A Case

On
Protecting Malaysian
Automobile Industry

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 Case summary:
The headline of the case makes it clear that Malaysian automobile industry passing bad times now.
Malaysia had a prosperous future in automobile industry .They have plenty of natural resources like
tin, crude, petroleum, natural gas, bauxite, palm oil, natural rubber, cocoa ,pepper and timber. They
have available labor force which is very positive sign for any industry. In 1982, the state owned
Heavy Industries Corporation of Malaysia was established to overseas the new project, which
would be protected with high import tariff, import restriction and restrictive manufacturing license.
HICOM is the conduit to mobilizing Malays into employment, management and capital of heavy
industries. Firstly they started as joint venture with a foreign company named Mitsubashi. But they
were gradually made locally as technologies and skills. As we studied the case we found two
companies in the Malaysian automobile industry, first one is proton and second one is perodua.
Malaysian government restricted the foreign market to accelerate the sales of these two company.
Both the company gets proper support from their government but they can’t utilize their
opportunities properly that’s why they are lacked behind. Poor quality, old design and lack of
advanced technologies forced them to restricted within the national boundaries that’s why fail to
grab the flourishing foreign market. So all these evidence prove that Malaysian automobile industry
fall down after flourishing beginning. But as we know “failure is the pillar of success”, Malaysian
still can try to back their good times. Malaysia needs to avail advanced technology, improve their
quality, and design to give new birth to their death automobile industry and also sustain in this
global competitive market.

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 Company background:
As we go through the case we found two companies in the history of Malaysian automobile industry.
These two companies are Proton and Perodua.

Proton:
PROTON is a Malaysian car manufacturer. The company was established in 1983 as the sole
national car company until the advent of Perodua in 1993. Proton is a Malay acronym for
Perusahaan Otomobil Nasional Sendirian Berhad (National Automobile Company Private
Limited). Proton was largely a manufacturer of badge engineered vehicles from Mitsubishi Motors
between 1985 and the early 2000s.Proton approached Mitsubishi Motors between 1983 and 1984 and
brokered a joint venture between both companies for the production of the first Malaysian car. The result of
the collaboration was the Proton Saga, which launched on 9 July 1985. It was based on the second
generation 1983 Mitsubishi Lancer Fiore 4-door saloon and powered by a 1.3-litre Mitsubishi Orion 4G13
engine. United Kingdom it’s their largest foreign customer. In 1987, the output had reached 50,000 cars and
100,000th proton saga was produced in January 1989.By 1993 manufacturing had reached 500,000 cars and
R&D facility was constructed. On 30 October 1996, Proton acquired an 80% stake in the British company,
Lotus Group International Limited, valued at £51 million. On December 3, 2014, Proton announced plans to
construct a new car factory in Bangladesh.

PERODUA:
Perodua is Malaysia’s largest automobile manufacturer closely followed by Proton. It was
established in 1992 and launched their first car, the Perodua Kancil in August 1994. Perodua
mainly produces minicars and super minis and does not have models in the same market segments
as Proton. They do not design or engineer their main components, such as engine and transmission,
in house. Perodua cars have historically used Daihatsu component designs. Daihatsu held a 20%

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stake in Perodua at the company's launch, increasing this to 25% in 2001 and then to 35%. It is
planning to set up a second car manufacturing plant from the planned $770 million investments in
the coming years. Perodua expected to become the largest manufacturer of compact cars in South-
East Asia. By October 2005, it had produced a cumulative total of 1 million cars. By July 2008, it
expected to 240,000 per year. As compared to Proton, Perodua has been quite successful in its
business ventures. The automobile manufacturer is popular in Malaysia, with the Perodua Myvi
having sold 80,327 units in 2006, outselling its rival's best selling car, the Proton Wira then, which
sold only 28,886 units in Malaysia. Perodua sold over 189,000 vehicles in 2012, which was its
highest ever sales record. Its estimated market share in Malaysia was 30.2 per cent.

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Case Analysis:
After going through the case we analyze this case to find proper solution. Here we use two analysis
processes. These are SWOT analysis and PEST analysis.

SWOT analysis:
A SWOT analysis is a tool that identifies the strengths, weaknesses, opportunities and threats of an
organization. Specifically, SWOT is a basic, straightforward model that assesses what an organization
can and cannot do as well as its potential opportunities and threats.

