ASSIGNMENT #5: Analysis on the Level of Competitive Intensity of Electricity Supply Business in Malaysia Presented by Group 5

Conduct an analysis on the level of competitive intensity of electricity supply business in Malaysia, with specific reference to TNB, using the Porter s five forces model
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Outline
Who is TNB? What is Porter s Approach to Industry Analysis? Threat of New Entrants Industry Competitors Threat of Substitutions Bargaining Power of Buyers Bargaining Power of Suppliers Other Stakeholders Conclusion Verdict

Who is TNB?
Tenaga Nasional Berhad largest electricity utility company in Malaysia established 1949 (previously known as LLN) Core businesses are generating, transmitting and distributing the electricity in Peninsular Malaysia Through its subsidiaries, TNB has also extended its arm into the manufacturing of power related equipment, consultancy services, repair & maintenance, research & development, training and education Current workforce of about 30,000 people and almost 74.1 billion in asset.

Porter s Approach to Industry Analysis

Framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979 With this tool, an industry can identify its strength and strategy, Potential thus, assisting them to create their Entrants business strategy.
Other stakeholders Industry Rivalry Buyers

4 Suppliers Substitutes

Threat of New Entrants

Government Decision Government permits a monopoly but regulates the industry TNB - major electricity supplier in Peninsular of Malaysia High Capital Investment New player in the industry will need a high capital investment in this business TNB covers the end-to-end service in power supply industry Customer Loyalty With TNB s more than 60 years of experience in utility industry, it has gained the trust & loyalty from it customers in electricity supply

Industry Competitors
Who are TNB s Competitors? Generation - Independent Power Producers e.g. YTL, Genting Sanyen, Segari, Powertek, PD Power, Tg. Bin Power Distribution Petronas Gas (Kerteh), Nur Distribution (Kulim HiTech), Fusion Energy (Kuala Langat) TNB will have to increase their efficiency in conducting their business to ensure their sustainability in the business Low operational cost Increase the capacity of the power supply Operating High exit barriers cost Once the company has already enter the utility business, the capitals invested on the assets are very high & specialised in - Increase the utility business
efficiency - Increase capacity

Threat of Substitutes
There will be no substitution for electricity However, the challenge that TNB is currently facing are:

Gas curtailment Shortage of gas supply from Petronas to TNB for power generation Hike in coal price Recent flood in Australia, affecting the coal price and supply
TNB will have to source for other fuel types to ensure the its business continuity and ability to fulfill the demand TNB has already embarked on different sources for power generation: Renewable energy Biomass Nuclear currently undergoing extensive research

Bargaining Power of Buyers

TNB buyers = electricity consumers Residential Consumers Business Consumers commercial & industrial Have no other choice but to consume from TNB Business Customers Has the potential to produce the product by themselves e.g. Power co-generators in Malaysia produce electricity for their own consumption
Company Petronas Penapisan Sime Darby Plantation Shell Refining Company Area Melaka Teluk Intan Port Dickson Types of fuel Natural gas Agricultural waste Waste gas from industrial process 8

Residential consumers Demand for transparency in electricity cost and efficient services from TNB

Bargaining Power of Suppliers

Suppliers can affect TNB through their ability to raise prices or reduce the quality of the purchased goods and services Among TNB s major suppliers are: Petronas Natural gas & LNG (Liquefied Natural Gas) Coal suppliers from Indonesia, Australia & South Africa Original equipment manufacturer (OEM) for various engineering equipment in TNB TNB s is dependant on certain suppliers for materials/items/services. Therefore, its important to establish a good relationship or strategic partnership with the identified suppliers e.g. Agreement signed with Petronas on the gas supply Strategic Sourcing agreements with OEM for price-lock on items e.g. PC, laptops

Other Stakeholders
Non-Govermental Organisation (NGOs) Bakun Hydro project didn t turn out well due to the objection from the environmentalist TNB has to manage the expectations of these parties in their development project e.g. power plant construction Local Communities TNB s development initiatives are rejected by the local communities due to their concerns on the effect of the project Some are also embracing the initiatives done since it will bring development to their community (e.g. Orang Asli) Government Outline the acts that TNB needs to comply e.g. Electricity Supply Act. The government may collaborate with TNB on certain initiatives

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Conclusion
Level of competitive intensity of TNB in Malaysia
Threat of New Entrants

Favorable to TNB due to barriers to entry TNB dominates market. Weak competition from competitors Currently and forecast for coming years none exist Weak customers. Diverse market and rising demand Powerful suppliers raises cost and decrease TNB s profit

Industry Competitors

Threat of Substitutions

Bargaining Power of Buyers

Bargaining Power of Suppliers

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Other Stakeholders

High interest and high power key player in TNB s decisions

Verdict

Using Porter s 5 forces model, TNB is very much competitive in electricity supply business in Malaysia due to the fact that most of the forces are favorable to TNB.

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THANK YOU