its practices, and it has its importance due to its impact on society’s economic growth and social status. However, the threat of substitute remains low owing to the lack of availability of better alternative. There are benefits associated with leasing property as the management and the ancillary expenses formality falls on the landlord. People also prefer mortgage as a long-term solution as an alternative to leasing. However, there is no natural substitute for the housing industry.
The short-term option is digital companies such as Air BNB. They act as agents between the lessee and the lesser for the period. They are competing with the resorts and motels. The affordable prefabricated homes pose the other threat; the market is expected to grow at a CAGR of 8% from 2019 to 2025 (PR Newswire, 2020). The industry is not mature enough and cannot act as a complete replacement. Therefore, the threat of substitutes remains low to moderate.
The Threat of New Entrants
There are inherent limitations associated with the construction industry. The significant barriers to entry are established incumbents, high requirement and capital and strict regulatory framework. The industry is moderately regulated, but the compliance requirements are stringent and layered and require additional resources. It a capital intensive sector, and significant money is necessary to start a company; therefore, it discourages newcomers. To acquire funding through traditional measures involves collateral.
Additionally, the cost of capital varies from client to client based on their risk profile. The implied requirement of high money increases the competitive advantage of the incumbent firms (Embugus, 2020). Moreover, established incumbents also made it difficult for the newcomers to break through. Therefore, the threat of new entrant in the large scale real estate development sector remains low.
Bargaining Power of Buyers
Usually, buyers have higher bargaining power in the industry; buyers bargaining power depends upon the following underlying factors buyers’ concentration, availability of better alternatives, price sensitivity and access to information. The high bargaining power of buyers is indirectly proportional to the company’s profitability. Access to information plays a vital role in buyers’ bargaining power; Buyers can negotiate a better price if they belong to the residential area, out of state buyers pay substantially more due to sellers’ bias and asymmetric information (Lambson et al., 2004). Buyers are price-sensitive, and saturation in the market gives them higher bargaining power. Thus, they can exercise high bargaining power. Overall, buyers can exercise higher bargaining power.
Bargaining Power of Suppliers
Suppliers bargaining power depends upon the underlying factors affecting the supply chain. The suppliers’ bargaining ability is directly related to supplies’ importance, suppliers’ concentration and nature of supplies. The essential supplies are raw material and skilled workforces. The large-scale developers in the industry have vertically integrated supply chains and stored crucial materials to accommodate any unforeseen delays.
However, they get bulk discounts and source material from multiple vendors if they have to acquire outside their supply chain. Thus, supply chain risk is avoided, overreliance on the suppliers can be reduced by dual-sourcing (Pochard, 2003). The other resource is skilled labour; they are essential for business and are mindful of their importance. Therefore, they seek higher compensations and poses higher bargaining power. Overall, suppliers have moderate bargaining power.
References
Embugus, s. A. S. B. B., & aliyu, u. S. (2020).entry barriers and capital structure of listed firms in Nigeria. Journal of accounting and management. Issn 1119-2454 volume 3, number 1.
Fortune. (2021). Daiwa House Industry. Available at: https://fortune.com/company/daiwa-house-industry/global500/
Kirchenbauer, R. (2021). Top 10 Japan Property Developers: A Complete Guide. Available at: https://www.investasian.com/2021/01/28/japan-property-developers/
Lambson, V. E., McQueen, G. R., & Slade, B. A. (2004). Do out‐of‐state buyers pay more for real estate? An examination of anchoring‐induced bias and search costs. Real Estate Economics, 32(1), 85-126.
Nikkei Asia. (2021). Mitsui Fudosan Co., Ltd. Available at: https://asia.nikkei.com/Companies/Mitsui-Fudosan-Co.-Ltd
Nikkei Asia. (2021). Nomura Real Estate Holdings, Inc. Available at: https://asia.nikkei.com/Companies/Nomura-Real-Estate-Holdings-Inc
Nikkei Asia. (2021). Sumitomo Realty & Development Co., Ltd. Available at: https://asia.nikkei.com/Companies/Sumitomo-Realty-Development-Co.-Ltd
Pochard, S. (2003). Managing risks of supply-chain disruptions: dual sourcing as a real option (Doctoral dissertation, Massachusetts Institute of Technology).
PR Newswire. (2020). The prefabricated building market is expected to grow at a CAGR of over 8% during the period 2019-2025. Available at: https://www.prnewswire.com/news-releases/the-prefabricated-building-market-is-expected-to-grow-at-a-cagr-of-over-8-during-the-period-20192025-301036903.html