Globalized Regionalization?
A study into the internationalization of Japanese Electric Utilities
Bachelor Thesis Business Administration Faculty of Economics and Business - Department: Strategy & Marketing Student: Maximiliaan Amadeus Schouten Student number: 10289038 First supervisor: E. Dirksen MSc Second supervisor: R. van Hemert MSc2
Statement of Originality
This document is written by Maximiliaan Amadeus Schouten, who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents. Diemen, June 22th 2016 M.A. Schouten3
Table of Contents
Chapter 1. Introduction and Research Frame ... 5 1.1 Research Gap ... 6 1.2 Research Questions ... 6 1.3 Structure of the thesis ... 7 Chapter 2. Theoretical Framework ... 8 2.1 Strategic Orientations of MNEs ... 8 2.2 Porter’s Framework for Internationalization: The Global Strategy ... 8 2.3 Rugman & Verbeke (2004) ... 10 2.3.1 Global Orientation ... 11 2.3.2 Bi-regional Orientation ... 12 2.3.3 Home Region / Regional Orientation ... 12 2.3.4 Host Region Orientation ... 12 2.3.5 Schematic overview of Rugman & Verbeke (2004). ... 13 2.4 Osegowitsch & Sanmartino (2008) ... 13 2.5 Chapter Conclusion ... 14 Chapter 3. Japanese Electric Utilities ... 15 3.1 Introduction to the Japanese Energy Market ... 15 3.1.1 The Japanese Electric Power Industry ... 15 3.1.2 The Japanese Energy Mix and The Role of Nuclear Energy ... 17 3.2 History of the Deregulation of Japanese Electric Utilities ... 18 3.2.1 Reformation of the Industry ... 18 3.2.2 Current Phase of Deregulation ... 19 3.3 The Regional Nature of Japanese MNEs ... 20 3.4 Chapter Summary ... 21 Chapter 4. Analysis ... 22 4.1 Selection Method of Japanese Electric Utilities ... 22 4.2 Overview of the Japanese Energy Companies ... 23 4.2.1 Chubu Electric Power Company ... 23 4.2.2 Chugoku Electric Power Company ... 24 4.2.3 Hokkaido Electric Power Company ... 24 4.2.4 J-Power Electric Power Development Company ... 244 4.2.5 Kansai Electric Power Group ... 25 4.2.6 Kyushu Electric Power Company ... 25 4.2.7 Shikoku Electric Power Group ... 26 4.2.8 Tohoku Electric Power Group ... 26 4.2.9 Tokyo Electric Power Company ... 26 4.2.10 Hokuriku Electric Power Company ... 27 4.2.11 Okinawa Electric Power Company ... 27 4.3 Company Analysis based on Porter’s International Strategies ... 27 4.4 Company Analysis based on Rugman & Verbeke (2004) and Osegowitsch & Sammartino (2008) 28 4.5 Remarks ... 30 4.6 Chapter Summary ... 31 Chapter 5. Conclusion ... 33 Chapter 6. Discussion, Limitations & Managerial Implications ... 36 Appendix A – Analysis of Utility Companies ... 38 List of References ... 39 List of Figures: ... 45
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Chapter 1. Introduction and Research Frame
Although Adam Smith himself never used the word, globalization was already a key theme when the Wealth of Nations was published in 1776. His description of economic development has the underlying principle of the integration of markets over time (The Economist, 2013). However, recent studies have questioned the adoption of ‘global’ strategies by multinational enterprises (MNEs), arguing that they instead follow ‘regional’ strategies and are therefore mainly active only within their home region. Moreover, as regionalization seems to be the new trend, global strategy might come to an end (Rugman & Hodgetts, 2001). In 2004, Rugman & Verbeke discovered that the majority of the 500 largest multinational enterprises are not global companies, as most of them had the vast majority of their sales within their home region. They state that around 88 per cent of the world’s biggest multinationals derived at least 50 per cent of their sales—the weighted average is 80 per cent —from their home regions. For example, established multinationals such as General Electric and Procter and Gamble have respectively 60 and 55 percent of their sales back home in North America. Just 2 per cent (a total of nine companies) derived 20 per cent or more of their sales from each of the triad regions1 (Ghemawat, 2005). This means that many of the world's largest firms are not global but regionally based, in terms of breadth and depth of market coverage (Rugman & Verbeke, 2004). Also Ghemawat (2005) points out that most international trade is intra-regional. For example, European countries trade predominantly with each other.The trend towards intra-regional trade is growing and the emerging consensus is that most multinational enterprises are regional (Banalieva & Dhanaraj, 2013). Rugman and Verbeke concluded their findings in 2008 with: “The home-region orientation of most multinational
enterprises implies that the reality of globalization has been vastly exaggerated.” Literature has 1 With triad, North America, Europe, and Japan is meant, according to Thomas, 1985. According to Ohmae (2002, p.121), these are the three major markets of strategic significance. To make use of strategic opportunities, a player needs to participate in the three Triad regions and one developing region, such as Japan using Asia and the Europeans using links in Africa and the Middle East. Australia and New Zealand are seen as developing countries, as they serve as raw material providers of the Triad nations. However, Rugman & Verbeke extended this Triad definition in 2005 to Europe, North-America and Asia-Pacific. Home region means one of these legs of the triad, as derived from Rugman & Verbeke (2004).
6 widely covered the regional versus global orientation of MNEs in general, but limited attention has been given to the strategies adopted by MNEs in the electric utilities sector. As this sector has recently been deregulated, this is very interesting to research upon. Kolk et al. (2004) studied the regionalization strategies of seven major European electric utilities companies, but minor emphasis has been given the events of deregulation in Asia.
1.1 Research Gap
A growing number of multinational enterprises (MNEs) is currently conducting business beyond borders. Globalization is a popular buzzword nowadays, but what exactly is globalization? And how does it differ from regionalization? This thesis will add to existing literature as it will investigate the internationalization strategies of companies on different levels. Specifically, this thesis will focus on the international processes of electric utility companies in one of Asia’s most prosperous countries: Japan. Collinson and Rugman (2008) stated that the home market on average is more important, especially for Japanese MNEs, who often claim to be globally active players. Furthermore, this thesis will contribute to regionalization theory as it will research these Japanese Utilities with the model of Rugman & Verbeke, but also taking into account the main critics on their research method. In addition to these models, Porter’s Framework for Internationalization will be applied, to identify certain aspects of their international strategies, which will allow for a classification of these Japanese electric utilities.
