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

2. Ethanol Production

3. Poof!!!

4. Market Definition Ethanol from corn West Coast

5. Advantages Renewable Produced domestically Burns cleaner than fossil based fuels

6. 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

7. Financial Information

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

9. Competitors

10. 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

11. 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

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

13. 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

14. 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

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

16. 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

17. Thank You!