Affecting Makerting Performance Of Proton Car In Malaysia Marketing Essay

This essay analyzes the famous motor manufacturer and its strategy, how they operate their strategy to enhance the market share in Malaysian market. The selected company is Proton Holdings Berhad. Well marketing strategy will provide company with tools to address strategic marketing problems and develop an effective marketing strategy. The focus is on the strategic decisions that organizations make to deliver value to customers and succeed in the market. With the developing of the motor industry, more and more foreign motor manufacturers enter the Malaysia market, in such competitive environment, as a well-known brand in local market, Proton need to find out the effective solution to concrete its market share, although in local market, Proton is a successful company in motor industry.

This paper is to study the exploratory nature and seek to determine the Proton’s effective strategy to enhance its market share in the Malaysian auto industry market. The objectives of this study are listed as follows:

1). To identify the market situation of auto industry in Malaysia.

2). To identify the Proton’s strategies in Malaysian market, which put into implemented.

3). To identify if the Proton’s strategies can enhance its market share effectively due to the performance in Malaysian market.

Proton Holdings (Proton) designs and produces cars for diverse consumer markets. The portfolio of Proton models includes the Waja, the Gen.2, the Arena/Jumbuck, the Savvy, and the Satria Neo. The company primarily operates in the UK, the Middle East, South-East Asia and Australasia. At first, it is a Malaysian car manufacturer initiated in 1983 by Prime Minister Mahathir Mohamad. The main plant is located in Shah Alam and employs about 11,000 people. Malaysia’s second Proton plant is in Tanjung Malim, Perak. The architectural design on the building facade depicts an image of a gull wing. Proton Plant and its associated facilities, and its supporting industries, occupies 30% of Proton City. Based on technology and parts from Mitsubishi, production of the first model, the Saga, began in 1985. Until the end of the 1990s, the car’s logo featured the crest from Malaysia’s coat of arms, featuring a crescent and a fourteen-pointed star. Proton now uses a logo featuring a stylized tiger head. Initially the components of the car were entirely made of parts manufactured by Mistsubishi but slowly local Malaysian parts are being used as technology is transferred and skill is gained. Also, with the acquisition of Lotus technologies in 1996 from Bugatti, Proton has gained an additional source of technologically challenging parts.

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By 2002 Proton held a market share of over 60 per cent in Malaysia, which was reduced to 40 percent by 2004 and is expected to reduce further in 2008 when AFTA mandates reduce import tariffs to a maximum of 5%. Proton has operations in the United Kingdom and Australia and is aggressively marketing their cars in several other countries. In December 2004, Proton purchased a majority share in MV Agusta of Italy. MV Agusta is the manufacturer of MV Agusta, Husqvarna, and Cagiva motorcycles. The company recorded revenues of MYR7, 796.9 million (approximately $2,115.2 million) during the financial year ended March 2006 (FY2006), a decrease of 8.1% over 2005. The net profit was MYR4, 908.7 million (approximately $1,331.7 million) in 2006, a decrease of 0.2% from 2005.

2.0 Literature Reviews:

This review consists of five sections. The first section explores the marketing concept and its key components. The next section presents information of the different period life of product. Section three based on PEST model, section four examines the SWOT theory and the final section provides an overview of Porter’s five forces theory.

Marketing was once defined by Alderson (1957) as an exchange process between company and consumer (Cited from Brassington and Pettitt, p.5). This definition gives no reference to the aspects of marketing that occur before products or services are even produced or the post exchanged behavior of both company and consumer or even an elementary aspect of commercial life: competition, Jobber, (2000).

Successful marketing is far from simple. Brassington and Pettitt (2003, p.3) state marketing does, in fact, cover a very wide range of absolutely essential business activities that bring you the products you do want, when you want them, but at prices you can afford, and with all the information you need to make informed and satisfying consumer choices. In order to analyze the marketing activities of firms within an industry, it is necessary to first define and explain some of the critical marketing concepts and their importance to the organizations.

