Exam Case - Gasmet - mini scope: The top management of Gasmet is performing a process with both Risk Management and review of existing corporate strategy on quarterly basis. To assist the management in reviewing existing strategy we will answer the following corporate strategic questions from the CEO of Gasmet: 1. decide whether he can still argue that Gasmet has a sustainable competitive advantage, (1.2) and that Gasmet can mitigate (Reduce) the possible risks related to its core business, and 2. answer the Big Question: Should Gasmet maintain its current strategy or should it diversify? A mashup of business analysis tools are used within the case: PESTEL Porters Five Forces Value Chain VRIN TOWS/SWOT

1. Case exam BUS305
30.8.2013
We, members of this group, hereby declare that this assignment is written by us and
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Insert here candidate number of the group
numbers for the exam (can be found from the
Studentweb)
69
80
21
64
Insert here student number of the group
members
980722
981963
980725
980724

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Candidate Number Student Number
69 980722
80 981963
21 980725
64 980724
S c h o o l
o f
B u s i n e s s ,
N o r w e g i a n
U n i v e r s i t y
o f
L i f e
S c i e n c e s
GASMET
EXAM
CASE
–
BUS305
August
30,
2013
August
Block
13

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Table of Contents
1.0 Methodology 3
External Analyzes – Key findings
2.0 PESTEL Analysis - Key findings 3
3.0 The Methanol Industry: Competitive Environment 4
Internal Analyzes – Key findings
4.0 Value Chain Analysis – Key findings 4
5.0 VRIN Analysis – Key findings 5
Analyze Sum-Up
6.0 TOWS Analysis 6
7.0 Conclusion 6
8.0 References 8
Appendix 1: PESTEL Analysis (Full version) 9
Appendix 2: Five Forces of Competition in The Methanol Industry (Full Version) 11
Appendix 3: Gasmet Value Chain Analysis (Full Version) 13
Appendix 4: VRIN Analysis (Full Version) 16

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1.0 Methodology
The top management of Gasmet is performing a process with both risk management and
review of existing corporate strategy on quarterly basis. To assist the management in
reviewing existing strategy, we´ve chosen the following methodology:
In order to analyze the business strategy, we´ve chosen to start analyzing the company and its
surroundings broadly, and narrow our perspective as the strategy analysis proceed. Initially,
we perform a PESTEL analysis, to get a broad overview of the company´s surroundings. Then
we proceed with an analysis of the Five Forces of Competition (Porter, 1980) in order to
create a picture of the competitive environment within the methanol industry. After analyzing
external factors, we focus on the internal factors, and how Gasmet currently adapts to its
environments. We analyze the internal factors through a value chain analysis and a VRIN-
analysis. Finally we sum up all the previous mentioned analyzes with a TOWS analysis to
define all Threats, Opportunities, Weaknesses and Strengths, both internally and externally.
The TOWS analysis will capture the key findings that will help us decide upon whether or not
Gasmet has sustainable competitive advantages and are able to mitigate risks. The TOWS
analysis will also be helpful in the work of deciding whether or not strategic changes are
necessary. All information regarding Gasmet and it surroundings are taken from case text.
External Analyzes – Key Findings
In the sections below, we will present the key findings of our external analyzes. Full version
of the external analyzes can be found in the appendix section.
2.0 PESTEL Analysis - Key Findings
The key findings in the PESTEL analysis give us an understanding of the overall picture of
Gasmet´s surroundings. There are for instant several political aspects one needs to be aware
of in Gasmets position. Different governments control over access to natural gas reservoirs,
political instability in existing and in emerging markets, and regulations and restriction within
the industry are key political aspects. In Egypt, for instant, Gasmet met immediate obstacles
because of the political landscape and an unstable scenario. In Chile, the company was forced
to shut down three of its production facilities because of natural gas supply shortages. In New
Zealand Gasmet was forced to shut down two of three plants for a period of two and three
years, and today still one plant is not operational.