1.2 Research Questions
In accordance with the research gap, the following research question has been developed: Research Question: To what extent do Japanese electric utilities companies adopt global strategies? To help answering the research question, the following sub questions have been formulated: 1. What are the different competitive strategies/models? 2. What are the characteristics of Japanese electric utilities companies? 3. How can the operations of Japanese utilities be classified in terms of sales distribution?7
1.3 Structure of the thesis
To find the answers to this case, investigation on several topics will be necessary. First, it is needed to create working definitions for the different strategies. Hence, the first chapter will deal with the understanding of the different possible orientations of multinational firms and the classification systems of Porter (1990), Rugman & Verbeke (2004) and Osegowitsch & Sanmartino (2008). When the theoretical framework has been established, the case study will be introduced. Therefore, the second chapter will be dedicated to the Japanese electric utilities sector and the current developments in the light of the recent deregulation of the energy market. Additionally, the companies that are under investigation for this thesis will be selected. In chapter 4, the selected Japanese utilities companies will be analyzed in three ways. First by analyzing their activities based on press releases, newspaper articles and website information. Second, the framework of Porter will be applied to all companies and third, the framework by Rugman & Verbeke (2004) and Osegowitsch & Sanmartino (2008) will be applied. Finally, the conclusion, discussion and limitations to this research will be stated.
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Chapter 2. Theoretical Framework
In this chapter, an introduction will be given on the different strategies that companies may pursue in order to answer the first sub question: What are the different competitive
strategies/models? When talking about strategies, one should involve the work of Porter.
Therefore, the first framework introduced will be Porter’s framework of international strategy. Secondly, to investigate the orientation of multinational firms, two leading frameworks will be taken into discussion: Rugman & Verbeke (2004) and Osegowitsch & Sanmartino (2008).
2.1 Strategic Orientations of MNEs
A strategy is the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resource necessary for carrying out these goals’ (Chandler, 1990). Porter (2002) says that competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value, and using coordination and configuration as tools for companies to execute their operations in a way to be most cost efficient with the highest quality. Such strategic decisions are crucial for MNEs to obtain the benefits of foreign markets fully (Rugman & Verbeke, 2004). To test the level of globalization or regionalization of an MNE’s strategy, Porter’s framework of international strategy will be explained. Subsequently, light will be shed on the most used way of classifying the internationalization of enterprises, the system of Rugman & Verbeke (2004). However, Osegowitsch & Sanmartino (2008) criticized this system and developed an alternative one, which will also be discussed. As globalization and regionalization represents the two main streams when discussing environment in which MNEs are acting in, emphasis will be laid on these two orientations. Finally, as most papers use sales data (Oh & Rugman, 2006; Rugman and Girod, 2003), this will be taken into account in the analysis as well.2.2 Porter’s Framework for Internationalization: The Global Strategy
In his work on global strategies for competitive advantage, Porter’s (1990) proposition is that high-intensity domestic competition breeds international success. Conceptualizing international
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competition, Porter divided internationalization into configuration and coordination issues. Based on these concepts, four combinations of configuration and coordination – and thus, four possible variations for the global strategy can be derived (see figure 2.1). Configuration concerns the location at which each activity in the value chain is performed, and in how many places each activity is performed, worldwide, ranging in performing an activity only in one place and serving all its international operations from a centralized location (concentrated), to performing that activity in every country (dispersed). Coordination is involved if an activity is done in more than one place, for example when a company has multiple plants. With the use of this theoretical framework, a company can be analyzed for its level of internationalization according to its degree of coordination and configuration among the sites. It will identify the geographic positioning of a companies activities in the global industries. Figure 2.1. Porter’s International Strategy Model Porter’s International Strategy Model Configuration of Activities Geographically Dispersed Geographically Concentrated Coordination of Activities High Complex Global Integration High foreign investment with extensive coordination. Production location: optimum and multiple locations Generic Strategy: differentiation Management: expats & locals Simple Global Purest Global Strategy. Production location: home country. Generic Strategy: focused differentiation. Management: home country nationals Low Multi-Domestic Country-centered strategy by MNEs with a number of domestic firms operating in only one country. Production location: every country where it wants to sell. Generic Strategy: either Management: locals International Export Based Strategy with Decentralized Marketing. Production location: home country. Generic Strategy: low cost Management: home country nationals Source: Porter (1986, p. 9-40).
In the International - export-based strategy, the company revolves around a geographically concentrated configuration with low coordination of activities. The company only focuses on a single or limited number of sites, producing all its products in the home country, and exporting
10 them to the international market. In the Multi-Domestic - country-centered strategy, there are some coordinated activities, but the configuration is geographically dispersed. The company is mainly focused on one country, with other markets served by local production facilities. When a company combines high levels of coordination with geographically dispersed activities, it is said to be a Complex Global Integration - high foreign investment strategy. It is quite common for the different stages of production, to be spread out across multiple locations to achieve optimal efficiency. However, extensive coordination between these (international) sites may be costly. Finally, there is the Simple Global - purest global strategy, which is signified by geographically concentrated activities and high coordination. It exemplifies a company seeking to gain competitive advantage from its international presence both by concentrating its configuration, thus achieving economies of scale, and having a high level of co-ordination of international activities.
One of the main points of critique on Porters international strategy model is that a multinational will not always have the choice between simply a global versus a country-centered strategy (Prahalad & Doz, 1987). Companies need to be responsive to the demands imposed by the market forces in each location. The authors opt for global integration combined with local responsiveness. Also non-triad markets often insist that multinational companies should implement a national responsiveness strategy. However, as this thesis will use globalization and regionalization to represent the two main strategies, the framework of Porter (1990) may deliver some general insights in its global or local focus.
2.3 Rugman & Verbeke (2004)
The classification system of Rugman and Verbeke (2004), which will be used in this paper, is worldwide accepted by scholars. Rugman did extensive research to classify the 500 companies on the Forbes list in terms or regionalization/globalization. The typology of Rugman & Verbeke (2004) tries to classify the regional presence/orientation of MNEs, based on the sales distribution across regions. The four parts of the typology include (1) global, (2) bi-regional, (3) home-region oriented and (4) host-region oriented MNEs. Classifying MNEs within these categories relies on the specification of the regions themselves and criteria for the value of sales, assets or other
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relevant measures of MNE presence for measuring regional presence (Rugman & Verbeke, 2004). Based on this classification system, the degree of globalization and regionalization can be determined for each company in the dataset used. This model approaches the distinction between globalization and regionalization differently from Porter, whose theoretical framework analyzed companies based on value activities, resulting in determinants of competitive advantage in global industries. After analysis of a company’s sales distribution, it should be possible to indicate via Rugman & Verbeke (2004) which Japanese electric utilities firms are home-regional, bi-regional, host- regional or global. The four parts of the typology will be elaborated on in the following subparagraphs.
