Case Study Proton

OVERVIEW

Proton Holdings Berhad (PROTON) is a Malaysian automobile

manufacturer. It is headquartered in Shah Alam, Selangor and operates an
additional manufacturing plant in Tanjung Malim, Perak. The company was
established in 1983 as the sole national car company following the wishes
of former Prime Minister Tun Mahathir Mohammad until the advent of
Perodua in 1993. Proton is a Malay acronym for Perusahaan Otomobil
Nasional Sendirian Berhad. (National Automobile Company Private
Limited).

At first, parts and technology came from Mitsubishi but later on, as
experience accumulated, Proton became independent even if most of the
cars were still based on Mitsubishi models. Their first model which was
launched in 1985 was called the Proton Saga. Soon after the first Sagas
were rolling on Malaysian streets, exports started to Bangladesh (1986)
and by 1987 Proton had already made 50,000 units.

That same year a distribution agreement with a UK dealer was made in

order to ship Sagas over to the British Isles but that would materialize only
in 1989, when 150,000 units were already produced and plans for engine
assembly plant were already under way, the inauguration being celebrated
in 1991.

A new model, the Proton Iswara was launched in 1992 and then in 1993
the Wira, a model based on the Mitsubishi Colt, which enjoyed moderate
success with 220,000 units sold over 2 years. In 1994, the Proton Satria
joined the model line-up and in 1996 the Proton Tiara.

With thousands of models sold both domestically and internationally (in

about 31 countries around the world), Proton was gaining in financial power
which enabled it to purchase Lotus technologies in 1996, a move which
earned it a much needed technological infusion. a new sports model car
will emerge from this partnership, the Proton Ultimate, announced for the
first time in 2001.
Another partnership was announced in 2004 with Volkswagen AG where
the Malaysian manufacturer would gain access to German technology and
in return it would offer its facilities for foreign car manufacturing. However,
this plan fell through by 2006, when Volkswagen announced the two
companies would go their separate ways because they couldn't agree on
the terms.

Proton was formerly owned by Khazanah Nasional, the investment holding

arm of the government of Malaysia. In January 2012, sovereign fund
Khazanah Nasional Bhd sold its 42.74% stake in Proton Holdings Bhd to
DRB HiCom for RM5.50 per share, totalling RM1.29 billion. DRB HiCom is
a company linked to tycoon Tan Sri Syed Mokhtar Albukhary. Since then,
DRB HiCom had taken several corporate exercises, resulting in Proton
becoming its wholly-owned subsidiary. Protons financials which include
sales, revenue and profit now are recognised under DRBs automotive
division.

Meanwhile, in the aspect of financial, Proton had seen its sales plunging
over the past years by double-digit, which shaved its market share from a
stellar 60% in the 1990s to 17% currently. In fact, according to the latest
statistics by the Malaysian Automotive Association, an industry body,
Proton sold 115,783 cars in 2014, a significant 16.5% drop from 138,753
registered in 2013.

SWOT ANALYSIS

The primary purpose of the SWOT analysis here is to identify and assign
each significant factor, positive and negative, to one of the four categories,
allowing Proton to take an objective look at the business. The SWOT
analysis will also be a useful tool in developing and confirming goals plus
marketing strategy.

* STRENGTH

Proton ties with other ASEAN markets which are strengthening at all the
times through ASEAN Free Trade Area (AFTA) induced tariff reductions,
which will provide advantages for carmakers basing themselves in
Malaysia. The market continues to attract investment from major
carmakers, with General Motors (GM) forming a tie-up with DRB-HICOM
Bhd in August 2007 and its subsidiaries include Perusahaan Otomobil
Nasional Sdn. Bhd and Lotus Advance Technologies Sdn. Bhd.

In addition, Protons strength is its competitively priced products. It offered

the cars which is available for the lower income people such as Saga SV.
The price of the product is related goods produced and average income of
the people in the countries. Malaysian government supports the industry
onwards with the vast of nationwide distribution network.

