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Background of Proton

Question:

Discuss about the Strategic Management on Proton Malaysia.

Purpose of the report

The purpose of the report is to design and formulate a strategic management plan for Proton Malaysia by using various organizational theories and tools. The internal and external factors, influencing the business would be considered to analyze the management issues of the company.

Overview of the company

The chosen company for this report is Proton Malaysia. Proton is one of the leading car manufacturers of Malaysia. It has achieved a great success and the brand name has become the nation’s pride. The company is based in Malaysia, with headquarter in Shah Alam in Selangor, and its activities include car design, manufacturing, sales and distribution. It was founded in 1983 and was the only national badged automobile organization until 1993, when Perodua arrived. Proton emphasizes on the quality of products and outstanding service. It has captured the local Asian market of automobiles in a larger way (Proton.edar.com 2017).

Products

The company was established to manufacture parts of rebadged Mitsubishi Motors. The company started to produce non-badged, indigenously designed cars in 2000, and that made Malaysia the world’s 11th country to design and produce cars from the scratch. 2000 onwards, the company has been producing a combination of badged and locally engineered cars. The Proton cars are now sold in 15 countries, maximum of those are Asian countries. The company has many models in the market currently, such as, Saga, Persona, Iriz, Ertiga, Preve, Suprima S, Exora, Perdana etc. It also produces and maintains parts of older models, Arena, Inspira, Gen.2 etc. Proton also provides an efficient after sales services. They have launched their own mobile app that has made making appointments easier. There are multiple service centers across Malaysia and in other countries also, which stay open for 7 days a week (Proton.edar.com 2017).

Vision:

The vision of the company is to become a booming Malaysian automobile manufacturer operating in the international market. The objectives of the company are to spearhead the automobile industrialization and manufacturing procedures, to obtain and improve the technologies and industrial skills inside the industry, and to face the competitive challenges in the international market and improve their quality (DRB-HICOM 2017).

Mission

The missions of the company are to deliver customer satisfaction through quality products, deliver good return to the shareholders, promote a supportive and encouraging working environment with a focus on HR development and maintain responsible business (DRB-HICOM 2017).

Vision, Missions, and Objectives

Evaluation of mission and vision

According to Johnson et al. (2014), the focus of the company was to provide customer satisfaction as well as become a national brand. These objectives have been fulfilled by Proton. Becoming the first national brand works as a motivational factor for the company, and helps them to maintain their status as a market leader. The clarity regarding the aims for providing efficient services for the stakeholders and employees are fulfilled, which is reflected in the growth of the company (Felker, Jomo and Rasiah 2013).

PESTLE analysis(Source: Srdjevic, Bajcetic and Srdjevic 2012)

PESTLE analysis is a tool or framework, used by the organizations to analyze the macro-environmental factors. PESTLE analysis helps an organization to assess the external factors and formulate strategies accordingly (Srdjevic, Bajcetic and Srdjevic 2012).

The acronym PESTLE stands for Political, Economic, Social, Technology, Legal and Environmental. For the organization Proton, the PESTLE analysis is explained below.

Political: This refers to the level of government intervention in the economy. The rules and regulations of the government, policies, political condition in the home country and other countries, tax policy, foreign trade policy, labor law, trade restrictions etc. are the political factors that can affect the businesses. Any organization should abide by the laws and if there is political instability then the operations of the businesses would be hampered.

In case of Proton, the company operates in total of 15 countries, mostly Asian. The region is known as AFTA, that is, Asian Free Trade Area. The impacts of the policies on eradication of tax barriers in the AFTA region and National Automobile Policy (NAP) are the political factors influencing the business strategies of Proton (Jomo 2013).

Economic: It is one of the major influential factors for any business. Economic growth, exchange rates, interest rates, inflation, GDP, per capita income etc. have significant impacts on the businesses of a country. The demand and supply in the economy are also determining factors for the performance of businesses in that country. The international economy also has a significant effect on a business, which operates in multiple countries. Macro-economical factors, such as the economic and monetary policies of the government, market competition; and micro-economic factors, such as, the consumer behavior are the main components of the economic factor analysis of PESTLE (Porter 2008).

