Proton was incorporated in May 7, 1983. Proton is Malaysia’s first national car maker company. Proton is a Malaysian automobile manufacturer headquartered in Subang Jaya and Shah Alam, Selangor, Malaysia, with a manufacturing plant in Tanjung Malim, Perak. It all began in 1979, Malaysia’s Father of Modernization, Tun Mahathir Mohamad, (the Deputy Prime Minister of Malaysia), mooted the idea of establishing an automotive assembling and manufacturing industry in our country. Proton successfully produced its Malaysia’s first car, the Proton Saga, which is commercially launched on July 9, 1985 by our prime minister who had originally conceived the idea of a Malaysian car (History of Proton – Malaysia, 2010).
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Proton’s objectives include the development of indigenous research and development capabilities, world class manufacturing and production standards, design capabilities as well as a presence in the global market. To further cement their successes, they come out with the new model such as Persona, Exora, New Saga and Preve. According to Prime Minister Datuk Seri Najib Tun Razak, Proton Preve has been developed accordance with global standards of quality and safety (Proton unveils latest car model – the Preve, 2012). Today, they are constantly seeking progress that drives PROTON as a brand that encompasses not only making the best cars, but embracing the values that comes with it.
Currently, export is one of the mode entries that Proton is using to expand its market. For instance, Proton cars are making their mark internationally as competitive and innovative automobiles. They are now being exported to 50 countries including the highly competitive United Kingdom and continental European markets. In order to reach the commitment from customers, business associates, shareholders, government agencies, and employees, Proton is realizing its goal of being an internationally successful Malaysian automotive manufacturer. It is achieving this by being customer oriented and by producing competitively priced and innovative products.
Besides that, Proton has agreed with China’s carmaker company, Hawtai Motor Group Ltd on Memorandum of Understanding (MoU to gain collaboration in product development and give licensing on its current models to Hawtai Motor Group to be manufactured by Hawtai in China (Proton signs MoU with China’s Hawtai Motor, 2011). Main purpose for this collaboration is to develop the new models by sharing the cost and joint design. This enables Proton to lower down their cost and discover the potential cross-supplying of components from local Malaysian vendors to China. Proton also has relationship with the Youngman Automobile Group located in China. Youngman Automobile Group has been buying the Gen2 model from Proton since 2007 and selling the model under its own brand name. Proton is an automobile technology that is the pride and symbol of Malaysian innovation and dedication. Proton is preparing ahead now, with a view to globalize throughout the world. They will be breaking new grounds, opening new markets, and delighting new customers.
Proton Holdings Berhad has a joint venture with China’s Hawtai Motor Group Ltd to extend their expansion to China. They had come out with an agreement of Memorandum of Understanding (MoU) with China’s Hawtai Motor Group Ltd to explore collaboration in their product development that allow Malaysian car manufacturer to expand their business to China (Zaharin, 2011). Besides, Proton will also license its current models which are Proton Exora and the upcoming model presently coded ‘P3-21A’ to Hawtai Motor Group. These two models will only sell in Chinese domestic market and there are under Hawtai brand and maybe with co-naming with Proton because they had joint venture to extend their brand to worldwide so that everyone in different country will know their brand (Zaharin, 2011). According to Proton Group Managing Director, Dato’ Sri Haji Syed Zainal Abidin, Proton are now concerning into new models that manufactured by Hawtai Motor Group and it is suitable to redevelop to act as the substitute for existing Proton models so that the development and tooling costs will be shared by both companies (Proton signs MoU with China’s Hawtai Motor, 2011).
Proton-Lotus engineering is also having partnership with Youngman. Youngman is a family-owned company which is located in Jinhua, Zhejiang and now it has renamed itself as “Engineered by Lotus”. The car with the brand name of “T5 SUV” is the production of car upon the partnership between them. T5 SUV is the extended form of Gen-2 platform and it will use engines from Proton’s CPS upwards and will be priced in the range of RM 50,000 to RM 75,000. In order to going global, they also designed right-hand drive version and also left-hand version so that the model can be acceptable by all the nations and sold worldwide (Vong, 2012).
Proton Holding Berhad is also carry out partnership with Mitsubishi Motors Corporation which is located in Japan. This partnership was found to be failing due to the lack of technology transfer in year 2005. Proton has established a 20 years old relationship with Mitsubishi, but in the end it still broke down (Tan, 2005). However, Proton and Mitsubishi still wish to extend their partnership option in year 2008. Upon the partnership, Mitsubishi will be able to deal with the development and production of all vehicles which is under Proton brand and Proton also allows building new Mitsubishi-based vehicles (Klose, 2008).
