Shin-Etsu is a Japanese chemical company based in Tokyo. The company was founded in 1926 as a fertilizer company. Shin-Etsu Chemical engages in the manufacture and sale of industrial chemicals. Its operations are carried out through the following segments: Polyvinyl Chloride (PVC)/Chlor-Alkali Business, Silicone Business, Specialty Chemicals Business, Semiconductor Silicon Business, Electronics, and Functional Materials Business, and Diversified Business (Forbes, 2021).
The company was named one of Thomson Reuters Top 100 Global Innovators from 2011 to 2014. It employs more than 22,000 people and it has a presence in over 20 countries on 4 continents (Shin-Etsu, 2021). Porter’s five forces model is a valuable tool to identify threats and opportunities faced by Shin-Etsu in the chemical industry in the world.
Competitive Rivalry in The Market
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 Shin-Etsu is Japan-based Sumitomo Chemical, Mitsubishi Chemical, and Fujifilm. The company is ranked 4th based on total assets in the Japanese market. (Statista, 2021).
It is considered to be a part of world leaders in the chemical industry. It was ranked at the 19th number in the world based on revenue (Tullo, 2021). Shin-Etsu posted a net profit of $2.769 billion with a revenue of $14.144 billion (Nikkei Asia, 2021). The competition within the industry is increasing.
Threat of Substitutes
Substitute products are the available products within and outside of the industry. The threat of substitution is low; it is because of the two main reasons. First, the industry scale Shin-Etsu operates is concentrated, and there are few alternative products that good quality is available at the moment. Second, the increase in demand for silicon chips due to the IT revolution provides constant growth for the business. 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). Quality of the product and switching cost is another main reason. The company is evolving with time. It has set the goal to reduce the greenhouse gas emissions in production intensity to 45% of the 1990 level by 2025 (Shin-Etsu, 2020). The overall threat of substitutes is low in the chemical 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.
Shin-Etsu announced it will carry out facility investments totaling ¥30 billion in its photoresists business manufacturing bases in Japan and Taiwan to increase the production of photoresists, which are essential in cutting-edge semiconductor manufacturing, and advances in technology development (Shin-Etsu, 2020). 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 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). The integrated industries such as oil and refining, healthcare, electronics maker, and the chemical industry are the buyers of the chemical industries. It provides them bigger clientele and multiple channels to sell their products. Product quality, differentiation, and price can attract the buyer. 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. Shin-Etsu 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 Supplier
The supplier in the industry is 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/
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.
Shin-Etsu. (2021). Major Bases of Operation / Worldwide Network. Available at: https://www.shinetsu.co.jp/en/company/network/
Forbes. (2021). Shin-Etsu Chemical. Available at: https://www.forbes.com/companies/shin-etsu-chemical/?sh=3033c2fba49d
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
Nikkei Asia. (2021) Process Industries – Shin-Etsu Chemical Co., Ltd. Available at: https://asia.nikkei.com/Companies/Shin-Etsu-Chemical-Co.-Ltd
Ourworldindata. (2021) Japan: CO2 Country Profile. Available at: https://ourworldindata.org/co2/country/japan
Shin-Etsu. (2021) Response to Climate Change. Available at: https://www.shinetsu.co.jp/en/sustainability/esg_environment/global_warming/
Shin-Etsu. (2021) Shin-Etsu Chemical responds to the growing demand and advances in the semiconductor photoresists market. Available at: https://www.shinetsu.co.jp/en/news/news-release/shin-etsu-chemical-responds-to-the-growing-demand-and-advances-in-the-semiconductor-photoresists-market/