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....