Introduction

Origin (O) is an Australia Energy Company listed on Australian Stock Exchange (ASX). Origin is
Headquartered (HQ) in Sydney Australia. Motivated by the possibility of reducing their overall costs
– mostly overhead and the desire to be in close proximity to the one of the largest markets in China,
Origin has decided to relocate their HQ and manage and control all their operations from Hong Kong.
However, Origin is worried about the latest developments in Hong Kong and therefore requires advice
on the strategic issues in the potential host and appropriate recommendation on what to consider and
how to effectively relocate. You are therefore asked to provide Origin such key and crucial advice

This study examines the Macro and Micro environment analysis of Chinese energy industry in which
Origin Energy is planning to launch its business operations. For evaluating the micro and macro
environment, PESTEL analysis and Porter Five Forces Model along with VRIO Analysis has been
applied. This study ends with the conclusion which summarizes the major points of this study along
with recommendations.

Identification, description and analysis of critical strategic issues

Origin MACRO-Environment Analysis

Political Factor

Political factors play a significant role in determining the factors that can impact Origin
Energy Limited's long term profitability in a certain country or market. Origin Energy Limited
is operating in Energy in more than dozen countries and exposes itself to different types of
political environment and political system risks. The achieve success in such a dynamic
Energy industry across various countries is to diversify the systematic risks of political
environment. Origin Energy Limited can closely analyze the following factors before entering
or investing in a certain market-

 Political stability and importance of Energy sector in the country's economy.

 Risk of military invasion
 Level of corruption - especially levels of regulation in Energy sector.
 Bureaucracy and interference in Energy industry by government.
 Legal framework for contract enforcement
 Intellectual property protection
 Trade regulations & tariffs related to Energy
 Favoured trading partners
 Anti-trust laws related to Energy
 Pricing regulations – Are there any pricing regulatory mechanism for Energy
 Taxation - tax rates and incentives
 Wage legislation - minimum wage and overtime
 Work week regulations in Energy
 Mandatory employee benefits
 Industrial safety regulations in the Energy sector.
 Product labelling and other requirements in Energy

Economic Factor

The Macro environment factors such as – inflation rate, savings rate, interest
rate, foreign exchange rate and economic cycle determine the aggregate demand
 and aggregate investment in an economy. While micro environment factors such
as competition norms impact the competitive advantage of the firm. Origin Energy
Limited can use country’s economic factor such as growth rate, inflation &
industry’s economic indicators such as Energy industry growth rate, consumer
spending etc to forecast the growth trajectory of not only --sector name-- sector
but also that of the organization. Economic factors that Origin Energy Limited
should consider while conducting PESTEL analysis are -

 Type of economic system in countries of operation – what type of

economic system there is and how stable it is.
 Government intervention in the free market and related Energy
 Exchange rates & stability of host country currency.
 Efficiency of financial markets – Does Origin Energy Limited needs to raise
capital in local market?
 Infrastructure quality in Energy industry
 Comparative advantages of host country and Energy sector in the
particular country.  
 Skill level of workforce in Energy industry.
 Education level in the economy
 Labour costs and productivity in the economy
 Business cycle stage (e.g. prosperity, recession, recovery)
 Economic growth rate
 Discretionary income
 Unemployment rate
 Inflation rate
 Interest rates

Social Factor

Society’s culture and way of doing things impact the culture of an organization in
an environment. Shared beliefs and attitudes of the population play a great role in
how marketers at Origin Energy Limited will understand the customers of a given
market and how they design the marketing message for Energy industry
consumers. Social factors that leadership of Origin Energy Limited should
analyze for PESTEL analysis are -  

 Demographics and skill level of the population

 Class structure, hierarchy and power structure in the society.
 Education level as well as education standard in the Origin Energy Limited
’s industry
 Culture (gender roles, social conventions etc.)
 Entrepreneurial spirit and broader nature of the society. Some societies
encourage entrepreneurship while some don’t.
 Attitudes (health, environmental consciousness, etc.)
 Leisure interests
 Technological Factor

Technology is fast disrupting various industries across the board. Transportation

industry is a good case to illustrate this point. Over the last 5 years the industry
has been transforming really fast, not even giving chance to the established
players to cope with the changes. Taxi industry is now dominated by players like
Umber and Lyft. Car industry is fast moving toward automation led by technology
firm such as Google & manufacturing is disrupted by Tesla, which has stated an
electronic car revolution.

A firm should not only do technological analysis of the industry but also the speed
at which technology disrupts that industry. Slow speed will give more time while
fast speed of technological disruption may give a firm little time to cope and be
profitable. Technology analysis involves understanding the following impacts -

 Recent technological developments by Origin Energy Limited competitors

 Technology's impact on product offering
 Impact on cost structure in Energy industry
 Impact on value chain structure in Energy sector
 Rate of technological diffusion

Environmetanl factor

Different markets have different norms or environmental standards which can

impact the profitability of an organization in those markets. Even within a country
often states can have different environmental laws and liability laws. For example
in United States – Texas and Florida have different liability clauses in case of
mishaps or environmental disaster. Similarly a lot of European countries give
healthy tax breaks to companies that operate in the renewable sector.

