This is Part V & VI excerpt of my group assignment (The other chapters are with my former course-mates)

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MGT 71104
Strategic Management
Excerpt from Group Assignment:
Proton Holdings Bhd Strategic Audit
(Part V & VI)
V. Analysis of Strategic Factors
A: Situational Analysis
B: Review of Mission & Objectives
VI. Strategic Alternatives & Recommended Strategy
A: Strategic Alternatives
B: Recommended Strategy
Semester Period: February 2017 – April 2017
Facilitator:
Dr Baharudin Kadir
MASTER IN MANAGEMENT
FARAH LEE (ID: 0326650)

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Table of Content
Title Page No.
V. Analysis of Strategic Factors (SWOT) 4
V (A). Situational Analysis
1. Corporate Governance and Organizational Culture 4
2. Manufacturing Process and Service Experience – Efficiency and Quality
Standards 5
3. Technological Capability To Innovate and Upgrade 6
4. Current Purchasing Trend of Local Consumer Market 7
Proton’s TOWS Matrix 9
V (B). Review of Mission and Objectives 11
VI. Strategic Alternatives and Recommended Strategy 14
VI (A). Strategic Alternatives 14
(a) Business Strategies 16
Cost Leadership Strategy
Differentiation
Integrated Cost Leadership /Differentiation (Best Cost Strategy)
(b) Functional Strategies 17
Marketing Strategies 17
Supply Chain Strategies 17
Human Resource Strategies 19

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VI (B). Recommended Strategy 20
Corporate Level Strategy: Strategic Alliance (Growth Strategy) 20
Business Level Strategy: Integrated Cost Leadership /Differentiation
(Best Cost Strategy) 20
Functional Level Strategies: all as mentioned in section VI (A): b 22
APPENDIX 1 24
APPENDIX 2 25
APPENDIX 3 26
APPENDIX 4 26
APPENDIX 5 27
APPENDIX 6 28
REFERENCES 31

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V. Analysis of Strategic Factors (SWOT)
V (A). Situational Analysis
For Proton, the strategic (most important) factors that strongly affect its present and future
performance, are categorized as below in order:
1. Corporate Governance and Organizational Culture
Proton’s top management has history of strategic oversights that lead to huge financial losses.
A notable example is the disastrous acquisition and then sell-off losses incurred for MV
Agusta, after invested RM 370 million in acquisition, then a further RM 500 million to build the
project (Refer APPENDIX 1 for the full story). (Satkunasingam, E. and Yong, S.C., 2012)
Besides, there are also missed business expansion and technological transfer opportunities
(e.g. the 2007 last minute cancellation of Proton’s strategic partnership tie-up agreement with
Volkswagen), ill-conceived R&D project ventures with huge financial allocation, which failed
to materialize into practical production applications: such as the yet to be implemented
collaboration with Frazer-Nash UK to develop electric vehicles, with a RM 270 million grant
allocation; another being the ‘Proton Emas’ project, when an undisclosed financial sum paid
to Italian design firm, Italdesign Giugiaro for designing a hybrid electric compact city car, but
no realization to develop into production. (Samsuri, H., 22 Feb 2017)
The factor that attributed to the above cases, was pinpointed towards political influences due
to vested personal interests from powers that be. After Dr Mahathir’s resignation from Proton’s
chairman position in the beginning of Apr 2016, Rural and Regional Development Minister
Datuk Seri Ismail Sabri Yaakob had publicly stated about Dr Mahathir’s autocratic decision
making even in minor administrative matters, and his ‘interference’ impeding Proton’s previous
attempts in establishing foreign strategic partnerships. Industry observers having opined about
Dr Mahathir’s direct influence on Proton’s top management appointments, and frequent top
management personnel changes under Dr Mahathir’s chairman tenure since 2003; MITI
Minister Datuk Seri Mustapa Mohamed also released a lengthy official statement, expressed
that the government had channelled to Proton about RM 13.9 billion total of grants and other
financial aid. And that he had “been informed that there were instances when Proton appeared
to be unprofessional in its decision-making process”. (Malaysian Digest, 11 April 2016)
To uphold fair corporate governance which prioritise Proton’s growth towards achieving
profitability and performance excellence, the Board of Directors should be prepared to demand