2.3.1 Global Orientation
International strategy refers to a range of options for operating outside an organization’s country of origin (Johnson, Whittington & Scholes, 2011). Global strategy is just one kind of international strategy. Global strategy involves high coordination of extensive activities dispersed geographically in many countries around the world. (Johnson, Whittington & Scholes, 2011). When a company applies a global strategy, the marketing mix is mostly the same around the world. This should not be confused with the multinational approach, whereby companies set up country subsidiaries that design, produce, and market products of services tailored to local needs (Yip, 1989). Each MNE has a home region where their home country is located and two other regions of the triad in which they can additionally be present. MNEs that are global have their activities distributed most evenly across the three regions, namely North America, the European Union or Asia. This strategy correlates well with what Porter would call Complex Global Integration, the global strategy where through high levels of foreign investment and extensive coordination, goods are produced locally. Other levers of global strategy are, according to Yip (1989) a significant share in major markets (a), fully standardized product offering worldwide (b), a concentrated location of value-added activities (c), a uniform worldwide marketing approach (d) and competitive moves integrated across countries (e). These levels match closely with Simple Global, with its geographically concentrated production capacity and centralized coordination of marketing efforts.12
2.3.2 Bi-regional Orientation
A bi-regional company is defined as a company that derives at least 20 per cent of the sales in at least two legs of the triad but less than 50 per cent of the sales in the company’s home region. Bi-regional MNEs have the majority of their business in just two regions (Rugman & Verbeke, 2004).2.3.3 Home Region / Regional Orientation
Regionalization in many cases implies a strong presence in the home country (Rugman & Verbeke, 2004). MNEs with a home-region orientation have the majority of their business activities in the region around their home country (Rugman & Verbeke, 2004), where region is defined as North America, Asia or the European Union. The largest European MNEs (in the 2000-2006 period) turn out to have nearly half of their sales and assets in their home countries (Oh, 2009). This includes a specification of intraregional groupings (sub regions) as proximate (large) markets often appear more interesting in terms of liabilities, adaptation costs and potential benefits of regionalization (Seno-Alday, 2009). This seems particularly relevant in the case of electricity in view of transmission and distribution considerations.To measure regionalization, Rugman is in favor of the use of ratio of home-region sales divided by total sales, with the home-region sales including the domestic sales, as a useful measure of firms’ regionalization (Rugman, 2000, 2005; Rugman & Verbeke, 2004).
2.3.4 Host Region Orientation
The third category identified by Rugman & Verbeke is the host-region orientation. MNEs with a host-region orientation have more than half of their activities in a region other than their home region (Rugman & Verbeke, 2004).13
2.3.5 Schematic overview of Rugman & Verbeke (2004).
To conclude the typology of Rugman & Verbeke (2004), a schematic overview of the four parts is given in figure 2.2: Figure 2.2. Classification of MNE orientations Source: Rugman & Verbeke (2004, p.3-18).2.4 Osegowitsch & Sanmartino (2008)
Rugman & Verbeke’s measurement system is accepted worldwide, but also gained criticism from scholars such as Osegowitsch & Sanmartino (2008). Therefore, also their model will be discussed as an alternative to the model of Rugman & Verbeke (2004). Osegowitsch and Sammartino (2008) are primarily critical about the 50 per cent threshold for home-region sales, and they question the rationales underpinning the used classification scheme. Therefore, Osegowitsch & Sanmartino experimented with the percentages from the abovementioned framework and developed three alternative classification systems, which are shown in figure 2.3. Their own framework defied the regionalization theory in the form from Rugman and Verbeke, as their results showed that the amount of bi-regional companies would be much closer to the number of home-regional firms and the amount of global firms was larger – which was explained especially by lifting the 50 per cent threshold (Osegowitsch and Sammartino, 2008). Moreover, the classification systems which reduced the host-region threshold (the second and third alternatives), resulted in a significant reduction of the amount of home-regional MNEs, while the quantity of bi-regional and global MNEs increased significantly. The lower the host-region threshold, the lower is the number of home-regional firms and the higher is the number of bi-regional and global firms. As this model has proven significant differences compared to theGlobal •Having sales of 20%
or more in each of the three regions of the triad and less dan 50% off the sales in the home region.
Bi-Regional •Having at least 20%
of sales in the home region of the triad and less than 50% in the home region.
Home Region •Deriving at least
50% of sales in the home region of the triad.
Host Region •Having 50% of the
sales in another
region outside their own home region.
14 established model of Rugman & Verbeke, this framework will be used as a second method to classify Japanese energy utilities. Figure 2.3. Revised classification of MNE orientations Source: Osegowitsch & Sanmartino (2008).
2.5 Chapter Conclusion
This chapter explicated the terminology of the different possible orientation of firms. First, Porter’s international strategy model was discussed, which indicates via the level of coordination and configuration if a company is strategically focused on a global or regional basis. In the debate about whether firms are operating global or regional, Rugman & Verbeke (2004) became a known framework to classify firms. However, this approach also gained criticism and the alternative model from Osegowitsch and Sanmartino was also discussed. In order to analyze Japanese electric utilities according to these frameworks, the next chapter will evolve around the Japanese energy industry and the selected sample for analysis. 1. Using a 20% host-region threshold and no home-region threshold (which was 50%). 2. Using a 15% host-region threshold and no home-region threshold (which was 50%). 3. Using a 10% host-region threshold and no home-region threshold (which was 50%).
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Chapter 3. Japanese Electric Utilities
Li (2007) showed that patterns of globalization/regionalization strategies differ depending on whether an industry is more globally integrated or rather multi-domestic. Therefore, this chapter provides an introduction to the characteristics of the Japanese energy industry, as this industry has encountered different attempts toward liberalization and deregulation during the past years. After this chapter, the following research question will be answered: What are the characteristics
of Japanese electric utilities companies? Emphasis will be laid on the current phase of
deregulation and the rise of nuclear energy. Additionally, some information will be added on the – according to Rugman & Verbeke (2004) – regional nature of Japanese MNEs.
3.1 Introduction to the Japanese Energy Market
For this thesis, emphasis will be laid on the Japanese energy market. Previous research has been done to classify companies in terms of globalization and regionalization, but there is no extensive literature on electric utilities. As Kolk et al. (2004) researched the electric utilities in the European Union after deregulation, this paper adds a different perspective by focusing on Japan.3.1.1 The Japanese Electric Power Industry
Japan’s electric power industry comprises five types of entities: general electric utilities, referred to as the electric power companies (the EPCos, integrated utilities), as well as wholesale electric utilities, wholesale suppliers, special electric utilities, and electric suppliers of specified scale (Asano, 2006). Japan is known to be the world’s largest LNG importer, the second largest coal importer, and the third largest importer of crude oil (EIA, 2015). It is home to a rapidly aging population of about 127 million people, yet only has its own resources to provide for 9 per cent of the energy demand within the country (BP Statistical Review, 2014 & Statistics Bureau Ministry of Internal Affairs and Communications, 2015). Due to the absence of its own natural resources, the country has been forced to import 95 per cent of its primary energy supply, ranging from Australian coal and Middle Eastern crude oil, to American Liquefied Natural Gas. Previous shocks in the energy market, such as oil crisis in the 1970s, have forced the island nation to utilize other
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sources of energy to become more self-sufficient and increase energy independency (FEPC, 2015). Combined with its geographic isolation, which blocks any opportunity to directly import electricity from neighboring countries, Japan was forced to diversify its energy mix and develop other sources of power: nuclear and renewable energy. These two sources, combined with Japan’s thermal generators which run on the aforementioned imported fossil fuels, provide the country with the 1090.7 TWh that is consumed annually (FEPC, 2015). In figure 3.1, the development of Japan’s energy generation over the last decade is visible.
