Proton Pest Analisys

Section A

Short essay questions (70 marks)

1. Conduct a PEST analysis on the car industry in Malaysia and evaluate

the various strategies that the business might pursue

Introduction: History and Background of PROTON in Malaysia Market

Malaysia's national car project was initiated and established in year 1983

the former Prime Minister, Tun Mahathir Mohamed has given the above

direction. The mode of collaboration is to joint venture with Mitsubishi of Japan,

based on technology and parts from Mitsubishi Motor. Production of the first

model, the Proton Saga began in 1985. Export to foreign country started in 1986

and by 2006, PROTON managed to ship cars to more than 12 countries

Production reached the mark of 50,000 cars in 1987 and reached 500,000 cars in

1993. By year 2002 Proton held a market share of over 60% in Malaysia, the year

PROTON decided to cease partnership with Mitsubishi. In 2005, PROTON market

was reduced to 30% and is expected to reduce further by end of 2008 when

AFTA mandate to reduce import tariffs to a maximum of 5% for ASEAN countries.

PROTON introduced various actions to try to shield from the threat, from change

of the car logo to a stylized tiger head, to introduction of different model, 1993

Proton Wira, Proton Perdana in 1995, Proton Waja in 2001, and Proton Gen-2 in

2004 and a significant move is in early of 2007, Proton has decided to slash its

car price tag drastically, as high as 35% for selected model and Proto reckon

that, without collaborating with reliable and renowned automotive maker it will

be tough for them to penetrate foreign market and breakthrough in technology

Analysis of the problem

Political

a) From its establishment to marketing penetration, Proton is voyage through

the shelter of government protective policy which governs the automotive

industry. One of the obvious and key barriers that the policy maker has

introduced to protect PROTON market is, to impose a warp import tariff for

foreign cars, ranging 140% to 300%, especially for car which not assemble in

Malaysia. With this sky high price tag, this category of car is well out of the

reach of the ordinary earning level Malaysian. Taken opportunity cost into

consideration, the money foregone by consumers who either have to pay for

the tariff on other brands they would prefer to drive or opt to drive PROTON

car which the price comparatively is much lower for a car with same engine

capacity

b) In the name of to foster and boost local industry economic, Malaysian

government has openly urged the national car maker, PROTON, to localize its

car spare parts supply chain and give priority to the parts which manufacture

domestically. Unfortunately this did not result in the emergence of

competitively strong domestic parts manufacturer

Economy

a) The raw material price is kept on spiraling upwards and rocketing high,

some of the key raw price hike as shown below, from year 2000 to 2007:

Copper has increased from USD2000.0 per tone to USD8000.0 per tone,

Alunimium increased from USD1600.0 per tone USD2600.0 per tone,

Polymer increased from USD58.0 per Ib to USD102.0 per Ib. This price hike in

raw material has adverse and directly impacted to firm's basic operating

cost and the profit margin is been eroded where PROTON some business

strategies have been affected

b) Domino effect due to the price hike on crude oil, which has increased

from USD30.0 per barrel in year 2000 to USD100.0 per barrel in 2007, and

resulted all basic necessity such as food, household consumable, petrol

price is increasing ranged from 30% to 60%. The adverse effect is where

the opportunity cost will come into picture, consumers will have to forego

their capital from buying a new car to take care and satisfy their basic

needs as priority. This is how PROTON sales and revenue is been affected

Social

a) As to look at the context of human resource, low participation of

Bumiputra ethic in automotive industry has caused the Malaysian

government to reconsider its automotive policies. This happened as part

of