Besides, it had good corporate governance and greatly regarded by many

Malaysians as the national car maker and had achieved RM100 million in
annual sales and it awarded the Management Excellence Award (QMEA).
Proton will continue to strengthen itself in all aspects to operational, and
corporate to better equip it in the years ahead. As a Government Linked
Company, Proton is secured in term of financial capabilities. It will adopt a
three-pronged thrust namely development of market-driven products, focus
on high growth regional markets and a production strategy that achieves
economies of scale.

On top of that, Proton exports cars to the United Kingdom, South Africa,
and Australia and the company is aggressively marketing its cars in several
other countries including the Middle East. In fact, Proton cars has also
been exporting a small volume of cars to other countries like Singapore,
Brunei, Indonesia, Nepal, Sri Lanka, Pakistan, Bangladesh, Taiwan,
Cyprus, Mauritius.

* WEAKNESS

The national industry is in decline, with Proton losing market leadership for
the first time in 2006 (albeit to fellow national producer Perodua). Besides,
the existing quality issue can affecting brand image caused by active
service units such as political interference by Tun Mahathir Mohammad,
Porsche on vendor selection, appointment of top management and design.

Low plant utilization can also result in inability to retain and cultivate talent,
inability to introduce real new models, no economies of scale, inability to
penetrate export markets, inability to satisfy customers' needs, no sense
urgency, poor corporate governance and complete numbness of
developments in the auto industry. Moreover,funds shrinkage due to
financial crisis can influence Proton performance which is result in inability
to introduce new models.

Furthermore, the failure by Proton to find a foreign partner is a warning

signal that it is no longer a competitive and economically viable entity with
current market situation and questionable management decisions that
causes Proton to lose money when other finds profits.

* OPPORTUNITY

During the economic downturn, the demand of Proton cars in any segment
had always the opportunities for Proton to be a global player. Through
research and development (R&D), there is more innovative products could
be invented to ensure Proton as a brand name remains in the industry and
also the collaborations within industry players. This can advanced the
technologic new target market or new distribution places. Therefore, it can
make the appointment of distributor in different country to increase the
sales and reputation.

Other than that, faced with declining domestic sales and uncertainty
regarding a strategic partnership, Malaysia's Proton has set its sights
overseas. The company is evaluating a plan to build a production plant in
Egypt, which would act as a gateway to Africa and West Asia and boost the
carmaker's exports. Proton already sells its Gen. 2 and Savvy models in
African markets, such as Egypt and South Africa, confirming that a market
for the company's models already exists. According to Proton Managing
Director Syed Zainal Abidin Syed Mohamed Tahir, Egypt provides a large
market but could also act as a base to countries such as Saudi Arabia and
Sudan.

* THREAT

First and foremost, Malaysia's trade dispute with Thailand over non-trade
barriers in the automotive industry could hamper the export projects of
major carmakers Burgeoning capacity levels of around 700,000 units could
result in a supply glut Thailand's 'Detroit of Asia' strategy threatens other
manufacturing bases in the region.
Last but least, competitors always has been ultimate threat for Proton.
First, Proton and Perodua has been at each other's heels since December
2006 when Perodua outsold Proton in monthly sales by 99 cars. Perodua's
lead was short lived when Proton outsold Perodua the following month by
550 cars. In February, Perodua outsold Proton again, beating Proton
monthly sales figures by 763 units. This time however, the Malaysian
Automotive Association reports that Perodua's monthly sales have topped
Proton by a massive 4,284 units, making it have a market share of 44%
(13,574 units) as opposed to proton's 30.35% is 9,290 units. For every
Proton Savvy sold by Proton, Perodua sold Perodua Myvi. The Myvi has
proven to be a stunning success.

