Tronics PEST and Porters five forces

1. General information
In the exam: choose either PEST or PORTERs five forces; an answer booklet and a
fresh printed Tronics case will be provided (just bring yourself, pens, and big
GRINS^^)
Structure: essay (3 parts)
o Introduction
Pest (p,e,s,t) analysis is a strategic tool to assess macro-environment
(refer to Panahs slide and cite him; (Panah, 2016)
Tronics and oil industry introduction in around 1 or 2 sentences
(Products: MEMS components;
competitors MEMS producers; substitutes: not really have
Industry: oil exploration industry)
Intention of the essay: to apply PEST/Porters in the Tronics case
o Body
o Conclusion
Pest: which is the most significant pest factor influence on risk, cost
and benefits?
Porters: how attractiveness of the industry

Numbers of the words: (advice: from 500 600- 700 and 800 words; maybe not over
1000 ) enough and relevant information, examples
Process of developing essay: theory > applying to the case
o Example: Recession influences on the companies in terms of revenues.
When recession, demand reduces. During the recession in 2009, oil industry
dropped 12%; Vibtech 13%.
MEMS product in oil exploration industry and competing with MEMS producers
2. PEST analysis
Introduction about PEST analysis.
PEST analysis (political, economic, social and technological). Changes in the macroenvironment (measured by PEST) can impact on the industry environment (measured by
Porters five forces), thereby influencing the internal environment of organisations
(resources and capabilities) (Panah, 2016).
The essay will examine each macro-environment factor influences on the industry
environment (oil prospection industry) and then MEMS firms like Tronics in terms of the
costs, risks and benefits of doing business nationally or internationally.
(FOCUS on the market)

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International Management course

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2.1. Political Factors

Political factors include areas such as tax policy, environmental law, labour law, trade
restriction, tariffs, and political stability (Panah, 2016). Political factors are significant in oil
industry in terms of risk.
Political factor is significant because:
The impact of OPEC on the production and price of oil: OPEC nations are the major
producer of world's crude oil. Any decision taken by OPEC nations (such as Iran, Iraq,
etc) to increase or decrease production of crude oil impacts the price level of crude
oil in international commodity markets > risk
Political instability:
o Most sources of oil are located in Middle East countries who have political
instability, legal instability and corruption. Hence, it increases the risk/cost
for oil firms.
o Unstable politics also can cause stricter regulations in terms of where, how,
and when exploration is done. The governments in the countries strengthen
their regulations related to water oil exploration and exploitation which
increases time consuming causing raising the cost for firms investing in this
industry.
License:
o Companies specialized in oil prospection have to be granted an exploration
license (concession agreements, production sharing contracts, service
contracts and join-ventures) . Hence, it increase the cost/risk for oil
exploration firms.
2.2. Economic Factors
Economic factors include economic growth, interest rates, exchange rates, & inflation rate.
These factors have major impacts on how businesses operate & make decisions.
Because of the supplier-customer interdependence characterizing the relationship between
the oil industry and the oil service industry like MEMS industry in this case, the two have
every similarity in their economic patterns.
Recession
o Recession is one of the important determinants. Recession can cause a drop
in demand of oil.
o As the case study mentioned, due to the world recession so the oil demand
dropped, oil industry suffered a 12% drop in turnover. Vibtech, a shareholder
of Tronics, the market leader in oil exploration industry, experienced a 30%
drop in activity during the recession.

Economic growth
o Oil products are the most necessitated commodity
o Moreover, the market is expected to be healthy with an increase in the
demand, particularly in developing countries, even though recession is still
affecting developed countries. As the data in the case study, the global

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MEMS components market is predicted to reach 21 Billion in 2017, the unit