Japan has limited domestic energy resources that have met less than 9% of the country’s total primary energy use since 2012, compared with about 20% before the Fukushima plant incident (EIA, 2015). Due to the combined effect of the necessity of importing approximately 95% of its primary energy requirements, and Japan’s few active nuclear reactors, the country has the second-highest electricity prices in Asia, after the Philippines (DLA PIPER, 2012; World Nuclear Association, 2016). Even recently, Japanese utilities executives have made no secret about their desire to bring the nation’s nuclear fleet back online despite opposition from much of the public. The primary reason for this controversial stance is the fact that nuclear power is significantly cheaper to produce, an effect witnessed by Kyushu which turned a profit merely six months following the reinstatement of its nuclear reactors (Bloomberg Press Release, 2016-04-28).
Figure 3.1 Japan’s net electricity generation by fuel, 2000-2013
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3.1.2 The Japanese Energy Mix and The Role of Nuclear Energy
At its peak, Japan nuclear reactors generated 30% of its national demand, whereas it currently represents only 0.8% of the total energy mix (Mrochzkowski, 2015). The country’s remaining reactors have provided some 30% of the country’s electricity, which was expected to increase to at least 40% by 2017, but is now prospected for only two thirds due to the depleted fleet (World Nuclear Association, 2016). Nuclear energy has been a national strategic priority since 1973. However, after the Fukushima disaster of March 2011, all but one of Japan’s 50 operating reactors have been permanently shut down or are temporarily closed for inspection. The triple disasters of 2011, namely the earthquake, tsunami and nuclear disaster, has spawned new debates on national energy mix strategies, putting pressure on the existing thermal generators and further pressure on renewable sources (Mrochzkowski, 2015). Figure 3.2 Japan’s total energy consumption in 2013 Source: Energy Information Administration (2013) As visible in figure 3.2, in 2013, Japan had an energy mix which made use mostly of petroleum and other liquids (43 per cent), with natural gas taking the second place (22 per cent). Currently, the Japanese government aims at reactivating more reactors, ending an almost two-year hiatus on nuclear power generation (Japan Times, 08-15-2015). The Ministry of Economy, Trade and Industry has just set a target of 20 to 22 per cent of all generated power coming from nuclear
18 plants in 2030. The Japanese government believes that the usage of nuclear energy is essential to help reduce current energy supply strains and high energy prices faced by Japan's industries and end users (EIA, 2015).
3.2 History of the Deregulation of Japanese Electric Utilities
Since the 1990s, many countries have deregulated the electricity industry and implemented its restructuring policy. Such a deregulation trend is observed in the United States, European countries and Asian countries (Sioshansi & Pfaffenberger, 2006). Deregulation of Japanese electric power industry started in 1995. Via various reformations, Japan is ready to fully liberalize its market in the upcoming years. This paragraph presents an overview of the steps in deregulating Japanese energy.
3.2.1 Reformation of the Industry
In 1951, the electricity industry of Japan was corporatized and separated into nine regional, integrated electric utilities. In addition to the nine general utilities, there were two major wholesale utilities and lots of municipal wholesale companies. Before 1995, no Independent Power Producers (IPP) were allowed to enter the industry (Asano, 2006). These utilities acquired domestic coal, which is three times more expensive as imported coal. The coal mining industry was important and the mines closed gradually. This extensive use of domestic coal was one of the reasons for the high electric price. High electricity prices motivated deregulation of the electricity business in Japan. In 1997, the first reform took place with the introduction of the competitive principle. It paved the way for competitive bidding systems in the wholesale electric power sector and the establishment of special electric utilities. The goal of the second reform in 2000 was to reduce the electricity price to an internationally comparable level. Therefore, the retail supply market gradually liberalized from larger to smaller customers (Asano, 2004; Goto & Sueyoshi, 2009). In June 2003, ten companies - which are subsidiaries of trading companies, gas companies or manufacturers with self-generating facilities - entered the Japanese electric power supply market. This phase of deregulation contributed to an overall decline in electricity rates. Also,
19 other power producers and suppliers (PPS) reduced prices due to the growing competition. The third stage of the deregulation emphases on the independence and transparency of the systems’ operation, and on the further opening of the retail market (Asano, 2006). As of 2005, almost all customers, households excluded, are entitled in choosing their suppliers from incumbent utilities and new entrants (Goto & Sueyoshi, 2009).
3.2.2 Current Phase of Deregulation
In the past years, the Japanese government has been undertaking the further liberalization and deregulation of the energy markets. Liberalization and deregulation have reduced costs of electricity and gas and increased the efficiency of the energy markets. As a result, these policies have stimulated economic growth (Honma & Hu, 2008). However, energy usage in Japan is decreasing due to shrinkage of the population. Moreover, new entrants have almost doubled their share of electricity output in the last three years and now account for about 5 percent of Japan’s supply (Bloomberg Articles, 2016-2-8).Gradual market liberalization started in 2000, with the sale of large plants to large industrial users. In April 2016, Japan has liberalized its household and small business electricity market, which allows individuals to choose their preferred electricity provider. However, the major utilities still control the distribution grid, although approximately 200 firms are currently prepared to sell their electricity under a broad range of plans (Johnston, 2016). Opening up the sector to competition has created interest among companies willing to enter, as consumers have expressed their interest in switching providers. Japan is one of the world’s last industrialized nations to fully deregulate its electricity sector (EY, 2015). While Japan’s power industry has experienced some previous attempts at deregulation, Japan’s 10 main electric utilities still supply more than 90 per cent of the country’s electricity. The electricity market is thus dominated by regional monopolies (EY, 2015). The ten energy suppliers on Japanese energy market all have different amounts of foreign activity. These companies are Hokkaido, Tohoku Electric Power Co., Tokyo, Chubu, Hokuriku, Kansai, Chugoku, Shikoku, Kyushu and Okinawa. These are investor-owned, vertically integrated companies, each of which supplies customers with electric power on a retail basis in its service area (Asano, 2006). The country’s 127
20 million people are currently served by 10 abovementioned vertically integrated utilities, but an eleventh company is added to this research: J-Power, which also originates from Japan.
3.3 The Regional Nature of Japanese MNEs
While in the literature it has been assumed that most successful strategy for Asian firms is globalization, Collinson & Rugman (2007) discovered that the large Asian firms mostly operate on an intra-regional basis. Overall, the 75 largest MNEs in Asia in the world’s tot 500 had an average of 74.3 per cent of their sales in the home region, which is similar to multinationals from other legs of the triad (Collinson & Verbeke, 2008). The research from Collinson & Rugman also included 64 Japanese multinational enterprises. As the debate about globalization has focused on the regionalization of companies (Rugman & Verbeke 2004), it is useful to take the characteristics of Japanese multinationals into account, as multinational firms dominate Japan’s international trade (Kiyota & Urata, 2008).