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There are also economical factors, which is important to address. There is a global recession,
especially threatening the production in facilities in Egypt and Chile. Methanol prices are
highly fluctuant and prices are controlled by the amount of accepted climate spillage.
New technology trends have open up for new high growth markets within; fuel blending,
biodiesel, MTO and DME. These technologies could also support existing market diffusion,
and/or open up new markets for Gasmet.
3.0 The Methanol Industry: Competitive Environment
The lack of cost-effective substitutes to methanol makes the bargaining power of the
methanol buyers relatively low. The industry demand will remain close to unaffected by
changes in spot prices. The industry buyers are though not locked to certain suppliers, and can
choose freely their suppliers based on the supplier´s ability to deliver on time, to offer the
lowest price.
As the industry of methanol is very dependent on natural gas supplies in order to offer on-time
delivery to its customers, and there are, at times, limited availability of natural gas supplies
increase the bargaining power of the methanol industry suppliers.
The different actors in the methanol industry compete primarily on two factors: 1) Price. 2)
Ability to deliver on demand. The industry price level is based on average contract prices
from several suppliers. Being the market leader, Gasmet´s price level are regarded at industry
standard, but the price levels are at times fluctuating because of political and technological
issues. Another aspect of the rivalry among industry actors is positioning of their production
plants. As access to natural gas can be limited, actors in the industry can achieve competitive
advantages by positioning production plants close to reliable natural gas extraction fields.
Internal Analyzes – Key findings
In the sections below, we will present the key findings of our internal analyzes. Full version
of the internal analyzes can be found in the appendix section.
4.0 Value Chain Analysis – Key findings
A significant success factor of Gasmet´s inbound logistics, are the company´s ability to
negotiate long-term contracts with natural gas suppliers, to secure continuous access to raw
materials. Gasmet has though little, or no control of inbounds logistics. Various circumstances
(E.g. political or technological) have led to significant shortage of natural gas supplies –

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followed by production downtime. As they operate on long-term contracts with their
suppliers, their options to acquire raw materials from other suppliers are limited. Gasmet, due
to their storage facilities, also purchase already produced methanol from other producers in
favorable times, store it, and then sell it when the market price are favorable.
Gasmet conduct all production activities in-house. This allows full control over the
production, continuously improvement of production efficiency, and keeps the transaction
cost related to production actives low. Gasmet are in full control of outbound logistics of
methanol, through their stand-alone business Shipfront Shipping Company. This, combined
with storage hubs located around the world, allows them to be very flexible in the delivery of
their product. Gasmet´s worldwide establishment of marketing offices enables market
proximity. This also gives the company the opportunity to obtain close relationships with their
customers in order to provide satisfying service. The company operates with different price
levels in different geographical markets.
5.0 VRIN Analysis – Key findings
In the following we will discuss some of the more important findings of the conducted VRIN
analysis. We refer to Appendix 4: VRIN Analysis (Full Version), where a matrix summing up
the analysis is presented.
There are several reasons why Gasmet is one of the leading methanol manufacturers in the
world. Their distribution network, with several major distribution hubs around the world,
makes them agile, and can deliver their product all over the world. This also ties up with their
logistical network with their own fleet of trucks, trains and ships, which allows them not to be
depended on outsourcing this part of their value chain. Their own storage facilities makes
them also unique, in that sense that they can stock up when the prices are low, giving a
competitive edge to their competitors. But although they have all of these advantages against
their competitors, we also found evidence of a declining trend within Gasmet and their
competitive advantage.
What we found in the analysis was that Gasmet in fact does not have any significant long-
term sustainable competitive advantage. As the matrix in appendix 4 shows, none of the
resources or capabilities measured fulfilled all the criteria to be considered as long-term

