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Case 2 - Proton Case Study 2014
Case 2 - Proton Case Study 2014
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Proton: Its Rise, Fall, and
This case was prepared by
Jane Terpstra Tong, Robert Future Prospects
H. Terpstra of Monash
University Sunway Campus,
Malaysia and Lim Ngat Chin For Dato’ Haji Syed Zainal Abidin Tahir (Syed Zainal,
of The Nottingham Univer- hereafter), Managing Director of Proton, recent headlines
sity of Malaysia Campus as
a basis for classroom discus- such as “Auto Sector Faces Numerous Challenges” and
sion rather than to illustrate
either effective or ineffective
“European Carmakers Zoom in”1 were simply reminders
handling of an administrative of the challenges his company faced. Proton had been
or business situation.
troubled by its declining share of the domestic auto market
Please send all correspon- (Exhibit 1) and consequent dwindling profits and margins.
dence to Jane Terpstra Tong,
Department of Management, Without taking into account the government’s R&D grant
Monash University Sun- in 2007/2008, the company suffered three straight years of
way Campus, Jalan Lagoon
Selatan, Bandar Sunway, losses from 2007 to 2010. Its finances recovered a little in
46150 Selangor Darul Ehsan, 2009/2010, thanks to the government’s “cash for clunkers”
Malaysia. E-mail: jane.tong@
monash.edu incentive programme, a MYR143 million (USD48 million)2
R&D grant from the government, and some improvement
in sales. However, its net profit margin barely reached
3% — very low by industry standards — and most of its
performance measures lagged behind those of the industry
leaders (Exhibits 2 and 3). The stock price of Proton’s listed
parent, Proton Holdings Berhad (Proton Holdings Limited),
had been substantially lower than its net asset value for
several years (Exhibit 3). Because of its low market to book
ratio and the heavy government subsidies paid to Proton, Mr.
Syed Zainal was under tremendous pressure to turn around
Proton’s performance. Adding further pressure, the changing
institutional environment had exposed Proton’s inability to
compete. Since 2005 when the government committed to
Malaysia’s Profile
4See Chin, J. (2009). The Malaysian Chinese dilemma: The never ending policy (NEP).
Market Demand
5Including trucks and other commercial vehicles, Thailand had the biggest auto
http://money.cnn.com/magazines/fortune/fortune_archive/2006/07/10/8380925/
index.htm
8See Karim, F.N. (2006, April 8). Strategic alliance must benefit industry: Dr. M.
system (update 1). Bloomberg Business Week. Retrieved May 11, 2010 from http://
www.businessweek.com/news/2010-03-04/malaysia-delays-plan-for-new-gasoline-
subsidy-system-update1-.html
11Teh, E.H. (2010, May 25). Subsidy cuts to boost economy. The Star, N17.
Key Stakeholders
12The German Chamber Network International. “Market watch 2010”, The Malaysian
automotive and supplier industry. Retrieved September 6, 2010, from http://
malaysia.ahk.de/fileadmin/user_upload/Dokumente/Sektorreports/Market_
Watch_2010/Automotive_2010__ENG_.pdf
13ibid.
staff members and board members are bumiputera. See Annex B: Definition of
bumiputera company. Retrieved December 14, 2009, from http://www.miti.gov.
my/cms/content.jsp?id=com.tms.cms.article.Article_65a16b80-c0a81573-63596359-
81dbca47&curpage=tt
16Idris, I. (2009, October 31). Coming to grips with APs. Starbizweek, SBW20-21.
17http://www.asiaviews.org/index.php?option=com_content&view=article&id=28835
:malaysias-balanced-growth-better-than-singapores-higher-growth&catid=3:column-a-
commentaries&Itemid=10
18Mohmad, J. and Kiggundu, A.T. (2007). The rise of the private car in Kuala
Lumpur Malaysia: Assessing the policy option. IATSS Research, 31(1), 69–77.
19Proton’s Persona was the official car for cabinet ministers in Malaysia until early
2011. These vehicles were not equipped with airbags. See Onn, F.C. (May 1, 2011)
Burden or catalyst? The Star, F38-9.
20Othman, A.F. (2010, June 17). Free AP for genuine motor traders — Dr. Mahathir.
22Wad, P. (2009). The automobile industry of Southeast Asia: Malaysia and Thailand.
Journal of the Asia Pacific Economy, 14(2), 172–193.