In case of Proton, the market for automobiles is highly competitive. Its main rival is Perodua, followed by Honda, Toyota, Nissan, Hyundai and Volkswagen. The global financial crisis and pure segmentation of the market of consumers have relevant impact on the sales of the company.

PESTLE Analysis for Proton

Social: This factor refers to the socio-cultural elements determining the course of the business. The attitude and nature of population, and shared belief form the socio cultural aspects for any business. These include growth of the population, age distribution, religious beliefs, career choice, health, education, culture etc. These factors help the businesses to understand the market demand in a more precise manner and produce accordingly (Porter 2008).

The social issues for Proton consist of the rising concern for the increasing population, increased exposure to global markets, age and races, changing tastes and preferences of the customers, and customer loyalty towards the national brand, which creates both positive and negative impacts on the business.

Technological: It is one of key factors for the businesses. The technology changes very fast and influences the businesses significantly, either positively or negatively. The working of an economy can change entirely if there is a huge technological change in the country. It can work in three ways, such as, new ways of production, new ways for distribution and new ways for communication with target markets. In other words, research and development, innovation, automation and technological awareness are the technological factors that affect the businesses.

This is a major concern for the company, as it focuses on providing high quality cars at a low price. The implementation of new technologies, intellectual property regarding designs, and potentiality of developing a quality product are the technological factors for Proton (Wong and Govindaraju 2012).

Legal: legal factors have both the internal and external factors. The business environment of a country is affected by certain industrial laws. The companies also maintain certain regulations on their own. The legal analysis takes into consideration of both these sides and strategies are made accordingly. The consumer laws, labor laws, health and safety standards are examples of this factor. The ethical and corporate governance are part of this factor.

The legal factors for Proton consist of the commitment for safe and ecofriendly cars, consumer rights, the imposition of tariffs as well as protection by the government.

Environmental: These refer to the factors from surrounding environment, which affect the businesses. It is very important for certain sector, such as, agriculture, tourism, farming etc. As the raw materials are becoming very scarce, pollutions increasing, hence, sustainability has become important to reduce the impact on environment as well as on the societies.

Like all other companies, Proton also has involved itself for fulfilling the corporate social responsibilities. Protecting the environment and the communities for making a sustainable future are the important activities of Proton under CSR (Hadadi and Almsafir 2014).

Industry Analysis using Porter's Five Forces Model

Industry analysis

The industry analysis for Proton would be done on the basis of Porter’s five forces model. It is a framework, that is used to analyze the level of competition within the industry, and development of organizational strategy according to that. The intensity of competition, power of buyers and suppliers are analyzed through this model. Stronger the competitive forces, less profitable the industry is (Porter 2008).

(Source: E. Dobbs 2014)

According to the Porter’s five forces model, the five forces are: Industry rivalry, Threat of entry, Threat of substitutes, Bargaining power of buyers and Bargaining power of suppliers.

Industry rivalry: As a national brand, the car manufacturer faces intense rivalry from Perodua. These two companies are the automotive market leaders in Malaysia. Proton focuses on lower prices for high quality. The other brands giving competition are Honda, Toyota, Nissan, Hyundai, and Volkswagen.

Threat of entry: If the government implements rules for lowering import taxes on the foreign cars, and formulates friendly import laws, then the threat of entry is very high. The foreign brands would easily capture the market with a lower price. Along with that, if a manufacturer has high capital and investment capacity, then it would also pose threat for Proton (Johnson et al. 2014).

Threat of substitutes: Perodua possess a threat for substitution for Proton. Both are made in Malaysia. Both offer lower prices. Hence, with attractive designs and quality, Perodua is a good substitute for Proton. In Malaysia, Motorcycles are also threats for four wheelers.

