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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)

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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

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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.

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> 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

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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

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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