Realizing High Profits in Dedicated Oil Refining Companies

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Other Title
  • 石油精製専業企業の高収益実現
  • 石油精製専業企業の高収益実現 : 中原延平時代の東燃を事例として(1951年~1975年)
  • セキユ セイセイ センギョウ キギョウ ノ コウシュウエキ ジツゲン : ナカハラ エンペイ ジダイ ノ トウネン オ ジレイ ト シテ(1951ネン~1975ネン)
  • The Case of Tonen in the Nobuhei Nakahara Age (1951-1975)
  • ―中原延平時代の東燃を事例として（1951年～1975年）―

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Abstract

<p>This paper discusses the mechanisms used by Tonen (currently TonenGeneral Sekiyu K.K.) to realize higher profits in Japan's oil industry, which is generally considered to have low profitability, as Tonen has achieved exceptionally high profits over the long term. The paper questions the common notion that the absence of vertically integrated companies causes low profitability in Japan's oil industry, and examines how Tonen, a vertically separated company and dedicated oil refiner, managed to achieve exceptionally high profits.</p><p>For the analysis, the authors rely on Daniel C. Hamilton's criteria for dedicated oil refiners to have competitive advantage, which also take into account the Gulf of Mexico situation: 1) the existence of conditions enabling new market entry, 2) relationship between stable costs and prices, 3) high operating rate, and 4) advancement of distinctive technology through concentrated resource investment.</p><p>Tonen was established in 1939 and was already a powerful oil company by 1949, when the post-war business structure was decided through an overseas alliance. Thus, the conditions for 1) were already met. Regarding 2), the refining cost in overseas refineries was the benchmark for a unique product sales price pact that provided an incentive to reduce costs. For 3), under Nobuhei Nakahara, Tonen achieved a high operating rate in production between the late 1950s and the 1960s by quashing intentions to convert product into white oil (gasoline, kerosene, etc.) and shifting to heavy oil.</p><p>This paper contributes to research by improving the standard of analyzing Tonen’s management. It also shows that, despite the notion emphasizing the superiority of integrated vertical management in the oil industry, a dedicated oil refiner with a vertically separated structure can also realize high profits by meeting certain criteria. Today, in the global oil industry, dedicated refiners such as the American company Valero Energy Corporation are noted for their strong performance. The analysis undertaken in this paper may be useful in the future analysis of dedicated oil refiners' management.</p>

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