Strengths of Malaysian Automobile Industry:

They have plenty of natural resources like tin, crude, petroleum, natural gas, bauxite, palm oil, natural
rubber, cocoa, pepper and timber. They have available labor force which is very positive sign for any
industry. In 1982, the state owned Heavy Industries Corporation of Malaysia was established to
overseas the new project, which would be protected with high import tariff, import restriction and
restrictive manufacturing license. HICOM is the conduit to mobilizing Malays into employment,
management and capital of heavy industries. An import tax regime estimated to range from 140 to 300
percent makes and other govt. incentives had enabled proton capture over 6o percent of their local
market.

Weaknesses of Malaysian Automobile Industry:

The flourishing automobile industry of Malaysia lack behind because of poor quality .Today’s
international market is highly competitive. To sustain in this market maintaining standard quality is
must. But their quality fails to meet the customers demand. Besides most of their manufacturing cars

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are old model. Comparing to the developed countries Malaysian technology is not up to the mark. The
revised policy which came to the effect on January 1, 2010 was weak and it ignoring the main
problem; a small domestic market which is neither free nor fair.

Opportunities of Malaysian Automobile Industry:

Malaysia had a great chance to capture the foreign market and generating huge profit trough it. But
because of some lacking they fail to do it. As the industry is at early stage it has the opportunities to
developed their models and design. As a developing countries it’s technologies is not so updated as
developed countries , but they can improve it. They can reduce the unemployment through creating
employment in this industry. They can change their revise policy focusing on their main problems.
They can establish the backward linkage company which will reduce their production cost.

Threats of Malaysian Automobile Industry:

As infant industries it facing the threats from those of developed countries .The competitive global
market is the main threat for Malaysian automobile industry. Some of the ASIAN countries like
Philippine, Indonesia also great competitors for Malaysia.

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PEST Analysis:
PEST is an acronym for Political, Economic, Social and Technological. This analysis is used to assess
these four external factors in relation to your business situation. Basically, a PEST analysis helps you
determine how these factors will affect the performance and activities of your business in the long-
term. It is often used in collaboration with other analytical business tools like the SWOT analysis and
Porter’s Five Forces to give a clear understanding of a situation and related internal and external
factors.

Political effects on Malaysian Automobile Industry:

Malaysian automobile industry gets proper support from their government. Govt. had taken
development policy to increase the amount of export. The govt. tried to create harmony and unity
between all ethnic groups for their economic development. Foreign direct investment helped them
to acquire the basic technologies. The Malaysian cabinet approved the joint venture policy for their
automobile industry.

Economical effects of Malaysian Automobile Industry:

Govt. provides them tax exemption up to 5 years to generate their production efficiently. At the
same govt. impose high import tariff for the foreign companies. New economic policy was taken to
provide extra facilities to the local companies. Heavy Industrial Corporation of Malaysia was
established to oversee the new projects.

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Social effects on Malaysian Automobile Industry:
Malaysian govt. provide loan to the civil servants to buy the locally produced cars. The automobile
industry creates employment opportunities for their country. Their local market is very small to
reach their goal. The issue is they fail to capture the foreign market as they focused on the local
market only.

Technological effects on Malaysian Automobile Industry:

As they don’t have the advanced technological skills, they acquire the technologies from the foreign
developed countries. Their local company Proton bought a controlling stake in Lotus Group
International, a UK based engineering firms. They trained their workers to improve their production
quality. They mainly produce car based on the poor model which fails to attract the foreign
customers.

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Recommendation:
Although Malaysian automobile industries get proper support from their govt. but they fail to utilize
these opportunities. As a result they are far away from their objective. Poor quality, old design and lack
of proper planning were their main obstacles. To overcome these obstacles and establish the flourishing
industry we recommend Malaysian automobile industry to follow the certain things:

 Reset their goals and objectives

 Change the revised policy of 2010
 Improving the design and quality
 Search for new market
 Develop new technology
 Focus on customer satisfaction

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CONCLUSION:
This case shows us two different scenario of Malay automobile industry. We compare the Malaysian
automobile industry with a newly born baby. Firstly, we see birth of the Malaysian automobile
industry and they can’t keep pace with the global competitive market that’s why they fall down like
new born babies start walking and fall down suddenly. As we analyze this case we see there is still a
chance to rebuild their broken industry.

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