Collinson and Rugman (2008) stated that Japanese MNEs have a strong intra-regional dimension for their activities. Delios & Beamish found in 2005, making use of the Rugman & Verbeke (2004) convention, that the expansion of Japanese multinationals takes place mainly in the Asian leg of the triad. This is in line with findings from European and North American MNEs, which also have most of sales and production in the home region (Rugman, 2005; Collinson & Rugman, 2007). Collinson & Rugman found (2005) that 58 out of 64 Japanese firms from the top 500 was home-region oriented, based on an upstream (asset, input, production) and downstream (sales) analysis of these companies. The explanation for the home-region orientation of Japanese firms, is these firms are tied to the regional and country-specific factors, the political, economic, social context and business infrastructures of Japan. The vast majority of Japanese multinationals has evolved to compete in the regional, Asian home market.
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3.4 Chapter Summary
This chapter focused on creating a baseline understanding of the Japanese energy market, in order to answer the second sub question: What are the characteristics of Japanese electric utilities companies? This is done by providing a historical overview of the market development, energy mix and in recent times, efforts of the Japanese government to transform the marketplace. These deregulations prove to be one of the key factors current Japanese EPC’s have to recon with, which combined with the high cost of imported energy, and decreasing power consumption pose serious threats to the (financial) performance of the 10 incumbent energy companies. Furthermore, Collinson & Rugmans findings regarding the intra-regional nature Japanese MNEs was discussed. In the next chapter a similar analysis, specifically regarding the eleven energy companies, will be executed.22
Chapter 4. Analysis
In this chapter, an in-depth analysis will be given on the eleven introduced Japanese electric utility companies. First, it briefly showcases the Japanese utility companies which were chosen for the in depth analysis and the measures used to select these companies. Furthermore, each utility company’s history, operating markets and energy portfolio will be described. This information will be gathered via company press releases and international news bulletins. Second, these large Japanese electric utilities will be analyzed in-depth, combined with information on their activities. When treating these companies, an analysis will be given, making use of the previous mentioned frameworks: Porter’s International Strategy Model (1990), The Rugman & Verbeke (2004) framework and the model by Osegowitsch & Sanmartino (2008). Additionally, the outcomes of these established models regarding the globalization of Japanese utilities will be set of against the information that can be found via the news based approach. At the end of this analysis, it will be possible to compare the outcomes of the theoretical frameworks against the actual actions of the Japanese utilities under investigation.4.1 Selection Method of Japanese Electric Utilities
The utility companies picked for this analysis were selected based on their role and size of operations in the Japanese energy market. Information regarding these energy companies was acquired by analyzing and recording qualitative and quantitative data from the most recent company publications such as annual reports, factsheets and public statements. Moreover, a search was done via Bloomberg Market and Dow Jones Factiva, to gain data and up to date information about the companies from international databases. A summary of the findings is given per company, showcasing their national and international operations, number of customers and generation capacity. Uncovering the data about these international activities proved to be a challenge, with no clear format in which the relevant data was presented in annual reports, and the fact that Japanese businesses often use joint ventures with differing amounts of ownership to start up new businesses in- and outside of Japan (Kogut & Singh, 1988). These partially owned entities are often partnerships with multiple domestic and foreign companies ranging from
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(inter)-national competitors, to financial institutions (Tokyo – Overseas Investment, 2015), requiring the exact percentage of financial ownership to uncover the actual amount of production capacity attributable to the company.
4.2 Overview of the Japanese Energy Companies
As mentioned before, in this chapter the 11 main electric utilities of Japan will be analyzed. These are the ten regional energy suppliers; Chubu EPC, Chugoku EPC, Hokkaido EPC, Kansai EPG, Kyushu EPC, Shikoku EPG, Tohoku EPG, Tokyo EPC, Hokuriku EPC, Okinawa EPC, and the supra nationally operating J-Power EPDC.4.2.1 Chubu Electric Power Company
Chubu EPC, founded in 1951, transmits, distributes, and sells electricity to the inhabitants and corporations in the Chubu region. The Company's service area includes Aichi, Gifu, Mie, Nagano, and part of Shizuoka Prefecture (Bloomberg Press Release, 2016-03-07). The company serves 16 million inhabitants (12.5% of the nation its population), with a mix of thermal (25.082 MW), hydroelectric (5.320 MW), nuclear (3.617 MW) and renewable energy (39 MW). Outside of Japan, Chubu operates 3.260 MW worth of power plants, spread across Asia, the Middle East and America. Contrary to the previous number, Chubu claims in its annual reports, that it holds approximately 18.785 MW worth of generation capacity outside of Japan. This however, is a gross number, not taking into account the actual stake the company has in the generation facilities, which all are joint ventures, co-owned by a long list of international (energy) companies. Based on this fact we can assume that Chubu owns on average, 17.3% of these energy production facilities that are part of a joint venture, which regrettably is not specified in any more detail.In April 2015 Chubu started a joint venture with TEPCO, called JERA. This new company is tasked with starting new upstream investment and fuel procurement projects, establishing and replacing thermal power plants in Japan, and implementing new overseas power generation projects. Furthermore, it will also integrate the existing fuel procurement and other fuel-related businesses and overseas power generation projects currently owned by Chubu and TEPCO. (Chubu, 2015 & Tokyo, 2015). Moreover, Chubu EPC is currently involved in a joint venture with
24 Chevron in an LNG production site in Australia. This Gorgon Project is a joint venture with the Australian subsidiaries of Chevron (47.3 percent), ExxonMobil (25 percent), Shell (25 percent), Osaka Gas (1.25 percent), Tokyo Gas (1 percent) and Chubu Electric Power (0.417 percent).