Bargaining power of suppliers: There is a few dominant suppliers of parts of Proton. Since establishment, the company has earned the support of the government and hence, did not face much problems regarding suppliers. At the same time, switching suppliers can lead to comprise with the safety and quality of products. Thus, the existing suppliers have high bargaining power (Sawasnatee and Tai 2013).

Bargaining power of buyers: In case of Proton, the buyers always look for high quality at a lower price. The cost of switching brands, number of buyers, brand loyalty, volume of purchase etc. determine the bargaining power of the buyers.

Porter’s value chain

(Source: Lee, Kim and Park 2012)

This theory focuses on how value can be created within an organization. According to Porter, the value chain represents the understanding of the creation of competitive advantage, which is actually created by the value adding activities, like, designing, manufacturing, marketing, distributing and supporting of a product (Lee, Kim and Park 2012). All companies use to evaluate all of their activities in the method of converting the inputs into the outputs. Value chain functions are carried out to determine the costs and profits. Profit margin is defined by the difference between value created and captured and cost of creating that value. It is the value that is generated and captured by the organization. Conducted activities can be classified into primary activities and support activities (Gobble 2012).

Primary activities comprise of inbound logistics, operations, outbound logistics, marketing and sale and service. The supporting activities comprise of infrastructure of the firm, HRM, technology and procurement. Margin refers to the profit margin (Porter 1996).

Primary Activities

Definition

Activities  performed by company

How does it create value

Strength/Weakness

Inbound Logistics

The inbound movement of parts or materials, and/or final inventories from the suppliers to assembly plants or retailers

The company had 287 vendors, 3000 sub-suppliers, 5000 components with only 10% of them holding Grade A ranking in 2010. 60% parts were defective due to poor quality suppliers. 

The relationships with the vendors and suppliers are the key elements for creating value.  

As the number of defects was quite high, the company planned to reduce the number of vendors to 180 in the next few years.

Operations

Activities that converts inputs into outputs

Engineering services, manufacturing and quality control are the main functions of operations. The production capacity of two plants of Proton is more than 200000 units per year in 2010 (DRB-HICOM 2017).

Quality improvement helps in cost reduction and thus creates value for the company (Proton.edar.com 2017).

The increase in quality production is the strength of the company, however, poor quality of parts is a weakness.

Outbound logistics

The procedures related to movement of final products and information to the stores and then to the end users.

In 2012, the accommodation capacity in Sijngkang was 7000 cars, and in Tanjung Malim was 6000 cars.

The company prepares car shipments for export, as well as supplies to the domestic market.

The class procedures helped the company to reduce many problems like, secondary defects, unnecessary wait time to three days, excess inventory at the staging points,

Marketing and sales

The sales of goods and services and procedures for promotions, which create value for the customers

Approved Permit (AP) was introduced for special category dealers. In 2009, NAP was introduced. Proton has acquired the permits for increasing dealers.

With the acquisition of permits, Proton has been able to increase the number of used car dealers and franchises. The value is created in terms of increased sales.

Without open permits, majority of used car dealers will not be able to operate in the market. It creates a restriction among the dealers.

Services

It refers to the after sales services.

Proton has pre-purchase customer financial service, with government approval, support loans from the government; it also provides service, maintenance, consultancy in various centres across the country.

The after sales services of Proton are efficient, which creates a value for both the company and for the customers.

The strength of the company is the efficiency of pre and after sales services, maintenance programs.

Supporting activities

Infra structure

Activities such as, accounts, finance, legal, control, quality assurance, public relations, and management

Manufacturing and assembly activities, operations activities

Utilization of geographical location, improving the local economy, integration of global investment in the business

Strength - Domination of the local market, government protection

HRM

Activities involving recruitment, selection, training and development, compensating,  and layoffs of employees

The company has collaborated with universities for campus recruitment, arranges PIIC (Proton Innovation and Invention Competition) for generating new ideas.

Skills development and training programs help in the development of the employees.

Helps in creating new and innovative designs, improves the quality of employees, which is reflected in the quality of production.   