As stipulated by C.Glenn Walters (1974), a consumer is an individual who purchases, or can afford to purchase, tangible products and services (generally non tangible) offered to satisfy personal or peers needs, wants, or desires. It can be derived that by virtue every one becomes a consumer. Consumers needs and wants do not ends at what the company has to offer, the needs process grows each moment and all the company needs to do is to understand the needs and then cater to those needs.

Consumer behavior is closely linked with how an individual perceives himself and his interactions with the environment surrounding him. Consumers use both the mental and physical process necessary for decision making in the marketplace which results in a direct bearing on the purchase of goods and services.

It has been stipulated that people enter into buying activities for many purposes other than just merely consumption. Buyers generally have one goal in mind, to satisfy their desires or needs by acquiring the goods or services. The issues faced by consumers during process of product acquisition include; acquisition of goods for daily consumption or for the purpose of comfort and luxury. Solutions to these problems are vital to the existence of most and the economic well being of all and are not taken lightly. Consumers must make specific decisions in order to get necessary products to sustain the standard of living is largely dependent on how well these decisions are made.

The PEST analysis is a framework used in the assessment of the external environment in which a company operates or intends to operate; it thus provides a satellite view. But unlike the P5F model it addresses the external environment in a detached way, i.e without directly touching the industry in which a company operates and therefore is intended as an assessment tool.

The PEST model is based on the assumption that certain external and indirect circumstances that characterize an industry are able to influence its capacity to produce value. Consequently companies and/or competiveness are indirectly affected. The four factors contemplated in the PEST model are: Political, Economic, Social and Technological. They may be included at different levels of analysis of an organization e.g. strategic, marketing, product development, etc. but they cannot be manipulated or changed in anyway by the company. The only thing that a firm can do is to assess the factors and possibly prevent or react to them in the most appropriate way. The success of the PEST model has led to several extensions4 or re-interpretations e.g. STEEPLE (Social/demographic, Technological, Economic, Environmental, Political, Legal and Ethical factors), SLEPT (PEST plus legal) (valuebasedmanagement.net, 2004) or PESTEL (Political, Economic, Social/demographic, Technological, Environmental, Legislation).

SWOT Analysis is widely used in the business world but not exposed to many employees. It is an abbreviation for Strengths, Weaknesses, Opportunities and Threats. As you can see, the SWOT consists of four factors each clearly has its own identity and purpose. SWOT is commonly classified an External and Internal Factors. For the External factors, it consists of the Opportunities and Threats, whereas the Internal Factors are Strengths and Weaknesses. SWOT Analysis as it may sometimes being called can be performed in a variety of application or situation. It can be used as a situation analysis as an input into a strategic planning process at corporate of company level. It can also apply to evaluate the situation in terms of its capabilities. We use SWOT as a situation analysis tool.

In common practice, SWOT Analysis is performed during the Strategic Planning or Business budget session normally done at the end of a financial year. But to perform a SWOT should not be limited to a yearly affair. You may perform an SWOT Analysis whenever it is needed to help you to identify causes of a non-conformance and you needed a new solution or strategy. In most cases, leaders of an organization perform a SWOT Analysis. However, it should not be limited to this group of people. In fact, anyone who has an interest and trained can perform a SWOT Analysis for the situation they are in. I have many situations where heads of a department perform a SWOT Analysis for their own operation issues because they want to develop solutions based on facts. As it can be seen by now, data gathering is an essential part of SWOT Analysis. Hence, the information collected is likely to be more factual. Any solution derived from SWOT will be more realistic and reliable. As data collection is one of the key activities in SWOT analysis, it should allow enough time to bring back the data. 1-3 month before a SWOT. Analysis session is conducted. Once the data is collected, it should be grouped into the four factors. This can be done individually or in a team. In summary, with some basic understanding of SWOT Analysis, the solution derived from it can be value add to the organization.

This model (see figure 1), as declared by its creator, was able, at that time, to fill a void, in the management field corresponding to the development of a new discipline, Competitive Strategy. One fatal attraction of the Porter’s five force model was that it finally allowed companies to assess simultaneously the industry in which it was competing thus indirectly understanding its competitors, and subsequently decides and implements a competitive strategy.

