Question 1.

Using appropriate tool(s), undertake an internal analysis of Proton Motors

to appraise the extent to which the company is able to sustain its competitiveness as an
automobile manufacturer in Malaysia.
To kick-start the internal analysis of Proton Motors, the resources, both tangible and
intangibles, are identified and extracted out from the case study as follow:

Financial

Tangible Resources
a. The company has strong financial backing from the government in the
form of R&D grants and subsidies.
b. The company is a state-owned company with Khazanah Nasional
Berhad, the governments investment agency owning 42.74% shares,
the Employee Provident Fund Board owning 10.72% shares and
Petronas, a wholly state-owned company, owning 7.85% shares.

Organisation
al

a. Former Prime Minister, Mahathir is an advisor to the board of Proton

and has substantial influence on the companys strategy.

Physical

a. The company has attractive major production facilities in Tanjung

Malim.
b. Proton Motors was the biggest domestic automobile manufacturer until
2004 and still able to hold on to 26% market share in 2010. Coupled
with the governments backing, it is quite evident that Proton Motors
has strong domestic distribution channel in Malaysia.

Technological

a. Early joint venture with Mitsubishi Motor Corporation had achieved

technology transfer resulting in Proton and its alliances developing
capabilities to produce some car components.
b. Acquisition of UK based Lotus resulting in Proton able to launch
PUTRA, a two-door coupe, in 1996 and Gen-2, a hatchback with
Lotus modern design and a locally built engine, the Campro 16V-four
pot, in 2004
c. Mitsubishi agreed to form another alliance with the company on project
basis.

Human

Intangible Resources
a. Subjected to the Industrial Coordination Act (ICA), the company
should employ a minimum of 30% bumiputera and there should be
bumiputera among the senior executives.

b. Former Prime Minister, Mahathir is an advisor to the board of Proton

and have substantial influence on the companys strategy.

Reputational

a. The company is the first National manufacturer and it is also the

countrys National Car Project.
b. The vehicles co-produced with Mitsubishi were perceived to be better
quality.

To determine the capabilities of the company, the above stated resources are combined and
grouped into the respective functional areas as shown in the table below.

Functional
Areas
Distribution

Management

Manufacturin
g

Capabilities
With strong governments backing and past
records of sales, Proton Motors appears to be
having a relatively strong distribution
channel in Malaysia.
Proton Motor was established under
Malaysias National Car Project and thus the
company receives financial support and
protections from the government. Above that,
the company has a strong leader with vast
political experience and strong political
influence, Dr Mahathir servicing as the
advisor to the companys board.
The major production facilities in Tanjung
Malim coupled with the new alliance formed
with Mitsubishi enabled the company to
produce the 1.8L to 2.0L executive model,
Inspira.

Valuable

yes

Is the capability ...

Rare
Costly
Nonto
substitutabl
imitate
e
yes
no
no

Temporary competitive advantage

Average returns to above-average returns
yes

yes

no

yes/no

Temporary competitive advantage

Average returns to above-average returns

yes

no

no

no

Competitive parity
Average returns

So far, the analysis has revealed that Proton Motor has strong management and distribution
capabilities that will give the company temporary competitive advantages and should be able
to achieve average returns to above-average returns for the company. Therefore, these 2
capabilities can be considered as Proton Motors core competencies. However, I do consider
the strong management core competency to be a double-edge sword. On one hand the strong
management can is able to garner strong support from the government and provide strategic

guidance to the company, on the other hand, the company will have to adhere to the industrial
directives under Malaysias National Economic Policy, which may put the company in a
disadvantage position. An example will be companys vendor system that constraints the
company purchasing supplies only from bumiputera suppliers despite the fact that their prices
are 50% higher than non-bumiputera suppliers.
The 3rd capability, manufacturing, only yields competitive parity to help the company earn
average returns. This capability would have yield competitive disadvantage for the company
if Mitsubishi has not agreed form new alliance with Proton Motor on a project basis. This is
evident from the customers perception that quality of the Proton products dropped after
Mitsubishi dissolves its joint venture with Proton and was also reported that the company had
been producing out-dated car models without basic safety features for most of its domestic
models..
In conclusion, Proton Motors only has a strong management team and a good distribution
channels to help sustain its competitiveness as an automobile manufacturer in Malaysia.

