SM Assignment - Automotive
SM Assignment - Automotive
SM Assignment - Automotive
Strategic
Management
Automotive Industry Assignment
Lecturer : Mr. Stephen DAlessandro
Tutor : Dr. Prem Kumar
Contents
Index
2|Page
Title
Page Number
Executive Summary
Background of Proton
Background of Perodua
4-6
7-8
9-10
11-14
Conclusion
15
Referencing
16-17
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.
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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 primary car Proton Saga during 1985 at its factory plant
located inside Shah Alam Selangor by former Malaysian Prime Minister 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 year 1994 which main target for higher
value market. The new manufacturing plant was ready in year 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 their
penetration into the market easily.
Further to this, Proton also engaged German car maker Volkswagen to form an
affiliation to enable both of the companies to take advantages of their strengths to
cooperate but however the cooperation was not success for some reasons in year 2006.
Because of the economic uncertainty, Proton suffered a dropped of 30% market share
in year 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.
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Background of Perodua
Perodua established in 1993 as a second domestic car maker which having its strategy
as an affordable and quality compact car. Perodua started as a joint venture company
with Japan counterpart Daihatsu which produced its first car Perodua Kancil in year
1994. Perodua principally manufactures small solid cars and thus does not essentially
contend 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. Due to the partnership with
Daihatsu, most of the design and main components resemble Daihatsu designs and
engineering skills.
As of now, Perodua has 41 branches and 139 sales dealers in Malaysia to reach out
their customer easily. On the other hand, its also strong in exporting several car model
to the global market especially ASEAN and certain Europe country. This is because
Perodua wish to penetrate into international market, hence dominate both local and
global market instead of solely depend on domestic market. As point out in last year
Annual Report, to thrive and succeed, Perodua has to concentrate on export market
for potential growth. Substantial growth in the global market is a key to the
stronghold of Perodua as it targets to develop its sales volume and market share in the
export segments. Despite the fact that Perodua has previously achieved a big pie of
share in local market, Perodua continue to discover new emerging markets for
purpose of penetration. In addition to Peroduas ten years vision and mission, the
Management is entrusted towards escalating its regional presence in relation to
distribution and sales volume, especially in ASEAN country. Certainly, Perodua plan
to expand the product beyond nationwide market, be slowly to demonstrate
improvement in relation to sales growth. Its primarily scout is to source new
component and spot on manufacturing facilities which optimised costing and
effectiveness.
As for domestic vendor, the additional volumes correspond to a vital role in their local
manufactured components. Perodua planned in diverting its business on other nonmanufacturing segment by optimizing profits that can be gained from its intellectual
property. For instance Perodua and Mitsui have entered into business collaboration as
a form of new strategy. As a result, Perodua has acknowledged an agreement to
collaborate with other OEMs manufacturing as a potential resources to enhance their
own volume of manufacturing locally.
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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 model is one of the effective model to apply on external
analysis for both Proton and Perodua but (Doorley & Garcia, 2010) recommended
using Porter five forces as an useful external analysis.
Figure 2
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Figure 2 shows the industry analysis of the automotive industry for Proton and
Perodua which both shared the same model. According to (Patterson, 2011) industry
evaluation and attractiveness implication shown that the value of the structure of the
industry is relatively based on the five important factors in Porters model.
Threats of new entrant
Proton will not have much impact and threat under this category due to the
heavy investment and huge capital needed in this industry. It classified as high
barrier for new entrant to penetrate into this market and compete with Proton
(Porter M. , 2008). This is due to the business concentration and expertise in diverse
technologies in order to provide better services as well as quality to stay long in the
market. Apart from that, Proton has developed itself into dominating the domestic c
market because of their distribution channel which connected to the customers.
Furthermore, Proton is the pioneer in the local market; it has strengthened its
reputation and experience in the market.
Perodua also shared the same low impact on the new entry although Proton has
established earlier than them. Although Perodua is the second car maker in Malaysia,
it has established a reputable brand loyalty as compared to Proton due to the advance
technology collaboration with Toyota. Due to this, Perodua has climb up the chart
hence no other new entry can be penetrating into this market for small and compact
car. Nonetheless because of implementation policy of ASEAN Free Trade Agreement,
the government formulate the entry policies easier for new entrants (Ghani, Zainuddin,
Fereidouni, & Ziaee, 2008).