Second, under policy like AFTA, (ASEAN Free Trade Area) the consumers
have more choices from Honda, Toyota, Chevrolet and other brands to be
selected at a more affordable prices, as Malaysia now has cut duties on
imports from other Southeast Asian countries to less than five percent.
During the economic downturn or inflation, the number of sales will
decrease and it will caused Proton faces the financial and manufacturing
problems.

PROBLEM IDENTIFICATION

In recent years, Protons sales performance and profits has been identified
in reducing manner. Although the firm is making good sales throughout the
year, yet they do not see a good profit at the end of the year. The product
and services are two major factor that contributing to the firms profit. Thus,
Proton is now concern over their corporate in the view of customers and
shareholders. Image is an overall view which represents a firms
effectiveness and efficiency.

The primary issue that Proton is facing in both product line as well as after-
sale services is involving few critical aspects which are accounting,
marketing, productions, and human resource.

However, Proton also faces secondary issues which are involving third
parties such as competitors and the public.

1) Accounting Aspect
Proton only has 80% of service centers where else 20% is outsourced to
other dealers of proton such as proton EDAR and EON. Overall, proton has
583 authorized dealers just within Malaysia. First of all, the fundamental
issue of protons service department is authorized license given through
bribery to some dealers of proton and these dealers are mainly more to
profit than customer service.

Besides that license are given to friends and family which is very unethical
and unfair.

Thus, they sell the service bribery which turns out in poor service of cars. In
addition, dealers of proton are not evaluated before licensing it out and
these very absurd as proton does not know the capacity and skills of their
dealers. For an example an audit has been revealed there may be traces of
bribery between Proton and the media when it comes to review Proton
cars.

Apparently Proton had been very generous with the time spans it allows a
journalist to keep the review car, and had handed out more than 70 cars so
far - with 30 allocated to the media. There has been a case where NSTP
motoring journalists have been assigned Gen.2 and Savvy cars and were
told to keep it for an unlimited period. They were told to report back on any
problems over long-term use. This sounds like a plausible reason.

On the other hand, most of the proton advertisement is a mere invitation to

treat and their service is not good advertised. Proton gives a poor service
of consultation as well as for instance if a customer comes into their service
center for a solution for their problem, the staffs are delaying to solve the
issues that the customer brings in. The technical is not professional enough
and the customer comes back frequently in order to solve the same
problems of their cars. Moreover, higher maintenance fee is being charged
when customers comes into service their cars. Finally, all of these will result
to lack of service and lack of attitude of stuffs.

2) Marketing Aspect

Marketing the products to the market is one of the important areas that
need to undertake with effective in order to capture the market. The
problem and effect faced by Proton are also because of they fail to use and
follow an appropriate marketing practices. This is where the customer is
given a wrong information and explanation about the cars when the
customer came for inquiring.

This because the marketing staff lack of knowledge of the cars they are
promoting and the management fail to give a proper training to the staff.
When the customer buying the product based on wrong statement given by
the management, the user faced with lot of problem in the cars which affect
them in different ways. Furthermore, the management failed to do feasibility
analysis to the cars before the car being launched in the market in order to
ensure the product they are producing are safety to the user or not.

3) Production Aspect

Proton is liable to produce good quality products as they have the

responsibility over the security of the customers. Therefore maintaining the
quality should be superior in Protons responsibility. The problem identified
that several failure occur from the car parts itself which is fundamental in
resulting to accident and placing the customers into the risk and unsecured
situation. Those car parts found to be failure as they often defective even in
the production stage itself. Production of the cars should be as easy as
assembling the purchased parts from their suppliers. But they should be
more concern on ensuring the product is fully functioning in the proper
order before executing the assembly of it.

Failure of the car parts are not fault of Proton as they are not manufacturing
these parts.

They merely assembling those car parts and manufacturing the final
product in form of cars. Proton basically doing the right thing but being right
is insufficient when it comes to the responsibility. If production level
emphasizes and questioned the responsibility of Proton to ensure the
safety of the product to its customers regardless on either it manufacture
the car parts or not. Therefore when the car parts failed, the blame lays on
Proton rather than the car part manufacturer. This blames lead to poor
reputation and corporate image affected as well.

