6. Malaysia: Proton, is there light at the end of the tunnel? part 2

The financial concern about Proton is not about sustaining or improving performance but it is about whether the company will be able to survive in coming years. The easiest solution is to seek an established partner in the industry and form an alliance to share knowledge and access to international markets. In this vein, Proton has been courting with foreign car manufacturers in the hope of agreeing to an alliance. To date, this effort has been futile and time is running out for Proton to find a mutually beneficial partner. Furthermore, most international auto car makers have consolidated their position and formed partnerships with each other. Proton is left with not many options to bargain or obtain a major stake in its future alliance if it happens to materialise. It is time for Proton to ask themselves: (1) why previous attempts to strike an alliance with various foreign car manufacturers have failed? (2) Is it wise for the company to further pursue this strategic option? (3) If not, what are alternative strategic options? (4) and what is required in the short and medium term to stablise the company? Firstly, Proton is not in a position to negotiate favourable terms mainly because its market performance in foreign markets is poor. But as a national symbol and pride, Proton failed to see that no foreign partners would forego majority stakes to the company or Khazanah Nasional Bhd, the owner of Proton. In short, if Proton were to find an alliance partner, perhaps it would be more successful to operate under the control of a foreign firm. If this is an untenable idea, Proton should scrap its ambition to go global, at least in the short and medium term. Secondly, Proton is overlooking its strategic assets in the attempt to enter new foreign markets and survive local and international competition. An alliance with a foreign partner may not be the right decision as the automobile industry is overcrowded with major players and the industry is required to consolidate. The future of this industry is one that dominated by a few large and niche players. Whilst Proton is the owner of Lotus, Proton could have combined its strategic ambition to match Lotus brand name and technological superiority. Since Proton is positioning itself in the lower middle and budget car markets, it is hard to see how would the acquisition of Lotus is deployed to its maximum advantage. Time is a critical element to Proton's survival, the company needs to restructure its operations in order to achieve financial success and restore shareholders' confidence. Clearly, a detailed strategic analysis would position Proton's core competencies and eliminate or withdraw from its weak business areas in the marketplace. For instance, if Proton has the largest market share in domestic market, it needs to build on its success and improve its financial success. Since Proton's reliability has suffered compared to Korean cars, Proton must respond to critics - whether through improved customer service, quality, performance, added value and design. Presumably, Proton has the advantage of local knowledge and understanding of customer needs and preferences. In addition, its national brand could be used to leverage customer loyalty and enhance customers' trust of Proton cars. Instead, Proton has overlooked its most important source financial stability - local markets, that could serve as a base of image and brand for exporting to Asia and other continents. Also, Proton seemed to rush its new product development process without considering many aspects of customers, competition, technology, resource implications and market position. For example, its new cars are often positioned in the upper end of budget conscious buyers in Europe against established European and Japanese rivals but failed to convince potential buyers in terms of added value whether through fuel economy, realibility, customer service, package of options, design for European customers and brand name. In this instance, Proton has little competitive edge to out-compete Korean manufacturers, with good marketing campaigns emphasising on value for money, design and local preferences such as diesel engines and quality interiors. Given the current trend of declining domestic market share and looming AFTA, Proton needs to strengthen its hold on local markets rather than dissipating resources aimlessly. What international prospect does Proton has if it can't even survive in its home market? Domestic performance has wider implications for perceived quality and reliability of Proton's products. It is through domestic performance that the management at Proton demonstrate their ability to cope with foreign competition and attract potential foreign investors and possible partners. But the size of domestic markets for long-term financial growth should not be over-emphasised but it provides a strong base for local economy such as employment, technology transfer, and for Proton to logically capitalise on its local networks in the Far East Asia and henceforth extend its logistics further a field.

5. Malaysia: Proton - is it a terminal decline? part 1

At the moment of writing, Proton, a national car project and one of the main pillars for our economy, is reeling with the need to find a breakthrough for its products/cars and facing a daunting economic prospect with the looming free-trade pact agreed to by the 10-member Association of Southeast Asian Nations in 2008. The recent decision of Volkswagen AG to scrap plans for a partnership with Proton Holdings Bhd to jointly assemble cars for domestic and export markets adds further uncertainties as to whether Proton will survive as a viable auto maker in an increasingly competitive business environment. Proton has been receiving preferential treatment in Malaysia through a protected market from foreign competitors. But this treatment is due to end by 2008. Also, the company is currently facing intense competition from both domestic and foreign car makers. For example, Japanese and Korean car makers are competing head-on with Proton's models in terms of reliability and pricing. On the whole, Proton's performance in both domestic and international markets is dismal. The company was established as part of the Vision 2020 for Malaysia to achieve an industrial nation status. It was hailed and perhaps it's still a national pride but Proton's future is very bleak. There are two critical questions: (1) how did Proton find itself in such a mess? and (2) what can be done to turnaround its financial performance? To address the first question, it is necessary to examine Proton's history, it can be said that Proton has been able to survive through its preferential treatment in Malaysia and high taxes imposed on imported foreign cars. As a result of this, the company capitalizes on pricing as its main competitive tool to win market share from foreign car manufacturers. But for export markets, Proton has not been able to establish its brand and competitive position as a major player. Added to this, with technological innovations, rising costs of inefficient manufacturing techniques employed by Proton, recent approval of AP to allow more foreign cars into domestic market, eminent arrival of AFTA and foreign manufacturers locating themselves in the Far East and forming partnerships to increase efficiency - Proton is experiencing a terminal decline. Against this backdrop, there are concerns about Proton's management competence. For example, its attempt to penetrate European markets has been unsuccessful mainly due to lack of knowledge about European markets. In this instance, there is no evidence that Proton understands basic European preferences of styling and interior of a car, and other competitors' strengths. Proton could have achieved some success through careful marketing research and well thought out marketing strategies. Also, it seemed that Proton has not been able to leverage Lotus's technology and design to establish its new models. In brief, the company needs to take a total revamp of its strategy if it were to compete successfully in both domestic and international markets. This leads to the second question....

4. Malaysia: changing economic environments

Following from previous postings, it can be argued that one of the main reasons affecting our economic competitiveness and its benefits for ordinary Malaysians is the weakness of our strategic planning. With changing economic conditions and competitive arenas, it is futile to execute and implement economic plans and objectives yesteryear. At present, what appeared to be driving our economy forward is a mixture of adhoc and offensive economic strategies such as those mentioned in article (2). In light of our current economic growth in terms of GDP, one might argue that there is no cause for concern and our economy is progressing upwards and onwards on the right trajectory. My main concerns are our future competitiveness, lessons drawn from the past and tangible benefits to our people. In particular, the large majority of our population is not reaping the rewards of our economic growth or what seemed to be exclusive wealth endowed by small quarters - these are issues to be addressed urgently. Furthermore, examples of poor strategic planning are abound: Proton, MAS, MSC project, KLIA, etc. These companies and/or projects are facing a grim economic outlook mainly due to changing economic conditions, poor marketing and management incompetence. Major economic projects were once funded through strong economic growth and FDI but with markets becoming ever more competitive, companies seemed to be in status quo. There is also the attitude problem of living in denial and Malaysians like to profess the saying that 'we can' or 'Malaysia boleh.' In reality, our government and economy are facing tough times and ordinary people are facing the brunt. We could have avoided some of the challenging economic times by being more alert to global networks of interdependent economies and markets. For instance, we are strategically located in the Far East to help European markets to tap into the region's markets especially China's. Moreover, we could have had the vision that knowledge and technology transfer, and skills upgrade be our economic priority during the years when foreign investments were booming such as from Japanese and European manufacturing firms. The irony is that although the government learned from earlier mistakes, we are still knocking on the same window of opportunity when it had shut on us - and is gone forever. There is no vision in our economic direction and strategy. Vision is not an innate ability but it is someone who has a broad multicultural perspectives, an understanding of major global strategic drivers, a strategist and negotiator, a profound knowledge of management, and an analytic mind. The PM of Malaysia needs to assemble his cabinet ministers with such people or surrounds himself with independent experts rather than some bureaucrats or think tanks that at worst may have ulterior motives or slow and inflexible in responding to urgent execution of time critical strategies.

3. Malaysia: lessons from the past...

In order to achieve the Vision 2020, Malaysia needs to sustain an annual GDP growth of about 8 percent for years leading up to 2020. Although it is easy to blame the halt of a high economic growth to the Asian financial crisis, one must also realise the spectacular economic growth in mid 1990s was not sustainable. During the period of healthy economic growth, there was no evidence that investment in productive factors contribute to a mark increased in productivity and/or improved technological competence or knowledge. There was no explicit contingency plan or strategy for Vision 2020 in the event of an economic slowdown. Instead our economy relied on capital injections from foreign investors and government projects to drive high employment market and demand for local services. Foreign investors or multinationals were once attracted to Malaysia through a host of tax benefits. Unfortunately, most investments benefiting from our attractive tax benefits and cheap labour market did not lead to transfer of technology, technical know-how or innovation - which are essential for a sustainable economic growth. The government of Malaysia recognised that our human resources are not equipped with the knowledge or management competence to absorb and acquire the skills and technology from foreign investments. The government responded with a bold education strategy of providing scholarships and sending Malaysian students abroad to obtain higher education qualifications. The government also invested heavily in improving the transportation networks in Kuala Lumpur (e.g., new airport, ligh rail transport) or the federal state (e.g., Cyberjaya and Putrajaya) as part of the strategy to enhance our competitiveness. In brief, there were many other projects initiated by the government in the hope of increasing our economic growth. As with any investment, it is necessary to assess its return-on-investment particularly to our people in terms of raising our standard of living and economic well-being. Whilst there have been many success stories in terms of standards of living about our improved infrastructure in Kuala Lumpur, these are limited to a minority of our population in Malaysia. At the same time, the public transportation system in the capital has not really resolved or eased traffic congestions. This affects not only our productivity and competitiveness but also questions our initial strategic planning. Returning to the government education strategy of sending many Malaysian students abroad, to date, there is no evidence that this strategy has paid off especially the government and multinationals continue to recruit foreign managers to hold key position in an organisation. There is also no sign of high demand for any specific skills or talents of students graduating from abroad. On the contrary, the government embarked on what seemed to an u-turn strategy of educating Malaysians at home by setting up many new local universities or granting licences for local private higher education institutions. By and large, our economic strategy has for the most part failed to materialise and there was no contingency strategic plan to prepare for adverse economic circumstances.

2. Malaysia: taking stock of our FDI.

Before I proceed from my last posting, it's worth examining our current sources of foreign direct investment. Although our economic path prior to the Asian financial crisis has relied heavily on industrial exports (e.g., microchips, computer hard disks, foreign investment in manufacturing plants) and petrol-chemical products (e.g., Petronas), the rise of China and India in exports and competitive labour markets in global economy has somewhat shifted our economic focus to other industries such as tourism (e.g., Visit Malaysia Year campaign), real estates especially post September 11 in attracting Middle East investors, Islamic Banking hub, financial services through re-structuring and gradual deregulation of the financial industry and corporate governance and export of higher education by granting colleges to convert their status to become a university. The government of Malaysia has been actively seeking investors to promote the above industry sectors as a way of increasing and improving FDI. But these sectors are very competitive. Importantly, the shift from attracting foreign manufacturers to more service-based resources of the country is inevitable - not because of China or India but mainly due to our country lack (1) skilled labour, technical know-how, (2) domestic demand, and (3) added value services such as strategic location of airport or seaport. These will be addressed in later discussion.
Not to mention, domestic economy has also played a part in sustaining the economy mainly through demand in properties, national cars and domestic goods and services. For example, property prices have appreciated steadily over recent years except in 2005, where there is indication that the property market is over-supplied. Coupled with this, the interest rates are not as low as in the early 2000s and there has been high inflationary pressure of oil prices.
Thus, our major sources of FDI consists of a mixture of industrial exports (manufacturing-based), tourism and other resources noted above.

1. Malaysia: What's our economic strategy?

Let's start by shedding some light on what is our economic strategy? Whilst every economy is a mixture of different productive outputs, it is important to identify our major GDP contributors. Since early 1990s, the Malaysian economic strategy has been about becoming an industrialised nation based on IT and manufacturing competencies. For example, there have been active emphases on attracting foreign investors to locate their manufacturing plants in Malaysia and Vision 2020 focuses on technology and knowledge with agricultural industries receiving less recognition than industrial manufacturing. Clearly, economic vision and strategy are evolving and the government of Malaysia has shifted emphases over time but the main pillar of economic focus of the country has been on industrialisation, be it through efforts to promote the country as a financial- or technology hub. The term 'industrialisation' is used loosely here to distinguish between agriculture and industry-based economies. The national car project, Proton is part of the country's strategic plan to compete in a manufacturing/industrial sector. So, it is quite clear that Malaysia is following the path of economic strategy leaning towards exporting industrial-based products, attracting foreign investments in manufacturing and developing competence based on technology to generate economic incomes. On reflection, we will ask ourselves whether we have got our economic plan right? if so, to what extent our strategy helps ordinary Malaysians? if not, in hindsight what could have been done? and what future strategic plan could we propose?

Malaysia: Progress for our people

I'll be writing about economic strategy for my country, Malaysia. My postings will be based on my understanding of global economy, international strategy and competition. I grew up in Malaysia but now I live and work in London. I always keep abreast of current economic events in Malaysia as well as global economy. My main reasons for starting this web blog are:

• to start a debate about improving the national competitiveness of Malaysia.
• to question our economic progress and its benefits for ordinary Malaysians.
• to propose strategies on which Malaysia will improve its economic competitiveness.
• to share my views and welcome others to contribute to my analyses.

Since it would be an impossible task to cover every aspect of economic strategy in one posting, I would attempt to structure my postings according to their importance for achieving the above. I must also point out that following postings are solely my views, with no hidden agenda but only to benefit people in Malaysia.