Since 1983, Proton has established its automotive position consistently in producing and exporting cars. Currently, Proton has risen to a level where it has exported to more than fifty countries which include traditional export markets such as United Kingdom, Asia and South America including Australia, Turkey, Russia, India, Laos, Egypt and Argentina. Other than that, Proton is also aggressively expanding their business in other countries including Middle East and South Africa (Gabilaia, 2001). However, Proton does not export cars in the United States because of strict American regulations (Aero, 2012 ).
Proton started its international exporting in the late 1980 which exports from Malaysia to other right hand drive markets like New Zealand. However, it was not as success as compared to the United Kingdom so Proton had withdrawn from the New Zealand market in 1990 (Mandalina landy, 2009). When Proton first export of cars in Europe was started in 1988 where it exported to Republic of Ireland and a year later, they expand their export market to United Kingdom. There was a large unit of cars being exported to United Kingdom and Ireland in 1989 since the United Kingdom is the largest export market of Proton. They export the cars through its distributor in UK which is its subsidiary, Proton Cars (UK) Ltd. When Proton decided to export their car in UK, it shows a significantly improvement on the overall sales performance and increase in production units. According to Mandalina landy, Proton somewhat suffered poor quality product has made Proton’s image in UK being affected included the sales of the car dropped 14 900 units in 1993 to 4 600 in 1998. In addition, Proton also has suffered for intensive competition from other countries in automotive industry such as Japanese and South Korean carmakers. Therefore, Proton is too rely on its major export market in United Kingdom, Proton can export to other European countries since the company has not much expansion towards European countries.
Even though ASEAN Free Trade Area (AFTA) agreements has been reduced the trade of entry to ASEAN country makes Proton decided to make further expansion to ASEAN country (Mandalina landy, 2009) but it just with a small units of car exports to Singapore, Indonesia, Thailand, Brunei, Nepal, Pakistan, Philippines, Bangladesh, and Sri Lanka. Thus, it contributed to lower in term of Proton’s production and profitability. There are six original members of AFTA: Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand. Now AFTA has included 4 members which are Vietnam, Laos, Myammar and Cambodia (Gabilaia, 2001). According to Aero, Proton does not officially exported their car to Vietnam. Besides, South Africa is the second country after Singapore where Proton has exported Satria Neo (Thestar, 2006). Proton would still retain its status as a national carmaker, but they will be focusing on its export markets (Choong, 2012). This can help Proton to offset the poor sales performance on other export markets such as european market.
Generally, Proton enters into some other country’s market via signing a distributor agreement with local based distributor such as Indonesia, Thailand and Australia. Forward integration is one of the strategies in order for Proton to gain the ownership control of its distributor. Thus, through signing distributor agreement that Proton as owner and controller of the distributorship of Proton cars can increases its control over its distributor. Besides, countries with left hand driving culture such as Singapore and Australia, Proton are producing and exporting left-hand car models to enter the market whereas neighboring market such as Thailand and Indonesia, Proton are serving them with right hand drive model of cars. Since car exports are contributing substantial revenues for Proton. Therefore, from 2008 onwards, Proton plans to push for annual car exports to 100,000 within the next few years (Neil McDonald, 2006).
Due to a lack of technology transfer, Proton has ended partnership with its major supplier Mitsubishi Motor in 2004 (Alborz Fallah, 2007). However, it does not affect Proton much regarding the supply of component part since they had been acquired Lotus Cars Company in 1996. Through acquisition, Proton able to obtain an additional source of engineering and automotive expertise since Lotus is well known with its engineering design and technology knowhow. According to Gabilaia, Proton is doing research and development with Lotus engineering and Petronas Formula1 team in order to build their own national car with their own engine without relies on the some component part supplied by Mitsubishi.
As Proton was lacking of competitiveness in domestic and international markets, several measures were taken to upgrade the company over the years. The turnaround point was through acquisition of Lotus by Proton, Proton is gaining the advantages from lotus in term of a major R&D house through the well regarded Lotus Engineering as well as enter into European market which have been traditionally less responsive to Proton. Since Proton did the usual mistake among late coming automakers exporting from the very start to expand to the most competitive markets in the global North, it had made Proton suffered poor image quality. Thus, Proton regain the opportunity to go after a completely different customer segment without eroding the Proton brand in European market through acquired Lotus (Abdur-Rahman Syed, 2011).