4.2.2 Chugoku Electric Power Company
Chugoku EPC delivers energy to the Chugoku region in Japan since its foundation in 1951. It has a production capacity of 11.995 MW (Thermal 7.801 MW, Hydroelectric 2.909 MW, Nuclear 1.280 MW and renewable energy 6 MW), to serve the 7.4 million inhabitants of Chugoku. The company is currently not operating any generation activities outside of Japan, however in collaboration with Polish energy firms PGE and TAURON, it is currently developing a new power station project using clean coal technology. (Chugoku, 2015 & Chugoku 2014). The fact that there are no current press releases on Chugoku, nor any publications, confirms that the company is currently not actively present outside of Japan.4.2.3 Hokkaido Electric Power Company
Hokkaido EPC was founded in 1951 and is currently producing, transmitting, distributing, and selling electricity in the Hokkaido region. Its electricity is generated from hydroelectric, thermal, geothermal, and nuclear power sources. Hokkaido serves 5.4 million inhabitants, which comes down to roughly 2.7 million households. The company operates 70 plants capable of generating 7,549 MW of power, which is a mix of thermal (4,213 MW), hydro (1,240 MW), nuclear (2,070 MW), geothermal (25 MW) and solar (1 MW) facilities. Furthermore, Hokkaido Electric Power builds and preserves electrical power facilities. Additionally, the Company sells electrical equipment. According to its own press releases, Hokkaido does not operate any facilities outside of Japan. (Hokkaido, 2014)4.2.4 J-Power Electric Power Development Company
J-Power EPDC is a nationwide wholesale supplier of hydroelectric and thermal power. The company was founded in 1952 to overcome power shortages after the Second World War, and has grown into a power generation and transmission business with trunk transmission lines that connect every domestic region, contributing to the stable supply of electric power in Japan. J-Power does not sell its power directly to consumers, instead the company vends its energy to the
25 ten regional utility companies to help them fulfill their local demand. It owns seven coal-fired power generation facilities with a total capacity of 8.374 MW, 58 hydroelectric power plants with a total capacity of 8.556 MW, and 19 wind farms throughout Japan with a total capacity of 381 MW. This makes it the biggest coal-fired power generator and second biggest renewable energy producer in the country. Outside of Japan it operates 4.649 MW worth of power generation businesses, and consultancy services in Europe, America, and other parts of Asia. (J-Power, 2014)
4.2.5 Kansai Electric Power Group
Kansai EPC is a utility company primarily focused on delivering power to Osaka and the surrounding Kansai area region. Kansai Electric also constructs and maintains electrical power facilities. The company was founded in 1951, and it currently serves 20 million inhabitants, or about 17% of Japan’s total population. It operates 12 thermal power plants producing 17.980 MW, 151 hydroelectric power plants generating 8.210 MW, three nuclear facilities providing 9.770 MW and two renewable plants outputting 11 MW. It also operates power generation plants outside of Japan in Australia and other parts of Asia, with a combined capacity of 1.569 MW. (Kansai, 2015). In the previous year, there were no press releases and publications available about other international activities or ambitions regarding Kansai EPC.
4.2.6 Kyushu Electric Power Company
Kyushu EPC was founded in 1951 to provide power for the Kyushu region including Fukuoka, Nagasaki, Kumamoto, Oita, Miyazaki, and Kagoshima. Kyushu Place is the island where numerous Japanese multinationals have their production plants, also known as Silicon Island. To power these industries and the 13.2 million inhabitants in its service area, Kyushu runs power 197 plants capable of generating 23.120 MW of energy. Moreover, the company differentiates power resources into liquefied natural gas, coal, nuclear, and geothermal energy. In 2005 this power company was the first regional utility company ever to deliver to an area outside of its home region in 2005. Finally, Kyushu also operates 7 oversea power plants including shared facilities with Kansai and TEPCO, and GDF Suez. Kyushu EPC has offices in the United States and Europe (Kyushu, 2015 & Kyushu, 2014).
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4.2.7 Shikoku Electric Power Group
Shikoku EPC was founded in 1951 with the purpose of supplying power the Shikoku region - which includes Kagawa, Kouchi, Tokushima, and the Ehime prefectures - with power. Currently it is part of the Yonden Group which operates in the integrated energy, telecommunications, and business support market. The company provides electric power for 3.8 million inhabitants with a total generating capacity of 6.967 MW. (1.146 MW hydropower, 3.797 thermal power, 2.022 nuclear and 2 MW solar). It currently owns three power plants overseas in Qatar and Oman with a total capacity of 243 MW. (Yonden, 2015). For power generation, Shikoku uses nuclear, thermal, internal combustion, and hydraulic energy sources.4.2.8 Tohoku Electric Power Group
Tohoku EPC was established in 1951 to provide for the electric power in the Tohoku region of Japan. Tohoku serves residential, commercial and industrial customers. The company operates a total of 49 facilities capable of producing 22.380 MW. 14.870 MW is produced using thermal generators, 3.640 MW via hydroelectric plants, 3.490 MW nuclear and 6 MW comes from renewable energy sources. It also uses coal and liquefied natural gas as power sources. Tohoku EPC currently has no operations outside of Japan, and no overseas projects planned for the foreseeable future. (Tohoku, 2014)
4.2.9 Tokyo Electric Power Company
Tokyo Electric Power Company (TEPCO) was established in 1951 to be the electric power supplier of the Tokyo metropolitan area. The company is one of the biggest energy producers in Japan, with a combined capacity of 66.057 MW, to serve the 27.2 million inhabitants of the area. Thermal generation makes up for the biggest part of their energy mix (43.555 MW), followed by nuclear (12.612 MW), hydroelectric (9.856 MW) and renewable (33 MW) energy. TEPCO recently started a joint venture with Chubu, called JERA, which as mentioned before will provide both companies with a greater cost competitiveness, according to Moody’s (2014). It also has the biggest international footprint of all the aforementioned Japanese energy companies, with joint venture power plants in Asia, Europa and America which are jointly capable of generating 17.087 MW of power. One of its biggest joint ventures is Eurus Energy, which generates 2.244 MW solely using27 renewable energy sources worldwide in Australia, Italy, Japan, Norway, South Korea, Spain, the United Kingdom, the United States and Uruguay. (Chubu, 2015 & Tokyo, 2015 & Tokyo, 2014). Currently, TEPCO has investments in power projects in countries including Taiwan, Thailand and Indonesia. The company is consulting on overseas projects, ranging from technical support to assisting with electricity savings. Most news regarding TEPCO involves its usage of nuclear power (Bloomberg Articles, 2016).
4.2.10 Hokuriku Electric Power Company
Hokuriku Electric Power Company was established in 1951, serving the 3 million residents of the Hokuriku region. The company operates 143 power plants, generating 8.068 MW of power with a mix of hydro (1,914 MW), thermal (4,400 MW), nuclear (1,746MW) and renewable energy (8 MW) sources. It does not have any power generating assets outside of Japan, and has no current plans for international expansion. (Hokuriku 2014 & Hokuriku 2015). In 2015, Hokuriku Electric Power Co. began the construction of an 8-megawatt wind power station in the western prefecture of Fukui, which confirms their regional mindset (Bloomberg Articles, 2015).4.2.11 Okinawa Electric Power Company
Okinawa EPC provides power to the Okinawa Prefecture, and island group in the south of Japan. It supplies electricity to both the main island and the surrounding islands. It operates 2,021 MW worth of power plants, 27 MW of which comes from renewable energy sources wind, solar and hydroelectric. Their main source is thermal power. Due to their geographic isolation, it is unable to take part in the electric power-sharing system which is operated by the other regional electric power utilities, making it the only independently operating utility company in Japan. Okinawa has no activities outside Japan, nor does it have any future overseas projects, according to the company statements. (Okinawa, 2014)4.3 Company Analysis based on Porter’s International Strategies
Based on the extensive analysis of the current business activities of the 11 aforementioned Japanese utility companies, Porter’s framework is applied to determine if these companies are mainly global or regional focused. As can be derived from the information on the companies, five of them (Chubu EPC, J-Power EPDC, Kyushu EPC, Shikoku EPC and Tokyo EPC) tend to pursue the
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International, export-based strategy, under which companies attempt mainly to gain benefits from their activities by focusing on a single or limited number of sites. Their production location is their home country only and if there are international operations, they will serve them from their home country. This would apply to Chugoku EPC, Okinawa EPC, Tohoku EPG, Hokkaido EPC and Hokuriku EPC. As these companies do not own plants abroad, the level of coordination between the plants remains low. Therefore, the pure global strategy is not possible. This is in line with the general focus of these companies to remain competitive in the home country and gain home-based economies of scale. Under this strategy, the international markets are only served incidentally.
