EclecticLip

A couple days ago, I came across two articles about Nippon Oil’s plans to JV their way into solar power and fuel cells production, respectively.  Both projects are with Sanyo (recently taken over by Panasonic, the new official name of Japanese behemoth Matsushita Electric).

This struck me as inspirational, because Nippon Oil is Japan’s largest oil company!  Its core competency, or comparative advantage, is fossil fuels and petrochemicals.  But instead of choosing to fight a bruising, unethical, long rear-guard action to deny global warming or defend its old ways…  management has decided the company needs to evolve.
It’s reminiscient of the decision by pulp-mill / tire-maker Nokia to get into telecommunications.  I’m sure there were doubters — especially since their telco division took seventeen years to turn a profit.  But was it worth it in the end?  I’m sure every Nokia shareholder would now vote “yes”.

First, the question must be asked, whether this is a greenwashing campaign.  Through its CSR reports, Nippon Oil says it wants to reduce its emissions by 20% from 1990 levels, by 2010.  Which is commendable.  I suspect these kinds of aspirational goals led them into the joint ventures, through dialogues such as this:

Q1.  how can we reduce emissions but grow business?

A1.  only by providing low-pollution energy.

Q2.  how can we provide low-pollution services, when we’re a fossil fuels company?

A2.  (after a bit of outside the box thinking)  Provide clean energy services, such as solar or fuel cells.

Q3.  how can we compete in these fields when we have zero experience with them?

A3.  JV with tech companies; they can leverage their manufacturing experience while we leverage our consumer service network.

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Next, the initiatives are meaningful; they aren’t small novelty projects.  Nippon Oil wants to have an annual capacity of solar panels of 1 GW in seven years.  That’s more than capacity than Q-Cells, the world’s largest photovoltaic panel maker, had as of Q3 2008 (600 MW). Nippon Oil would still be a small player in the global market though, as solar PV’s are projected to grow about 40% per year until 2020.  [source: a McKinsey paper I read, I’ll try to get the link eventually]
For some context, the solar PV market was about 2.8 GW in 2008, with projections of roughly 40 GW for 2016.  This kind of scale-up is plausible, as the cost of solar reaches grid parity in more and more areas.

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As for fuel cells, sales of 10,000 units in 2010 would put Nippon Oil among the world’s largest manufacturers of fuel cells.  Their main competitors in this category would be… other Japanese companies participating in their government’s residential fuel cell cogeneration programs. (BC fuel cell maker Ballard Power Systems is among their number, having JV’d with Japanese company Ebara in this program)

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Some general concluding thoughts, then:

Nippon Oil’s choice of conscious reinvention demonstrates (again) the steady-state fallacy of the theory of comparative advantage.  In theory, they should stick to their knitting — like Exxon, Chevron and so forth.

By engaging constructively in environmental issues, Nippon Oil seems to have concluded it must metamorphose — a decision which has led them to invest in two technology platforms (solar and fuel cells) with high growth potential.  While their core business (oil) won’t go away any time soon, they’ve adroitly positioned themselves for growth.

Which is to say, they’re following the Nokia path.