This makes clear sense whereas in recent production of Protons New

Saga, the car part which is a sensor element was found to be defective
after the production. The Proton agreed to failure and replaced the sensor.
The fault here is the sensor car part which was manufactured and
supplied by third-party. Proton isnt responsible for the sensor production.
But yet Proton is being blames for the failure and yet impacts on their
image pretty well.

4) Human Resource Aspect

There is a lot of problem and effect faced by Proton in their product and
services. The cause of this problem is arising from ineffective management
of human resource. This is because most of the employee and staff
employed by the management are lack of skill and knowledge about the
product and businesses.

Besides that, the management fails to give an adequate training to the

employee especially on the field that involving of manufacturing cars such
as fixing the cars spare parts, testing the cars performance and others. As
mentioned above its important to give an adequate training because as we
all know not all employees hired by the management is full of knowledge of
the industry they step in.

Furthermore, most the staff and labor employed by Proton management

based on recommendation or they are related to the top management
people. When the employee is employed based on recommendation, their
academic and experience qualification is not given a priority by the top
management.

Other than that, most of the employees in Proton are not happy when
performing their duty. This is because the management is not fully
appreciating the contribution given by the employee to Proton by paying
them a lower salary and allowances. When the management never takes
care of their employees well, the employee feel unhappy and gives a poor
performance to the company which lead to defective product and services.

From here, we can see that human resources management of Proton is not
effective enough in hiring, managing, and supervising the staff into a right
direction which at the end lead to a failure of product and services.

5) Competitors
The International Trade and Industry Ministry (MITI) has been scaling back
on its influence on manufacturers, in line with the governments change in
automotive policy to be more open and allow market forces to govern the
industry. This means industry players have a freer hand in determining their
selling prices and compete more aggressively with one another based on
supply and demand.

The market has become dynamic as Toyota, Honda and Nissan battle it out
among themselves. Joining the fray are companies representing the
Koreans, like Naza Kia and Hyundai-Sime Darby Motors as well as
continental makes such as Peugeot, Ford and Volkswagen, all putting
affordable price tags on their offerings in the hope of carving a share of the
Malaysian automotive pie that is valued at more than RM145 billion.

It is just unfortunate that Proton suffers high losses because of the fight
between these mega players which, in all likelihood do not even consider
Proton as their competitor in the first place.

6) Public

Sadly in the last three decades, there is no CEO or MD of Proton has been
critical enough of the company to push it higher position. Proton has and in
all probability will always be a low price offering. Unfortunately, that also
comes with the psychological belief of you-get-what-you-pay, the cheaper it
is, the less quality youll get. Therefore, if Proton suddenly decides to
increase the selling price across the board to address this issue, it will just
send them to the grave sooner since no consumer would be willing to pay
for things they do not perceive as improvements.

Since DRB-Hicom took over, there has not been any coherent branding
exercise for Proton. There is no advertisement about Proton anymore. The
Thai distributor has complained that there has not been any activity from
Proton in their country anymore. British dealerships are complaining lack of
stocks and marketing programs. It is as though DRB-HiCom is likening
Proton to some sort of milk cow where it should sell by itself.

RECOMMENDATION

Reduction in leakage of company fund/assets

As mentioned above, Proton is facing misconduct in its accounting
treatment where there is a lot of bribery and misuse of company inventory.
Therefore, Proton should take prevention and precaution steps to reduce or
even better to stop these unmannered activities from being cancer
throughout the organization.

The step that can be taken by the company is establishing a very strict
Standard of Operation (SOP) that need to be exercise by all staffs
regardless whoever he or she is. This is also implies in evaluating and
deciding which dealers that the company wants to choose. Penalty should
be imposed for those who are using political mileage as a reason why they
accept the dealers. For evaluation of the dealers, only skillful and
experience staff can assess them and not just by anyone. Lastly, official
report need to be prepared and authorized to show that sufficient
evaluation already has been done and the dealers are really deserve to get
the license.

Valid Information in Marketing and Feasibility Analysis

From the sales that have been recorded for the Proton, we can see that
there is some ineffective marketing that has been implemented by the
company and one of them is the issue relating to misunderstanding of the
product. Therefore, Proton should provide customer with the sufficient and
appropriate information about the car in order to enable customer to make
wise decision. Besides that, the marketing staff should disclose the
information required by the customer. The marketing staff must avoid giving
ambiguous information which might lead to misrepresentation.

On the other hand, there is also an issue about how marketing team of
Proton does not really access the market very well lack of feasibility
analysis. Feasibility is an analysis done to a product to ensure whether the
product will be having a good demand in the market conducting market
research, survey and customer feedback. Thus, Proton should conduct
more effective market survey about the cars before its being launched in
the market. At the same time, the customer feedback must be taken into
count seriously. This is in order for us to make improvement over the
product and increase the feasibility rate

Strict in Choosing Suppliers

In producing the cars, the components are obtained from the various
suppliers. In choosing supplier, Proton has to implement strict policies. For
example choosing supplier with good reputation in the field, able to supply
high quality of components, and able to give full warranty or guarantee on
the components supplied.

This is because Proton function has manufacturer who assemblies the cars
components and produce a final product in form of cars and other vehicles.
The car components are the individual parts that play a primary role in
achieving the final quality which represent the Proton image in term quality
itself. Thus, if the component failed, the image will fail as well and the
image of the firm is back laying on the fundamental element which is the
car component.

Sufficient Training and Clear Organizational Structure

The staffs often have the capability of performing well, but they might be
lack of knowledge and experience. This is a disadvantage and to overcome
this, Proton must conduct training sessions to all their employees
especially unskilled and semi-skilled employees. For example, the
manufacturing staffs can be classified into skilled, semiskilled and unskilled
staffs, and the major workers consist of semi-skilled and unskilled staffs.
These staffs need to be trained continuously in order to keep their
knowledge of the production up to the standard. This is to ensure the labors
are aware and updated with the latest development in the manufacturing
industry which impacts the technologies as well as their skills. On the other,
providing continuous training helps the employer to benchmark the latest
manufacturing skills in the industry and stay ahead of competitions.

Moreover, organization structure is basically used by every organization in

showing the relationship between the top management and its
subordinates. It also shows the various divisions in the organization and the
line authority. Besides this, organization structure also defines on how task
and duties are delegated in the management. The communication flow
depends on this structure in terms of upward and downward
communication. Thus, the decision making power and the commanding
power lies on this structure as well. Proton should reconstruct their
organization structure in order to enhance their communication flow and
decision making. Besides that, Proton should relocate their non-performing
employees to different departments which they can perform better else
than firing them immediately.

CONCLUSION

As a conclusion, the problem of Proton has caused by internal and external

factors. The internal factor refers to the insufficient of new car model which
mean they are low in creativity and innovative in designing car. Moreover,
Proton also lack of car expert to provide technical support in manufacturing
cars. Additional, due to the intense competition nowadays has become an
external factor to Proton. Hence, Proton needs the engineering know how
of a truly world class manufacturer. It needs the product range and pipeline
of a carmaker with global economies scale. In needs the brand power and
reputation of a serious car company to pull the Proton brand name out of
the smelly armpits of local disgrace.

Even though there are many problems with Proton, to a certain extent it
benefits our people too. As it is the main local car manufacturer in
Malaysia, its progress plays a crucial role in our countrys economy. The
growth of Proton significantly relates to the growth of our nation and our
country. After all, with the high expectations on improvements from
everyone, the cooperation from all parties is needed. It takes time to
implement the changes in the company as it is a huge organization, as the
saying goes, Rome was not build in one day.