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Tronics – PEST and Porter’s five forces

1. Introduction

1.1. TRONICS

Tronics: An international full-service manufacturer of MEMS

History: Founded in 1997 in CEA-LETI (an applied research centre for

microelectronics)

First provider of custom silicon on insulator (SOI) based MEMS components for

specific Origional Equipment Manufacture (OEM) applications

Industry: Developing and manufacturing custom micro-electro-mechanical systems

(MEMS) components and Microsystems for clients' specific applications

Mission: to assist its customers in designing, developing, prototyping, industrializing

and producing MEMS products

Development: Started its activity by developing sensors (called "geophone") for oil

prospecting (replacement for conventional mechanical seismic sensor). Apart from

involving in oil industry, Tronics have involved in other industries (such as games,

healthcare, etc) but because of limiting resources, Tronics is looking for strategic

analysis

Stakeholders of Tronics

Partnership - Vibtech: a market leader over 50 years, specialized in

vibration sensing technologies, supplied the equipment for oil

exploration projects (niche market). Main competitors of Vibtech is

American companies

Found in CEA-LETI: CEA-LETI provides a unique interface between

industry and academic research, through technology transfer and

owns over 1,500paten families.

1.2. Oil prospecting industry

5% cost of oil prospecting operations comes from analysing the vibrations

and analyses the propagation of the wave, speed, etc

15% cost comes from geophysical depth analysis to provide the necessary

information for the drilling undertaken to have maximum chances of success

1.3. MEMS industry

Future of MEMS industry: MEMS is predicted to lead to the development of

innovative technologies that would replace the conventional electromagnetic

vibration sensors)


2. PEST analysis

PEST analysis is an environmental scanning framework which provides a simple yet

systematic approach to identifying factors that are likely to shape the competitive

conditions within these industries where Tronics have involved in.

1.1. Political Factors

Political instability: Most new sources of oil are located in countries which have

political instability, legal instability and corruption that can increase the risk of firms

when investing in exploring oil in these places

>> Increasing the risk for Tronics

Strict regulations: Moreover, the governments in the countries having new oil

sources like Mexico tend to strengthen their regulations related to water oil

exploration and exploitation which increases time consuming causing raising the cost

for firms investing in this industry.

>> Increasing the cost/risk for Tronics

Many government approach corporate social responsibility, environmental issues

which means oil firms need to invest in socially responsible programs as well as

doing research on environmentally friendly programs along with renewable energy

resources.

>> Increasing the cost/risk for Tronics

1.2. Economic Factors

Competitors

o Really competitive market which can increases the cost as well as risk of

investing in to the industry for Tronics.

High concentration: In MEMS foundry industry, top 5 companies (Sony,

Sile, Microsystems, Balsa, and Asia pacific microsystem) hold a

combined market share 64,8%; Stmicroelectronics is the world leader;

Tronics ranks 11th

Oil and gas industries: There are 2 key players – Colibrys. Hewlett

Packard is ranking first in the global MEMS device market (Electronic

medical equipment, Analytical instrument, Calculators, etc) and

becomes even more dominant after the acquisition F&M technologies

and partnership with Shell

Recession and economic growth

o At the early stage, due to the world recession so the oil demand dropped, it is

riskier to invest in the oil industry (suffered a 12% drop in turnover; the

automotive industry recorded a drop in volume of 3.7% in the recession in

2008-2009). Stakeholder of Vibtech experienced a 30% drop in activity in 2009

>Risk for Tronics

Although the share of oil decreased, oil and gas still accounts for almost 60% of

the total world's primary energy consumption. Moreover, as the economic


expansion of emerging countries, demand has continued growing recently. As

the oil industry developed, the demands for MEMS products increases.

> Potential for Tronics

o High economic growth in MEMS: The global MEMS components market around

11.5Billion USD in 2012, and predicted to reach 21 Billion in 2017. The unit

compound annual growth rate increased 17.4% from 2008 to 2013, the revenue

compound annual growth rate increased by 6,5%

>> Benefits for Tronics

Market volatility

o The market is volatile therefore firms need to invest on innovations which

means increasing costs. If the innovations don’t work, they lose money which

means risky for the firms investing in the industry as Tronics.

Seasonable market

1.3. Socio-Cultural Factors

Ageing population

o The ageing population in most countries Tronics involved, especially in

developed countries create great opportunities for firms in the mature medical

technology industry with a relatively steady annual growth rate 3 to 5%. The

trend of using MEMS in healthcare industry is common therefore Tronics can

take the advantages of this trend to increase their revenues when investing to

the industry.

Consumers' preferences change quickly depending on the technology offered,

especially in games industry; consequently, it requires Tronics need to invest on

innovation - increasing cost-also risky in case it does not work.

Region diversification > risk and cost

1.4. Technological Factors

Tronics using the composite knowledge, a combination of complementary modules

from Vibtech, CEA-LETI, and the suppliers. Using complementarity between

knowledge modules (vacuum pump, MEMS, etc)

(Private, collective and synthetic knowledge - knowledge complementarity and

experience based learning between Vibtech and Tronics). The synthetic knowledge

and complementarity (Vacuum pump, MEMS, etc) help to ensure the reliability and

process reproducibility

> Reduce cost and increase efficiency

Funding and R&D activities

o Industrial groups (venture capital firms institutions start-up) invested in

Tronics because of its high technological potential

> Share risk and cost

o Developing it with engineering schools, universities, and research centres in

different countries like France, Switzerland, Germany, and Japan.