Before entering new markets or starting a new business in existing market the
firm should carefully evaluate the environmental standards that are required to
operate in those markets. Some of the environmental factors that a firm should
consider beforehand are -

 Weather
 Climate change
 Laws regulating environment pollution
 Air and water pollution regulations in Energy industry
 Recycling
 Waste management in Energy sector
 Attitudes toward “green” or ecological products
 Endangered species
 Attitudes toward and support for renewable energy
 Legal Factor

In number of countries, the legal framework and institutions are not robust
enough to protect the intellectual property rights of an organization. A firm should
carefully evaluate before entering such markets as it can lead to theft of
organization’s secret sauce thus the overall competitive edge. Some of the legal
factors that Origin Energy Limited leadership should consider while entering a
new market are -

 Anti-trust law in Energy industry and overall in the country.

 Discrimination law
 Copyright, patents / Intellectual property law
 Consumer protection and e-commerce
 Employment law
 Health and safety law
 Data Protection

Industry Analysis

In order to evaluate the industry analysis of Host country for the potential launch of Origin in China,
Porter Five Forces Model has been implemented to assess the industrial factors.

Porter Five Forces

In his revolutionary article in Harvard Business Review (HBR) - "Five Forces that
Shape Strategy", Michael Porter observed the five forces that have significant
impact on a firm's profitability in the industry it operates in. The Porter Five (5)
Forces are -
 Threat of New Entrants
 Bargaining Power of Suppliers
 Bargaining Power of Buyers
 Threat from Substitute Products
 Rivalry among the existing players.
Origin Energy Limited Porter Five (5) Forces
Analysis for Energy Industry
Threats of New Entrants
New entrants in Energy brings innovation, new ways of doing things and put
pressure on Origin Energy Limited through lower pricing strategy, reducing 
costs, and providing new value propositions to the customers. Origin Energy
Limited has to manage all these challenges and build effective barriers to
safeguard its competitive edge.

 The economies of scale is fairly difficult to achieve in the industry in which Origin Energy
Limited operates. This makes it easier for those producing large capacitates to have a cost
advantage. It also makes production costlier for new entrants. This makes the threats of new
entrants a weaker force.
 The product differentiation is strong within the industry, where firms in the industry sell
differentiated products rather a standardised product. Customers also look for differentiated
products. There is a strong emphasis on advertising and customer services as well. All of
these factors make the threat of new entrants a weak force within this industry.
 The capital requirements within the industry are high, therefore, making it difficult for new
entrants to set up businesses as high expenditures need to be incurred. Capital expenditure
is also high because of high Research and Development costs. All of these factors make the
threat of new entrants a weaker force within this industry.
 The access to distribution networks is easy for new entrants, which can easily set up their
distribution channels and come into the business. With only a few retail outlets selling the
product type, it is easy for any new entrant to get its product on the shelves. All of these
factors make the threat of new entrants a strong force within this industry.
 The government policies within the industry require strict licensing and legal
requirements to be fulfilled before a company can start selling. This makes it difficult for new
entrants to join the industry, therefore, making the threat of new entrants a weak force.

Bargaining Power of Suppliers

All most all the companies in the Energy industry buy their raw material from
numerous suppliers. Suppliers in dominant position can decrease the margins
Origin Energy Limited can earn in the market. Powerful suppliers in Energy sector
use their negotiating power to extract higher prices from the firms in Energy field.
The overall impact of higher supplier bargaining power is that it lowers the overall
profitability of Energy.

 The number of suppliers in the industry in which Origin Energy Limited operates
is a lot compared to the buyers. This means that the suppliers have less control over
prices and this makes the bargaining power of suppliers a weak force.
 The product that these suppliers provide are fairly standardised, less
differentiated and have low switching costs. This makes it easier for buyers like
Origin Energy Limited to switch suppliers. This makes the bargaining power of
suppliers a weaker force.
 The suppliers do not contend with other products within this industry. This means
that there are no other substitutes for the product other than the ones that the
suppliers provide. This makes the bargaining power of suppliers a stronger force
within the industry.
 The suppliers do not provide a credible threat for forward integration into the
industry in which Origin Energy Limited operates. This makes the bargaining power
of suppliers a weaker force within the industry.
 The industry in which Origin Energy Limited operates is an important customer
for its suppliers. This means that the industry’s profits are closely tied to that of the
suppliers. These suppliers, therefore, have to provide reasonable pricing. This makes
the bargaining power of suppliers a weaker force within the industry.

Bargaining Power of Buyers

Buyers are often a demanding lot. They want to buy the best offerings available
by paying the minimum price as possible. This put pressure on Origin Energy
Limited profitability in the long run. The smaller and more powerful the customer
base is of Origin Energy Limited the higher the bargaining power of the
customers and higher their ability to seek increasing discounts and offers.

