Whilst Michael Porter five’s forces or industrial analysis provides a scan on the changing industrial and observe the structure of internal competition of an industry, PESTEL analysis scanning the changing of the external environment which is beyond the control of the organization. PESTEL analysis is criticized as not an effective framework because there are certain weaknesses in the framework. For example, the fast changing environment and it is a not long lasting analysis. One of the example concerning on the Washington Mutual declared bankrupt due to unable to overcome the economic crisis that severely hits on the company’s finance.
History Proton Holdings Bhd is a Malaysia stated-owned company. Proton is established on 7 may 1983 under the direction of the former Prime Minister Malaysia, Dr Mahathir Mohammad. Proton Holding Berhad is listed in the Main Board of the KLSE on 26 March 1992. The major shareholder of Proton Holding Berhad: Khazanah Nasional (42. 7%), Employees Provident Fund (EPF) (15. 7%) and Petroliam Nasional (7.
9%). Proton and Mitsubishi established joint venture project since the first Proton car produced in 1985.
The first Proton Saga which produces based on the technology from Mitsubishi launched in September 1985 and the rest of cars has manufactured by proton with the collaboration with Mitsubishi such as Wira, Waja, Iswara and others. However, Mitsubishi sold its stake in 2004 but is still continue to supply the relevant components to Proton. In the same year, Proton announced to talks with Volkswagen AG to establish a partnership. The expectation on the tie-up may exploit each other’s strengths, but the talk has failed.
In 2006, Proton’s sales dropped 30. % from 166,118 in 2005 to 115,538 in the market. This allowed the second national car Perodua to overtake Proton as the country’s largest passenger carmaker for the first time, with a 41. 6% market share, while Proton’s market share fell from 40% in 2005 to 32% in 2006. In the period ending December 31, 2006, Proton has also suffered three consecutive quarterly losses. Compared to a profit of 86. 5 million ringgit in 2005, the car company lost 281. 5 million ringgit in 2006. Total losses in 2007’s financial year climbed to $169 million.
The acquiring 80% of the Lotus Group in 1996 by proton is only using the technological expertise of lotus to produce efficient car in Malaysia. In 2009, Malaysian government starts delivering information to the people on the Lotus Group which is owned by the national car makers – Proton. Lotus Group is a United Kingdom based company which is a sport car manufacturer. The acquisition of lotus group by proton is to obtain mutual interest where the Proton will obtain the technological expertise from the Lotus Group and the Lotus Group need the assists from proton to boost the sales.
In the fiscal year ended 31 March 2009, Lotus Group turnover is increased to RM574. 8 million compared to RM564. 3million in the year before. Vision and mission The company mission is to become a successful Malaysian automotive company and manufacture innovative product and affordable price to the local and even to the global. In order to get the goal success, Proton Holdings Bhd set five core commitments which are focusing on the interest of customers, shareholders, employees, business associations and the nation. Barrier entry
Concerning on the current political and legal issues in Malaysia, the obstacles for the competitor in automobile industry is remaining high. Political The intervention of the government in the automotive industry in Malaysia is purposely to protect the national industry from the stiff competition raise by the foreign company in the industry. In order to protect the car industry, high tax of 140% to 300% imposed on the import cars. For example, in U. S a BMW 328i is sells only RM 155,369. However, in Malaysia the same model car is selling RM 460,000 after added the import tax.
Malaysia is a member of ASEAN and WTO. One of the conditions in the AFTA is to removes or reduces the tariff system. However, Malaysia refuses to wholly remove its taxes on the importing. While in 2005, Malaysia has implemented its commitment to the ASEAN to reduce the tariff gradually and in 2008, the tax reduces to 0% to 5%. | IMPORT DUTY| Local Taxes| | CBU| CKD| CBU & CKD| Engine Capacity (cc)| MFN| ASEAN CEPT| MFN| ASEAN CEPT| Excise Duties| Sales tax| < 1800| 30%| 0%| 10%| 0%| 65%| 10%| 1800 – 1999| 30%| 0%| 10%| 0%| 75%| 10%| 2000 – 2499 | 30%| 0%| 10%| 0%| 90%| 10%|
Above 2500| 30%| 0%| 10%| 0%| 105%| 10%| Table 1: Import duty Reduce of import tax force government to increase the excise duty on the people while to minimize the losses in reducing tariff. The tax imposed on both manufacturer is create an obstacles for the foreign companies from enter the automobile industry. According to the National Automobile Policy (NAP) review, Ministry of International Trade and Industry (MITI) will terminate the approval permits (AP) system imports of complete built up (CBU) vehicles and also the AP for used vehicles in 2015. No new pplications for Open AP will be considered and franchise AP will be terminated by Dec 31, 2020. Only the holder of approval permit is allowed to import cars and distribute it locally. If the franchise AP is terminated in 2020, the foreign car manufacturer has to only assemble car locally. Other than tariff, Malaysia Automotive Association (MAA) announces that the importing used-car, cut car, secondhand component and spare part in Malaysia is going to banned by the government. This is to protect the safety of the people from using used car and also to boost the sales of the spare part and the car sale in Malaysia.
