Background of the study

Malaysia is basically a domestic market-oriented and in four wheeler section it is basically a

passenger car market because the economic status is not so good so that people can have

luxury cars. The objective of this study is to find the reason why Proton could not survive in

the market after the entry of its local rival and the reason it lost its core competency and then

suggesting some measures to build its core competencies again with some suitable strategy.

Introduction

PROTON was established on May 7, 1983. Till 1993 it remained the sole Malaysian

Automobile manufacturer and then there was an existence of its only local rival Perodua.

Proton has a head-quarter in Subang Jaya and Shah Alam and a manufacturing plant in

Tanjung Malim, Perak.

Its main products are the Waja, Iswara, Arena, Satria GTi, Wira Inspira, Exora, Saga FL,

Persona. SAGA was and is still the famous product. The current capacity of its main plant is

240 000 vehicles per annum.

Source-http://www.slideshare.net/mandalina/marketing-plan-proton

The key management people are Syed Zainal Abidin (Managing Director), Dato’ Sri Mohd

Nadzmi Mohd Salleh (Chairman), Dato’ Michael Lim Heen Peok (Independent Non-

Executive Director), Dato’ and Mr. Behara Venkata Rama Subbu, (Independent Non-

Executive Director).

It currently has operation in 27 countries across the world that includes Australia, China,

South Africa, and the United Kingdom. Its total revenue (profit) on last quarter (30th June,

2011) was around RM4.55million.

The vision and mission of proton

The PROTON's vision is to become a regionally competitive automotive company, creating

value by earning customers' trust through the quality and innovation of our products and

people. To realize this vision they are aligned to engage more and more innovative people

who are fresh and ready to produce new ideas.

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The mission of Proton is to facilitate each and every employee of Proton a retirement benefit

to its members through their savings.

Goals and objectives

The main goal of Proton is to further strengthen its global presence in the world automobile

market.

One of the main objectives for the creation of Perusahaan Otomobil Nasional Berhad

(PROTON) was to propel Malaysia into the 21st century and it is still aligned to achieve it.

Forecast from proton

PROTON is forecasting to command at least a 4% share of Brunei’s car market with the

Total Industry Volume (TIV) in 2011 projected at between 12,000 and 13,000 units. It is also

going to launch its hybrid vehicle with revised technologies (Dato’ Haji Syed Zainal, 2011).

Key issues

When Proton was new to Malaysia it was very successful even with its old and repeated

technology as it has no local competitor till then but as the competition became global and its

local rival entered the Malaysian market it failed in the merger with Lotus, Mitsubishi and

many others only because of its old and poor technology transfer and old R&D. and higher

price of its products also increased competition for it as the customers were attracted to

Perodua, its local rival that produced comparative lower price cars with a good average in

quality. It also launched and established many subsidiaries to grow its market but again it was

a failure.

The need to revamp the strategy

As all of its merger and acquisition failed because of its poor technology transfer and all of its

subsidiaries didn’t work, it really needs to revise its strategy because gone are the days when

people loved there old same technology now a days they are more demanding and it has

increased the competition and even take it to the global level. There was a 94.6% year-on-

year drop in net profit if compared to last year (net profit of RM84.68mil).

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These all above thing shows that Proton should and must revamp its strategy if it really wants

to be sustainable in the market.

EXTERNAL ANALYSIS OF ENVIRONMENT

PROTON’S competitors

Competitors are those organizations which provide similar goods or services to the same set

of customers or that vie for the same resources needed by the organization. Most

organizations have at least one competitor (usually more than one) and must consider all

potential competitors. (Miller Frederic P, 2009).

After 10 years of Proton establishment its new local rival entered the market with good fuel

efficient cars. That was a big threat to Proton. It provided multipurpose vehicles to fulfill the

different needs of Malaysian customers. It also had an engineering legacy from Daihatsu

which is a Japanese car manufacturer.

Market research proved that Perodua was a little ahead in quality in upholstery, engine

efficiency and reliability of electronics compared to Proton.

Other than local rival Toyota is its global competitor who is the only one in automotive

industry which is having LEAN manufacturing

Now it becomes very much important to formulate some strategy for Proton so that it can

survive in the market.

PEST ANALYSIS

Political:

Government of Malaysia is trying to restructure their automotive industry market by

encouraging the production of a large number of cars to meet growing demand of consumers.