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sustainable competitive advantages. All the major resources/capabilities are all categorized as
a temporary competitive advantage, hence being short-term advantages.
Analyze Sum-Up
6.0 TOWS Analysis
Below, a TOWS Matrix shows a sum-up of how the strengths and weaknesses of Gasmet
affect the company´s ability to handle both opportunities and threats.
+: Affects opportunity/threat positively, -: Affects opportunity/threat negatively, 0: No affect on opportunity/threat.
Figure 1: Gasmet TOWS Matrix
The TOWS-matrix forms the basis for taking a stand on whether or not Gasmet possess
sustainable competitive advantages, are able to mitigate risks, and whether or not strategic
adjustments are necessary in order to remain a robust competitive company.
7.0 Conclusion
Do Gasmet Possess Sustainable Competitive Advantages?
In a short-term perspective we believe, after assessing our business analyzes, that Gasmet will
continue to keep their existing strong market leader position in the methanol industry. But in a
long-term perspective, we conclude that Gasmet do not have a sustainable competitive
advantage without making strategic moves with long-term perspective. We believe that the
current competitive advantages will be neutralized within few years, because of their modest
grade of sustainability presented in the VRIN analysis matrix. Gasmet are in need of
continuous strategic entrepreneurship in order to keep their market position and create
favorable conditions for growth (Hitt et al., 2003). McGrath (2013) and Osterwalder &
Pigneur (2010) support our point of view and argue that it is no longer possible to create
sustainable competitive advantage for longer periods (i.e. decades). Industry life cycles

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shrink, while markets and technology change very rapidly. To counteract these trends,
businesses are in need of high-pace innovation. Rather than to be a victim of other companies
disruptive strategies and tactics, we recommend that Gasmet itself speed up their R&D,
creating their own new innovative disruptive; internal processes, production technologies,
products and market.
Are Gasmet Able to Mitigate Risks Related to Core Business?
We conclude that Gasmet are able to mitigate risks related to their core business. As
presented in the TOWS matrix, Gasmet possess a set of strengths that reduce risks related to
the threats presented in the matrix. In general, we want to highlight Gasmet´s, market-
technology- and logistics leader position and it´s worldwide presence as significant factors
making the company able to mitigate risks related to the core business of methanol. These
strengths enable market knowledge to handle political risks and access natural gas,
technology and logistics to handle fluctuations in natural gas costs and supply as well as
financial power to monitor and follow up-and-coming market trends.
Maintain Current Strategy, or diversify?
As implicated earlier in this conclusion, Gasmet are in need of continuous renewal in order to
maintain competitive advantage. As a part of a long-term strategy, we see it necessary to
diversify and expand into new businesses and markets in order to stimulate future company
growth and reduce risks. The Southeast Asian market offer great opportunities:
Diversification of business in a joint venture with XinAn (develop DME), and entering into
the market of MTO. As Gasmet´s knowledge of the Chinese market is limited, we suggest
diversifying to DME in partnership with XinAo as a first step of expanding the business. We
see this as a natural first step because:
-­‐ The XinAo Group knows the industry and market à Reduce risk of failure.
-­‐ The DME market is already an established market.
-­‐ Entering the Chinese market of DME shortens the path to the Chinese MTO market
Performing such diversification enables Gasmet to mitigate risk, no longer be reliant on the
success of one single product – methanol. A strategic option to enable entering new markets,
is to sell in-effective production plants in unfavorable geographic areas, and open new
production facilities to achieve sustainable production. This will most likely also increase the
valuation of Gasmet, that right now are valued to only two-thirds of its asset value.

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References
Barney, Jay (1991), Firm Resources and Sustained Competitive Advantage, Journal of
Management, ProQuest Health Management
Grundy, Tony (2006). Rethinking and reinventing Michael Porter’s five forces model, Wiley
InterScience.
Hitt, Michael A., Ireland, R. Duane, Sirmon, David G. and Trahms, Cheryl A. (2012),
Strategic Entrepreneurship: Creating Value for Individuals, Organizations, and Society,
Mays Business School Research Paper No. 2012-19.
McGrath, R.G (2013). Transient Advantage. Harvard Business Review.
Osterwald, Alexander & Pigneur, Yves (2010), Business Model Generation – A Handbook
for Visionaries, Game Changers, and Challengers. US: John Wiley & Son Inc.
Porter, M.E (1985), Competitive Advantage, Free Press, New York
Porter, M.E (1996). What is strategy?, Harvard Business Review.
All information regarding Gasmet and the market surrounding the company are taken
from: Exam Case BUS305 (Autumn 2013), GASMET: DEVELOPING STRATEGY IN A
COMMODITY INDUSTRY.

