Contents

Executive Summary

The automotive industry in Malaysia especially domestic market can be considered as

one of the most important and strategic industries in the manufacturing sector.
Comparing the 2 local car manufacturer Proton and Perodua, it has contributed the
growth of the domestic market and also boost up the industrialisation process so that
Malaysia can be a developed nation by year 2020.

Proton as a pioneer car manufacturer in the country, offered a variety of car model to
the doemstic market. It has an arrangement and corporation with the Japan technology
automotive company Mitsubishi to develop and assemble their first car Proton Saga
and susbsequently car model like Iswara, Wira, Perdana, Gen-2, Exora and etc. Proton
not only co-operate with Mitsubishi but also ventured into Europe market by engaging
with Lotus and Volkwagen to enhance their research and development skills in
producing advance technology car as well as high quality with competitive pricing for
domestic market. Despite the benefits and price offered by Proton, certain problem
has been identified here where Proton is facing major problem of losing its market
share to local car maker, Perodua as well as imported cars after after implementation
of ASEAN Free Trade Agreement by the local government.

Perodua penetrate its product as second local car manufacturer which having a
concept of affordable and compact size car. Its also engaged with Japan technology
automotive company Daihatsu where Perodua has successful produce its small and
compact car name Kancil. Perodua target different market and hence make it easy and
affordable for consumer to purchase their products. One of their core value is to
compete and dominate the local market share after Perodua has co-operate with
Toyota for better technology development in the car component. Therefore, a
comparison and recommendations has been included in this report in order to increase
their demand in the market. Possible solutions to mitigate the problems identified are
by introducing strategy planning with core value to improvise features to boost up the
sales revenue and market share.
Business Overview Auto Industry

The core value of this assignment is to concentrate on comparison of 2 automotive

companies, Proton and Perodua and evaluate and contrast in order to analyse the
startegy and recommend an appropriate strategy to enhance the position of the
company in the market.The dominance of Proton and Perodua in the Malaysia market
can be attributed to their effective price strategy and the governments protective
policy. According to (Brandt & Lim, 2013) automotive industry can be considered as
prominent market in Malaysia because of the economic status and political stability..
Hence, the significant role for companies is to identify or forecast the development of
automotive indutry so that the Management can assess on their potential impact
towards the company (Nijssen & Frambach, 2001)

Background of Proton

The very first national car-maker, Proton was incorporated on 7 May 1983 which
having its first operation to produce and assemble motor vehicle in Malaysia. It also
produce other product such as spare part, accessories and other vital component which
related to the automotive industry. Proton engaged with Japan technology car maker
Mitsubishi to produce their very first model Proton Saga in 1985 at its factory plant
located in Shah Alam Selangor by former Malaysian Prime Minsiter Tun Dr. Mahathir
Mohamad. Primarily, Proton produced its first car by using Mitsubishis components
and parts, but soon the technologies and skills engineering were transferred to
domestic plant. In year 1993, Proton successfully launched Proton Wira to the
domestic market which resemble as Mitsubishi Lancer due to its design and
technologies and the reception of customer was elevated. Over 220,000 units of this
car were sold during year 1996 till 1998. Apart from that, Proton Perdana which also
resemble as Mitsubishi Eterna was born in 1994 which main target for higher value
market. In 1996, the new manufacturing plant in Tanjung Malim, Perak which is part
of Proton City project, was open in 2004 where the very first acquisition of Lotus
technologies assisted Proton to have an extra knowledge of engineering and expertise
to produce the Proton Gen -2.

Proton has a very successful market for export sector especially global market
because of its competitive pricing tactic. Example, in United Kingdom where Proton
tied up with the car rental companies for buyback arrangement and it also gain
advantages from the GPS (Generalised Preferences Scheme) that enhance thier
penetration into the market easily.

Further to this, Proton also engaged with Volkswagen AG of Germany to form a

partnership to enable both of the companies to take advantages of their strengths to
cooperate but however this partnership failed due to variety of reasons in 2006. Due
to some economic and social reasons, Proton share was dropped to 30% in 2005 as
compared to the prior year where they had the highest market share of 60%. The
market share for Proton will further decrease in the subsequent years because of the
ASEAN Free Trade Agreement which mandates reduce tariffs to maximum of 5%
(Ministry of International Trade and Industry , 2014) Based on this, Proton may face
some difficulty ahead but nevertheless it has the wide experience and resources for its
future growth.
Background of Perodua

Perodua began its journey as the second national car company to serve the nations
need for an affordable and industry leading quality compact car. Perodua is a joint
venture company between Malaysia and Japanese counterpart, which established in
1993. Perodua started its operation in 1994 and the very first car PeroduaKancil was
introduced to the domestic market in August 1994. Perodua mainly produces small
compact cars and therefore does not actually compete with Proton for the same
market niche. Besides manufacturing cars, Perodua also produce engine component
parts for both local and international carmakers, which helps build automotive
industry in Malaysia but nevertheless Perodua does not actually produce any in house
designs or engineering for the main components like engine, transmission and etc.
Historically, Perodua cars are badge engineered from previous Daihatsu designs.