compound annual growth rate increased 17.4% from 2008 to 2013, and the
revenue compound annual growth rate increased by 6,5%.
Conclusion: quite/relatively significant
1.3. Social Factors
Environmental and social aspect: a strong opinion on sustainability of resources or
green issues.
o The negative effect of oil exploration such as various oil spills led the
governments to strengthen their regulations related to deep-water oil
exploration, which has made oil exploration more time consuming and
therefore more costly.
Renewable energy trends (gas, solar, etc): a trend towards alternative solutions to
oil such as coal-25%, gas-20%, renewable energy (hydropower, 13%; nuclear -7%).
o The potential competitive substitutes receive political and financial from many
government that can cause a drop in demand of oil
2.3. Technological Factors
Technological factors include technological aspects such as R&D activity, automation,
technology incentives and the rate of technological change. Technological factors can
determine barriers to entry, minimum efficient production level & influence outsourcing
decisions . Furthermore, technological shifts can affect costs, quality, & lead to innovation
(Panah, 2016).
There are different technological that oil firms depend on when they operate in a
new market that increases the cost of investment.
o They need to acquire the last technologies (by buying equipment),
techniques and methods (hiring high skilled engineers who work under
pressure of high quality products requirements and deadlines of clients).
o Different technologies are used in different stage of oil production, from
analyzing potential drilling sites, acquiring land rights to develop new sites,
drilling and extraction, pipeline construction, project operation and
maintenance, and standardizing organizational procedures.
o Moreover, technologies and techniques should be used to ensure
environment protection, worker's protection, in improving the efficiency of
the management. To acquire these technologies, it is really costly for oil
organizations.
The complementary products and substitutable products:
o The complementary products influence the demand for oil by developing
technologies that will reduce the consumption of oil products or replaced
them with other a substitutable product.
o The substitutable products are represented by-products of the rest of energy
industries: coal coal-25%, gas-20%, renewable energy (hydropower, 13%;
nuclear -7%). It seems it will be a threat in the long term
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Innovation and technological advancements are being introduced at each stage of

oil production that allow oil firms to reduce cost and risk. Moreover, few companies
in the world operate in the niche oil service market like Tronics, which is protected
by high entry barriers.
Technology force is likely seems to be a major driver of change in the global energy
market.
Conclusion: political is significantly risk and technology factors is highly significant in terms
of cost and helping firms to gain competitive advantage, economic factors quite significant
but providing quite promising future for oil companies
3. Porters five forces
3.1. Competition rivalry: HIGH
The strength of competition in the industry is HIGH because:
Concentration ratio > market share : high
o 3 main competitors (mems producers): STMicroelectronics , HP, Colibrys
STMicroelectronics: Market..
HP: leader of.
Colibrys:
These 3 big competitors compete over DESIGN and manufacturing of memes products.
The MEMS foundary business has been concentrated market since 5 companies (Sony, Sile,
Microsystems, Balsa, and Asia pacific microsystem) market share of 64.8%, the top 10 hold
80.9% and the top 20 hold 96.7% of the market share.
Tronics focuses on niche market and have product differentiation (in page 2, for
example: Tronics is the first provider of custom silicon on insulator (SOI) > Tronics
has competitive advantage
3.2. Threat of entry: LOW
How much of a threat new entrants may pose: LOW
Capital requirements: high especially in term of R&D
Knowledge requirement: specialization (need people from different fields such as
engineers; . etc. coming from different areas vacuum, research centres, etc)
(80% knowledge is tactic knowledge; only 20% existing explicit knowledge) ;
Patent: current companies have patent; new entrants need to have its own patent
3.3. Threat of substitutes: (MODERATE)
How much possibility of customers to switch to alternatives: MODERATE
For MEMES products (no): Substitute of mems sensors especially oil industry exploration;
For Oil industry: (coal-25%, gas-20%, renewable energy (hydropower, 13%; nuclear -7%)
3.4. Buyer power (market outputs): moderate
The power of your customers to drive down MEMS products prices is moderate because
Price sensitivity: oil companies seem to have only one choice MEMS products for
exploring oil
Buyers competition: high competition in oil industries > they depending on MEMS
products to gain the competitive advantage. Even though there are a lot of MEMS
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producers, Tronics has the advantage focusing on the niche market and having
product differentiation
> Buyers (oil companies) have moderate power of bargain; except for the
stakeholder Vibtech has higher barging power
3.5. Supplier power (market inputs): Moderate
Supplier switching costs relative to firm switching costs: moderate
Suppliers (including vacuum pumps, ceramic packing vacuum pumps, etc) have
dependence on:
- R&D research centers
- Universities
(Example: Research centres in Grenoble, France, Switzerland, Germany,
Japan, etc
New suppliers: French firm to assemble and package chemical vacuum pump)
- Other institutions
- Government support
However, suppliers have different choices between research centres, universities,
etc.
Value chain sharing so MEMS firms and suppliers have strong link especially
knowledge aspects as well as process of MEMS production
Conclusion: (MODERATE ATTRATIVENESS) risky but rewarding to invest

Jen (vu huong)

International Management course

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