Strategy Formulation & Recommendation for PT Gagas Energi Indonesia in Mini LNG Business

Nebrian HardikaFinal Project Seminar

BackgroundIndonesia in top 10 World natural gas producers

But was in 23rd in the natural gas consumptions

Natural Gas consumptions of the top 10 producers excluding US and Russia

Limited infrastructure in Indonesia

LNG Decreasing Export and increasing Domestic

Company Profile

Business Issues● Insufficient gas infrastructure in Indonesia

● Major decline of petroleum global price

● Responsibility to support the government

● Still unregulated price for LNG

Research Objectives:1. Analyze the business environment2. Develop the suitable strategy3. Design the implementation plant

MINI

for

Limitations:This project does not discuss the detail of the required plants

Analytical Framework

Macroeconomic AnalysisConclusion

1. Regulation and politic highly affecting the industry. Situation favors Gagas as SBU of state-owned company to support their program

2. The downfall of crude oil price also affect this industry

3. Mini LNG the new technology to distribute natural gas

Natural Gas Industry AnalysisThreat of new entrants (low):- high economic of scale (-2)- high capital requirements (-3)- Supportive government policy (-2)- access to distribution channel (+0)- low switching cost (+2)

Power of suppliers (high):- possibility of forward integration (+0)- supplier’s switching cost (+0)- low number of suppliers (+1)- the importance of suppliers products to buyer (+2)

Threat of substitutes (high):- government’s program (-1)- high switching cost to substitute (-1)- product’s differentiation (+1)- most probable availability of substitute products (+2)

Power of buyers (low):- high number of buyers (-1)- low backward integration (-1)- med switching cost (+0)- substitute products (+1)

Competitive rivalry (low):- low number of equal competitor (-2)- growing market (-1)- high fixed cost (+1)- high barrier to exit (+1)

CONCLUSION:

The industry condition favor firm whose already established in the market. Gagas benefit from this stance.

Competitor AnalysisCritical Success

Factors

Advertising 0.094 0.047

Product Quality 0.615 0.615

Price Competitiveness 0.336 0.336

Financial Position 0.132 0.088

Customer Loyalty 0.531 0.531

Inventory System 0.147 0.147

Organization Structure 0.114 0.114

Production Capacity 0.138 0.138

Customer Services 0.144 0.144

Management Experience 0.132 0.088

Facilities Owned 0.495 0.33

2.878 2.578

ConclusionPertagas Niaga as the only firm which currently conducting the research in Mini LNG have an advantage over Gagas

Financial AnalysisIndustry Average (2014)

Fundamental Analysis:Compared to national and international industry average, Gagas’s ratios are competing. A good liquidity means it have enough cash to further investment and a good debt ratio means it still okay to loan some funds

Business Model Analysis

- PLN- Industries- Commercials

- Extending the scope of pipeline- Safer and Environment friendly- NG distribution system to remote areas- NG distribution system with more energy stored

Direct distribution with MRU and SPBG

Sign MOU with their customers with maintenance

Pipeline natural gas, CNG for industries and CNG for transportation

Material cost, third parties cost, operational cost, general & administrative expense

- PGN as their main supplier- Third party partners

- CNG delivery using trailer and MRU- Liquefaction- Regasification

Pipeline natural gas from PGN or Pertamina

Value Chain AnalysisPrimary Activities

Value Chain Analysis (cont’d)

Supporting Activities

SWOT Analysis

Strategy Formulation

Overall direction

Functional Strategy

Strategy formulation from analysis result

5 Year Strategy Roadmap

GAGAS Overall Direction Diversification Product Development

PROS 12 10

CONS(7) (4)

Total5 6

Existing Product New Product

Existing Market

Market Penetration Product Development

New Market

Market Development Diversification

Ansoff Matrix Pros & Cons Analysis

Based on Ansoff, due to the New Product, there are 2 possible direction for 1st

year. Product Development or Diversification

PRODUCT DEVELOPMENT

Overall Direction for 5 year

Func

tiona

l Stra

tegy

Functions Strategies

Marketing 1. SO2: Introduce and create a new market of mini LNG especially for industries and commercials which far from the pipeline natural gas

with sending teams to them

2. SO1: Provide and deliver the information and data regarding the advantages in using mini LNG to customers of CNG

3. ST2: Find other third parties to sign MOU for some years so it could anticipate the fluctuated value of Rupiah

4. WO2: Approach a company in Thailand to make a collaboration in mini LNG mini LNG business

5. SO5: Expand the LNG business for transportation

Operation 1. SO3: Calculate and define an optimal mini LNG mini LNG system chain to find a price that could compete the CNG and other energy sources

Financial 1. WO1: Create and formulate some pricing strategy in buying the material cost (Natural Gas) from their parent company PGN, to support the

government program in line with PGN vision and mission

2. ST1: Invest in new assets for satellite LNG plant to accelerate the development of mini LNG system and lowering the operational cost to

meet a competitive price for the product before the competitor enter the market

3. WT1: Invest in the new SPBG for LNG distribution to customers

HR 1. SO4: Hire more PKWT or contract employees for this new mini LNG mini LNG business to lower it expense so the price could be cut

Functional Strategy (cont’d)

Strategy Roadmap

Strategy Roadmap (cont’d)

Implementation Plan

Implementation Plan (cont’d)

Estimated Financial Projection

Critical Risk Mitigation Strategy

The business is so sensitive with the price changes

Consortium Collaboration with competitor (Pertagas Niaga)

Abandon the business

2 Proposed Strategies

CONCLUSION

1. With the current condition, government policy and the growing market of Natural Gas, Mini LNG have a strengths and advantages to play a big role in Indonesia market

2. The product development strategy with its several functional strategies are the suitable strategy to start penetrating the market in Indonesia

3. Based on the strategy roadmap, the product development strategy will be implemented in the first year, follows with the market development for the 2nd until 4th year then product development in the 5th year

Answering the Research Questions

Appendix - Consolidated Balance Sheet

Appendix - AHP Competitor Analysis

Appendix - Estimated Financial Feasibility