As of now, Perodua has 41 branches and 139 sales dealers nationwide to serve its
customer efficiently. Perodua vehicles are also sold on other countries such as United
Kingdom, Singapore Brunei and Sri Lanka. This is because Perodua cannot depend
solely on the domestic market to grow. As indicated in the previous years report, to
prosper and thrive, Perodua has to expand its export potential further. Tangible and
sustainable growth in the international market will be the mainstay for Perodua as it
aims to expand its market share and sales volume in the export markets. Whilst
Perodua has already gained a foothold in some markets, there is a need to explore new
emerging markets to tap into. In line with Peroduas 10 years roadmap, the Group is
committed towards expanding its regional presence in terms of sales and distribution,
particularly in ASEAN, China, India and the Middle East. Certainly, its strategies to
grow the brand beyond Malaysian shores are beginning to show progress in terms of
sales growth. It must now also source components and identify manufacturing
facilities that will optimize costs and efficiency.

For the domestic market vendor, this will also represent significant additional volume
for their manufactured components. Perodua is also expanding its non-manufacturing
business by optimizing revenue that can be obtained from its Group intellectual
property. An example of this strategy can already be seen in the business arrangement
entered into between Perodua and Mitsui. Perodua is also mindful of the need to
improve operational efficiency, particularly with regard to improved capacity
utilization. Towards this end, Perodua has identified contract manufacturing for other
OEMs interested to enter this region as a possible means to supplement its own
manufacturing volumes.
 Figure 1

According to the Malaysian Automotive Institute (MAI) Review and Insight 2014/15,
Proton captured 21.2% in 2013 due to the different factors such as the economic and
social aspects, but however the market share dropped to 17.4%. On the other hand,
Perodua has dominate the market share for both year 2013 which recorded as 29.9%
and year 2014 marked as 29.4%, a slight decrease of 0.5% and this could be due to
other factors like new market penetration by imported car into Malaysia. According to
Desset al (2007) PEST analysis is one of the common and effective model for the
external analysis for both Proton and Perodua but (Doorley & Garcia, 2010)
suggested using Porter Five forces model for an effective results of external analysis
of an organization.

Figure 2
Figure 2 shows the industry analysis of the automotive industry for Proton and
Perodua which both shared the same model. According to Porter, there are 5 important
factors which show the attractiveness or value of the structure of the industry:-
(Patterson, 2011)
Threat of new entry
Threat of substitutes
Bargaining power of suppliers
Bargaining power of buyers
Rivalry among the existing players

Threats of new entry - LOW

The threats of new entry pertain on how easy or difficult for new entrant to start
competing (Porter M. , 2008). The primary barriers of new entry are the high capital
and investments that are needed in order to enter the industry. This is because it
mainly focuses on the different technologies that are needed in order to come up with
the quality and services that are being offered by the long time players in the industry.
Aside from that, it is also important to consider the availability of the distribution
channel which is very important in connecting with the customers. Furthermore,
because there is long time player in the industry, brand loyalty of the customers is
considered as inevitable. As such, both Proton and Perodua will not have much impact
and threat due to heavy investment and huge capital needed in this industry.
However, due to AFTA, the government offers friendly entrance policies for the
possible new entrants (Ghani, Zainuddin, Fereidouni, & Ziaee, 2008).

Threat of Substitution - MODERATE

The threats of substitution pertain on the ability of the customers to go for substitute
products that might be cheaper and accessible. In terms of the passenger car industry,
the growing demands for bikes and motorcycle. More and more people are switching
from using the passenger cars into using bikes and motorcycle due to two reasons,
first is that it helps them to save money because of gasoline, at the same time, the
consumer are becoming more aware of their environmental benefits. Thus the quality
of the substitutes products, the willingness of the customers and the low costs of
switching enable the threats of substitution increased. As such, both Proton and
Perodua facing medium threat due to the substitute products offered.