Palgrave Macmillan.
24Simpson, M., Sykes, G. and Abdullah, A. (1998). Case study: Transitory JIT at
25Ellis,
ibid.
26Tan, P. (2008, July 15). Proton’s vendor network needs “discussion”. Retrieved
April 2, 2011 from http://www.btimes.com.my/Current_News/BTIMES/articles/
mahaafp/Article.
27The comparison of quality of Proton and Perodua was widely discussed in local
29Johari, S. (2011, January 24). Lotus limbers for lift-off. Business Times. Retrieved
April 2, 2011 from http://www.btimes.com.my/articles/lot23f/Article/
30Official website of Perodua, www.umw.com.my
31Total passenger vehicle sales in 1995 were 229,626, of which Proton sold 140,647
and Perodua sold 39,906. Mahidin, M.U. and Kanageswary, R. (2004). The development
of the automotive industry and the road ahead. Department of Statistics Malaysia,
p. 13.
32Company website.
33Yunos, S. (2009, Nov. 13). RM5,000 rebate stopped. Malay Mail. Retrieved May 10,
34Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the
ASEAN Free Trade Area. Official website of Association of Southeast Asian Nations
(ASEAN). Retrieved May 16, 2010, from http://www.asean.org/12375.htm. Also see
The ASEAN Secretariat. ASEAN Free Trade Area (AFTA): Towards a single ASEAN
market.
41Ellis, ibid.
Market share %
60
50
40
30 PROTON
PERODUA
20
10
0 Year
Source: Malaysian Automotive Association (MAA); Business Monitor International. Malaysia Autos Report, various issues.
23
S0218927512500150.indd 368
Exhibit 2
ComparisonExhibit
of Key2:Financial of Key
ComparisonData Financial
and Ratios Data
— and Ratios
Proton - Proton
and otherand other Leading
Leading AsianAsian
Automobile Manufacturers in 2007-2010
AutomobileManufacturers in 2007–2010
1/18/2013 3:36:53 PM
24
proton: Its rise, fall, and future prospects 369
Exhibit 3
Selected
ExhibitFinancial
3 SelectedData and Ratios
financial of Proton
Data and Ratios ofHoldings Berhad Berhad
Proton Holdings for the Fiscal
for theYears 2006 to
fiscal years 2010
2006
to 2010 (Ending(Ending March 31st. Money amounts are expressed in MYR ‘000)
March 31st. Money amounts are expressed in MYR '000)
S0218927512500150.indd 370
Exhibit 4
Exhibit
Sales Sales and Production
and4:Production of Motor
of Motor Vehicles in
Vehicles inMalaysia
Malaysia(units) 1995-2010
(units) 1995–2010
Sales (units) Production (units)
Year Total passenger Total 4×4 vehicles Total vehicles Total passenger Total 4×4 vehicles Total vehicles
vehicles commercial sales vehicles commercial production
vehicles vehicles
1995 224,991 47,235 13,566 285,792 231,280 45,805 11,253 288,338
1996 275,615 69,444 19,729 364,788 280,222 65,751 19,148 260,970
1997 307,907 70,334 26,596 404,837 337,717 77,784 23,192 407,347
1998 137,691 17,641 8,519 163,851 143,756 10,337 7,363 161,456
1999 239,647 26,171 22,729 288,547 257,607 25,898 20,474 303,979
2000 282,103 33,732 27,338 343,173 295,318 37,552 27,235 360,105
2001 327,447 37,623 31,311 396,381 355,863 40,916 31,922 428,701
2002 359,934 42,727 32,293 434,954 380,050 44,046 32,727 456,822
2003 320,524 50,882 34,339 405,745 327,450 65,554 33,642 426,646
2004 380,568 70,948 36,089 487,605 364,852 75,384 31,739 471,975
2005 416,692 97,820 37,804 552,316 422,225 95,662 45,623 563,510
2006 446,172 44,596 33,559 490,768 377,952 96,545 28,551 503,048
2007 442,885 44,291 - 487,176 403,245 38,433 - 441,678
2008 497,459 50,656 - 548,115 484,512 46,298 - 530,810
2009 486,342 50,563 - 536,905 447,002 42,267 - 489,269
2010 543,394 61,562 - 605,156 522,568 45,147 - 567,715
Source:
Source: Malaysian Automotive
Malaysian Automotive Association
Association (MAA).