The Porter’s five force model also helps develop a competitive company position along side adequate strategies to create value and therefore outperform its rivals: in essence it provides the helicopter view of the industry environment in which the company operates and competes. The five forces of the Porter model are summarized as follows:

Threat of new entrants: this is the easiness with which a new company could enter the industry thus impacting the profitability of the industry and the competitive position of the enterprise. This force should qualitatively and, ideally, quantatively measure the status of Barriers of Entry especially those factors that make it costly for companies to enter the industry (Hill et al. 2001). Examples of significant entrance barriers are: Brand Loyalty; Absolute cost advantages; Economies of scale; Switching costs; Government Regulation.

Rivalry among established companies (Grant, pp.78-80, 2002): This force evaluates the overall competitiveness of the industry. It takes into consideration the status of the players, their size and how the industry’s characteristics foster or discourage the creation of competition. The drivers of this force can be identified as follows: Concentration; Industry growth and demand; Product/service differentiation; Ratio of fixed costs to variable costs; High exit barriers; Diversity of Competitors; High strategic stakes

Suppliers are nowadays very much integrated in industry especially when corporations, multinationals etc have strategic supplier agreements in place. Nevertheless suppliers can condition industry and company performance, especially those that supply raw materials or fundamental parts, and are therefore considered quite rightly as a key element in the Porter’s five force model.

Threat of Substitutes (Cullen, pp.162-181, 2001): The cloning of products and the possibility that substitutes flood the market is a real threat to an industry, especially if the substitutes are of better quality and lower price. This is especially true for products that compete on price and have limited differentiation. In the context of this paper one considers this fifth force particularly true for the final stages of the PLC i.e. company vulnerability increases in the maturity and decline stages of product life cycle.

A research philosophy is a belief about the way in which data about a phenomenon should be gathered, analyzed and used. At the beginning of any type of research, it is important for the researcher to determine the most appropriate methodology to carry out the study.

For any essay, the data evidence and analysis plays significant role. With sufficient data support, the issues will be easily shown to the people as well as the adviser can find out the solution for the issues. For this case, some of the data sources come from the primary research, which gathered from the employees of the Proton Company. Meanwhile, Proton is a local company, so it would be convenience for the students to visit and gather information. As we know, as a famous local motor company, it will have a lot of profiles regarding the auto market research in local market which gathered from the survey of the auto purchasers or residents. However, company normally will keep all this research as a secret profiles. So, in this report, some of the data are sourcing from second hand, such as information published by Proton Company or some website, magazines, although these data won’t be very accurate to support the topic, these data also could be considered when analyzing the issues of the Proton. Besides, Proton is a listed company, from its website, we can find out the financial report that accurate shown the finance situation, form the report of recent years, we also can find out the issues of the company to judge its strategies.

Because this student did not verify the quality or accuracy of the data provided. All data are self-reported, and no checks were done against independent assessments or audited financial statements, except the financial report of Proton could be consider reliable. As we know, research method includes the quantitative research and quality research; base on the different situation, the survey could be different. Some of required quantitative researches like the satisfaction for Proton auto, and some will request the quality research, for example, the customer behavior in choosing car. And for this report, the reference materials also one of the constraints, not all the materials is real reflect on numbers. In a limited time, the student can’t have sufficient research on all related documents, so there will have some obstacles while doing this report.

Of course, there will have a lot of unknown factors for the research. For example, the lack of response and support from some unknown respondents will cause the problem for this report. The data presented in this report provide a good indication of the size and performance of the auto industry. However, given the data limitations, they should not be taken as completely accurate or representative of the entire sector.

Since we should research the Proton Company’s situation, we had to analyze the whole auto industry environment and Auto industry in Malaysia. This analysis could help to research the performance of Proton in local market. In macro environment of Malaysia, it will concern about the politics, economics, social, technology and so on. So, here this student will choose the PEST model to analyze the whole environment of Malaysia.