Government of Malaysia is also providing a 50% refund on excise tax for domestic

automakers. Other than that Malaysia has some political policies in favor of car producers:

1) AFTA: that maintains the tariffs barrier of the Southeast Asian countries.

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2) Export Policy: to protect local car manufacturer.

3) Protectionism policy: to protect local car manufacturer from an unhealthy competiton from

outside the domestic boundary.

ECONOMIC:

1) Deregulated market

2) The ever increasing cost of manufacturing and raw materials

3) Limited resources: increases price

4) Negative GDP ( -2.8 in 2011),

Source: http://www.tradingeconomics.com/malaysia/gdp-growth

5) Increased inflation (3.4 in 2011),

Source: http://www.tradingeconomics.com/malaysia/inflation-cpi

6) Increased monetary policy (3.4 in 2011),

Source-http://www.centralbanknews.info/2011/03/monetary-policy-week-in-review-

12-march.htm

7) Unemployment rate is increased (3.3 in October 2011)

Source-http://www.tradingeconomics.com/malaysia/unemployment-rate

Social:

The growing population in the country is one of the factors which can affect the

automobile industry. The total population of Malaysia is 28,728,607 (July 2011). This will

give a greater number of markets.

The ratio of car ownership is high as people consider cars as important thing in their lives.

People are expected to put off buying different motor vehicles because of the employment

market uncertainty because of the global and local financial crisis.

The impact of the image to the loyalty of the customer is also another factor.

TECHNOLOGY:

Intellectual property: because it is considered as a sign of authenticity and uniqueness.

Due to the different technologies, primarily the help of computer and the Internet, the

potential for innovation and development is increasing.

Technologies that help to survive in competition.

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PEST analysis is the tool to know the current opportunities that can be utilized or the threats

that can be overcome.

OPPORTUNITIES

An opportunity provides what exactly a business wants to survive in the given environment.

High Demand for Fuel Efficient Vehicles,

Opportunity to grow globally.

Future economies of scale and innovation through cooperative ventures.

Strategic alliances and joint ventures..

The entry of Danish vehicle tuner Kleeman could provide a boost for the premium

Vehicle segment.

THREAT

Threats are key impediments to the firm's current or desired position. Costly Raw Material,

Price war between competitors.

Competitors - local & international brands.

Legal and Political Framework,

Economic downturn – decrease of car sales,

Increased bargaining power of key buyers or suppliers,

INTERNAL ENVIRONMENT ANALYSIS:

STRENGTHS

Strength is a resource advantage which is only with you and not with your competitors.

Financial background of proton is strong.

Extensive nationwide distribution network.

Good corporate governance.

Influence of patriotism as Proton is national car-maker.

Government support.

Strong brand

Weakness

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A weakness is a "limitation or deficiency in one or more resources or competencies relative

to competitors that impedes a firm's effective performance".

Reputation of poor product performance and functionality.

High cost to expand their operation by advanced technology.

Spare parts are expensive.

Vulnerable to increasing material cost (steel, etc).

After sales, service is poor.

Limited product line.

It has some debts,

CORE COMPETENCIES

With about ten-year history of carrying out a variety of projects, V-ENS distinctly

differentiated itself with superior technology, wide-ranging experience, cutting-edge

infrastructure, and a broad distribution network. In addition, it had world-class car

engineering experts with exceptional expertise and a wealth of hands-on background but after

the entry of its local rival it faded over time and Proton lost its core competency as core

competency is a thing which cannot be copied by anyone else and it helps in sustaining long

term competitive advantages over rivals.

It becomes very clear that Proton currently has no core competency it only has noncore

strategic capabilities that indicates it should move on to have new strategy to convert its

capabilities into core- competencies.

STRATEGY ALTERNATIVE AND RECOMMENDATION

TOWS Analysis: (Figure 3)

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A TWOS Analysis is a strategic planning tool used to evaluate the Threats, Opportunities and

Strengths, Weaknesses, involved in a project or in a business venture or in any other situation

requiring a decision.

http://mba.zainbooks.com/terms/management/threats-opportunities-weaknesses-strengths-

tows-matrix.shtml

Internal environment

External

environment

Internal Strengths

1) Financial background of proton is strong2) Extensive nationwide distribution network3) Influence of patriotism as Proton is national car-maker.