(MAA). Retrieved Retrieved
April April
1, 2011 from 1, 2011 from http://www.maa.org.my/info_summary.htm;
http://www.maa.org.my/info_summary.htm; Business
Business Monitor International. Malaysia Monitor
Autos Report. Q4, International.
2009
and Q1, 2010.
Malaysia Autos Report. Q4, 2009 and Q1, 2010.
Note:
Notes:
1. The passenger vehicle industry was reclassified in January 2007 and includes all passenger carrying vehicles, i.e., passenger cars, 4WD/SUVs, window vans and MPV models
1. The passenger vehicle industry was reclassified in January 2007 and includes all passenger carrying vehicles, i.e., passenger cars, 4WD/SUVs, window
2. Commercial vehicles were also reclassified on 1 January 2007 and includes all trucks, prime movers, pick-ups, panel vans, buses and others
vans and MPV models.
2. Commercial vehicles were also reclassified on 1 January 2007 and includes all trucks, prime movers, pick-ups, panel vans, buses and others.
26
1/18/2013 3:36:53 PM
proton: Its rise, fall, and future prospects 371
Exhibit 5
2. Initial Public Offerings (IPOs) to be listed on the Kuala Lumpur Stock Exchange are required
to set aside a 30% quota to bumiputera investors. The corporate equity should continue to
consist of a minimum of 30% bumiputera equity holders.
3. Under the Industrial Coordination Act (ICA), big companies should employ a minimum of
30% bumiputera and there should be bumiputera among the senior executives.
4. To bid for government contracts, companies should meet the requirement of 51% bumiputera
equity holding.
6. Imported cars dealers must obtain approved permits (import licences) for their imports.
However, approved permits are only granted to bumiputera companies that have 100%
bumiputera shareholders.
Source: Chin, J. (2009). The Malaysian Chinese dilemma: The never ending policy (NEP). Chinese Southern Diaspora Studies,
Vol. 3, p/167182.
Exhibit 6
Exhibit 6: Proton Time Line
Proton Time Line
Month/Year Event
1957 Malaysia’s independence.
1962 Ford Motor of Malaya was established, providing limited services
including body repair, paint touch-up & wheel changes. This marked the
beginning of Malaysia’s automobile industry.
1967 The first six assembly plants were established to assemble CKD
(completely knocked-down) vehicles.
Dec. 1967 Swedish Motor Assemblies Sdn. Bhd., the first foreign assembler, began
production.
1981 Dr. Mahathir bin Mohammad became Prime Minister.
1983 Under the “National Car Project”, Proton (Perusahaan Otomobil
Nasional) was established.
1985 Proton began producing its Saga model jointly with Mitsubishi Motors
Corporation of Japan.
1992 The second national automobile manufacturer – PERODUA, was
established.
1992 Proton Holdings Bhd. was listed on the Kuala Lumpur Stock Exchange.
Oct. 1996 Acquired 100% of Lotus Group International Limited, a British
automotive engineering company and a manufacturer of luxury sports
cars.
Dec. 30, 1996 The launch of PUTRA, a two-door coupe, and the 100 millionth car was
produced.
2003 Dr. Mahathir resigned as Prime Minister.
2004 Purchased Italian Agusta motorcycle unit for Euro70 million (MYR510
million).
2004 Launched Gen-2, a hatchback with Lotus’ modern design and a locally
built engine, the Campro 16V-four pot.
2005 Disposed of Agusta motorcycle unit for the token price of one euro.
2005 Perodua overtook Proton as the biggest domestic automobile
manufacturer, with a 41.6% share of the passenger car market.
2004–2007 Negotiated with Volkswagen AG of Germany in the hope of forming a
joint venture primarily for technology transfer. However, the negotiations
eventually failed because of “irresolvable expectations”.
2006 The first National Automotive Policy was issued.
Dec. 2008 Signed a contract for production and development of new models with
Mitsubishi.
Oct. 2009 The second National Automotive Policy was issued.
Source: Compiled by the authors.