 The number of suppliers in the industry in which Origin Energy Limited operates
is a lot more than the number of firms producing the products. This means that the
buyers have a few firms to choose from, and therefore, do not have much control
over prices. This makes the bargaining power of buyers a weaker force within the
industry.
 The product differentiation within the industry is high, which means that the
buyers are not able to find alternative firms producing a particular product. This
difficulty in switching makes the bargaining power of buyers a weaker force within the
industry.
 The income of the buyers within the industry is low. This means that there is
pressure to purchase at low prices, making the buyers more price sensitive. This
makes the buying power of buyers a weaker force within the industry.
 The quality of the products is important to the buyers, and these buyers make
frequent purchases. This means that the buyers in the industry are less price
sensitive. This makes the bargaining power of buyers a weaker force within the
industry.
 There is no significant threat to the buyers to integrate backwards. This makes
the bargaining threat of buyers a weaker force within the industry.

Threats of Substitute Products or Services

When a new product or service meets a similar customer needs in different ways,
industry profitability suffers. For example services like Dropbox and Google Drive
are substitute to storage hardware drives. The threat of a substitute product or
service is high if it offers a value proposition that is uniquely different from present
offerings of the industry.

Rivalry among the Existing Competitors

If the rivalry among the existing players in an industry is intense then it will drive
down prices and decrease the overall profitability of the industry. Origin Energy
Limited operates in a very competitive Energy industry. This competition does
take toll on the overall long term profitability of the organization.

 There are very few substitutes available for the products that are produced in the
industry in which Origin Energy Limited operates. The very few substitutes that are
available are also produced by low profit earning industries. This means that there is
no ceiling on the maximum profit that firms can earn in the industry in which Origin
 Energy Limited operates. All of these factors make the threat of substitute products a
weaker force within the industry.
 The very few substitutes available are of high quality but are way more
expensive. Comparatively, firms producing within the industry in which Origin Energy
Limited operates sell at a lower price than substitutes, with adequate quality. This
means that buyers are less likely to switch to substitute products. This means that the
threat of substitute products is weak within the industry.

Recommendation

How Origin Energy Limited can tackle the Threats of New

Entrants

 By innovating new products and services. New products not only brings
new customers to the fold but also give old customer a reason to buy Origin
Energy Limited ‘s products.
 By building economies of scale so that it can lower the fixed cost per unit. 
 Building capacities and spending money on research and development.
New entrants are less likely to enter a dynamic industry where the established
players such as Origin Energy Limited keep defining the standards regularly. It
significantly reduces the window of extraordinary profits for the new firms thus
discourage new players in the industry.

How Origin Energy Limited can tackle Bargaining Power of the

Suppliers

 By building efficient supply chain with multiple suppliers.

 By experimenting with product designs using different materials so that if
the prices go up of one raw material then company can shift to another.
 Developing dedicated suppliers whose business depends upon the firm.
One of the lessons Origin Energy Limited can learn from Wal-Mart and Nike is
how these companies developed third party manufacturers whose business
solely depends on them thus creating a scenario where these third party
manufacturers have significantly less bargaining power compare to Wal-Mart and
Nike.

How Origin Energy Limited can tackle the Bargaining Power of

Buyers
 By building a large base of customers. This will be helpful in two ways. It will reduce
the bargaining power of the buyers plus it will provide an opportunity to the firm to streamline
its sales and production process.
 By rapidly innovating new products. Customers often seek discounts and offerings on
established products so if Origin Energy Limited keep on coming up with new products then
it can limit the bargaining power of buyers.
 New products will also reduce the defection of existing customers of Origin Energy
Limited to its competitors.

How Origin Energy Limited can tackle the Treat of Substitute

Products / Services

 By being service oriented rather than just product oriented.

 By understanding the core need of the customer rather than what the
customer is buying.
 By increasing the switching cost for the customers.

How Origin Energy Limited can tackle Intense Rivalry among the
Existing Competitors in Energy industry

 By building a sustainable differentiation

 By building scale so that it can compete better
 Collaborating with competitors to increase the market size rather than just
competing for small market.
Employment of framework

VRIO Analysis
The Vrio Analysis of Japan Electric Power Company (A): Can This
Customer Be Saved Case Analysis can execute the instinctive, quicker and
more effective reservation system, due to which, completion outcome
would most likely make the process of appointment more efficient, so that
the amount of time that is needed by representative to get communicated
with customer would increase, thus producing more earnings. The new
system would lower the actions for making reservation from 7 to 5, and it
would recognize the past guest or customers, so that the travel
representative would go through their history of getting. The newest
automated performance would help the Vrio Analysis of Japan Electric
Power Company (A): Can This Customer Be Saved Case Help in saving
the time of agent, shifting more control and versatility into their hands and
turning numerous phone calls into 3 easy actions. It would provide
anintuitive reservation experience on the basis of the travel partners'
feedback.
Conclusion

By analyzing all the five competitive forces Origin Energy Limited strategists can
gain a complete picture of what impacts the profitability of the organization in
Energy industry. They can identify game changing trends early on and can swiftly
respond to exploit the emerging opportunity. By understanding the Porter Five
Forces in great detail Origin Energy Limited 's managers can shape those forces
in their favor.