Threat of Substitution
Under this factor, Proton may relates the ability of buyer to switch for substitute
products but car is still the majority expedient means of transportation for most of the
people living in urban and sub-urban area. Although there are a few other types of
transportation but none of it offers a convenient and flexibility to travel from one
place to another place. But due to cost saving purposes, many customers switching to
motorbike or bicycle to save money due to fuel price hike as well as customers aware
of environmental benefits.
Perodua may also face the same problem as Proton but another reason for consumer
to switch is the public transport like subway and monorail. This switch is not
permanent as Perodua produced s compact car with fuel efficient and easy to handle
as compared to Proton. Therefore, the low switching cost makes the customers have a
moderate substitution power if the quality of the car is not up to standard.
Power of Buyer
Proton facing a strong bargaining power in automotive industry because of the
homogeneous products which divide the market share among the competitors. Proton
face fierce and direct competition especially imported car which has similar cars that
offered better quality and advance technologies. On the other hand, Proton has one
great advantage of government support where they usually buy Proton as their official
car used.
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On the other hand, Perodua may face a moderate power because of its niche market in
small cars and fuel efficient saving product. Customers are fragmented into few
category where majority of customers prefer cost saving transportation and hence
makes Perodua dominate the local market for its quality of service and car small
segment.
Power of Supplier
There are many vendors in the market who offer rich resources of material for the
automotive industry makes Proton low in bargaining power. By evaluate thoroughly,
most of the company has its various vendors in the market. For instances, there are
about 15 vendors dealing within the domestic market with Proton. Their main
objective is to stay prominent on the business through quality materials and costs
effective as well as delivery of products on time.
Besides that, Perodua has an advantage of strong rapport with vendors and its
effective way of scrutinize the supply chain displayed little bargaining power on their
vendors. In addition, Perodua has its own interchangeable vendors and collaboration
with Toyota makes them have the power to control the price and produce its own
component in short period of time.
Competitive Rivalry
The rivalry among existing competitors is strong because other competitors are so
directly impartial to boost the rivalry. Proton encountered high competition in the
market as customers always expect high quality and anticipate lower price. However,
Proton has the advantages of protection from the government for high taxes on import
car make it difficult to compete with domestic manufacturer. Proton need to
distinguish its service and design to enhance customers awareness of its brand.
Perodua also facing the same rivalry as Proton in terms of governments protection
law. But lack of demarcation opportunities also will contribute high rivalry among
Proton and Perodua for their constant comparison. A new approach of Perodua on
innovation and technologies has brought Perodua ventured into automation of
manufacturing facilities because of its low cost manufacturing making others
competitor to change their operation approach.
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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) technology industry especially automotive industry consist of war on
technology in this industry hence competitors take on new technology to accomplish
the desire and demand of customer in an 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 effect of external forces create tension and influence on the advance technological
used.
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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. Pertaining to (Joyce & Woods, 2003) the
economic growth and stability of a nation has direct impact on the businesses, for
example in UK where its economic stability provide an opportunity for Proton to
carry out 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)
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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
contemplate on which product should be invest in and which product should allow to
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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.
Perodua has good relationship with vendors and the company provide the eSIMS to contact its vendors. The activities required to receive, store, and
disseminate inputs done smoothly with good facilities provided at headquarter.
This is because the employees undergone training for supervising the smooth
transit of goods. Besides, it creates an efficient storage facility to ease storage
and retrieval.
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.
Perodua 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
In year 2012, Proton has implemented the centre for allocation, storage and
logistics. 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.
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Perodua has 41 sales branch and 139 sales dealer in Malaysia to serve its
customer professionally and makes it easy accessible. It also has sufficient
transportation and skilled worker as well as competent security system for
prevention of any kind of theft.
IV. Marketing & Sales
Due to government implementation of National Automotive Policy, the
approved APs will eventually diminished by year 2015 and Proton cannot cooperate with the used car dealer for car trade in rebate strategy. Hence, Proton
only maintained its current advertising methods like running road show and
participates or sponsor on events or sports game to create brand awareness.
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, thus the assembly
levels can be adjust according to its function demand.
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.
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 attentive and provide
service support from maintenance and repairs likes body repair & paint centre
available nationwide, creating high level of transparency with their customers.
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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.
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Referencing
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