Tokyo Electric Power is a Japanese Energy Utility headquartered in Tokyo, Japan. It was founded in 1951. It generates and transmits electricity in Japan’s Kantō region, Yamanashi Prefecture, and the eastern portion of Shizuoka Prefecture. It operates through the following segments: Fuel, Power Grid, Customer Support, Corporate, and Others. The Fuel segment deals with thermal power generation. The Power Grid segment deals with power generation and supply, hydroelectric power generation, power transmission, distribution facility, and communication facility construction and maintenance (Forbes, 2021). It has 66 subsidiaries and employees of more than 42,000 people (TEPCO, 2021). Porter’s five forces model is used to oversee threats and Opportunities the company is exposed to.
Competitive Rivalry in The Market
Electricity demand in Japan has either declined or remained unchanged after 2007. According to JEPIC (2020), since the 1990s, however, industrial demand has entered a downward trend due to changes in industrial structure and growing energy conservation. The company faces competition among local energy utility providers. It is 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. KEPCO posted annual revenue of $ 29.1 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). TEPCO earned a yearly income of $1.705 Billion for 2020 on the annual revenue of $ 55.317 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. Fossil Fuel was used to produce over 70% percent of all the electricity produced in Japan in 2019 (EIA, 2020). 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 greenhouse gas emissions (IEA, 2021). TEPCO’s energy production is heavily dependent on fossil fuel and nuclear power. It’s one of the significant nuclear power failures due to the power loss caused by the 2011 Earthquake. Energy is required as a commodity, but its production method is changing. So the threat is against them is higher; the company needs to invest 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
Energy is a commodity everyone is dependent on it. The buyers of the energy utility company are commercial entities and domestic users. Buyers exercise higher bargaining power if there are available options. Suppose they can backward integrate themselves to make their product (Porter, 1979). The only available option is solar energy. The cost of the residential solar system is high. In this case, 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. 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. Businesses hold more power if there are multiple suppliers. Suppliers, in this case, are the equipment suppliers, distribution companies, transmission companies, and marketing companies that offer the product to the consumer. The suppliers can reduce the profit margins of the utility companies by driving the cost up. If the utility company is vertical integration, then they can use that to their advantage. They control the business, and it protects them from supplier risk. In this case, suppliers’ bargaining power is low.
References
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EIA. (2021). JAPAN. Available at: https://www.eia.gov/international/analysis/country/JPN
Forbes. (2021). Tokyo Electric Power. Available at: https://www.forbes.com/companies/tokyo-electric-power/?sh=239b834b766d
IEA. (2021). Japan 2021 Energy Policy Review. Available at: https://www.iea.org/reports/japan-2021
JEPIC. (2021). The Electric Power Industry in Japan 2020. Available at: https://www.jepic.or.jp/pub/pdf/epijJepic2020.pdf
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
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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/
TEPCO. (2021). Company Overview. Available at: https://www.tepco.co.jp/en/hd/about/corporate/outline-e.html