Sumitomo Corporation is a Japanese general trading company and is a diversified corporation. It was established in 1919 in Osaka, Japan (Sumitomo, 2020). It is a part of the Sumitomo group. The company operates through 135 offices in 65 countries worldwide. It has six trading divisions: metal products, transportation and construction systems, infrastructure, media and digital, Mineral Resources, real estate, and retail (Sumitomo, 2020).
The Living Related and Real Estate segment manages the lifestyle and retail, food and agriculture, and materials, supplies, and real estate division. It operates through its retails brands such as Tomod, Simple mart, Fuji mart, and Summit. It sustains the statues of EPC in the railway industry. It provides custom build railcars all over the world. Porter’s five forces model is used to identify threats and business opportunities face by Sumitomo Corporation’s industry in the world.
Competitive Rivalry in the Market
Integrated trading companies are a major part of the Japanese economy. Sumitomo is one of the biggest general trading companies in the country by market value (Statista, 2020). Its major rivals are regional general trading companies Mitsui, Itochu and Mitsubishi. Mitsui is the Japanese general trading which generated annual revenue of around $62,739.93M (Nikkei Asian, 2019). Itochu is a Japanese integrated trading corporation. It involves product trading and business investment-related activities.
It generated a revenue of around $104,561.93M (Nikkei Asian, 2019). Whereas Sumitomo posted the gross profit of $ 7,827.12M with a revenue of $ 47,807.67M (Nikkei Asian, 2010). The economic growth in Asia is a driving force behind this competition. It should expand its business to compete with its rivals and to keep its clientele.
Threat of Substitutes
The Japanese economy is revolved around Sogo Shosha (General trading companies). These were the family-owned conglomerates established around 1700. These companies hold the majority of general trading in Japan. They are horizontally integrated with banks and industries for business purposes. They get the business share due to brand identity and diversified portfolio.
The major threat to their existence is the foreign investment and breakup of the conglomerates. That type of restructuring is going on nowadays in the name of economic expansion. They need to find other ways to finance their business and expand it through the emerging markets. Those markets include South Asian and Central Asian markets. They need to create new business and keep their market share intact.
The Threat of New Entrants
The new entrant must come with a better product and a better price tag to compete. Nowadays the threat level is relatively moderate. It is mainly due to the competition in the industry. The market shareholder will retaliate against any other startup. The foreign-funded startup did damage to general trading companies back in 1980. The internet of things has evolved the industry layout of Japan.
The newer investor in the 1980s started firm like Rohm, Nidec, & Hoya got boomed after the IT Revolution. Now the startup will need high sunk investment and good products to compete in the market. Those companies can lower their price due to deep pockets as a defense mechanism against a startup. The startup with a strong product line and better strategy can impact their business. The threat level is moderate as for now.
Bargaining Power of Buyers
Their main buyers can be distributed into two groups, one individual customer and other countries and companies. The buyers demand the best product in the retail business. It can opt for other products if there are any available in the market. Even though the market is saturated, but it can’t exert any bargaining power. In other scenarios like the construction industry, oil, and gas industry.
The buyer can exert power on the quality of the product. The buyer can bring the price below by acquiring bulk products. The companies provide long term contracts to buyers to keep their product in marker. It is also beneficial for companies like Sumitomo. It is because of their diversified industry divisions and brand identity. The overall bargaining power is weak.
Bargaining Power of Supplier
The suppliers of raw materials and distributors are the main suppliers against Sumitomo. The supplier in the retail market wants to sell its product through the retailer to the customer. It doesn’t hold any major power against the retailer. The raw material supplier for the shipping and construction industry can exert bargaining power. It is because due to the saturation industry.
Sumitomo is a horizontally integrated company. They require the supplier to be future integrated. It can cost a lot to be future integrated. It requires long term contract to be a part of the expansion. It doesn’t affect the strategic growth of the Sumitomo. The overall bargaining power of the supplier is moderate against Sumitomo.
References
Nikkei Asian Review. (2019). Finance. Companies – Itochu Co. Available https://asia.nikkei.com/Companies/ITOCHU-Corp
Nikkei Asian Review. (2019). Finance. Companies – Mitsui Co. Available https://asia.nikkei.com/Companies/Mitsui-Co.-Ltd
Nikkei Asian Review. (2029). Finance. Companies – Sumitomo Corporation. Available https://asia.nikkei.com/Companies/Sumitomo-Corp
Statista. (2020). Japan largest trading companies. Available at: https://www.statista.com/statistics/719481/japan-largest-trading-companies-by-market-value/
Sumitomo. (2020). About, History. Available at: https://www.sumitomocorp.com/en/jp/about/company/sc-history
Sumitomo. (2020). Business. Available at: https://www.sumitomocorp.com/en/jp/business