Malaysia formed 31 August 1957; Federation of Malaysia formed 9 July 1963; nominally headed by the paramount ruler and a bicameral Parliament consisting of a nonelected upper house and an elected lower house; Peninsular Malaysian states – hereditary rulers in all but Melaka, Penang, Sabah, and Sarawak, where governors are appointed by the Malaysian Government; powers of state governments are limited by the federal constitution; under terms of the federation, Sabah and Sarawak retain certain constitutional prerogatives (e.g., the right to maintain their own immigration controls); Sabah – holds 20 seats in House of Representatives, with foreign affairs, defence, internal security, and other powers delegated to federal government; Sarawak – holds 28 seats in House of Representatives, with foreign affairs, defence, internal security, and other powers delegated to federal government.

Relations across the Malacca strait are growing increasingly frayed after the latest reports of improper use of authority by Malaysia’s volunteer security force, RELA. RELA has been widely condemned by human rights groups, but forms an integral part of Malaysia’s efforts to clamp down on illegal immigrants. The Home Affairs Ministry is currently seeking to give RELA more power, in direct conflict with advice from human rights watchdogs who feel that the group should be disbanded. Malaysia’s policy on immigration, especially its encouragement of RELA, is threatening to cool already tense regional relations. (Source:Wiki.com)

Malaysia made a quick economic recovery in 1999 from its worst recession since independence in 1957. GDP grew 5%, responding to a dynamic export sector, which grew over 10% and fiscal stimulus from higher government spending. The large export surplus has enabled the country to build up its already substantial financial reserves, to $31 billion at yearend 1999. This stable macroeconomic environment, in which both inflation and unemployment stand at 3% or less, has made possible the relaxation of most of the capital controls imposed by the government in 1998 to counter the impact of the Asian financial crisis. Government and private forecasters expect Malaysia to continue this trend in 2000, predicting GDP to grow another 5% to 6%. While Malaysia’s immediate economic horizon looks bright, its long-term prospects are clouded by the lack of reforms in the corporate sector, particularly those dealing with competitiveness and high corporate debt. However, the global economic slowdown has led to a decline in demand for Malaysia’s exports and this in turn has led to a sharp decline in Malaysia’s economic growth. The Malaysian economy is experiencing a significant recession and the economy is expected to contract by 3.5% in 2009 and then grow at a modest 1.5% in 2010.

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Malaysia’s economy is still one of the most open and investor-friendly in South East Asia. Its well established manufacturing base, first-class infrastructure and economic stability will continue to be a draw for investors. That said, signs of weakness are beginning to show. Foreign investment declined by 1.6% in 2006 to US$3.9bn, the second successive year of contraction. The concern is that the emergence of low-wage economies such as China and India has shunted Malaysia off the global investment radar. (Source: Economic of Malaysia Magazine)

4.1.3. Analysis of Social Factors

In Ethnic, Malaysia is a multiethnic nation made up of several different races, the major one being Malays and other smaller indigenous groups takes 58%, Chinese 26%, Indian 7%, others 9%. While racial stability remains a hallmark of Malaysia’s success as a nation, the seemingly growing polarization among the three major races is a growing concern. (Source: Ethnic groups in Malaysia)

In Religions, Malaysia is a richly diverse body of more than 25 million people. All of the world’s major religions have substantial representation there, the main adherents of each largely reflecting the multi-ethnic character of the population. The variety of religions found in Malaysia is a direct reflection of the diversity of races living there. Although Islam is the state religion of Malaysia, freedom of religion is guaranteed. The Malays are almost all Muslims. The Chinese embrace an eclectic brew of Taoism, Buddhism and ancestor worship, though some are Christians. Although Christianity has made no great inroads into Peninsular Malaysia it has had a much greater impact upon East Malaysia, where many indigenous people have converted to Christianity, although others still follow their animist traditions.

In Languages, the official language of Malaysia is Bahasa Melayu, while English is a common communicate language in any social place, besides the Chinese dialects (Cantonese, Mandarin, Hokkien, Hakka, Hainan, Foochow), Tamil, Telugu, Malayalam, Panjabi, Thai are used sometimes. In addition, in East Malaysia several indigenous languages are spoken, the largest of which are Iban and Kadazan.