R& D

Activities related to technological development through research work, improvement of software, hardware, technical knowledge

Creation of PTAC (Proton Technology Advisory Council) for technology acquisition, advising and providing recommendation, creation of PTR (Proton Technology Roadmap) and technology transfer

The activities help in the improvement of existing technology and invention of new technology and designs. The technology transfer with Saudi Arabia in 2010 helped in creating prototype cars.

Helps in gathering knowledge on the global techniques, emerging technologies and about the implementation of new technologies

Procurement

The activities related to acquisition of goods and services from an external source

Acquiring raw materials, parts, components from local and global suppliers

Helps to build a good relationship with the suppliers, locally and globally

Helps in the development of international standard cars with the help of global technology and parts

VIRN by Barney’s (1991)

Primary Activities

Valuable?

Inimitable?

Rare?

Non-substitutable?

Sustainable competitive advantage?

Inbound Logistics

Yes

Yes

No

No

Temporary comparative advantage

Operations

Yes

Yes

Yes

Yes

Sustained comparative advantage

Outbound logistics

Yes

Yes

No

No

Temporary comparative advantage

Marketing and sales

Yes

Yes

No

Yes

Comparative parity

Services

Yes

No

No

Yes

Temporary comparative advantage

Supporting activities

Infra structure

Yes

No

No

Yes

Comparative parity

HRM

Yes

Yes

No

Yes

Sustained competitive advantage

R& D

Yes

Yes

Yes

Yes

Sustained competitive advantage

Procurement

Yes

No

Yes

No

Temporary competitive advantage

Valuable: It refers to the concept of resources being greatly valuable for an organization, in terms of costs and benefits compared to that of the similar competing firms. In this case, all the activities of Proton are valuable. All these activities together have made the company one of the biggest national brands (Lin and Wu 2014).

Inimitable: It represents whether the goods and services were difficult to imitate. For Proton, the inbound logistics, outbound logistics, and marketing and sales are difficult to imitate, while the other services can be imitated by the rival companies (Talaja 2012).

Rarity: This implies that the resources must be rare so that its demand in the production process remains. Apart from R&D and procurement techniques in Proton, none of the other factors is exclusively rare.

Non-substitutability: This refers to the concept of if the factors are substitutable or not. In case of Proton, the inbound and outbound logistics and procurement services are substitutable, while the other services are not substitutable. These resources cannot be substituted by other resources (Fearne, Garcia Martinez and Dent 2012).

Proposed Strategies

Proposed business strategies for Proton cars are based on SWOT analysis.

Strength

1.      National brand

2.      More than 14,000 cars are exported per year

3.      The international markets for Proton cars are expanding over the years.

Weakness

1.      Product portfolio lacks variety

2.      Brand awareness and share of markets are lower in comparison to other global brands

Opportunities

1.      Strategic brands acquisition

2.      Emerging markets

3.      Expansion of existing market

4.      Rising demand for electronic cars

Threats

1.      Low cost substitutes from Chinese manufacturers

2.      Macro economic factors leading to reduced sales

3.      Still suffers from bureaucratic issues

Cost leadership: Being the first national brand of automotive in Malaysia, Proton still enjoys the cost leadership in the market. It offers high quality cars at a lower cost. As the company has managed to gain competitive advantage in the market, it can be inferred that Proton has gained the cost leadership (Miller and Mork 2013).

Differentiation: Proton has managed to capture the automotive market with the cars that are made in the nation. However, Perodua arrived in 1993 and became the biggest rival of Proton. The company has launched various models of low cost cars in the domestic and international markets (Soosay, Fearne and Dent 2012).

Focus-differentiation: Under this strategy, the company has focused on small groups with differentiated products. Proton has utilized the customer loyalty towards the national brand and offered various models of Proton cars (Hollensen 2015).

Following the SWOT analysis, Proton should focus on all forms of strategies, i.e., product development, market penetration, diversification and market development strategies. However, the key focus should be on product development. It should diversify its product ranges and enter new and emerging markets (Grant 2016).