Question 2. Use appropriate external analysis tool(s) to evaluate Protons operating

environment in Malaysia. Support your discussion with case evidences. From your
analysis, conclude the attractiveness of Protons operating environment.

Using the PESTL analysis, the general environment, or threats and opportunities, for
automobile industry in Malaysia can be concluded from the table below.
PESTL Analysis

Demographic

Positive

Negative

(Opportunities

(Threats

a. Middle-income country with a median

income of USD950.
b. Young population of about 28 million with
a median age of 25.
c. Mainly from 4 ethnic backgrounds with the
Malay (50%), Chinese (24%), Indigenous
(11%) and Indian (7%) with the Malay and
Indigenous being grouped as bumiputera.
Conclusion: The relatively big and young population with median income
of USD 950 means there will be enough demands for vehicles since the
population will still have an average 40 working years remaining. However,
the median suggests that majority of the population can only afford smaller
cars or relatively cheaper cars. This is an opportunity for carmakers who can

Economic

sell their cars at a relatively cheaper rate but a threat for those who cant.
a. GDP per capita of US$7,775 but a per
capita GDP of US$14,800 on a PPP basis.
b. Low interest rate for car loans only

applicable to purchasing national brand cars

c. Global financial crisis in later part of 2009
Conclusion: The threat for the automotive industry comes from the reduced
demands for new, and particularly the more expensive vehicles as the
people will be recovering from the global financial crisis and will tend to
tighten their pockets. However, the low interest rate for car loans that is
only applicable to buying national brand cars creates good opportunities for
the national brand automakers and at the same time, threats for non-national
brand carmakers.

Politic/Legal

a. Malaysia Industrial Master Plan to elevate

Malaysias status to industrialised nations.
b. Government heavily subsidise gasoline
supply.
c. Sporadic urban planning resulting in long
distance between city centres.
d. Invested in highway networks connecting
all inland cities and neighbouring countries.
e. National Automotive Policy that give
preferential treatments to the bumiputera
and banned the import of used automotive
parts and components.
f. Foreign automakers are allowed to build

100% owned factories in Malaysia to

produce expensive luxury car priced above
USD50,000 and with an engine capacity of
1,800 c.c. and above.
g. Temporary exemption of excise tax on
hybrid and electric vehicles under 2000 c.c.
till Jul 2011.
h. National Car Project creating unlevelled
playing field for foreign brand cars in
Malaysia.
Conclusion: The highways, sporadic urban planning and lack of mass
public transport system within the country created the needs for private
vehicles thereby creating an opportunity for carmakers. While the National
Car Project and National Automotive Policy posted some threats to the
foreign brand automakers, it did offer some opportunities to these
automakers by allowing them access to the Malaysia automotive market
Sociocultural

within the specified market segments.

a. About of the population owns a vehicle
in Malaysia.
b. Private
vehicle

is

the

preferred

transportation means.
c. Changing trend to hybrid cars.
Conclusion: While private vehicle transport is preferred, the domestic
automotive market is relatively saturated. With the changing trend of the

Malaysians to be more environmentally friendly, there is an opportunity for

automakers who have the technologies and products to penetrate this new
Technological

market segment.
a. Eco-friendly vehicle engines like hybrid
vehicles or electric vehicles

Conclusion: Technological advancement in vehicle engine has reduced the

need for fuel and thereby creating a new market segment in the automotive
Global

industry.
a. ASEAN created the AFTA in 1992 to
establish a completely free-trade area

within ASEAN countries within 15 years.

Conclusion: The complete rectification of the ASEAN AFTA will attract
FDI into ASEAN by completely eliminating import tariff for most
manufactured goods within the member countries of ASEAN and lowering
import tariffs for non-member countries. This created opportunities for
carmakers who have competitive advantages to compete for the whole
ASEAN automotive market share but at the same time posted a threat to
those lacking competitive advantages to even lose their own domestic
Physical

automotive market share.

a. Reducing fuel consumption with small eco-

Environment

cars and hybrid/electric cars.

Conclusion: The increasing need to be environmental friendly has created a

new market for eco-friendly cars.

To further analyse the profit potential of automotive industry in Malaysia, the Porters 5
forces tool is used.