Internal weakness

1) Reputation of poor product

performance and functionality

2)High product cost3)Spare parts are expensive

No fuel efficiency, gas linkage,

3) If cost is low quality

automatically becomes low,

4) Lack of R&D.

5) Bad international connections.

External opportunity

To grow their business globallyHigh demand of the products

R&D development

1) Opportunity to develop new market in Egypt.

2) To have partnership in those country where raw materials are comparative low in price,

3)

SO (strengths and opportunities)

1) Develop and produce the products through the TQM (reduce the cost and increase the quality at greater speed),

2) Financially strong background of proton helps to develop its R&D. (FUNCTIONAL LEVEL STRATEGY)

2) With the high demand of product Proton can sell its product globally.(INTERNATIONAL LEVEL STRATEGY)

WO (weakness and opportunities)

1) Proton should collaborate with other company to improve its product performance. (BUSINESS LEVEL STRATEGY)

2) It has the opportunity to produce new less fuel efficient car (Functional level),

External threats

Economic downturn – decrease of car sales.A lot of substitute products in

market.

Threats of new entrants, at local as well as global level,Expansion in technology,

ST (strength and weakness)

• Due to down turn in

economy the sale of

automotive products

decrease and to enhance the

sale of its products proton

has to decrease the price of

WT (weaknesses and threats)

• Tie up with another

company to launch a hybrid

Car.

(BUSINESS LEVEL

STATEGY)

• By joint venture with

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its product its can’t effect

much to proton because it is

financially strong.

(BUSINESS LEVEL

STRATEGY)

Due to patriotism in Malaysia

market its substitute products could

not affect much to Proton’s sale..

another company proton can

improve the quality of

products, it helps to build a

broad network.

According to TOWS analysis:

• The main concern of proton is to compete globally so it can have some strategy to

overcome on threats and weakness by using strengths and opportunities.

Alternative strategy generation

Here the reader did some more different analysis’s like Gap analysis, BCG matrix, porter’s 5

forces framework, key drivers of changes to produce clearer result in formulating strategy

and these are:

Tows matrix: To attract customers at local and global level proton needs to have a cost

cutting strategy to sell its products at low price as it is financially strong it can’t effect much

to proton but its sale enhance in this period of economic downturn period.

Pest (figure 1): As per PEST analysis Proton must have a specific market development by

introducing new improved product to the new market and also by providing it to local market

too to hold a command on local it and it involves investment to have a new product line up.

BCG matrix (appendix 3): According to BCG matrix proton fall under question mark

(problem child) stage .After studying the strategic position of proton the reader came to know

that its market is growing but its market share is not increasing too much. Due to some

weakness (lack of technology, quality prospective, lack of attractive design, financial

prospective,) the market is not growing rapidly.

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like having joint venture with Toyota to know about the secret involved in its lean

manufacturing as TOYOTA is the first one to introduce this strategy and it took almost 10

years. This is the key for TOYOTA’S success.

Porter’s 5 forces (appendix 4): According to this Proton can have multi domestic strategy

(international level) that could further involve lean manufacturing. This could help in

achieving high local responsiveness by providing customers what they exactly want and thus

cost cutting by the help of lean manufacturing to reduce initial cost that would help in having

a good savings.

Balance score card: Balance score card suggests that Proton should have product

development by the help of new technologies and changing its older one then again providing

them to general public to achieve maximum growth.

RECOMMENDED STRATEGY

Proton’s current strategies that could not help it to survive in increasing competition are:

maiden multi-purpose vehicle, Total product Management, Electric Vehicle,

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Now the main objective of this paper after having all the analysis would be formulating a

strategy that could not only support its current strategy to further improvement but also helps

it to have a competitive advantages over its rival that would include converting its capabilities

into core-competencies.

It would be recommended to proton that it should have a lean manufacturing that would not

only help it in waste management throughout the production process but also help it to make

a base for further future strategy as it changes all the initial process of production hat can lead

to waste of money, time, energy and resources.

For having this strategy Proton can have a joint venture or partnership with TOYOTA, as it

would take a long time and more money to have a lean manufacturing by oneself. TOYOTA

took almost 10 years to introduce it.

So Lean manufacturing would be the best suitable option for Proton to improve its current

position it can also use other defined strategy to have a little support.