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Appendix 1: PESTEL Analysis (Full version)
Introduction to our PESTEL analysis
We have chosen to start our status quo business analysis with a PESTEL audit and
assessment. The definition of the PESTEL model is; Political, Economic, Social,
Technological, Environmental and Legal (Grundy 2006.). PESTEL analysis is a simple and
effective tool used in status quo analysis to identify the key external (the macro environment
level) forces that create impacts for a company. These forces can create both opportunities
and threats for an organization. Therefore, the aim of performing PESTEL analysis is to find
out the current factors affecting a company, what changes are going to happen in the external
environment and to exploit those changes or defend (Risk Management) against them to be
able to keep or create sustainable competitive advantage (Porter, 1985) (Barney, 1991). The
result of our PESTEL analysis is an understanding of the overall picture surrounding Gasmet.
Political Factors
Negative political aspects:
• The different governments politics control the access to natural gas
• Political instability in emerging markets could lead to lower production, and therefor
damage the distribution as well (Unstable countries: i.e.: Chile, Egypt)
• Many new regulations and restrictions around formaldehyde and MTBE
Positive political aspects:
• Environmental, renewable and sustainable energy focused alternative fuel sources
• Non-profit organizations works actively against companies that not work on
renewable energy sources
Economic Factors
Negative economic aspects:
• Global recession, especially threatened production facilities in Egypt and Chile.
• Methanol prices highly fluctuant. Low price level does not increase demand
significantly.
• Prices controlled by the amount of accepted climate spillage

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Positive economic aspects:
• Prices on methanol decided on by industry
Social Factors
• The world is moving towards green energy politics, policy, ethics and consumer
awareness
• Societies wants and anticipate that the gas and methanol industry gives back to local
communities
Technological Factors
• The methanol industry is highly technology driven; smartest technology inventions
and innovations gives better margins
• Efficient plants (Less people used per plant than the industry norm)
• Continual investment in production technology
• High level of computerization – reducing the amount of needed people per production
plant
• High level of mechanization per production plant
• New technology trends; MTO (Methanol-To-Olefin), new plastic production, can
contribute to increase the usage and market demand for methanol
Environmental Factors
• Poor infrastructure in emerging markets
• Methanol production is accepted as a non-pollution industry
• Production is linked to available natural gas fields
Legal Factors
• Production and the industry are regulated both by national authorities and global
political interests
• Long-term and short-term contracts for production, big operational costs
• New products within i.e.: Fuel blending, Biodiesel, DME and MTO should open for
new patents (IPR strategies)

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Appendix 2: Five Forces of Competition in The Methanol Industry (Full Version)
1.0 Porters Five Forces Model – an introduction
We will in this section analyze the different factors that create the competitive surroundings
of Gasmet. Our framework for doing this is the well-known Five Forces Model, by Michael
Porter (1980). The purpose of this model is to analyze how five different forces of
competition impact the competitive environment in an industry. The model is presented in
figure 1 below.
By inserting available relevant information from the Gasmet case into this framework, we´ll
be able to create a picture of how the competitive landscape, which Gasmet has to
strategically navigate through, looks like. As we consider that the Five Forces Model as
common knowledge to the reader of this report, there will be no further description of the
Five Forces Model, and we´ll proceed to the analysis.
2.0 The Bargaining Power of The Buyers
The bargaining power of the buyers in the methanol industry is relatively low. As there are no
cost-effective substitutes to the traditional use, the demand for methanol will remain
unaffected by changes in spot prices. In addition to this, absence of raw material input to the
production plants, as well as unforeseen plant outages often reduces the available supplies of
methanol – something that will reduce the bargaining power of the buyers further and increase
methanol prices. The fact that methanol is a very standardized product will though contribute
Figure
1:
Porter´s
Five
Forces
of
Competition
Model
(1980)