Source: Compiled by the authors
Exhibit 7
Economic Contribution
Exhibit 7: Economic of Malaysia’s
Contribution Automotive
of Malaysia’s SectorSector
Automotive — Historical Data
– Historical & Forecasts
Data & Forecasts
Exhibit 8
Duties8:and
Exhibit Taxes
Duties andon Motor
Taxes Vehicles
on Motor in Malaysia
Vehicles (as (as
in Malaysia at March 31,31,
at March 2011)
2011)
(A) Motor cars (Including station wagons, sports cars and racing cars)
Engine CBU CKD MSP Local Taxes
capacity (cc) MFN ASEAN MFN ASEAN MFN ASEAN Excise Sales Tax
CEPT CEPT CEPT Duty
<1,800 75%
1,800-1,999 80%
2,000-2,499 90%
Above 2,500 30% 0% 10% 0% 10% n/a 105% 10%
Auto
Exhibit Sales
9: Autoand
Sales Production
and Production in ASEAN
in ASEAN Countries
Countries
Country Passenger Commercial Total Total Change over Total sales Passenger Commercial Total Total Change over Total
vehicles vehicles vehicle sales vehicle 2009–2010 of vehicles vehicles vehicles vehicles 2009-2010 production
in sales in motorcycles produced in produced in of
2010 2009 and scooters 2010 2009 motorcycle
in 2010 and scooters
in 2010
Brunei 12,549 1,040 13,589 12,365 10% n/a n/a n/a n/a n/a n/a n/a
Indonesia 541,475 223,235 764,710 483,550 58% 7,398,644 496,524 205,984 702,508 464,816 51% 7,395,390
Malaysia 543,594 61,562 605,156 536,905 13% 468,175 522,568 45,147 567,715 489,269 16% 467,941
Philippines 58,691 109,799 168,490 132,444 27% 759,849 33,161 47,316 80,477 62,523 29% 813,361
Singapore 47,273 4,618 51,891 79,503 –35% 8,281 n/a n/a n/a n/a n/a n/a
Thailand 346,644 453,713 800,357 548,871 46% 1,845,997 554,387 1,090,917 1,645,304 999,378 65% 2,024,599
Vietnam 58,105 53,632 111,737 119,460 –6% n/a 56,836 49,330 106,166 107,760 –1% n/a
Total 1,608,331 907,599 2,515,930 1,913,098 32% 10,480,946 1,663,476 1,438,694 3,102,170 2,123,746 46% 10,701,291
1/18/2013 3:36:54 PM
31
376
ACRJ
S0218927512500150.indd 376
Exhibit 10
Country Population Size of economy in 2009 Motor vehicles (passenger Nominal GDP per capita GDP per capita PPP in
(Millions of USD) & commercial) per 1000 in 2008 (USD) 2009 est. (USD)
people
USA 307,212,123 14,093,309 765 45,230 46,400
Luxembourg 491,775 52,296 686 111,743 78,000
Malaysia 25,715,819 221,773 641 8,197 14,800
Japan 127,078,679 5,068,996 543 38,578 32,600
Singapore 4,657,542 181,948 158 39,423 50,300
Thailand 65,998,463 272,429 152 4,187 8,100
Philippines 97,976,603 161,195 31 1,866 3,300
Indonesia 240,271,522 510,730 21 2,247 4,000
Vietnam 88,576,758 90,645 7 1,041 2,900
Source: http://www.nationmaster.com/graph/tra_mot_veh-transportation-motor-vehicles (accessed on May 20, 2010); www.cia.gov; United Nations Statistics
Source: http://www.nationmaster.com/graph/tra_mot_veh-transportation-motor-vehicles (accessed on May 20, 2010); www.cia.gov; United Nations Statistics
http://unstats.un.org/unsd/demographic/products/socind/inc-eco.htm
http://unstats.un.org/unsd/demographic/products/socind/inc-eco.htm
1/18/2013 3:36:54 PM
proton: Its rise, fall, and future prospects 377
Exhibit 11
Exhibit 11: Output of Japanese Automobile Manufacturers and their Counterparts in ASEAN Countries
Output
in 2008 (Units)of Japanese Automobile Manufacturers and Their Counterparts in
ASEAN Countries in 2008 (Units)
700,000
500,000
400,000 382,632
300,000
200,000
100,501
100,000
40,153 50,305
-
Indonesia Malaysia Philippines Thailand Vietnam Singapore
Source: Japan Automobile Manufacturers Associations, Inc. (2009). Powering Up Hand in Hand, p. 11.
Source: Japan Automobile Manufacturers Associations, Inc. (2009). Powering up Hand in Hand, p.11.
33