Power of Buyer - STRONG

The bargaining power of the customers in this industry is somewhat high due to the
homogenous or almost the same products, which divide the number of sales from
huge number of competitors. But it can be maintained due to the huge number of
buyers, primarily in developed countries, aside from the fact that the buyers are
fragmented. Above all, the importance of quality of the products and services are
important factors, which affect the power of the buyer. As such, due to the vast
number of options available in this market, both Proton and Perodua are facing high
bargaining power of customer.
Power of Supplier - LOW

The supplier has a neutral power over the industry. This is because there are few
dominant suppliers in the industry who are well known for quality and brand image.
This is affected by the high role of quality and service in the industry, because the
industry is directly connected to safety and quality of life of the customers. The most
important factor that adds up to the influence of the suppliers is the high cost of
switching. Their core competition is to be stay influential on the business via quality
material and costs effective including delivery of vehicle on time, hence both Proton
and Perodua facing low supplier power.

Competitive Rivalry - STRONG

The competitive rivalry pertains on the intensity of rivalry among the competitor in
the industry. It Is important to consider the improving product differentiation due to
the extensive effort of each and every automobile company in the world to become
unique and have the stronger market position in the industry. This is major impact of
the large number of organization competing in the global market including local
players, Korea, China, and Japan which result to diversify of cultures and
organizational behaviors of the rivals. The low switching cost from one brand to
another intensifies the competition in the market and pushes all of the major and
minor players to focus on R&D and innovation processes in order to improve their
overall performance in the market. Above all, the competition is increased due to high
exit barriers because of the human resource and facilities. Therefore, every company
in the automotive tries to hit the market from different angle so both Proton and
Perodua is facing high competition in the market.
Boston Consulting Group Matrix

One of the planning tool 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) (Johnson, Scholes, &
Whittington, 2008). The idea is to fund the growth of promising and launch of new
products from the profits of successful products in the product portfolio.

Strategic involves continuity of direction and defining the dos and donts to the
market in order to deliver value to customers with an aim to make a superior return on
investment.

The nature of this matrix divided into four areas, and four group of strategic business
units can be distinguished as per below diagrams.

Figure 3 Proton

BCG Matrix for Proton

STARS Proton need to use its cash cow position to reach up to this category as it has
now started to bring on new technology to increase its market share in new global
market. For instances like, Proton need to divert its business plan to energy saving
technology or hybrid synergy development in order to stay put at this position
although Proton need to pump in more capital to sustain their growth. According to
(KPMG, 2014) automotive industry is full of technology industry and there is a war of
technology in this industry hence competitors adopt new technology to fulfil the
customer requirements and demand in more innovative way.

Cash Cows Proton should work to get into this position under this group. It has less
percentage in this group as the growth of other automotive industry has now started
increasing and stay put in this market share. Under this circumstance, Proton can
continue to generate a strong cash flow in order to save and re-invest in Stars group as
the impact of external forces results more pressure and influence on the advance
technological used.
Question Marks Proton can invest more in increasing its market share in that
particular country where the growth of market is high, as currently it does not fall in
this group to move itself to Stars group. According to (Joyce & Woods, 2003) the
economic stability and economic growth of a country has direct impact on the
businesses, for example in UK where its economic stability provide an opportunity for
Proton to do business in this country.

Dogs Under this group, Proton should invest more on those products that are very
outdated in technology and have poor performance, for instances like bringing up new
version of Proton Tiara to Tiara S because unsurprisingly this group may generate
sufficient profit to break even, but are rarely, if ever worth investing in. As such, lack
of strategic planning may result Proton Tiara become obsolete in the market share due
to its low growth market (Wang, Walker, & Redmond, 2007)
 Figure 3 Perodua

BCG Matrix for Perodua

StarsPeroduas strategic business units in this group require large investment to

defend its position. This strategic business units will turn as cash cow after some time
Perodua grew in sales volume as compared to the previous year, increasing its
category share higher, thats why it will come in the Stars group. For instances like
Perodua Alza, where they are relatively strong compared with the competitors under
the MPV car category in domestic market.

Cash Cows Currently Perodua is sitting in this group because its cover 29.9%
market share in year 2014. The success of Perodua can be attributed to 2 vital factors
which is the price and quality. At a low price, customers could have something better
than cycle car and also which is small, compact and easy to drive car. This was
referring to Perodua Viva and Myvi has become favourite for young adult, female
driver and family size of 2-3 members. By referring to (KPMG, 2014), the
demographics statistic trend shown that it may have impact on the selection of car to
purchase by the customers so Perodua have to manage for their continued profit in
order to push its product to Stars group by 35% for upcoming year.