4.1.4. Analysis of Technology Factors

Malaysia is preparing to be part of the Information Age in the new millennium by transforming itself towards a knowledge-based economy. Recognizing that information technology (IT) and multimedia will be the future enabling tool to increase the efficiency, productivity and competitiveness of the economy, various initiatives were taken to promote the use and development of IT during the review period. The National Information Technology Agenda (NITA) was formulated in 1996 to provide the framework for a coordinated and integrated approach in developing the three strategic elements comprising human resource, info structure and IT-based applications. To provide the catalyst for the expansion of IT and multimedia industries, the Multimedia Super Corridor (MSC) was launched.

During the remaining Plan period, efforts will be intensified to strengthen the foundation for building a knowledge-based society and economy in order to integrate into the global electronic economy. In this regard, the IT infrastructure will be expanded and upgraded and a number of national IT-related programmes and projects implemented to accelerate the wider use of IT in the various sectors of the economy. This will enable Malaysia to sustain its competitiveness as well as attract new investments and create economic opportunities in IT related industries and services.

Technology development can be measured in terms of the personnel involvement in Research and Development (R&D) or the development allocation and expenditure for R&D. During 1985-1995 there were 500 R&D scientists and engineers per million populations in Malaysia as presented in Figure 2. This has placed the country in the third bottom position compared to 11 other countries most of which are developed.

4.1.5. Conclusion of Malaysia External Environment

Base on the above tables, we can see the External environment for Proton is Malaysia have lots of advantages, lots of factors like policy will benefits for the growing of Proton, But the joint of free agreement will cause the intense of auto market. In next section, we will analyze the Malaysia auto industry to identify how Proton become more competitively.

4.2 Auto Industry Analysis in Malaysia

Through the Malaysia auto industry situation, we can easily find out the issues cause the problem for Proton and how to enhance its strategies more efficiently. The Porter’s five forces will be used to analyze the auto industry in Malaysia.

4.2.1 Malaysia Auto Industry Overview

The car market in Malaysia, unlike that in other parts of the ASEAN region, is skewed in favor of passenger cars. LCVs account for only a small proportion of light vehicle demand (around 20% in 2008 and 2009). This is in contrast to the situation in Thailand and Indonesia, where the proportion of LCVs is much higher. In these markets, the vehicle taxation system favors LCVs and therefore suppresses demand for passenger cars. In 2008, vehicle demand increased to 549,316 units, up by 12.7% from 487,394 units in 2007. Despite year-on-year drops during the last months, the 2008 annual sales level was the second-highest achieved for the industry, only about 2,000 units short of the all-time record-high 551,527 units, set in 2005. Performance drivers include strong economic growth, attractive financing schemes for automobile buyers, and fuel cost assistance payouts. In addition, the introduction of new, well-performing models, in particular Proton’s all-new Saga and Persona, boosted the industry. Vehicle sales will return to growth in 2010, with sales predicted to surpass the 500,000 units mark. Malaysia’s bias toward small cars makes it well suited to exports of Thai Eco-cars. The small car segments will thus become much more competitive from 2010, supporting growth in sales in the medium term. In 2014, vehicle sales are predicted to rise to 643,000 units. (Source: Malaysian Auto Industry Outlook)

4.2.2 The Threats of New Entrants

The barriers to enter the automotive industry are substantial, Especially for Malaysia auto market. For a new company, the startup capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. An automotive manufacturing facility is quite specialized and in the event of failure could not be easily retooled. The Malaysian Automotive Policy has been the key factor in making the national automobile industry a success. New policies were implemented to protect the national automobile industry. The protection by the government enabled the national cars dominate the local automobile market. The price of the first national car was 20 to 30 per cent cheaper than similar capacity cars manufactured by other assemblers. In 1987, the 1,300cc Proton Saga was priced at RM21, 000; while similar cars in the 1,300cc cars ranged from RM28, 000 to RM29, 000. Proton’s market share increased steadily from 47 per cent in 1986 to 65 per cent in 1987 and 73 per cent in 1988 (Jomo K.S., 2003). In 1995, the national cars accounted for 78.7 per cent of the total passenger car market in Malaysia, with Proton accounting 61.3 per cent and Perodua 17.4 per cent respectively.