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to increase the buyer´s bargaining power. They´re not locked to certain suppliers, and can
choose their suppliers based on the suppliers ability to deliver on time, to the lowest price.
3.0 The Bargaining Power of The Suppliers
The main inputs for producing methanol are energy and natural gas, witch make the methanol
industry ability to deliver to customer very dependent on on-time delivery of these raw
materials. The fact that there at times are limited availability on natural gas, because of e.g.
interruptions to supply lines and international policies and regulations governing imports and
exports, increases the bargaining power of the suppliers dramatically. Such shortage of natural
gas will drive the price level upwards.
4.0 Substitutes
There are few cost-effective substitutes to methanol. Because of this, changes in spot price
won´t affect the industry demand.
5.0 Entry Barriers
The fact that methanol is a fairly standardized product, reduces the number of customer lock-
in situations in the business. This will increase new entrants opportunities to capture market
shares from existing actors in the industry – as long as the new entrants can offer equal or
lower methanol price than existing industry actors. There are though other barriers for new
entries:
Entering, and surviving in the industry of methanol production require significant resources
invested in e.g. production plants and distribution channels. Even though the industry trend
shows increasing demand for methanol, such investments also represent a fairly large amount
of risks. What if the effect of new entrants leads to lowered spot prices and reduced profit in
the industry? What if the research on more ecofriendly substitutes to methanol reaches a
breakthrough? The access to natural gas needed to produce methanol are already limited –
what will happen if the number of methanol plants increases further?
Finally, the methanol industry is surrounded by international and regional regulations and
policies witch can represent barriers of entry to the industry.

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6.0 Rivalry
The different actors in the methanol business compete primarily on two factors: Price, and
ability to deliver on demand. The contract price of methanol is driven by commodity spot
prices based on average contract prices from several global suppliers. The industry market
leader, Gasmet, have great influence on spot price. Gasmet´s price are regarded as industry
standard. The prices are though periodically fluctuating, as a consequence of raw material
fluctuations, unexpected outages of significant production plants and international and
regional policies and regulations.
Another aspect of the rivalry among the competitors in the methanol industry is the aspect of
geographical positioning of production plants. The production of methanol is largely
dependent on the supply of natural gas, and the actors in the industry can increase their access
to raw materials by locating their production plants close to reliable natural gas extraction
fields.
Appendix 3: Gasmet Value Chain Analysis (Full Version)
1.0 Introduction
This section will present a value chain analysis of Gasmet, conducted in order to identify the
strengths and weaknesses of the different parts of Gasmet´s value chain. Such analysis will be
helpful in the work of identifying possible competitive advantages, as well as areas that can
be subject of improvement. Our analysis is based on Michael Porters (1985) Value Chain
Model, presented in his book Competitive Advantage: Creating and Sustaining Superior
Performance. Assuming the reader of this report are familiar with this model, we won´t
describe the details around Porter´s Value Chain Model in this report.
2.0 Primary Activities
Inbound Logistics
Analyzing inbound logistics, we´ve chosen to focus on the supply of natural gas, witch
represents 80 % of the product of methanol, as the Gasmet Exam Case Text do not focus on
the remaining 20% content of the product. We are also assuming that the production plants
grade of flexibility in geographical location are low, as the natural gas has to be transported
from the natural gas production fields through gas pipes.

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A significant success factor of Gasmet´s inbound logistics, are the company´s ability to
negotiate long-term contracts with natural gas suppliers, in order to secure continuous access
to raw materials. Despite this, various circumstances (E.g. political or technological) have led
to significant shortage of natural gas supplies – followed by production downtime. This led to
a situation where Gasmet has little, or no control of inbounds logistics. As they operate on
long-term contracts with their suppliers, their options to acquire raw materials from other
suppliers are limited.
When Gasmet receive supplies of natural gas, the raw material goes straight into the process
of producing methanol. This leads to low, or none significant costs related to inventory.
Gasmet also purchase already produced methanol from competing actors in the industry that,
due to regional and international regulations or lack of storage possibilities are forced to get
rid of their supplies of finished goods to favorable prices for Gasmet. As Gasmet storage
facilities, the company can resell the methanol when market price level are high, in order to
make a profit.
Operations
Gasmet are performing all activities necessary to perform the process of turning raw materials
into methanol in-house. By not outsourcing any part of their production, Gasmet possess full
control over their production, and the company are able to continuous improve production
efficiency. Keeping the processes in-house, also leads to low transaction costs related to
production activities.
Outbound logistics
Gasmet are in full control of their outbound logistics of methanol, through their stand-alone
business Shipfront Shipping Company. This company was created to manage a fleet of 20
(2007) ocean-going vessels, which in addition to transporting methanol to Gasmet´s
customers also generated revenue through transportation services on a contract basis to other
companies when the vessels were not being used to transport methanol. Because of this
horizontal integration, Gasmet´s control over outbound logistics is considered high.
Some of the Gasmet production plant output is stored in storage facilities in The Netherlands,
China, Canada and in the US, in order to be able to absorb market fluctuations, and to be able
to deliver on demand.