CONCLUSION

Proton was considered as the national car manufacturer of Malaysia. However due to the

different factors, primarily the implementation of AFTA, the sales and market share of the

company declined. In details, the growing competition enabled the Malaysian market to have

a wide choice of cars to be availed. On the other hand, due to the strong support of the

government, as well as the strong position of the company in the market, it can be said that

the company failed to focus on the most important aspect of a company in order to maintain

competitive advantage, and that is innovation. A side from that, the company is also having a

problem in their supply chain, which results to high pricing of Proton's car compare to other

international brand in the market. In order to solve the current situation of the company, it

will be important to focus on lean manufacturing process. It would also be important to focus

on the HR aspect of the company in order ensure that the company has talented and skilled

staffs to develop new and better products that will suit the ever changing preferences of the

consumers.

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Even if Proton has changed its product line up very impressively, but it would include much

work for it to avail strong competitive advantage over its rival. A total of 240 acres of land

area is being developed for Proton Manufacturing Plant in Phase- It would be necessary to

have a good R&D to have new improved passenger cars that would suit the customer

preferences, it will also be important to focus on differentiation of the products having a good

watch to its competitors so that it can keep itself updated.

REFERENCES

BOOKS AND JOURNALS

1. Chung, W., & Kalnins, A. (2001). Agglomeration effects and performance: Test of the

Texas lodging industry Strategic Management Journal, 22, 969–988.

2. Hax, A. & Wilde II, D. (2003). ‘The Delta Model- A New Framework of Strategy’.

Journal of Strategic Management Education, vol. 1, no. 1. Available from:

http://pesona.mmu.edu.my/~wruslan/MISP2/Readings/detail/Reading-37.pdf.  

3. Kotler, P. and Keller, K.L. (2009). Marketing Management (pp 53, 77-84) New Jersey:

Pearson Prentice Hall

4. Nijssen, E. J. & Frambach, R. (2000). Creating Customer Value Through Strategic

Marketing Planning: A Management Approach. Springer 

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5. Prahalad, C. K., and Hamel, G. (1990). The core competence of the organization.

Harvard Business Review, 90, 79–93.

ONLINE JOURNALS

1. Strategic Management, Available:

http://www.emeraldinsight.com/products/journals/journals.htm?id=jsma Last

accessed: 25th Oct,2011

ARTICLES AND PRESS RELEASES

1. Measures To Increase Competitiveness, Available:

http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_e8890212-

7f000010-16251625-e40fbc3f Last accessed 07th Nov,2011

2. Official Press Release, Available: http://www.protonbrunei.com/12-05-2011-official-

press-release-proton-appoints-united-motors-as-its-new-importer-and-reseller-in-

brunei/396/ Last accessed: 10th Oct,2011

3. Proton Considering Hm Plant To Assemble, Available:

http://www.cardekho.com/india-car-news/proton-considering-hm-plant-to-assemble-

cars-in-india-3528.htm Last accessed 07th Nov,2011

4. Value Chain Analysis Of Proton, Available:

http://www.oppapers.com/subjects/value-chain-analysis-of-proton-holding-berhad-

page20.html Last accessed: 05th Nov,2011

WEBSITES

1. Annual Reports, Available: http://www.proton.com/pdf/AnnualReports/2010AnnualReport.pdf Last accessed: 15th

Sept,20112. Business Strategy, Available: http://tutor2u.net/business/strategy/ansoff_matrix.htm

Last accessed: 06th Sept,2011

3. Proton, Available: www.proton.com Last accessed: 25th Aug,2011

4. Proton, Available: www.proton-edar.com.my Last accessed: 25th Sept,2011

APIIT SD INDIA 12

APPENDIX

EXTERNAL ENVIRONMENT ANALYSIS

APPENDIX 3: SWOT Analysis

Internal analysis: SWOT

STRENGHTS:

• Financial background of proton is strong

• Extensive nationwide distribution network

• Influence of patriotism as Proton is national

car-maker Leading car market in Malaysia,

• It has developed a hybrid vehicle technology

on its own,

WEAKNESSES

• Reputation of poor product performance

and functionality

• High product cost

• Spare parts are expensive It has some

pending Litigations

• Failure in technology transfer,

• fuel efficiency is very bad,

OPPORTUNITIES

• To grow their business globally

• High demand of the products

• R&D development

• Demand of Fuel Efficient Vehicles,

THREATS

• Economic downturn – decrease of car

sales.