Together in 2015, the government is also attempt to put restriction on the vehicle which aged 15 and above to do mandatory check. The vehicle end life policy will be implementing in 2015 told by the transport minister Malaysia. The implementation will gives opportunities to the local and foreign automobile companies to raise the sales due to high price in spare part to replace in used spare part. Economic The growing economic in Malaysia is cause by the opens up of the economic trade barrier by the government to attract the foreign investment.
The FDI of Malaysia in 1985 to 1995 is around USD 29 billion. While the inflow of FDI after Malaysia implements its commitment to ASEAN in reduces the import tax, there is an overall an increase of 3 billion of FDI to 6 billion in 2006 of FDI inflow. The declining restriction on trade barrier started on the fierce competition on the market. Table 2: Net FDI inflows, 2000-2008 Source: http://www. miga. org/documents/flagship09ebook_annexes. pdf On the other hand, the income per capita of Malaysian is increasing from USD 2516 per year in 2001 to USD 4776 in 2009.
According to the forecast by Malaysian automotive association (MAA), the total industry volume forecasting will be increase from 550000 units to 570000 units in the next half year of 2010. This is due to the first half year sales performance of the vehicles is grew up to 19. 8% compared to the previous relevant period. Figure 1: Income per capita Government intervention in the oil price in Malaysia gives the reason for the oil price in Malaysia is the lowest among the neighbor countries. The manage float method is using to control the crude oil price in Malaysia.
The subsidies by the government in the oil price reduce the burden of the people. While in 2010, government adjusts the new oil price to reduce the subsidy and the national debt. Figure 2: Oil price in Malaysia and neighbor countries In 2010, the loan interest rate has increased three times results on the latest increment to around 3. 85% to 4. 1%. However, Proton holdings Bhd discuss with the banks and financial institutions to reduce the impact of the increased interest rate that will affect the buying behavior of consumers toward cars. Even though the rose of the interest rate and the increasing oil price in Malaysia, this is not severely affected the consumer to buy cars”, said by MAA president Datuk Aishah Ahmad. Legal In order to start business in Malaysia, the foreign company has required registering and licensing with the provision of the control exist in general acts such as the Companies Act 1965 or the Registration of Business Act 1965. Manufacturing activities in Malaysia must require a manufacturing license from MITI. However, there is a restriction control for foreign business or investor.
Malaysia government controls the companies to resulting of the balance participation by the Malaysian, particular in bumiputera. Only manufacturer who have fewer than 75 employees and less than RM 2. 5 million in shareholders’ funds are exempted. One of the rules in the industrial coordination act 1975 stated that if 70% or more of the equity is held by foreigners, the balance will be reserved for the bumiputera and if less than 70% of the equity is held by foreigners, 30% will be reserved for bumiputera and the balance for non- bumiputera.
Malaysia started to encourage environmental friendly cars to the market by promoting 100% incentive tax allowance for five years or pioneer status for a period of 10 years. The minister of finance told during the 2009 budget Malaysia that the imported hybrid cars will get exemption of 100% import duty and 50% excise duty. Proton is protected by the government policies by limited the foreign equity ownership and other to make the barrier of entry to the automotive industry difficult to the competitors. This is an opportunity built by the government for Proton since long time ago.
There is no have other comparative advantage on Proton other on the price advantage. The acquisition of Lotus by proton is strengthening the product differentiation from the conservative Proton car’s model. The Proton Satria Neo which is the product representative of the Proton joint-efforts with Lotus engineering. The product differentiation and the price advantage gives proton one step up over other rivals in the industry. Thus, the opportunity cost for consumer to forgone the foreign car is high. Current situation of economy, legal issues and even political issues are all favored to the Proton.
Since Lotus Group has been acquired by Proton, Proton should use the opportunity to transfer the technology know how to the Proton cars to produce product differentiation that is impressed everyone. Threat of substitutes Even though the barrier entrant in the automobile industry is remaining high, but, there is exists a strong rival to Proton. The main reason of the argument is referred to the second national car Perodua. The substitutes available in the automotive industry are the threat to cause Proton’s sales to drop. Appendix 3 shows that the top car sales in Malaysia in 2009.