Evaluation of the strategy

Suitability: The strategy of product development is most suitable if the company wants to expand. With the strengths and opportunities of Proton, the development and diversification strategies are most suitable for growth (Yarger 2012).

Acceptability: To make the proposed strategies acceptable, Proton must think about the stakeholders’ interest. When the risk level is low, stakeholders would be interested to invest their money for further development and growth of the company. New product development based on market study should be an acceptable strategy to the stakeholders (Lustický and Kincl 2012).

Feasibility: The proposed strategies for product development are practical and reasonable. To survive in the industry, the company should always improve its products. They should use new and existing resources for new products. Hence, the feasibility of the proposed strategy is quite strong (Andrews and Russell 2012).

References:

Andrews, G. and Russell, M., 2012. Employability skills development: strategy, evaluation and impact. Higher Education, Skills and Work-Based Learning, 2(1), pp.33-44.

DRB-HICOM, 2017. [online] www.drb-hicom.com. Available at: https://www.drb-hicom.com/wp-content/uploads/2016/08/DRB-HICOM_AR2016.pdf [Accessed 31 Jul. 2017].

Fearne, A., Garcia Martinez, M. and Dent, B., 2012. Dimensions of sustainable value chains: implications for value chain analysis. Supply Chain Management : An International Journal, 17(6), pp.575-581.

Felker, G., Jomo, K.S. and Rasiah, R. eds., 2013. Industrial technology development in Malaysia: industry and firm studies. Routledge.

Gobble, M.M., 2012. Innovation and strategy. Research-Technology Management, 55(3), pp.63-67.

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.

Hadadi, K. and Almsafir, M.K., 2014. The Impact of online Advertising on Proton Sales among expatriates in Malaysia. Procedia-Social and Behavioral Sciences, 129, pp.274-281.

Hollensen, S., 2015. Marketing management: A relationship approach. Pearson Education.

Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regner, P., 2014. Exploring Strategy. 10th ed. Pearson.

Jomo, K.S. ed., 2013. Industrializing Malaysia: policy, performance, prospects. Routledge.

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Lin, Y. and Wu, L.Y., 2014. Exploring the role of dynamic capabilities in firm performance under the resource-based view framework. Journal of business research, 67(3), pp.407-413.

Lustický, M. and Kincl, T., 2012. Tourism destination benchmarking: Evaluation and selection of the benchmarking partners. Journal of Competitiveness, 4(1).

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Porter, M.E., 1996. What is strategy. Published November.

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Proton-edar.com, 2017. Home. [online] Proton-edar.com.my. Available at: https://www.proton-edar.com.my/ [Accessed 31 Jul. 2017].

Sawasnatee, J. and Tai, W.P., 2013. Comparative Case Study of Malaysia and South Korea Automobile Industry Competitiveness Analysis. EAU Heritage Journal: Social Science and Humanities, 3(1), pp.19-38.

Soosay, C., Fearne, A. and Dent, B., 2012. Sustainable value chain analysis–a case study of Oxford Landing from “vine to dine”. Supply Chain Management: An International Journal, 17(1), pp.68-77.

Srdjevic, Z., Bajcetic, R. and Srdjevic, B., 2012. Identifying the criteria set for multicriteria decision making based on SWOT/PESTLE analysis: a case study of reconstructing a water intake structure. Water resources management, 26(12), pp.3379-3393.

Srivastava, M., Franklin, A. and Martinette, L., 2013. Building a sustainable competitive advantage. Journal of technology management & innovation, 8(2), pp.47-60.

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Wong, C.Y. and Govindaraju, V.C., 2012. Technology stocks and economic performance of government-linked companies: the case of Malaysia. Technological and Economic Development of Economy, 18(2), pp.248-261.

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Zalengera, C., Blanchard, R.E., Eames, P.C., Juma, A.M., Chitawo, M.L. and Gondwe, K.T., 2014. Overview of the Malawi energy situation and A PESTLE analysis for sustainable development of renewable energy. Renewable and Sustainable Energy Reviews, 38, pp.335-347.

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