Threat of New Entrants: The automotive industry in Malaysia has high economies of scales
basing on the numbers of vehicles the country produced in a year. For Proton Motors, the
models they offered are either outdated or just a remake model of Mitsubishi Lancer. As such
there is very little product differentiation. The capital required to set up new manufacturing
facilities for automobile and is relatively high. The existing distribution channels in Malaysia
mainly serve the 2 national brands and it will not be easy for foreign brands to gain access to

these distribution channels. With Malaysia governments protection over the their National
Car Project, the National Automotive Policy still created unlevelled playing field for foreign
brand automakers to penetrate into the same market segment of Proton Motors. With all these
in mind, it is assessed that the barriers to entry into the Malaysia Automotive market is high,
or the threat of new entrants is low.
Bargaining Power of Suppliers: There were about 350 companies supplying components for
vehicles in Malaysia as a result of the governments push for industrialisation. The large
number of suppliers indicates that there isnt a concentration of suppliers and satisfactory
substitute products should be available to Proton Motors. Most of these suppliers established
their business because of the National Car Project and thus the company is a significant
customer for the supplier group. As Proton Motors is a country owned company, it is unlikely
to face any forward integration threats from the suppliers. However, for the same reason,
Proton has restriction that limits their choice of suppliers to bumiputera. As such, the
bargaining power of suppliers is deemed as medium to low for Proton Motors.
Bargaining Power of Buyers: In 2005, there were closed to 2,000 car dealers in Malaysia and
majority of them sell national brand vehicles. For Proton Motors, the concentration of buyers
relative to the company is low. To the car dealers, there should be little or no cost incurred if
they were to switch supplier. However, these car dealers are unlikely to switch supplier as
Proton Motors is a government owned company and these suppliers wouldnt want to be
black listed by the government. For the same reason, the threat of backward integration will
be low. Overall, the bargaining power of buyers is assessed to be low.
Threat of Substitute Products: There are a few substitute products for private motorcars in
Malaysia like motorcycles, public transport such as trains, buses and cabs. While the cost of
switching is relatively low for customers to switch to other forms of transportation, the
comfort and convenience level offered by these substitute products are low. In other words,
the quality and performance capabilities of substitute products are deemed inferior to private
motorcars. Overall, the threat of substitute products is low.
Intensity of Rivalry among Competitors: The numbers of competitors for Proton Motors is
relatively low with the other national brand as the main competitor. However, the domestic
market for the company is almost saturated with one in every four Malaysians owning a
vehicle. i.e. the industry growth rate will be slow. The fixed costs and storage costs for
automakers are assessed to be high and that may increase the intensity of competition. Proton

Motors products generally lack differentiation and were deemed to be inferior to other brands
in terms of safety and quality. Coupled with relatively low switching costs for customers to
switch to the other national brand, it is likely to fuel the intensity of rivalry. Lastly, as a
national car project and a government owned company, the exit barriers for Protons Motors
are high. Overall, the intensity of rivalry among competitors for Proton Motors is high.
From both the general environment and industry analysis, the overall attractiveness of
Protons operating environment in Malaysia does not appear to be good if the company
continues to do things the same way it did.

Question 3a. Based on your findings in Q1 and 2, assess Protons SWOT.

From the internal analysis, Protons strengths comprise its core competencies like the strong
management team and strong distribution channels. The manufacturing can be considered one
of its strength since the company has attractive manufacturing facilities. However, these
strengths are easily offset by their weaknesses like lack of R&D and over-reliance on
technology transfer from others via joint venture or acquisition. This has resulted in inferior
quality products that lack differentiation being produced and it further led to their key
weakness, an inferior brand name. From all these weaknesses, it is evident that Proton does
not understand the needs of customers in the respective domestic automotive market
segments therefore was unable to satisfy their customers needs.
From the external analysis, the threats facing Protons are the close to saturation domestic
market for motorcars, the populations still recovering from the financial crisis in 2009, strong
competition from the other national brand, Perodua, and if they government face further
pressure from the ASEAN to lower their overall tariff on car imports. For the opportunity
side, the company continues to enjoy some level of protection from the government that ban
the import of used vehicles and only allowing other foreign carmakers to supply vehicles
catering to a different market segment from Proton. However this opportunity is shared by
the other national brand automaker as well. The biggest opportunity for Proton in the local
domestic market is perhaps the changing trend to eco-friendly vehicles whereby the foreign
brand automakers are only able to enjoy the tax-free incentives till July 2011. After that, there
maybe a void in supplies of eco-friendly car that can fit the budget of the general population.
This is due to the hefty taxation imposed by the government on foreign brands automakers
thereby causing the car price to increase.

Question 3b. Using the preceding analysis, appraise Protons business-level strategy.
Conclude with supporting reasons, whether Proton continue to adopt the same business
level strategy for the future?

From the case study, it was shown that the market segment that Proton initially focused on is
the sub-compact passenger vehicles and specifically on engine size from 1,300 to 1,600 c.c.
Subsequently, with the renew alliance formed with Mitsubishi, the company ventured into the
1.8 to 2.0l segment and also in the MPV segment. This shows that the company is targeting at
the broad market segment. The case study also indicated that Protons car price is the lower
than the market, or the other national brand automaker. Overall, the business-level strategy of
Proton is more akin to the cost leadership strategy.
In order for cost leadership strategy to work, there must be some forms of competitive levels
of differentiation that creates values for their customers. The reason why Proton was able to
keep the cost of their vehicles low was probably due to little or non-investment into R&D and
obtaining grants from the government. The company had relied on forming alliance with
existing carmaker and acquisition of automotive company to gain technology capabilities. As
such the company wasnt able to innovate when Mitsubishi exited the joint venture. In fact,
the vehicles produced by Proton were deemed inferior to other brands with lack of safety
features and of poor quality. While the company was able to sell their vehicles at a lower
price, the quality of their products wasnt able to match up with the customers needs.
It was stated that Proton had to get their supplies from bumiputera suppliers and sometimes
the prices charged by these suppliers are 50% higher than others and this in turn resulted in
unnecessary higher cost. Also, the main competitor of Proton, Peroduas strength lies in their
ability to streamline their manufacturing and inventory system, which means they have an
efficient manufacturing and inventory system that will help to cut costs better than Proton.
Even with better cost efficiency, Perodua was able to sell their cars at a higher price than
Proton as their products quality surpassed Proton and were able to better meet the customers
needs.
Ultimately, manufacturing is not the core competency of Proton and that does not favour cost
leadership strategy. If Proton wishes to continue with the current strategy, they must start to
develop new core competencies in manufacturing and management information systems.

Question 4. Assess the competitive rivalry of Proton and its rivals by analysing both
market commonalities and resource similarities. Conclude by discussing the factors
affecting the likelihood that Protons competitors will take competitive actions in the
industry.

The main competitor for Proton is Perodua and it was stated in the case study that while both
companies share the same sub-compact passenger vehicle market segment, Perodua avoided
direct competition by focusing on a lower engine capacity vehicle sub-segment. However,
this sub-segment will still affect the overall segment of sub-compact passenger vehicle
whereby Proton is focusing on. In terms of market commonality for Proton and Perodua, it is
deemed to be medium to low.
From the resources similarity perspective, both companies have some overlapping resources
like the list of government policies that benefits only the national car brands stated earlier, the
manufacturing facilities and also the distribution network in the domestic market. This
suggest that both companies have medium to high resource similarity. In this situation, they
fit the 4th quadrant of the framework of competitor analysis whereby there is low market
commonality and high resource similarity.
To analyse the factors affecting the likelihood that Protons competitors will take competitive
actions in the industry, the drivers of competitive actions and responses are first examined.
For the first driver, both Proton and its competitor should be aware that they are in the 4 th
quadrant of the competitor framework and they both compete with similar resources but
overall, Perodua has stronger technological resources due to its partnership with Daihatsu and
therefore resulted in stronger reputational resource that their product quality is superior to
Protons. For the next driver, the low market commonality between the 2 companies will
motivate Proton to attack the rival since the company would perceive the response from the
rival will not affect the rest of the market segment that Proton currently have a hands on. On
the other hand, Peroduas motivation to respond to Protons attack depended, to a large
extend, how they perceive the attack will affect their sales. There may be a non-response
from Perodua if they perceive the attack as non-consequential to his market position. Finally,
the abilities of both companies will be taken into considerations when analysing the
competitive behaviour. While both firms have similar resources, it was discussed earlier that
Perodua has competitive advantages over Proton in terms of manufacturing, management

information systems and marketing, which means it has stronger abilities to launch or
respond to competitive action as compared to Proton.
The first factor affecting the likelihood of Perodua taking competitive actions in the industry
is the first-mover incentives. As of 2010, Perodua was the biggest domestic automobile
manufacturer in Malaysia and it led the market with a 31.2% share. However, the domestic
market for conventional passenger car is closing to saturation and there is a need for Perodua
to explore new market segments in the domestic market to continue to be profitable. From the
good response to the eco-friendly cars launched by Toyota and Honda in 2011, Proton
announced that it would launch a hybrid model in about two years time. In order not to lose
the first-mover incentives of launching a hybrid model under the flagship of national car
brand, coupled with the strong technological support from Daihatu, it is very likely for
Perodua to initiate the competitive action by beating Proton to launch a hybrid model first.
The next factor to consider is the organizational size of Perodua and also the slack resources
it held. Peroduas business partner is Daihatu and Daihatus parent company is Toyota.
Toyota had existing technologies and expertise to manufacture hybrid cars and it is likely that
Perodua will be able to tap on its business partners linkage to gain technology transfer from
Toyota. This will in turn help to build on their core competency of manufacturing and
marketing in terms of products. With its organizational size and resources, it is likely that
Perodua will press on with the competitive action.
Lastly, the quality of the hybrid car produced by Perodua is the last factor affecting the
likelihood of competitive action launched by Perodua. Perodua had done relatively well in the
marketing aspect by ensuring that the cars they produced are of superior quality and thus
build up its positive branding image. If the company is unable to produce a hybrid model that
will commensurate with its reputation and brand image, they will not be likely to launch the
competitive actions against Proton, and the reverse is true. With the support from its partner,
it is likely that Perodua will be able to achieve the product quality for the hybrid model it
produces and therefore will be likely to initiate the competitive action against Proton.

Question 5. Using only preceding analysis identify 5 key issues that will weigh into the
future strategic decision of Proton and formulate corresponding strategies that will help
the company regain its market leader position.
From the analysis thus far, the 5 key issues that will weigh into the future strategic decision
of Proton are (1) constantly understanding the needs and expectations of the customers; (2)
need to enhance its manufacturing capabilities to become one of its core competencies; (3)
need to constantly acquire new technologies; (4) seizing new opportunities in the saturated
domestic market; and (5) recover from the bad brand name.
From the SWOT analysis, it is observed that Proton did not understand what are the needs
and expectation of the customers, in particular, the sub-compact passenger market segment.
The company might have assumed that as long as they are able to keep the price of their
vehicles relatively lower than competitors, they do not need to worry about other aspects of
the customers needs and expectations. This had led the company to produce vehicles that
couldnt satisfy the customers needs and expectations and subsequently resulted sales
decline over the years. To set the fundamentals right, after Proton had identified the target
market segments that it will compete in, the company should conduct market research to
determine what are the respective targeted market segments needs. Based on the findings, the
company will then determine which customers needs they want to satisfy.
Once these have been established, Proton will need to develop certain core competencies in
order to satisfy their customers needs. In this case study, it appeared that cost was not the
only consideration to the customers but also the quality and safety aspects of the car when
deciding which brand to buy. Therefore, Proton will need to develop its manufacturing
capabilities and management information systems to be able to build cars at lower cost and
can still satisfy quality and safety needs.
As the needs are ever evolving over time, there is a need for Proton to constantly keep track
and keep up to fulfil these changes. Thus, there is a need for the company to constantly
acquire new technologies either by R&D efforts or technology-transfer from established
automakers. A good illustration featured in the case study is the new opportunity of ecofriendly vehicles gaining good response from the already saturated domestic automotive
market. If Proton had keep track of the global green initiatives, it would have invested to gain
the hybrid technologies and launched a hybrid model vehicle and enjoy the first mover
incentives.

While hybrid cars presents a new opportunity in the saturated domestic market, the new
market segment is still relatively small to sustain the business in the long term. The main
casual factor for market saturation lies in the system whereby there is no life-span restriction
imposed on vehicles. That means one can drive the car for as long as 15-20 years or until the
vehicle is totally unserviceable. With the governments backing and strong management team
of Proton, the company may request the government to regulate the life span of vehicles in
Malaysia.
The last key issue will be solved when the first 4 issues are addressed. It will be a matter of
time for Proton to recover its brand name. A good marketing campaign will shorten the time
required for Proton to recover its brand name.
Finally, determine which business level strategy to adopt, Proton needs to consider the market
size required to sustain its business and the fact that the majority of the population has only
medium income. With these considerations, it is recommended that Proton continue to target
the broad market and lowest cost. i.e. to continue to adopt cost leadership strategies.
However, it must be noted that this strategy will only work when the key issues above are
addressed.