Besides, the high import and excise duties were imposed on CBU vehicles, with the aim to decrease the number of imported CBU cars. Thus, some of the CBU vehicle prices skyrocketed to almost 300 per cent, which was not within the purchasing power of most Malaysians. Import and excise duties were also imposed on completely knocked down (CKD) units, which were assembled locally. The import and excise duties on CBUs and CKDs prior to 1st January 2004 are shown in Figure 3 and 4.

4.2.3 The Threat of Substitute Products

The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence, and value afforded by automobiles. The switching costs associated with using a different mode of transportation, such as train, may be high in terms of personal time, convenience, and utility like luggage capacity, but not necessarily monetarily for example, round trip train fare on some places would most likely be less expensive than the cost of fuel consumed on a similar round trip, daily parking, car insurance, and maintenance. The exception to this statement occurs in the global urban areas with high population densities. In these areas, the substitutes available like walking, mass transit, bicycles, etc. can be less costly than automobiles and thus alternative modes of transportation are often preferred. Fortunately, in Malaysia, the petrol price is comparatively lower than lots of countries, so the threats of substitute is not that strong to the whole auto market, go out with automobile still is the way people preferred usually. However, the energy will run out sooner or later, the awareness should be considered for the future development.

Also, there are inherent underlying social and cultural attitudes that keep people from owning automobiles in some parts of the world. Many nations are not as spread out or as mobile as the U.S.; they are constrained either by geography, race, class, or religion and the need for personal transportation is not as great, yet. Especially in Malaysia, the religion and social cultures are comparatively complex. However, the marketing arms of the global automotive manufacturers are certainly working very hard to change this paradigm, and with unprecedented production volumes world wide, all signs indicate that they are succeeding. Most people with the ability and means to own a vehicle, who live in a society with the necessary infrastructure like roads and fueling stations, will do so.

4.2.4 The Bargaining Power of Suppliers

In the relationship between the automotive industry and its suppliers, the power axis is substantially tipped in the industry’s favor. The automotive industry is comprised of powerful buyers who are generally able to dictate their terms to their suppliers. The Malaysia supplier power is lower than most other countries, because the supply chain management is slow since the work efficiency and net work situation. For example, from the Figure 5, we can see from 1985-1996, the supplier form Proton are increasing from 17 to 140, more and more suppliers means the competition for the suppliers will become competitively in the auto industry. So the power of supplier is becoming weaker and weaker.

4.2.5 The Bargaining Power of Buyers

Small number of buyers, purchases of large volumes, prevalence of alternative options, and price sensitive customers were some of the factors that determined the extent of influence of the buyers in any industry. In Malaysia, with the developing of auto industry, more and more foreign brand motors enter this market, so the choice for local market become variously. More Malaysian consumers are willing to choose foreign brand because of the quality and comfortable, fuel efficiency. Most of local manufacturers’ are based on the technology of foreign auto makers. So, this will cause the potential unreliability of the local auto industry.

4.2.6 Competitive Rivalry within an Industry

Despite the high concentration ratios seen in the Malaysian market, which typically signify that a lesser degree of competition is seen in the industry, rivalry in the Malaysia and the global automotive industry is intense. Clearly, the concentration ratios do not tell the whole story. The automotive industry in the Malaysia is no longer the playground of the Big-2 Proton and Perodua ; global companies compete in the Malaysian market, while Malaysia companies have globalized themselves. In the 1980s, the Japanese car makers Honda and Toyota entered a fairly disciplined Malaysia market and have been very focused in growing their shares of the market. The great diversity of rivals in terms of cultures and associated philosophies has intensified rivalry in the industry. Market growth is slow in the established markets of the Malaysia and Asian, and companies must fight fiercely to eke out gains or prevent losses in market share. However, growth is potentially huge in the rapidly industrializing nations of China and India; in these booming markets, companies could take advantage of the opportunities to reap handsome rewards. The degree of rivalry in the automotive industry is further heightened by high fixed costs associated with manufacturing cars and trucks and the low switching costs for consumers when buying different makes and models.