Question Marks The startegic business units in this group has two options for
Perodua, either to invest heavily and bring them to Stars position or liquidate from
that position. The refresh of Perodua Kelisa now become Viva planned for launch in
year 2007 will help the company to leverage this opportunity. Perodua has a strong
presence in the small and compact segment. However, Perodua is currently absent in
large car segment, which is a drawback for perodua. Hence, Perodua need to think
hard about which ones should they invest in and which ones should allow to fail or
shrink as large scale of innovation needed to revamp the product in the market share
(McAdam, 2002)

DogsPerodua did not fall under this group thus far as they know how to create
market share and how to manage its resources effectively with the help of latest and
advance technology to fulfill the demands or requirements of the consumers. But
nevertheless, Perodua must introduce new innovation together with market demand in
order to stay out this Dogs group (Wyman, 2015)
 Basic Model of Porters Value Chain

The Value Chain

Value Chain analysis in Porters value chain illustrates the undertakings of the
company and connects them to the companies competitive position. Hence, it assesses
the importance of every specific activity supplements to the company products or
services (Porter M. , 1985)

Protons Value Chain

Support Activities

I. Procurement

Proton coordinates to purchase the raw materials, part and components getting
advantages in price and quality. It is noted that Proton has used the supply
chain method of just in time logistics to get supply from local manufacturing
company as well as other region for cheap labour sources.

II. Technology Development

Proton has invented this PTAC (Proton Technology Advisory Council) to carry
out task like timely preparation and risk mitigation of technology acquisition
based on the information given by the panels. The reason is to offer
recommendation to Management on current technologies and worldwide
automotive trends. Besides, PTR (Proton Technology Roadmap) functions as a
outline for the Management in determining Protons future car. It develops an
essential segment of the decision making process of the technologies in order
to remain competitive and profitable in the local and international market
within 10 years.

III. Human Resource Management

Proton adopts the approach of collaboration with colleges and universities. It

developed skills development and training such as oversea training which
create new models and built new hybrid car. Further to this, Proton Innovation
& Invention Competition created annually which enables employees to
generate new ideas and interest in creating next generation cars.

IV. Firm Infrastructure

Proton had become well known and dominates in the local market due to its
operating divisions and manufacturing plants. Due to its geographical location,
it produces an opportunity for global investment and integration in business
environment.

Primary Activities

I. Inbound Logistics
 Due to the over dependant on vendors in previous year which resulted in 60 %
defects on the products because of poor quality in vendors, Proton has reduced
the number of vendors to concentrate on quality improvement. This has
increase the inbound control in order to reduce costs and have a product
variety.

II. Operations

Currently Proton has 2 plants and Shah Alam plant can produce up to 200,000
units per year whereas Tanjung Malim plant can produce 150,000 units
annually. Since year 2011, Proton has come out with a strategy of Vehicle Cost
Reduction to minimise effect of material cost increase to the car price and
consider cost improving activities to safeguard its price competitiveness. The
product lifecycle management has build the platform for collaboration and
integration of business processes which help Proton improve operational
efficiency, refine product management and eliminate redundant process.

III. Outbound Logistics

In year 2012, Proton has implemented the centre for logistics, allocation,
storage and services. It has an accommodation capacity of storing 13,000 units
for domestic market and subsequently for export purposes. Furthermore this
process allowed to minimise a number of complication along with multiple
approach by 40%, undesirable waiting time to a maximum of 3 days, and
surplus inventory at production point.

IV. Marketing & Sales

Due to government implementation of National Automotive Policy, the open

APs will eventually stage out by 2015 and Proton cannot co-operate with the
used car dealer for car trade in rebate strategy. Hence, Proton only maintained
its current advertising methods like running road show and participate or
sponsor on events or sports game to create brand awareness.

V. Services

Proton has engaged and co-operate with a few local bank such as CIMB,
Maybank and Ambank for pre-purchasing customer financial service. This
arrangement has been supported by the government to approve affordable
interest rate of 2-3% per annum. Its also come out with a genuine Proton
service guarantees and free service for first year throughout all its service
centre nationwide. Proton wants to ensure the high level of customer
satisfactory is met within the operation of their service to the buyer not only
pre-sales but also after sales service is fulfilled.
Peroduas Value Chain

Support Activities

I. Procurement

Perodua implement the Electronic Supplier Information & Management

System (e-SIMS) to authorise e-business and to contact its suppliers and
bargaining competitve costs. This system intent to create smart business
partnerships and increase more opportunities for domestically vendor by being
able to communicate effectively and efficiently through supply chain
technology. It can adopt the just in time logistic methods and also increase
operating efficiency.

