S3 & S4 Environmental analysis:

PESTEL, 5-Forces, National Diamond

Session flow

Strategic Presentations and

In-class exercise
Analysis, Part 2 discussion

External environment: Indonesia and the EV

battery industry
Macro-PESTEL
Industry PESTEL
5+1 Forces
National Diamond
 Generating options, Strategy
Strategic Identifying strategic problems
recommending execution
assessment and opportunities
action

Macro
Environment

• PESTEL

Evaluate Industry Implementation

SWOT Strategic
Status Quo
• Mission • PESTEL Options • Actions
• Vision • 5-Forces Problem/ •
• Generating Requirements
• Objectives • National opportunity to •
• Selecting Means
• Performance address •
Diamond Risk management

Company

• Business
model
• Resources &
capabilities
PESTEL: What environmental factors affect this industry + or -?
Porter’s 5-Forces: What makes this industry more or less profitable?
Threats from
Suppliers
• Differentiation of inputs
• Switching costs
• Presence of substitute
inputs
• Supplier concentration
• Importance of volume to
supplier
• Cost relative to total
purchases
• Impact of inputs on cost or
differentiation
• Threat of forward
integration
1. How concentrated are buyers?
Threats from New Entrants 2. How large are buyers?
• Economies of scale • Capital requirements 3. Are buyers’ switching costs
• Proprietary product • Access to distribution high? …
differences • Absolute cost advantages
• Brand identity • Government policy
• Switching costs • Expected retaliation
Threats from
Buyers
• Buyer concentration
•
Threats from Competitors •
Buyer volume
Buyer switching costs
• Industry growth • • Buyer information
Switching costs
• Fixed costs / value • • Ability to integrate
Concentration and balance
• backward
added Informational complexity
• Overcapacity • • Substitute products
Diversity of competitors
• Product differences • • Price / total purchases
Corporate stakes
• Brand identity • • Product differences
Exit barriers
• Brand identity
• Impact of quality /
performance
• Buyer profits
Threat from Substitutes
• Relative price performance of substitutes
• Switching costs
• Buyer propensity to substitute
+Government
National Diamond: How attractive is this country for this industry?
Factor
Conditions
Does the country have key
inputs used in our business?
• Natural resources
• Human resources
• Capital resources
Related & Supporting
• Infrastructure
(transportation, legal,
telecommunications,
administrative/political,
scientific…)
Does the competitive environment support
Competitive our strategy (e.g. local firm strategies,
Environment 5+1-Forces: degree of rivalry, buyer power,
supplier power, threat of substitutes, threat
of new entrants, government…)
Demand
Conditions
Do the characteristics of local
demand for our
products/services support our
strategy?
• Scale
• Heterogeneity/segmentation
Industries
• Sophistication
Is the level of quality, innovativeness
and other characteristics of potential • Key value attributes
suppliers and related industries in
that country support our strategy?.
 INSIGHT INSIGHT

Valuable Valuable

Why? Fact, Data Implications?

How? Observation So what?
Necessary but low
value-added
In-class exercise
• Your client is a European investment bank that wants an up-to-date and concise but comprehensive
and insightful analysis of Indonesia’s EV battery industry.

• Use the PESTEL, 5-Forces and National Diamond frameworks to help you generate the questions to
ask and data to gather. While the focus is on Indonesia, you may need to include some external
factors that have an impact; e.g., features of other countries or firm actions that have an impact on
Indonesia’s prospects and competitiveness.

• Use ChatGPT, the materials distributed, and additional online searches for up-to-date information on
this industry.

• The client does not just want data/description. They want insights that answer “why/how?” and “so
what?” of the features you find. They also what to know how each feature of the environment has a
positive or negative impact on the attractiveness and future prospects of the industry.

• Based on your research and analysis, prepare a concise PPT slide deck, prefaced with a short
executive summary of the most important positive and negative factors and your assessment of the
prospects for this industry in Indonesia.

• Teams will have the chance to present their analyses and conclusions.
Analytic tool: Value chain

Generic firm value chain

Firm value chain  Industry value chain to map an industry’s structure

Dig clay Throw clay into pots Sell pots Margin

Support functions

As underlying processes become more complex, supply chains often

evolve into chains of firms that interact through negotiated
transactions or markets - rather than chains of functions managed
internally.

Per Jenster, 2008

Book publishing industry value chain*

You can map an industry to identify activities and actors

involved in bringing a product or service to customers.

Author Agent Publisher Wholesaler Retailer Reader

Direct marketer
te r
in
Pr

p er r
Pa duce
o
Pr
s t
e
r cts
o
F du
o
Pr *also called an “ecosystem”, which we’ll cover in Session 11
Ice cream industry value chain

 Upstream….Downstream 
Variations in a firm’s degree of vertical integration

Firm strategy question: Which of the industry value chain activities will we undertake?

Focused

Backward integrated

Forward integrated

Vertically integrated
Related framework: Value net
Preparation for Session 4
In the Session 3 exercise, you have applied the PESTEL, 5-Forces and National
Diamond frameworks to gather information about an industry and the factors
making it more or less attractive from an “objective” point of view.

In Session 4, you will use these same frameworks to undertake a ”subjective”

analysis of an industry environment from a focal firm’s point of view.

You will use the frameworks as a source of questions to use in an interview with a
ChatGPT-generated CEO of a company operating in Thailand. Your team will be
assigned to either Shopee or Betagro. If you haven’t already, download the free
version of ChatGPT (v3.5) and play with it.

You will identify the specific features that have a significant impact on your firm.
Be prepared to present your insights; i.e., key features and how they have an impact
on your firm.
 Interviews and analysis based on frameworks:
Factors  features  insights
In this simulation (and could use this structure in a “real” interview), it is useful to
think of questions-to-insights in this general hierarchy:

Framework (e.g., Porter’s 5-Forces)

 1o Dimension (e.g., Buyer Power)

Q: What factors affect buyer power?
Q: What are 10 factors that affect buyer power?

 2o Dimension (e.g., Buyer Concentration)

Q: How concentrated is this industry?

 Feature (”there are only 2 buyers* in this industry”)

*can then ask who they are…
 Insight (“This is a big constraint on the firm because it limits pricing power and
creates a huge risk of losing much of our revenues if they switch”)
Preparation for Session 5: A lot to do !
• Before Session 5, gather data for your firm for the frameworks below. At the
beginning of Session 5, you will have time to ask questions about applying the key
frameworks to gather data for your strategic analysis. Then teams will present the
initial results of their research on their project firm/business.

• You only have a week, so it will probably not be complete (you will go further as
you develop your final versions), but the more you do sooner, the less you have to
do later !

• Draft the following and be ready to present:

– Fundamental strategy
– Business model
– Performance on multiple indicators (up-to-date data including trends,
comparisons with competitors, financial and non-financial)
– PESTEL (macro/general and industry-specific)
– 5-Forces analyses --National Diamond model (if applicable)
– SWOT
Note change in schedule due to April 8 holiday

13:00-16:00,
+ 17:00-19:30