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

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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.

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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, thus, assisting them to create their business strategy.

Industry Rivalry

Potential Entrants

Buyers

SubstitutesSuppliers

Other stakeholders

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Threat of New EntrantsGovernment 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

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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 Hi-

Tech), 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

• High exit barriers• Once the company has already enter the utility business, the capitals invested on the assets are very high & specialised in the utility business

Operating cost

- Increase efficiency- Increase capacity

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

• 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

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• Shortage of gas supply from Petronas to TNB for power generation

Gas curtailment

• Recent flood in Australia, affecting the coal price and supply

Hike in coal price

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

• Residential consumers • Demand for transparency in electricity cost and efficient services

from TNB

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Company Area Types of fuel

Petronas Penapisan Melaka Natural gas

Sime Darby Plantation Teluk Intan Agricultural waste

Shell Refining Company

Port Dickson Waste gas from industrial process

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, laptops9

Other Stakeholders

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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 constructionLocal 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

Conclusion

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Level of competitive intensity of TNB in Malaysia

Threat of New Entrants

Industry Competitors

Threat of Substitutions

Bargaining Power of Buyers

Bargaining Power of Suppliers

Other Stakeholders

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

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