II. Technology Development

Perodua has entrust hefty resources in manpower and computer software for
their production line. Its R & D department concentrates on inventing
innovative products in motorised technologies varying from primitive testing,
design and styling to manufacture engineering skills. The activities include
styling or modelling, concept car development and the ability to undertake the
major facelifts. The vital conduct of the R & D department are localisation of
car parts and components, styling or modelling of future models and facelifts
of current product range in order to gain competitive advantages in the market.

III. Human Resource Management

Perodua always administer a favourable working condition and ensure

employee who has outstanding performance be given chances for promotion
because Perodua always affirm that competent human resource is key to
achieve the company mission. This is due to its culture always encourage in
teamwork and employees to put forth and develop ideas for greater efficiency
and productivity. Besides that, it also rewards staff performance by constantly
reviewing their KPI and upgrading the companys perks and benefits.

IV. Firm Infrastructure

Perodua has become well known in the business for the collective decision
making process utilised by its top management. Its strong leadership creating
geographical location facilities likes showrooms and service centres in order to
create customer oriented environment. Perodua also emphasized on R & D
department aiming to improve the quality of their products and entering new
technologies to gain sustainable advantages.

Primary Activities

I. Inbound Logistics
 Perodua has good relationship with vendors and the company provide the e-
SIMS to contact its vendors. The activities required to receive, store, and
disseminate inputs done smoothly with good facilities provided at the
headquarter plant. This is because the employees are well trained for
overseeing the smooth transit of goods. Besides, it create an efficient storage
facilities to ease storage and retrieval.

II. Operations

The plant currently has the capacity to produce 250,000 units per annum on
two shift cycle within space of 64,000 sq metres. The manufacturing
capabilities of Perodua and local Malaysian component manufacturers have
reached 75 LMCP (Local Material Component Points) meaning that the
professionalism has been implemented in all operations unit. The Management
always ensure adequate training is given to stable the source of skilled worker
likes the Kanban and Kaizen system is continue implemented to improve
efficiencies. Perodua maintain the maintenance for technical competence and
designed models which are related to customer trend and demand to suit
different market segments.

III. Outbound Logistics

Perodua has 41 sales branch and 139 sales dealer nationwide to serve its
customer efficiently and makes it easy accessible. It also have sufficient
transportation and trained personnel as well as efficient security system for
prevention of any kind of pilferage.

IV. Marketing & Sales

Peroduas strategy emphasizes on advance technology assemble into all its

products and it offers small and compact size car for its customers. Several
advertising and promotion has been carried out like media advertisement,
campaign and road show activities. The position of yield levels with customers
order tend to concentrate on marketing approach, so the assembly levels of
certain models can be differ up or down as a function demand.

V. Services

Perodua maintain the manufactured goods and services attitude functioning

effectively for the customer after sales or delivered. Perodua is endeavouring
to perk up their relationship with the customers by being responsive to the
service support throughout maintenance and repair likes body repair & paint
centre available nationwide, creating high level of transparency with their
customers.

VI.
Conclusion

The drawback of Perodua is over dependence on the domestic market, government

support, and the foreign partnership through indirect linkage to Toyota for the
companys survival and growth. This brings a weak brand image of Perodua in the
international market and in turn, makes it difficult for them to reduce the cost of
products and be competitive when the trade barrier falls. Besides that, Perodua is also
notorious for the lack of quality in certain models and their small model range due to
low safety measures in the design of their small car models. Thus Perodua should
consider looking at newer markets as their home markets are getting saturated, take
advantage of the current situation of increasing fuel prices that will drive the society
to switch to smaller cars in hopes of saving fuel, and change their market targets
which are more favourable to smaller cars as future opportunities.

On the other hand, Protons reputation is also poor when it comes to product
performance and functionality. Due to their short history in the car making industry,
Proton has been falling short when it comes to producing high quality cars. Beyond
that, it is also observed that Proton is unable to meet the demands of the power
window function in several of their product models. This put Proton in a situation
whereby the company is no longer a competitive and economically viable entity as
compared to global leaders. Therefore it is suggested that Proton should venture
further into hybrid vehicles as they have already made a head start by investing in the
said technology. Through complete research and development, Proton would be able
to come up with more innovative products to ensure its brand name remains in the
industry. This would later on lead to other opportunities for the company to emerge as
a new market and make expansion abroad possible for an increase of sales and
reputation.
Referencing