Competitive Strategy for Pacific Ethanol, Inc. Team #3 Economics of Business Decisions

Ethanol Production

Poof!!!

Market Definition Ethanol from corn West Coast

Advantages Renewable Produced domestically Burns cleaner than fossil based fuels

Financial Information SOURCES OF REVENUE Merchant of ethanol from third parties to customers Producers (2 plants operational, 3 in construction) Acting as agent for suppliers

Financial Information

Five Forces Analysis Table ForceCurrent LevelFuture Level Internal RivalryHigh EntryMediumHigh Substitute/ Complement LowMedium SupplierLowMedium BuyerLowMedium Gov. RoleLowHigh

Competitors

Internal Rivalry Advantages –P.E. is the only major ethanol producer concentrated in the Western U.S. –Rate of Industry Growth/Excess Capacity –Transportation Cost Advantage Disadvantages –No Product Differentiation – Potential for future excess supply – No Production cost Differences

Entry P.E. has a competitive advantage due to …P.E. has a competitive advantage due to … –Loyalty – strong relations with gasoline, ethanol and grain suppliers –Distribution Channels – truck delivery and secured storage at fuel terminals –Favorable Locations – strategic locations near blending facilities, railroads and co-product consumers (Midwest producers pay more for distribution) – Government Protection – tariff protects domestic producers from imports

Compliment & Substitutes Compliments: Gasoline Substitutes: Gasoline Ethanol from other sources Hybrid Electric Vehicles BioDiesel Fuel Cells

Supplier & Buyer Power Supplier Power: 300,000+ Corn farmers Corn Price raising Buyer Power: Better position to service west coast customers Demand for ethanol much higher than supply Highly concentrated customer base

Government as Regulator Government subsidies have played a major role for nearly for 30 yrs Virtually every production input and production stage of ethanol is subsidized somewhere in the country at the federal, state, or local level

Strategy Increase production capacity Explore new sources to produce ethanol from (sugar cane, etc.) Lock down clients & suppliers Short Term

Strategy Develop ethanol as a primary fuel alternative Moving higher up in the production chain Research and Development Building & Maintaining Strong Relationships Foreign Relationships & Government Long Term

Thank You!