> Reduce cost and increase efficiency

Potential innovation

o The sensors measured vibration as low as 0.1 micro G is expected to remain

stable in 15 years that

> increasing efficiency and reducing cost of investments on developing new

sensors

Rapid change in technology: packing

3. Porter’s five forces

3.1. Industry rivalry : HIGH

The strength of competition in the industry is HIGH because:

The intensity of competitive rivalry (relatively high) Exit barriers: relatively high

o Require high capital investment, particularly in R&D/tactic knowledge (CEA-LETI had to create 80% of the knowledge (was not existing explicit knowledge) to meet the precision requirements of scientist and geologist. The complementarities between knowledge modules (vacuum pump, mems, etc) are essential, which involved additional adjustment related cost. However, MEMS companies can take the advantage of value chain sharing to spread the cost and risk

o Therefore, it is not easy to just exit the industry because MEMS need to get return for the investment

Concentration: high o 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.

o The world leader is STMicroelectronics and Tronics ranks 11th on the marketDiversity of competitors

Product differentiation

Tronics is the first provider of custom silicon on insulator (SOI) based MEMS

components for specific Origional Equipment Manufacture (OEM) applications

3.2. Threat of entry:

How much of a threat new entrants may pose: relatively LOW

Government and legal barriers: relative high

o Strict regulations for oil companies which means they will strict in terms of

choosing new MEMS suppliers . Moreover, the laws of physics prevented

CEA-LETI from developing sensors with the specific level of precision they had


hoped to obtain, the only way was to vacuum encapsulate the micro device,

by packaging either the chip or the whole sensoring device in a vacuum

chamber

Capital requirements: high especially in term of R&D (80% knowledge is tactic knowledge;

only 20% existing explicit knowledge)

Economies of scope: Tronics has the advantage (The collaboration extended the

scope of Tronics activities from single-axis to multi-axis devices and from small low

cost MEMS devices to high performance components)

Economies of scale: The growing number of MEMS applications allows for

economies of scale

Cost advantage: Tronics has high advantage because of the reliable and precise

levels of its products (CEA-LETI provides a unique interface between industry and

academic research, through technology transfer and owns over 1,500paten families)

Customers switching costs: high switching cost for customers to switch to others

because of the products/services’ uniqueness (so if new entry enter market, low

possibility customers will switch to them)

3.3. Threat of substitutes: (relatively low)

How much possibility of customers to switch to alternatives : relatively low

Number of substitute products available in the MEMS market (low): MEMS has its uniqueness due to its advantage

Ease of substitution (low): not easy to switch from MEMS products to others because the technology requires precision and lots of technical requirements

Buyer switching costs: high

3.4. Buyer power (market outputs):relatively LOW

The power of your customers to drive down MEMS products prices is low because

Income Elasticity (%Change in Quantity Demanded/%Change in Income) (medium) : most buyers purchase MEMS products are firms, not individual

Buyers concentration(medium): buyers in some hands (particular firms) not individual; but MEMS is predicted to lead to the development of innovative technologies that would replace the conventional electromagnetic vibration sensors

Differential advantage (uniqueness) of MEMS industry products (high)

Buyers’ switching costs (high): due to the uniqueness of MEMS products, it is expensive for buyers to switch


3.5. Supplier power (market inputs): MEDIUM

Suppliers (vacuum pumps, ceramic packing vacuum pumps, chip card supplier, and research

centres). The power of suppliers to drive up the prices of your inputs is MEDIUM because:

Impact of inputs on cost or differentiation: relatively high to ensure MEMS

products meet the precision requirement

(At the beginning, the laws of physics prevented CEA-LETI from developing sensors

with the specific level of precision they had hoped to obtain, the only way was to

vacuum encapsulate the micro device, by packaging either the chip or the whole

sensoring device in a vacuum chamber)

(Or the requirement of having complementary knowledge modules with suppliers to

discover tactic knowledge)

Supplier switching costs relative to firm switching costs: the supplier switching

costs is lower than firm switching costs – firms will lose more money than suppliers if

suppliers stop supplying firms

(Suppliers: 1st round

o Tronics signed supply contracts and sub-system manufacturing agreements

with a firm specialized in the design of ceramic packing

o A monopoly firm on vacuum pumps

o A combination of complementary modules from Vibtech, CEA-LETI, tronics

microsystem, and the suppliers

o At the first round of suppliers, the packaging supplier truly influenced Tronics'

knowledge-creation dynamics and the technical specifications it requested

Suppliers: 2nd round

o A chip card supplier: a company doing the development of materials for the

manufacturing process

o Research centres in Grenoble, France, Switzerland, Germany, Japan, etc

New suppliers: French firm to assemble and package chemical vacuum pump)

- Degree of differentiation of inputs: relatively low

There is not much difference in firms providing vacuum pumps, chip car, etc

- Presence of substitute inputs: relatively medium

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