The other utilities companies would best fit in the multi-domestic, country-centered strategy. The difference with the export-based strategy, is that in the country-centered strategy, activities are performed in every country where there is demand. In this strategy, companies engage primarily in local production for the local market. This will apply to Chubu EPC, J-Power EPDC, Kyushu, Shikoku, Tokyo EPC and Kansai EPG, as they serve the local, home markets in Japan, but also maintain plants outside of Japan. However, most of these Japanese utilities companies participate abroad for only a minor percentage in a joint venture. As the companies are engaging in projects and joint ventures abroad instead of stalling different production stages in different locations, the coordination of activities remains low. Instead, these activities require nationally responsive strategies.
4.4 Company Analysis based on Rugman & Verbeke (2004) and
Osegowitsch & Sammartino (2008)
The second analysis is done via the quantitative classification systems based on the company’s property distribution across regions. Due to the difficulty in comparing differing valuations of power generation facilities across countries, and volatility of currency exchange rates, it was decided to utilize generating capacity in Mega Watt as a common denominator for the comparison. These data were then converted into percentages, as required by the model of Rugman & Verbeke (2004) and Osegowitsch & Sammartino (2008). For an exact overview of the MW capacity belonging to the eleven energy companies, refer to appendix A.
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The results of the quantitative company analysis can be found in table 4.1. The classification systems of Rugman & Verbeke (2004) and Osegowitsch & Sammartino (2008) were used for defining the strategic orientation of the utility companies, and the thresholds displayed in figure 1 (Rugman & Verbeke) and figure 2 (Osegowitsch & Sammartino) of chapter 2 were used to classify the companies. The most interesting findings according to this analysis, are that all companies should be classified as home-regional oriented, except for Chubu in the two lowest thresholds of Osegowitsch & Sammartino (2008). This however is a false conclusion. Chubu owns on average 17.3% of these energy production facilities abroad, but accounted in their annual statements the full energy production capacity of the facilities that are part of a joint venture with others. Thus, the actual production capacity is displayed in the table as (corrected). Therefore, Chubu should be classified as home-regional oriented even at the lowest threshold level. Observing the classifications made in accordance to Rugman and Verbeke (2004), the strategic orientation of Choguku EPC, Hokkaido EPC, Hokuriku EPC, Okinawa EPC and Tohuku EPG are in line with the classification via Porter’s framework, which indicated that they are home-oriented. Table 4.1. Summary of strategic orientation of Japanese utility companies Percentage Generation Capacity Strategic Orientation
Company America Europe Asia Verbeke (2004) Rugman &
Osegowitsch & Sammartino (2008) 20% threshold Osegowitsch & Sammartino (2008) 15% threshold Osegowitsch & Sammartino (2008) 10% threshold Chubu EPC¹ (corrected) 17.2% (4.2%) 14.7% (3.6%) 68.1% (92.2%) Home-Regional (Home-Regional) Home-Regional (Home-Regional) Bi-Regional (Home-Regional) Global (Home-Regional) J-Power EPDC 6.4% 0.1% 93.5% Home-Regional Home-Regional Home-Regional Home-Regional
Kyushu EPC 2% 0% 98% Home-Regional Home-Regional Home-Regional Home-Regional Shikoku EPG 0% 3.4% 96.6% Home-Regional Home-Regional Home-Regional Home-Regional Tokyo EPC 0% 5.3% 94.7% Home-Regional Home-Regional Home-Regional Home-Regional Chugoku EPC² 0% 0% 100% Home-Regional Home-Regional Home-Regional Home-Regional Kansai EPG 0% 0% 100% Home-Regional Home-Regional Home-Regional Home-Regional Hokkaido EPC² 0% 0% 100% Home-Regional Home-Regional Home-Regional Home-Regional Hokuriku EPC² 0% 0% 100% Home-Regional Home-Regional Home-Regional Home-Regional Okinawa EPC² 0% 0% 100% Home-Regional Home-Regional Home-Regional Home-Regional Tohoku EPG² 0% 0% 100% Home-Regional Home-Regional Home-Regional Home-Regional
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4.5 Remarks
There are a few irregularities that need to be addressed. First, although TEPCO has the largest international footprint of all, it still is classified as Home-Regional by the model of Rugman & Verbeke, whereas Porter model would classify them as multi-domestic. This difference can be explained by the triad model that is used to describe the typology. Although they do in fact operate 17.087 MW worth of generation facilities outside of Japan, 12.643 MW of it is situated in other Asian countries, ergo, part of the home-region. Merely 5.3% of their total generation capacity ownership, is located outside of the Asian part of the triad. Secondly, because of this triad system, certain countries are lumped together even though they differ quite substantially compared to each other. This has had quite a big impact on the Rugman & Verbeke classification analysis, as for example the joint venture of TEPCO in Australia (producing 72 MW) was not directly visible. Therefore, TEPCO seems more regionally oriented than is the actual case. The same issue applies to Kansai which according to its own statements, operates plants in Australia (229 MW) and other parts of the Asian triad, with a combined capacity of 1.569 MW. Furthermore, during the search for company information, it became apparent that five of the eleven mentioned Japanese utilities companies had a limited liability companies registered in the Netherlands. These are Chubu, J-Power, TEPCO, Chugoku and Tohoku, and all have an office located at Herikerbergweg in Amsterdam. This turns out to be an office building specifically used for tax purposes, housing so called shelf companies, which allows corporations to leverage the lenient tax laws of the Netherlands. None of these Japanese power companies have any energy producing activities in the Netherlands, and state to use these solely for “Investment in overseas businesses”.As mentioned before, energy usage in Japan is decreasing due to shrinkage of the population. Moreover, since the deregulation in April 2016, new entrants started cutting into electricity sold by the regional utilities. According to their business plans, these electric utilities are trying to achieve sustainable development by diversifying into non-electric business fields. TEPCO, Chubu Electric Power Company, and Kyushu Electric Power Company have mentioned such goals to improve enterprise value and achieve growth even under the current deregulation.
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According to the analysis of the companies, TEPCO is offering technical support and electricity savings abroad and Kyushu has offices located in the US and the EU. Moreover, Shikoku has engaged in telecommunications and business support and Hokkaido EPC additionally sells equipment used in the production and transmission of power. It could be the case however, that international expansion has been the solution that the Japanese energy companies developed to overcome the issue of the declining domestic energy market all along. Chang (1995) analyzed the behavior of Japanese manufacturing companies entering the United Stated market during the period between 1976 and 1989, and uncovered a novel market entry strategy that the author dubbed Sequential Entry. These firms would first enter the market with a small venture, with their core business being the competitive advantage they had held elsewhere. This was done both to minimize the risk and financial cost of failure, and proved to be a valuable learning experience providing insight into the foreign marketplace. Once these endeavors proved to be successful, business was expanded and new ventures where launched into noncore businesses where weaker competitive advantages were held. (Chang, 1995). It may very well be that the joint ventures and other newly developed international activities mentioned earlier on in this chapter are the first phase of Changs (1995) sequential market entry process, which will be followed up with a period of rapid expansion.
4.6 Chapter Summary
In this chapter, the third sub question has been answered: How can the operations of Japanese utilities be classified in terms of sales distribution? First, detailed information was given about the activities of the ten largest Japanese utility providers: Chubu EPC, Chugoku EPC, Hokkaido EPC, Kansai EPG, Kyushu EPC, Shikoku EPG, Tohoku EPG, Tokyo EPC, Hokuriku EPC, Okinawa EPC, and the supra nationally operating J-Power EPDC. Second, the companies are tested with the framework of Porter (1987) to identify the strategic orientation of the Japanese utilities. The outcome of Porter’s framework was that five of the companies tend to pursue the International, export-based strategy, while the other utilities companies would best fit in the multi-domestic, country-centered strategy. When tested with the threshold approach of Rugman & Verbeke(2004) and Osegowitsch & Sammartino (2008), all companies should be classified as home- 32 regional oriented, except for Chubu in the two lowest thresholds of Osegowitsch & Sammartino (2008). However, based on their actual energy production abroad, Chubu should be classified as home-regional oriented even at the lowest threshold level. The results from the thresholds were in line with the findings based on Porter’s international strategies framework. In the light of the recent developments in the Japanese utilities sector, an important remark is that, due to shrinking energy consumption and the treat of new entrants after deregulation, electric utilities are trying to achieve sustainable development by diversifying into non-electric business fields.
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Chapter 5. Conclusion
This thesis started out with the main research question to find out to what extent Japanese electric utilities companies adopt global strategies. The main question was answered by the use of three sub questions. The first sub question considered what the different competitive strategies or models are that companies could apply in shaping their activities abroad. The selected models for this thesis are the framework of Porter (1987) on international strategies, the threshold approach by Rugman & Verbeke (2004) and their revised model of Osegowitsch & Sanmartino (2008), who applied other thresholds to categorize the international orientation of companies.
The second sub question described the characteristics of Japanese electric utilities companies to identify the development of the energy sector in Japan. This is useful as the Japanese plans for nuclear energy and the recent deregulation of the energy sector make Japan a distinct country with regards to their energy generation. The specifics of the Japanese market have been taken into account while performing the analysis. The utility companies picked for this analysis were selected based on their role and size of operations in the Japanese energy market: Chubu EPC, Chugoku EPC, Hokkaido EPC, Kansai EPG, Kyushu EPC, Shikoku EPG, Tohoku EPG, Tokyo EPC, Hokuriku EPC, Okinawa EPC, and the supra nationally operating J-Power EPDC. This analysis, based on the third sub question: How can the operations of Japanese utilities
be classified in terms of sales distribution, was first done by making use of the framework of
Porter, whose international strategies are determined upon the level of coordination and configuration of activities in a company. According to the framework by Porter, all Japanese utilities that were researched upon proved to be primarily home-country orientated, with some of them only focusing on the local markets (called ‘international’) and some of them with projects abroad that are domestic coordinated, often as a small part of a joint venture (‘multi-domestic’). The information to categorize the Japanese utilities was gathered from press releases, company websites, news platforms and annual reports. Second, the framework of Rugman & Verbeke was used, which tries to classify the regional orientation of MNEs in four groups based on their distribution of power generation capacity across regions. The regions used are the three legs of
34 the Triad: Europe, the United States and Asia, which includes Australia. The main difference from the four categories stated by Porter, is that to classify for a certain category, both Rugman & Verbeke and Osegowitsch & Sanmartino use percentages. Therefore, both methods of classifying the Japanese utilities with thresholds are used for the analysis. Rugman & Verbeke and Osegowitsch & Sanmartino both applied different percentages to qualify companies as home-region oriented, but even with these lower thresholds, all Japanese utilities elaborated on in this paper should qualify as home-region focused. This is in line with the findings from the model on international strategies by Porter. With this information, the main question can be answered: To what extent do Japanese electric utilities companies adopt global strategies? As it turns out, none of them truly adopts a global strategy. Therefore, it can be said that Japanese utilities often present in news items that they are operating on a global scale or are undertaking global projects, which is not fully true. One clear example is the statement given by Chubu on its share in joint ventures abroad. The majority of their activity takes place in only one part of the triad and very often even only in Japan. These findings should be placed in the light of the current phase of deregulation and the regional nature of Japanese companies. As the domestic market underwent a process of deregulation since April 1st 2016, and more players are willing to enter the market for energy, Japanese energy companies have to start and look elsewhere to increase or even maintain their current profits. Researchers have stated that the nature of Japanese companies is to start investing small amounts or start working on small projects abroad before fully executing a global strategy. The current news items on Japanese utilities could be supportive for this stance, as in the previous years the only news items released were items on minor joint ventures abroad or collaborations with foreign companies. The current phase of deregulation in combination with the small increases in international activity could indicate that in the future, Japanese utilities may be operating truly on a more international scale. Moreover, energy demand is declining due to the shrinking population and dependence on imported fossil fuels, prices of which are volatile in nature, pose a threat to the profitability as well. Therefore, companies might want to diversify their portfolio of activities with non-electric
35 businesses, which is visible at the Japanese companies as well: some of them are undertaking telecommunication projects or deliver expertise in the form of consultancy services. Also, going abroad is one of these potential places to look at, and can certainly be of value added to these power companies.
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Chapter 6. Discussion, Limitations & Managerial Implications
In this section of the thesis, first some points for discussion will be given. Second, the limitations of this research will be shown and third, the managerial implications of this work will be elaborated on.
Discussion
One of the main points of discussion should be that the focus of Rugman & Verbeke and Osegowitsch & Sanmartino may have colored the presence of Japanese utilities unfavorably in a more regional way. For example, one of the latest news annunciations was the joint venture of Chubu in Australia. This is definitely a step towards becoming internationally active, but under the applied thresholds, Australia will not be visible as it belongs to the Asian part of the Triad, which is the home region of Japanese MNEs. Therefore, also a company such as TEPCO seems more regional by orientation than is the actual case. The percentages used to set up the thresholds could be a point of discussion for further research. Also, Kansai, according to its own statements, operates plants outside of Japan in Australia and other parts of Asia, with a combined capacity of 1.569 MW. This is rather large, but also in this case the presence in Australia will be seen as a regional activity.
Companies nevertheless are showcasing their international presence in for example Australia all over their websites, annual reports and company statements. However, according to established research, being globally active mostly means being active in one leg of the triad. Companies should thus refer to the same definitions of global/local.
Additionally, in this thesis, globalization was set of against the regional nature of a Japanese electric company. However, many scholars suggest that globalization and regionalization cannot be assessed in isolation, independently from one another. Globalization and regionalization should be captured and studied as forces relative to and overlapping one another.
