Proton Case Study

Topics: Automotive industry, ASEAN, Kuala Lumpur Pages: 32 (9877 words) Published: August 29, 2013
ASIAN CASE RESEARCH JOURNAL, VOL. 16, ISSUE 2, 347–377 (2012)

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This case was prepared by Jane Terpstra Tong, Robert H. Terpstra of Monash University Sunway Campus, Malaysia and Lim Ngat Chin of The Nottingham University of Malaysia Campus as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative or business situation. Please send all correspondence to Jane Terpstra Tong, Department of Management, Monash University Sunway Campus, Jalan Lagoon Selatan, Bandar Sunway, 46150 Selangor Darul Ehsan, Malaysia. E-mail: jane.tong@ monash.edu

Proton: Its rise, Fall, and Future Prospects
For Dato’ Haji Syed Zainal Abidin Tahir (Syed Zainal, hereafter), Managing Director of Proton, recent headlines such as “Auto Sector Faces Numerous Challenges” and “European Carmakers Zoom in”1 were simply reminders of the challenges his company faced. Proton had been troubled by its declining share of the domestic auto market (Exhibit 1) and consequent dwindling profits and margins. Without taking into account the government’s R&D grant in 2007/2008, the company suffered three straight years of losses from 2007 to 2010. Its finances recovered a little in 2009/2010, thanks to the government’s “cash for clunkers” incentive programme, a MYR143 million (USD48 million)2 R&D grant from the government, and some improvement in sales. However, its net profit margin barely reached 3% — very low by industry standards — and most of its performance measures lagged behind those of the industry leaders (Exhibits 2 and 3). The stock price of Proton’s listed parent, Proton Holdings Berhad (Proton Holdings Limited), had been substantially lower than its net asset value for several years (Exhibit 3). Because of its low market to book ratio and the heavy government subsidies paid to Proton, Mr. Syed Zainal was under tremendous pressure to turn around Proton’s performance. Adding further pressure, the changing institutional environment had exposed Proton’s inability to compete. Since 2005 when the government committed to 19 March 2011. SBW20-21. of year exchange rates were used in this case. We use USD1 = MYR3.464 for 2008, 3.424 for 2009, 3.083 for 2010 and 3.000 for 2011. 2End 1Starbizweek,

Asian Case Res. J. 2012.16:347-377. Downloaded from www.worldscientific.com by SIM UNIVERSITY on 08/19/13. For personal use only.

© 2012 by World Scientific Publishing Co.

DOI: 10.1142/S0218927512500150

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Asian Case Res. J. 2012.16:347-377. Downloaded from www.worldscientific.com by SIM UNIVERSITY on 08/19/13. For personal use only.

reducing import tariffs under the ASEAN Free Trade Area (AFTA) agreement, the external institutional environment became very unfavourable to Proton. Although the government continued to protect Proton by providing grants and subsidies, Proton did not stop losing its market share to competitors, most notably to the second national car maker, Perodua. The competition in the domestic market had become stiffer as it was close to saturation. Further growth had to depend on overseas markets, in which Proton had failed to establish a firm foothold. The government’s latest National Automotive Policy3, issued in late 2009, did relieve some of Syed Zainal’s worries as the liberalisation of the sector was limited. Nonetheless, he was aware that the company desperately needed to improve its quality and efficiency; but what strategy should he adopt?

MalaysIa’s ProFIle Malaysia is a small country that has been independent from British rule for around 50 years. It has a land size of about 330 thousand square kilometres, equivalent to the size of Norway, Vietnam, or the state of New Mexico in the USA. It is only a quarter of the size of its northern neighbour, Thailand. About half of its land mass lies on the Malay Peninsula and the other half on the island of Borneo, across the South China Sea. It is a middle-income country with a GDP per capita of US$7,775 in...
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