• A lot of substitute products in marke

• Threat of new rivals entering the market,

• Slow market growth,

APPENDIX 4: Porter’s 5 Forces Framework

Due to competitive environment and economic recession proton has threat from new and

existing rivals. The demand for cost efficient car is increase and by collaboration with

another company to produce hybrid cars, helps proton to overcome to its competitors.

PORTER’S FIVE FORCES TO ANALYSE PROTON:

Threat of New Entry,

Threat of Substitutes,

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Bargaining Power of Suppliers,

Bargaining Power of Buyers,

Intensity of Rivalry:

The structure of competition – new rivals entering into market.

The structure of industry costs – competitors have cost cutting and provides comparative

low cost cars.

Strategic objectives – its new competitor does not have any aggressive growth strategies as

it needs a lot of investment.

Degree of differentiation – differentiated product have a big demand. Proton can have a less

rivalry by differentiating its product (Hybrid, electric cars)

Exit barriers – for an automobile industry barriers to leaving is much high and thus it can

produce more rivalry

APPENDIX 5: BCG Matrix

One of the most common and long-standing way of conceiving of the balance of portfolio of

businesses is in terms of the relationship between market and share and market growth

identified by Boston Consulting Group (BCG). (Gerry/Kevan/Richard,2008).

APIIT SD INDIA 14

MARKET SHAREHIGH LOW

INTERNAL ENVIRONMENT ANALYSIS:

APPENDIX 7: Benchmarking

Type Description Most Appropriate for the Following

Purposes

Strategic

Bench -

marking

By having lean manufacturing to

improve overall performance.

A newly shifted American strategist

would help it in long term growth.

Performance

Bench -

By having a successful merger or

acquisition with the help of new

By closing performance gap.

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MA

RK

ET

GR

OW

TH

LO

W

HIG

H

STARS

Market growth is high but market

share is low so not in this

category. But it can use its

question mark position to reach

up to this level.

QUESTION MARKS

Car market is increasing but market share

of Proton is not increasing thus it falls

under this category, it can invest more to

cut its cost so that it can increase its

market share to move itself to STAR.

CASH COW

Market growth is high and market

share is low, so it does not fall

into this box.

DOG

In this category Proton should invest

more on those product that are very old in

technology and have poor performance,

as it is bringing up new version of Exora

(Exora 2)

marking technology transfer.

Process

Bench -

marking

Lean manufacturing that includes a

betters R&D to change its entire

production process to achieve short

term benefits in short period of time.

Waste management and cost cutting.

Functional

Bench -

marking

Cost reduction through improved R&D

or by introducing lean manufacturing.

Competitor cannot easily copy it as it

involves a lot of money as well as time.

Internal Bench -marking

A good improved staffs communication

so the access to sensitive data and

information would be easier.

Good training to all the staff of the

organization

External

Bench -

marking

Analyzing its competitor’s position to

work accordingly and by utilizing

opportunities when they knock the

door.

By having partnership with other good

car manufacturer.

International

Bench -

marking

By finding other business partners

outside the domestic boundary as there

is a less chance to find good one inside

the domestic side.

By globalization of its product that

involves market development.

APPENDIX 14: Balance Score Card Analysis

Balanc

e

Scorec

ard

Shareholder Look Operational

Effectiveness

Organizational

Learning

Customer

targeting

Proton a)A good shareholder a) a new developed a)new a) enhancing

APIIT SD INDIA 16

number as every

single person in

Malaysia has the car

from Proton.

b) Revenue and

turnover by

geographical segment

(Asia, Europe, Middle

East, Africa and

Pacific).

c) Revenue from

businesses such as

capital, industrial and

government.

technology,

b)first to introduced

its own design,

b) Technology in the

R&D and auto

development

technology has

increased its

percentage

sales, b)

providing

training to all of

its staff to

improve further.

 

after sale

services,

c) Customer

satisfaction

by taking

feedback

from the to

improve

Strategic and Integrated Partner companies

a) Volume, revenue, turnover, gross margin by individual client b) Year over year sales and turnovers growth by individual clients. c) new improved technology

a) Costly to have a new technology

b) cost to serve clients.

a) Number of clients on each country and partner. c) Return on % revenue on the center of excellence establishment

a) Customer satisfaction by good quality at a comparative price, b) Joint revenue and turnover from complementary relationship

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