The top car sales in 2009 is occupied by the second national car Perodua, while Proton’s cars is on the second place lower than Perodua because of Perodua’s afford in improving its quality and refreshing their products which meet the needs of the customers is the reason that Perodua overtake the Proton as the largest car maker in Malaysia. Rivalry among existing firms Proton strongest rival in Malaysia is the second national car Perodua. Since Perodua introduce in 1993, the sales is overtake Proton after 13 years in 2006. In 2009, the share market of Perodua hits 32. % while proton stayed after Perodua which occupy 28. 6% of the market share. Perodua acknowledge that the consumer concerning on the affordable price when do purchasing of car. Offered 0% of down payment in buying Perodua car is attracted the buyer switching their target from proton to perodua. In addition, Perodua is also provides the cash rebate up to RM 2500 for the buyer. Other competitors of Proton include Toyota, Honda and Nissan. In Malaysia, Toyota brings in the hybrid car which is high production cost car and its uniqueness creates a product differentiation for Toyota from its rivals.
Toyota has a strong brand image in the world and it is the world best car seller. The brand loyalty toward the company is strongly beat the brand image of Proton in Malaysia. Moreover, Toyota has the strongest research and development among the automotive industry. They do research before introduce a new product to the market to ensure the well feedback from the consumers. For example, Toyota enables their consumer access to the development of the Toyota Prius features and characteristic before introduce it to the market. They found that the consumers are concerning on the affordable price, high technology, safety issues about the car.
Moreover, Toyota enable consumers to do pre order before the car were delivered to the dealership. As a result, the sales of the Toyota Prius in the U. S is tremendously successful which the sales climbed 32% from 2001 to 2003. Buyer bargaining power Buyer has a lot of information exposure before do purchasing, information comparison on the price, features, and comments from the chat forums and others are easily available. Validity of information causes the high bargaining power of buyer on the car. Buyer decision is affected when the downturn of economic or low income.
Only small amount of buyer is not affected toward luxury brand. According to a research, the Malaysian buying behavior is change according to the economy. 58% of Malaysian cut their spending during the economy downturn, while 81% of the respondent alleged that less spending on the luxury goods. These significant behavior shows that the price sensitivity among the Malaysian. The behaviors same reflect on the buying behavior of buyer on the car. As the increasing income per capita among Malaysian, the buyer has more variety of choice in choosing vehicle.
Therefore, the Proton is suffered with the strong bargaining power of buyer and low switching cost from proton to the main rival Perodua that are enhancing the bargaining power of buyer. Bargaining power of suppliers According to the promotion of investment act 1986, government will provides incentives to the firms which are involved in the promoted activities or activities as determine by the MITI. While, this incentive is eligible apply on the transport equipment, components and accessories. This brings to the increasing of the number of component industry in Malaysia accelerates from 00 to 350 in 2003. 70% of these company supplies are to Proton Bhd. The high concentration of the suppliers leads to the low bargaining power of supplier to Proton. Conclusion The lack of innovation and weak management in the company are the major weaknesses to Proton Holdings Bhd. Whilst, the fast changing environment is not severely affected Proton that is protected under umbrella of government but is the competitiveness among the industry widen the gap between Proton and foreign vehicle to be on par. The comparisons apparently cause Proton loss its competitiveness among the automobile industry.
The causes lead Proton struggle in the stiff competition in the automotive industry are due to the weak R&D on the customer needs and no have innovation on the products. However, there are some opportunities for Proton to overcome it. For example, advance technology available in Lotus Group. Proton should starts to built its brand image and reputation changing to a more effective management and be more creative in producing vehicles. Appendix 1 Appendix 2 Appendix 3 Appendix 4 ——————————————– [ 2 ]. Day trading on NYSE, 2009. 10 largest bankruptcies in the history of the USA.
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Gross income per capita 1990-2009. Available on: http://www. euromonitor. com/pdf/wcld_samples. pdf Viewed: 20/7/2010 [ 16 ]. Appendix 1 [ 17 ]. Appendix 2 [ 18 ]. Approval of manufacturing projects, 2008. Available on: http://210. 187. 41. 3/beta/view. php? cat=3&scat=5&pg=116 Viewed: 27/7/2010 [ 19 ]. Automotive News & Topics, 2008. Malaysia Budget 2009 : 100 percent exemption of import duty and a 50 percent exemption in the excise duty for CBU hybrid cars Available at: http://kereta. info/malaysia-budget-2009-100-percent-exemption-of-import-duty-and-a-50-percent-exemption-in-the-excise-duty-for-cbu-hybrid-cars/ Viewed: 23/7/2010 20 ]. Malaysia: Government will impose excise duty on cars to make up tax revenue, 2003. Available on: http://www. just-auto. com/news/government-will-impose-excise-duty-on-cars-to-make-up-tax-revenue-report_id80405. aspx Viewed: 20/7/2010 [ 21 ]. Malaysian Automotive Association (MAA), 2010. 2009 top 10 popular car model in Malaysia. Available on: http://www. etawau. com/HTML/Car/INDEX_TopModel. htm Viewed: 24/7/2010 [ 22 ]. Perodua Viva, 2007. Available on: http://www. peroduapromosi. com/index. php? p=1_9_VIVA Viewed: