Background of PROTON Holdings Berhad

Perusahaan Otomobil Nasional Berhad

(PROTON) was incorporated in May 7,
1983 to manufacture, assemble and
sell motor vehicles and related
products, including accessories, spare
parts and other components.
PROTON produced Malaysias first car,
the Proton Saga, commercially
launched on July 9th 1985 by former
Malaysian Prime Minister, Tun Dr.
Mahathir Mohamad, who had originally
conceived the idea of Malaysian cars.

 PROTON benchmark is based on Toyota

Motor Corporation .
Toyota Motor, the worlds largest
automotive manufacturer (overtaking GM
in2008), designs and manufactures a
diverse product line-up that ranges from
subcompacts to luxury and sports vehicles
to SUVs, trucks, minivans, and buses.
Proton posted a wider net loss of RM646.3
million for the financial year ended March
31, 2015compared with RM462.03 million
a year before.

 Proton remains a big drag on DRBHicoms financials which slipped to a

net loss of RM15.82 million for the
six months ended Sept 30,
2015against a net profit of
RM200.93 million for the same
period on the previous year.

Vision
To become a successful Malaysian
automotive manufacturer globally.

Mission
1.Customers
2.Products or services
3.Markets
4.Technology
5.Concern for survival, growth, and
profitability
6.Philosophy
7.Self-concept
8.Concern for public image
9.Concern for employees

 Our company produce high quality

automobile and good after sales
service(2).Our Company history is one of
the remarkable achievements of which we
are proud(6) of. In our pride lies the vital
energy that drives us forward and forces us
to take on new challenges. Not only our
customers but also our business associates
and shareholders need to trust our ability
and rely on us to deliver on our promise of
quality(7). We continually strive to expand
our employees knowledge, skills and
expertise in order to find better solutions
and produce better results(9).

 As a national project, Proton is also committed

to lead in the acquisition of intellectual
capability in design and technology(4), which
will propel the nation to achieve the status of
an industrialized nation. With people as our
primary focus, we are committed to building a
friendly organization, sensitivity to customers
needs with clear communications leading to
mutual understanding and care(1). Our
company are competing in Asia region(3).
Many diverse product being made to compete
with the competitor(5).Our company strive to
develop good combustion of oil and release of
less poisonous gases(8).

Board of Directors

Senior Management

Head of Subsidiaries

Internal Audit

Strengths

1. Although Proton was privatised in 2002, the company

still receive close to RM 200 million in government R&D
grants. The company has strong financial backing from
the government in the form of R&D and grants.
2. Proton has allocated RM 600 million to develop new car
engines with engineering partners in UK, to plot its
return to European markets.
3. Partnership with Suzuki will help shape Protons future.
Suzuki supplying Completely Knocked Down (CKD) kits
to Proton, who will then assemble and manufacture
them at Tanjung Malims plant around August 2016.
4. The vehicles co-produced with Mitsubishi were
perceived to be in better quality. The large majority of
vehicle platforms, engines, parts, and technical
expertise were once sourced from Mitsubishi Motors.
Examples of the cars are Proton Wira, Proton Satria,
and Proton Perdana.

5. The company has attractive major production

facilities in Tanjung Malim. The Stamping section
boasts the largest stamping equipment in Southeast
Asia. This definitely enhance the productivity in the
process of making cars.
6. Program Insurans Proton (PIP) which is an aftersales
service offers more to Protons customers benefits
such as no betterment charges for Protons changing
parts that are within 8 years of age.
7. There are many Proton Edar service centres branches
that opens 7 days a week in central, northern, and
southern regions for customers convenience.
8. Proton Exora appeal is its four-star rating under the
ASEAN New Car Assessment Programme (NCAP)
making it one of the safest and most affordable multi
purpose vehicles (MPV) in the market.

9. Proton launched the Iriz in September 2014 which

rated five-stars under the ASEAN New Car Assessment
Programme (NCAP) and Proton launched Proton Saga
second generation in 2008 that wins Best Compact /
People's car of the year Asian Auto-VCA Auto Industry
Awards. Both of these cars are the highest selling
model from Proton and among the most affordable.
10. Modern Proton cars such as Preve and Suprima S just
as safe as Volvos said the International Trade and
Industry Ministry (MITI) due to their advanced
technology, high quality, and performance that usually
offered by premium imported cars, the ministry pointed
out. It was highlighted that Protons Preve and Suprima
S scored the maximum five stars in the Australasian
New Car Assessment Programme (ANCAP).

Internal Audit
Weaknesses
1. Market share of Proton is now (January 18 th 2016) just
17.7%, down sharply from the 29.6% it commanded in
2011.
2. Proton has a little experience in handling automotive
industry compared to its competitors like Toyota which
was formed on 28th August 1937. Proton was founded
on 7th May 1983.
3. The build quality for export models is higher and with
better specifications which made Malaysian lose trust
towards Proton.
4. It is hard for Proton to eliminate the stigma of its powerwindow defects although Proton introduce power
window lifetime warranty in the year of 2011.
5. Dr. Mahathir added that some of Protons key strengths,
such as safety, have fallen of deaf ears partly because
a number of its salespeople dont know exactly how to
explain these features to potential buyers

6. Deemed to be inferior to its competitors which are

Toyota and Honda in terms of quality and safety.
Currently, there is none Protons cars that have
autonomous emergency braking (AEB) while 2016
Toyotas HiLux and 2015 Honda Accord have (AEB).
7. It is really hard for Proton to overcome its inferior
brand name in Malaysia especially when it is
compared with its competitors.
8. The biggest problem with Proton has always been Dr
Mahathirs vision of making it a mid-range car
producer an already crowded market where foreign
brands are dominant with innovation, huge advertising
clout and also strong sales all around the world.
9. R&D division is terribly inefficient. For example,
Proton only creates out dated engines such as CamPro
when its competitors are focusing on hybrid
technology. Proton receives RM billions in grants which
comprises the money of taxpayers and Petronas.
10. Protons original designs lack in Coolness Factor .
Design and style remains the top priorities for Protons
potential customers.

Internal Factor Evaluation (IFE) Matrix

Strengths

Weigh
t

Ratin
g

Weighted
Score

The company has strong financial

backing from the government in the
forms of R&D and grants.

0.06

0.24

Proton has allocated RM 600 million to

develop new car engines with
engineering partners in UK.

0.04

0.12

Partnership with Suzuki will help shape

Protons future.

0.07

0.21

The vehicles co-produced with

Mitsubishi were perceived to be in
better quality.

0.04

0.12

The company has attractive major

production facilities in Tanjung Malim.

0.03

0.09

Program Insurans Proton (PIP) which is

an after-sale service offers more to
Protons customers.

0.03

0.06

There are many Proton Edar service

centres branches that open 7 days a
week.

0.03

0.06

Proton Exora appeal is its four-star

rating under the ASEAN New Car

0.06

0.18

Internal Factor Evaluation (IFE) Matrix

Weaknesses

Weigh
t

Rating

Weighted
Score

Market share of Proton now (18th

January 2016) is 17.7% compared to
29.6% in 2011.

0.06

0.06

Proton has a little experience in

handling automotive industry compared
to its competitors.

0.06

0.12

Malaysian lose trust towards Proton

when its exports products have better
specifications.

0.05

0.10

It is hard for Proton to eliminate the

stigma of its power window.

0.04

0.08

Protons salespeople dont know how to

explain Protons key strengths to
potential buyers.

0.04

0.04

Deemed to be inferior to its competitors

in terms of quality and safety.

0.07

0.14

It is really hard for Proton to overcome

its inferior brand name in Malaysia.

0.04

0.08

The biggest problem with Proton is Dr

Mahathirs vision of making a mid-range
car producer.

0.06

0.06

External Audit
Competitive Profile Matrix (CPM)
Proton

Honda

Toyota

Critical Success Factor

Weigh
t

Rati
ng

Scor
e

Rati
ng

Scor
e

Rati
ng

Scor
e

Management experience

0.06

0.06

0.18

0.24

Fuel efficient vehicles

0.12

0.12

0.24

0.36

Design/Styles

0.09

0.18

0.36

0.27

Product quality

0.12

0.24

0.48

0.36

Customer loyalty

0.11

0.11

0.33

0.44

Growth

0.13

0.26

0.52

0.39

Financial position

0.09

0.09

0.27

0.36

Global expansion

0.07

0.14

0.21

0.28

Brand reputation

0.09

0.18

0.36

0.27

Market share

0.12

0.24

0.36

0.48

Totals

1.62

3.31

3.45

External Audit
Opportunities
1. Government imposed import tariffs thus making it very
expensive to buy foreign imports. This only lasts until
Trans-Pacific Partnership Agreement (TPPA) is
implemented.
2. Government made Proton the official supplier for almost
all government passenger vehicles.
3. The Trans-Pacific Partnership Agreement (TPPA) promise
well for Malaysias automotive sector and would allow
the country to create opportunities for skills, transfer
technology as well as promote transparency and clarity
to the industry over Thailand and Indonesia, according
to consulting firm Frost & Sullivan.
4. President of Proton Edar Dealers Association Malaysia
(Peda) is confident that the Trans-Pacific Partnership
Agreement (TPPA) would provide a wider market access
for Proton within the 12 participating countries.

5. There is 41.2% of population aged 25-54 years old

(male 6,277,694/female 6,114,312) which are the
target market of Proton based on 2014 records in
Malaysia.
6. Faced with declining domestic sales, Malaysias has
set its sight overseas such as Egypt, South Africa,
and West Asia that brings lucrative opportunities
towards Proton.
7. UK demand soars for electric vehicles roars by 48%
in 2015 and hybrid vehicles demand rises by 133%
according to new figures release by UKs Society of
Motor Manufacturers and Traders (SMMT)
8. The weakening of Ringgit has made Malaysian
products such as Protons cars attractive and
cheaper in the eyes of global market.
9. Proton enters joint venture with Chinas Goldstar
Heavy Industrial Co. Ltd. And entered tripartite joint
venture agreement with Britains Lotus Group
International Limited to produce Lotus-branded
passenger vehicles in China.

External Audit

Threats

1. Tun Dr. Mahathir Mohammad insisted that the only problem

facing Proton was public perception which was not
reflective of the national carmakers quality or performance,
following news report of declining sales for the fifth straight
years.
2. Proton is planning to increase car prices after Chinese New
Year due to the depreciating Ringgit which has affected
Protons imported parts prices.
3. Protons social agenda of favouring Bumiputeras suppliers
even at the expense of costs of 50% higher and quality
inefficiency.
4. The overflowing grants, subsidies, and protection policies
from Malaysian government towards Proton has made
Proton did not have any external incentive to perform
better.
5. Ever widening income disparity between rich Malaysians
and the rest have make rich Malaysians prefer Porsche and
Mercedes while the low income Malaysian to choose
Perodua.

6. Sales have slipped so much in April 2015, Proton for

the first time found itself ranked fourth in the best
seller list, trailing behind Perodua, Toyota, and Honda.
7. The rising cost of living faced by Malaysians especially
the implementation of Goods and Services Tax (GST)
combined with recent abolishment and reduction of
both fuel and road toll subsidies made majority of
Malaysian opt for cheaper cars from Perodua. About
65% of the survey (by theSundaily) respondents
believe that GST has severely affected their finances.
8. As a national car project and a government owned
company, the exit barriers for Proton Holdings Bhd are
high. Examples of exit barriers are costs of laying off
staff and contractual obligations such as the payment
of the rent.
9. The implementation of TPPA also means that
aggressive competition of selling cars between other
12 countries. International Trade and Industry Minister
Datuk Seri Mustapa Mohamed said Proton and Perodua
willl be at a disadvantage under TPPA, which will open
doors to global markets.

External Factor Evaluation (EFE) Matrix

Opportunities

Weigh
t

Ratin
g

Weighted
Score

1.

Government imposed import tariffs

thus making it very expensive to buy
foreign imports.

0.07

0.28

2.

Government made Proton the official

supplier for almost all government
passenger vehicles..

0.04

0.12

3.

The Trans Pacific Partnership

Agreement (TPPA) promise well for
Malaysias automotive sector.

0.06

0.12

4.

President of (PEDA) is confident that

(TPPA) would provide a wider market
access.

0.05

0.15

5.

There are 41.2% of population aged

25-54 years old which are the target
market for Proton.

0.04

0.16

6.

Malaysia has sets its sight overseas

such as Egypt that brings lucrative
opportunities.

0.05

0.20

7.

UK demand soars for electric vehicles

roars by 48% and hybrid vehicles
demand rise by 133%.

0.05

0.15

External Factor Evaluation (EFE) Matrix

Threats

Weigh
t
0.04

Ratin
g

Weighted
Score

0.08

1.

Protons Chairman insisted that the

problem was public perception
although its quality has rise.

2.

Depreciating Ringgit has increase

Protons imported parts price thus
increase cars prices.

0.05

0.10

3.

Protons favouring Bumiputras

suppliers even at the expense of costs
and quality efficiency.

0.07

0.07

4.

Malaysian government financial help to

Proton made it has no incentive to
perform better.

0.06

0.06

5.

Widening of income disparity between

rich and poor has made the rich prefer
Porsche and the low income
communities prefer Perodua.

0.06

0.06

6.

Sales have slipped so much in April

2015 that made Proton for the first time
ranked fourth.

0.05

0.05

7.

Implementation of GST and reduction of

fuel and toll subsidies has made
majority prefer Perodua.

0.07

0.14

8.

As a national car project and a

government owned company, the exit

0.05

0.15

Strategies based on SWOT

SO Strategies
1. With the TPPA agreement implementation, it opens wider market to Proton
and thus this is the opportunity for Proton to sell its car models result from
its partnership with Suzuki. Suzuki from Japan, is also known for making
quality products. (S3,04)
2. Proton should focus more in making models that resembles Proton Iriz and
Proton Saga which win awards and among the most affordable. The target
market of 41.2% population aged 25-54 years old in Malaysia will consider
of buying these line of Proton especially during economic crisis in Malaysia .
(S9,05)
. WO Strategies
1. Since Protons build quality for export models is higher and with better
specifications, it is the right time for Proton to sell its cars outside of
Malaysia thanks to the weakening of Ringgit. (W3,O8)
2. This is the best time for Proton to focus in selling its cars outside Malaysia.
Proton enters joint venture with Chinas Goldstar Heavy Industrial Co. Ltd.
and entered tripartite joint venture agreement with Britains Lotus Group
International Limited to produce Lotus-branded passenger vehicles in
China.(W7,O9)

ST Strategies

1. Proton should stop favouring Bumiputra's suppliers and find other suppliers
that promotes best quality and price to produce cheaper and more valuable
cars at its attractive major production facilities in Tanjung Malim.(S5,T3)
2. Although the implementation of TPPA also means that aggressive competition
of selling cars between other 12 countries, Proton can produce resemblance
models like Protons Preve and Suprima S that scored the maximum five stars
in the Australasian New Car Assessment Programme (ANCAP). This
achievement means that Proton can compete with them. (S10,T9)
.

WT Strategies

1. Proton needs to start be serious in export industry as Malaysian does not

believe in Proton like they used to. As build quality for export models is
better, Proton has a chance to compete in global markets between 12
countries of TPPA such as Peru, Mexico, and New Zealand. (W3,T9)
2. Proton need to realize that the best selling car of all time for Proton is Proton
Saga which is affordable. Proton need to change strategy to not making midrange car for Malaysian to attract customers especially when TPPA
implementation is coming. Proton also need to realize that grants from
government is decreasing due to Malaysia economic crisis. (W8,T4)

Strategic Recommendations to the Company

1. Proton should focus more in making models that
resembles Proton Iriz and Proton Saga which win awards
and among the most affordable. The target market of
41.2% population aged 25-54 years old in Malaysia will
consider of buying these line of Proton especially during
economic crisis in Malaysia. (S9,05)
2. Proton should stop favouring Bumiputra's suppliers and
find other suppliers that promotes best quality and price
to produce cheaper and more valuable cars at its
attractive major production facilities in Tanjung Malim.
(S5,T3)

Criteria to Evaluate the Recommendations

The Strategic Position and Action

Evaluation (SPACE) Matrix
Porters Five Forces Model
The Quantitative Strategic Planning
Matrix (QSPM)

SPACE Matrix

Textbook Page 263

Internal Strategic
Position

Mark
s

Financial Position (FP)

External Strategic
Position

Marks

Stability Position (SP)

Return on investment

Technological
changes

-3

Leverage

Rate of inflation

-2

Liquidity

Demand variability

-2

Working capital

Price range of
competing products

-2

Cash flow

Barriers to entry into

market

-1

Inventory turnover

Competitive pressure -3

Earnings per share

Ease of exit from

market

-6

Price earnings ratio

Price elasticity of
demand

-2

Risk involved in

-3

Competitive Position
(CP)

Mark
s

Industry Position (IP)

Mark
s

Market share

-4

Growth potential

Product quality

-3

Profit potential

Product life cycle

-4

Financial stability

Customer loyalty

-4

Extent leveraged

Capacity utilization

-4

Resource utilization

Technological knowhow

-4

Ease of entry into

market

Control over suppliers

and distributors

-3

Productivity, capacity
utilization

(CP) Average
-3.7
(IP) Average
X- axis = 4.1 + (-3.7) = 0.4
Y- axis = 2.75 + (-2.7) = 0.05
Coordinate = (0.4,0.05)
Conclusion = Vector points in aggressive quadrant

4.1

Porters Five Forces Model

1. Rivalry Among Competitive Firms
. Proton doesnt have any competitive advantage over
Toyota and Honda.
. However, we can see that Proton tries to attract
customers by:
Producing Proton Saga ( the highest selling numbers from
Proton)
Producing Proton Exora (its four-star rating under the ASEAN
New Car Assessment Programme (NCAP) making it one of
the safest and most affordable multi purpose vehicles
(MPV) in the market.
Producing Proton Preve and Proton Suprima S that scored the
maximum five stars in the Australasian New Car Assessment
Programme (ANCAP)
Producing Proton Iriz (affordable model)
Giving lifetime warranty for its power windows.

2. Potential Entry of New Competitors

. Barriers to entry is high because it is expensive to gain
technology and specialized know-how.
. The lack of experience can bring a company down because
automotive industry involves many complicated issues
that need to be taken care of.
. Proton has weak customer loyalty and weak strong brand
preferences.

3. Potential Development of Substitute

Product
. Substitute products of Proton are Perodua and Honda
motorcycles.

4. Bargaining Power of Suppliers

. Proton prefers Bumiputras suppliers although the supplies are
more expensive and have lower level of quality.
. There are more suppliers that are competitive in price and
quality.

5. Bargaining Power of Consumers

. The buyers can purchase lower price car which is
Proton compared to Toyota and Honda or they can
inexpensively switch to Toyota and Honda.
. The buyer can buy a product according to what are
the most important thing to the buyer whether its
price or quality.
. Usually, buyers will do some research on the
potential car that the buyer want to buy. Buyer
usually expect lower price from a company that
experiencing lower demand nowadays.

The Quantitative Strategic Planning Matrix (QSPM)

Key Factors

Making models that are

affordable and high in
quality

Find suppliers that

promotes best quality
and prices

Weig
ht

AS

TAS

AS

TAS

Strengths
1

Has strong financial backing

from governments in R&D and
grants.

0.06

0.12

0.18

Allocated RM600 million to

develop new car engines with
partners in UK.

0.04

0.08

0.12

Partnership with Suzuki will

help shape Protons future.

0.07

0.14

0.07

The vehicles co-produced with

Mitsubishi are in better quality.

0.04

0.08

0.04

The company has attractive

major production facilities in
Tanjung Malim.

0.03

0.09

0.03

(PIP) which is an aftersales

service offers more customers
benefits.

0.03

Many Proton Edar service

centres open 7 days a week all
over West Malaysia.

0.03

Key Factors

Making models that are

affordable and high in
quality

Find suppliers that

promotes best quality
and prices

Weig
ht

AS

TAS

AS

TAS

Weaknesses
1

Market share of Proton on

January 18th 2016 just 17.7%
down sharply.

0.06

Proton has a little experience in

handling automotive industry.

0.06

Malaysian lose trust towards

Proton when export products
are better.

0.05

0.15

0.10

Stigma of power windows

defects are hard to eliminate.

0.04

0.12

0.08

Mahathir said that its

salespeople are bad in
delivering good information

0.04

Deemed to be inferior to its

competitors on quality and
safety.

0.07

0.21

0.14

Hard to overcome its inferior

brand name in Malaysia.

0.04

0.12

0.08

Mahathirs vision of making

0.06

0.18

0.12

Key Factors

Making models that are

affordable and high in
quality

Find suppliers that

promotes best quality
and prices

Weig
ht

AS

TAS

AS

TAS

Opportunities
1

Governments imposed import

tariffs thus making foreign
imports expensive.

0.07

0.14

0.21

Proton is the official supplier for

almost all government
passenger vehicles.

0.04

The (TPPA) promise well for

Malaysias automotive sector.

0.06

President of (PEDA) is confident

that (TPPA) provides a wider
market access.

0.05

0.15

0.10

There are 41.2% of Malaysian

which are the target market of
Proton.

0.04

0.12

0.08

Malaysia has sets its sites

overseas that brings lucrative
opportunities.

0.05

0.15

0.10

UK demand soars for electric

vehicles by 48% and hybrid

0.05

0.10

0.05

Key Factors

Making models that are

affordable and high in
quality

Find suppliers that

promotes best quality
and prices

Weig
ht

AS

TAS

AS

TAS

Threats
1

The problem was public

perception although its quality
has rises.

0.04

0.08

0.04

Depreciating Ringgit increase

Protons imported parts and
thus cars prices

0.05

0.10

0.15

Favouring Bumiputras
suppliers even they are
expensive and bad in quality.

0.07

0.07

0.21

Proton doesnt have to be

competitive after receiving
overflowing grants.

0.06

The rich prefer Porsche while

the low income communities
prefer Perodua.

0.06

For the first time, Proton ranked

fourth in April 2015 after sales
dropped.

0.05

0.15

0.10

GST, reduction of fuel and toll

0.07

0.14

0.07

Conclusion
Proton must consider getting a third party
to use its plant for a long-term planning
for better utilization of plant capacity.
Proton can focus to produce and
improvise compact cars rather and sedan
because of many people will buy those
nowadays to go to work and drive in the
city.
With the current economy, Proton should
focus on market their compact and sedan
cars rather than producing new type of
cars such as sport cars.

 For Proton to keep up to the

competitors, Proton should be
innovative in terms of technology
and car design.
Proton should take note and be more
attentive towards the cars design
flaw and loophole.