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.