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Marketing and Sales
Gasmet has established marketing offices located in the Asia-Pacific region, North America,
South America and Europe. This worldwide establishing of marketing offices enables market
proximity. Only 10% of Gasmet´s revenues can be traced long-term contract customers.
Having 90% of the company´s revenues represents significant transaction costs, but it will
also contribute to selling methanol at a price level that have accordance to general level in the
industry.
Service
The worldwide locations of Gasmet´s marketing offices gives the company the opportunity to
obtain close relationships with their customers in order to provide satisfying service. The
company also publishes reference price lists on a monthly basis, to keep their customers
updated. The company operates with different price levels in different geographical markets.
3.0 Support Activities
Firm Infrastructure
As mentioned earlier, Gasmet has established regional offices worldwide. The case text do
not explicit explain how these offices interact with each other, but it is natural to assume that
each regional office holds capacity to run support activities related to handling to e.g.
financial, legal, managerial and administrative issues on a regional level. Gasmet has their
head quarters located in Vancouver, Canada. It is naturally to assume that support activities
related to worldwide issues are run out from this location, where 200 of the company´s 1000
employees are located.
Human Resource Management
Gasmet are recruiting personnel from the regions close to the production plants, in order to
create employment in local surroundings. The production workers are trained at production
facilities, where they learn how to run high tech processes. The use of high technology
enables Gasmet to use a significant lower amount of human resources in their operations,
compared to other actors in the industry.
Technological Development
As mentioned in the previous section, Gasmet has developed high-tech production plants in
order to reduce the need of human resources in production processes. The company is also
involved in research of future use of methanol, in order to open new markets.

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Purchase
The Gasmet case text gives implications that each production plants (or production plants
geographically closely located to each other), has to negotiate with regional suppliers of
natural gas individually. The contracts that are negotiated are long-term
Appendix 4: VRIN Analysis (Full Version)
Valuable
Rear
In-
imitable
Non-
substituta
ble
Competitive advantage
offered
Distribution network Yes Yes No Yes Temporary advantage
Logistic network Yes Yes No No Temporary advantage
Long term contracts Yes No No No Potential advantage
Locations Yes Yes No No Temporary advantage
Technology based
production
Yes Yes No Yes Temporary advantage
Storage Yes Yes No Yes Temporary advantage
Human capital Yes No No Yes Minor advantage
Partners Yes No No No No lasting advantage
Figure
1:
VRIN
Matrix
showing
Gasmet´s
competitive
advantages
In addition to the previous analysis discussed, we also include an analysis based on the VRIN-
framework. This analysis aims to investigate company´s resources and capabilities, with the
goal of creating an understanding of how these resources and capabilities help the company
establish a sustainable competitive advantage. There are four characteristics within the VRIN-
framework one could measure a specific resource; valuable; rare; inimitable; and non-
substitutable, and all of these measures are important when it comes to creating a sustainable
competitive edge. In the following we will discuss some of the more important findings, and
reefer to appendix # for the whole analysis.
There are several reasons why Gasmet is one of the leading Methanol manufacturers in the
world. Their distribution network, with several major distribution hubs around the world,
makes them agile, and can deliver their product all over the world. This also ties up with their
logistical network with their own fleet of trucks, trains and ships, which allows them not to be
depended on outsourcing this part of the value chain. Owning storage facilities makes them

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also unique, in that sense that they can stock up when the prices are low, giving a competitive
edge to their competitors. But although they have all of these advantages to their competitors
we also found evidence of a declining trend within Gasmet and their competitive advantage.
What we found in the analysis was that Gasmet in fact does not have any significant long-
term sustainable competitive advantage. As the matrix in appendix # shows, none of the
resources or capabilities measured fulfilled all the criteria needed to be seen as a factor for
sustainable competitive advantage. All the major resources/capabilities are all categorized as a
temporary competitive advantage, hence being short-term advantages.