Proton has expanded over 50 countries in the world but they have yet to capture a big presence in Asia nations. As we know, India has the world’s second largest population in nations after China. Proton should target India to expand their operations since India’s market is not as compact as China yet which is still very prospective. As the failure of developing a concrete partnership agreement between German automaker Volkswagen and Proton (Paul Tan, 2006), Proton should gain another partner to broaden their market. Thus, we suggest Proton to pursue a partnership with the Japanese car-maker, Maruti Suzuki, a subsidiary company of Suzuki Motor Corporations which is a carmaker leader in India.
Maruti Suzuki is a leading automobile manufacturer and the market leader in India car segment. By having a partnership relationship with Maruti Suzuki, Proton can easily capture the Indian market by the existence of well brand reputation of Maruti Suzuki in India. Maruti Suzuki has established a highly profitable joint venture with the India government that creates nearly monopolistic trade in the Indian automobile market. This is also one of the reason why Maruti Suzuki able to become India’s largest passenger car company. Through this joint venture, Proton can avoid many complex regulatory procedures from government department while entering India market.
On the other hand, in order to continually dominate India domestic car market opportunities, Proton can propose to Maruti Suzuki with its multi-purpose vehicle (MPV), Proton Exora to be launched to the India domestic market. Although Maruti Suzuki has its own MPV in India but the price is much higher than Proton Exora. India’s car market does not have much (MPV) with a lower price. Proton Exora can offer a lower price than other MPV cars currently existing in the market. The proposal is likely to be successful because the MPV cars price is much higher than Proton Exora.
Besides, Proton can collaborate with Maruti Suzuki in making diesel-powered car. The demand for diesel-powered vehicles has surged in the country following the widening gap between prices of petrol and diesel. (Maruti Suzuki may not meet 10% sales growth target in FY13, 2012) The gap between prices of petrol and diesel widening from Rs9.83 to Rs25 now, obviously there has been a shift in demand towards diesel. Proton can support the manufacturing process of diesel car by exporting their technology from Malaysia to India. For example, Lotus Omnivore engine which offers a 10% increase in fuel efficiency compared to stratified direct injection engines.
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Based on Proton’s current practices, we know that Proton is exporting their cars to its major countries like United Kingdom. This practice indicates that their exporting strategy is too narrow because they just focus on exporting large units in one country. Proton should focus more in exporting large units of cars to ASEAN country like Indonesia, Thailand, Vietnam, Pakistan and so on. It is because these countries have the lower-cost based locations where it can provide low-rate of warehouse to put their cars (Hills, 2011).
Moreover, it can also lower the paid for substantial costs of establishing manufacturing operation compared to United Kingdom (Hills, 2011). Another issue of exporting cars is the transportation costs; in which it requires high exporting cost to export car units to other countries (Hills, 2011). This will lead to low profitability and high expenses. Proton should try another mode entry instead of exporting, they can choose manufacture their car units regionally like wholly owned subsidiaries (Hills, 2011).
Recently, Proton has selected a new entry mode like joint ventures with China’s Hawtai Motor Group Ltd in China (Zaharin, 2011). The disadvantage of this practice is risky because it will reduce Proton’s controlling power to its partner (Hills, 2011). For example, Proton Exora and ‘P3-21A’ only can sell in China and it is under Hawtai brand. It shows that Proton has no power to make any decision in China market. In addition, Proton would not have the full control over their partners. A good example, all models will be manufactured by Hawtai Motor Group for redeveloping to substitute Proton models in China (Zaharin, 2011).
Furthermore, this practice would lead to battles and conflicts for control between the firms if their main objectives and goals are different and it may arise different point of views. For example, Proton Holding Berhad and Mitsubishi Motors Corporation where the partner give a slow pace of technology transfer and lead to end up their partnership in 2005 (Tan, 2005). This kind of problems would be serious if both of the firms are from different country due to the different views and perceptions. In order to prevent this problem arise, one of their partner must have a full controlling interest (Hills, 2011).
Acquisition is a good expansion strategy to be implemented but a suitable acquisition is vital in order to make profit. Acoording to Proton Cars Berhad managing director, Dato Syed Zainel, Proton is looking forward to be more export oriented in the future. Proton’s strategies dovetail particularly in the areas of quality enhancement and improvement, cost improvement and enhancement of production efficiency (Future plan- Proton, 2008). In my opinion, Proton should acquire carmaker which has more similarity of car category as Proton such as Mitsubishi. Instead of partnering with Mitsubishi, Proton should acquire their company since Proton is funded by government and has higher capital compared to Mitsubishi, a fully private owned company.
Mitsubishi is also a well recognized carmaker company globally which can help Proton to boost up its brand name. Currently, Proton is already the partner of Mitsubishi Corporation under the partnership with EON Berhad since 2005 (Mitsubishi Motors, 2012). Mitsubishi is making losses in the European countries due to difficult operating environment and in debt-hit continent and is expecting to end manufacturing automobiles in Europe by end of 2012 (Loss-making Mitsubishi, 2012). This condition would be a favorable opportunity for Proton to acquire Mitsubishi.
By acquiring Mitsubishi, Proton can gain benefit by sharing Mitsubishi’s global network to make exportation to uncovered regions such as North and South America, Africa and Oceania which are already the global network of Mitsubishi (Global Network Mitsubishi, 2012). In North America, Proton can export its car to countries like United States, Canada and Mexico which made up of high income (U.S.A), middle income (Canada) and lower income (Mexico) customers. With these varieties of income level, Proton should export cars of different price ranges to fulfill the American requirements.
Currently, Proton does not export their cars to United States of America due to strict regulation of their government. By acquiring Mitsubishi, Proton can gain benefit by indirectly scheming into the American market. In Africa, Proton can export its car to countries like Zimbabwe, Nigeria and Kenya which mostly are made up of low income citizens which cannot afford expensive cars. Proton can produce cars which are of lower prices compared to prices of other carmaker companies offering them in the market to capture the African market. Meanwhile, Proton can scheme into customers that are not so fussy in countries like New Zealand and Palau in Oceania. Oceania societies are not very fussy in picking up car brand like Proton may be new to them but able to prosper at the same time.
Other than using Mitsubishi’s global network to do exportation, Proton can get benefit by adopting Mitsubishi’s Japanese technology which is very innovative, effective and efficient. As we know, Proton often criticized for not being innovative enough in designing their car models. By acquiring Mitsubishi, Proton can gain full ownership of Mitsubishi’s Research and Development centre. Thus, Proton can send its local engineer to learn the Japanese innovation and technology. Mitsubishi’s technology also can benefits Proton by enhancing the quality and production efficiency of Proton’s car and making cost improvement
As mentioned in the current expansion, Proton had acquired Lotus which has a strong market branding in the European continent (Lotus Purchased by Proton, 1996). Proton can use Mitsubishi technology to manufacture their cars and at the same time uses the Lotus branding to market their cars to the European continent to reposition both Mitsubishi and Proton among the European countries. By acquiring Mitsubishi in the future not only Proton can improve the production of their car in terms of quality but can also globalize our local brand across all continents.
In conclusion, Proton is an example of successful national car maker. Due to strong government support, Proton car became an icon of both personal and national success in Malaysia. Proton provides good quality and affordable car in order to encourage local residents to purchase and promote patriotism.
There are plenty of ways of expanding a business. Proton has been expanding their business in other countries to fit the customers changing needs and also competing in this highly competitive market. The first current expansion strategy used by Proton is by exporting their product to other countries. Proton had successfully penetrated into United Kingdom, South America as well as Asian countries after meeting a number of challenges in terms of quality problems and regulations of other countries. Subsequently, acquisition is also one of the expansion strategies. Proton had acquired Lotus after ended its partnership with Mitsubishi. Proton is gaining the advantages from Lotus in term of a major R&D and expertise to develop its own engine without relies on Mitsubishi. In 2011, proton has joint venture with China’s Hawtai Motor Group Ltd to extend their expansion to China. Proton will license its current models which are Proton Exora and the upcoming model presently coded ‘P3-21A’ to Hawtai Motor Group to extend their brand to worldwide so that everyone in different country can recognize their brand. Proton Holding Berhad was carrying out partnership with Mitsubishi Motors Corporation which is located in Japan. This partnership was a failure due to the lack of technology transfer in year 2005.
On the other hand, we recommend Proton to pursue a potential collaboration with the Japanese car maker which is also the car maker leader in India, Maruti Suzuki. Maruti Suzuki is a leading automobile manufacturer, therefore it can easily capture the Indian market by the existence of well brand reputation in India. We also recommend Proton to collaborate with Maruti Suzuki in making diesel-powered car due to the reason of demand for diesel-powered vehicles has surged in the country following the widening gap between prices of petrol and diesel. Proton can also use acquisition for their future expansion. We recommend Proton to acquire Mitsubishi and use the Mitsubishi technology which can help in enhancing quality and productivity as well as cost improvement of Proton’s cars and at the same time uses the Lotus branding to market their cars to around the world. Mitsubishi also has a wide global network which they had already expended to all regions in the world. By acquiring Mitsubishi, Proton can benefit from using their global network to do exportation.
To achieve an excellent result, Proton will have to constantly strive to be at the forefront of the industry. Proton also has to persistently improve its products and services in the wake of increasing competition in this market. Their mission is to dominate the pursuit of being the first choice of car making company for Automotive Products & Services.
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