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more accountability or transparency from senior management and executive directors (CEO
in particular). Independent directors who should not have strong connections to the Board, are
ideally placed to make such demands. But, independent directors are placed in a difficult
position of having to act as monitors of the Board and senior management /executive directors,
under conditions where cultural values uphold in-group status quo harmony, and respect of
social status such as in Malaysia. The Malaysian Code of Corporate Governance (MCCG)
2012 has taken steps to address this problem to a certain extent by emphasising the role of
independent directors, which the Board has to recognise even if it does not resonate with the
collectivist cultural values in Malaysia. (Satkunasingam, E. and Yong, S.C., 2012)
On Proton’s organizational culture, at the operational level there are evidences regarding
notably lack of service dedication and urgency, particularly amongst the customer service
personnel in many Proton Service Centres (online forum discussions e.g. Lowyat.net,
commentary sections at websites recounting frequent delayed customer service personnel’s
phone call response towards customer’s service request, indifferent even rude reception by
customer service personnel at the service centres). This has been the Achilles heel of Proton’s
public brand perception. Proton’s top management should be pro-active in starting a bottom-
up overhaul of workplace attitudes and mentality, cultivating strong work ethic.
2. Manufacturing Process and Service Experience – Efficiency and Quality
Standards
In recent years, Proton has made substantial improvements in its car safety features (e.g.
Proton Iriz and Suprima certified 5-star rating in ASEAN NCAP, Proton Preve have both 5-star
ratings in ASEAN NCAP and Australasian NCAP. Refer APPENDIX 2). Besides, Proton’s
current management are credited, in spending additional two to three months in 2016 to rectify
the new Saga and Persona models’ driving experience issues by revisiting the noise, vibration
and harshness (NVH) test. Despite the new models were previously certified passed under Dr
Mahathir’s chairman tenure, and set for launching. (Zaki Sulaiman, 03 March 2017)
On the other hand, there are still some aspects of production inefficiency and inconsistent QC
issues in Proton’s manufacturing processes. In February 2016, Proton announced a recall of
almost 95,000 units of its cars to fix an oil cooler hose durability problem (involving Proton
Exora, Preve and Suprima S models), costing over RM 2 million to provide replacement parts
(Paultan.org and Malaysian Digest). Also, there are sporadic feedback on online forums e.g.
Lowyat.net, regarding quality issues experienced on the entry level car range - Proton Saga
(rattling inside car door due to not well fitted assembly, defective mechanical components
etc.). In addition, a Malaysiakini article in Dec 2016 (titled: Proton ‘delay-vers’?) that told an

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un-named writer’s experienced prolonged delay (about 2 ½ months duration) in expecting
delivery of a booked red premium Persona model, that eventually lead to order cancellation
and changed ordering a Honda car instead, as Honda had a year-end sale (with Honda’s
purchase loan rate offer cheaper than Proton’s). All these instances, are probably caused by
business and operation level inefficiencies in production planning and QC management,
communication issues between front line sales and supply chain network.
Lastly, the Malaysian public’s long time negative perception of Proton service centres’ level of
customer service, repair workmanship. Aftersales service is a critical factor in the successful
marketing of many products, particularly for the automotive sector. And cars require aftersales
service, such as maintenance and repairs, for customers to get the full value from them. As
observed from online forum discussions and opinion sections at online featured articles,
Proton has yet to provide the desired level of operational level aftersales service, in the face
of customer needs and expectations.
3. Technological Capability To Innovate and Upgrade
Since Proton discontinued the production partnership with Mitsubishi after the 1990s, it
embarked on a development path to be an original equipment manufacturer (OEM) – the
‘organic development’ way, which started a production series of quality and reliability problem-
riddled car models during the 2000’s (the Waja, Gen-2, Tiara etc.). Proton also engaged in-
house development of engine (working together with Lotus Engineering), resulting in the
CAMPRO engine that was also besotted for years with lagged performance power and high
fuel consumption issues. Although in recent years, the CAMPRO engine had been through
great refinements, and now joined with another Proton-developed VVTI engine line-up. For
next generation engine technologies, apart from developing Internal Combustion Engines
(ICE), Proton are also working on Hybrid and pure electric drive systems in concept stage.
However according to a 2016 research report by the Organisation for Economic Co-operation
and Development (OECD), Proton and Perodua are still relying substantially on technological
intellectual property owned by Japanese companies, in particular Mitsubishi Motors.
Illustrating that local companies are struggling to improve their technology sophistication and
mainly perform incremental process innovation. This is also reflected in Malaysia’s other major
industries e.g. electrical and electronic, the incapability to move away from “technology
absorption” to achieving “creativity”, where a country successfully internalise skills and
knowledge and has the capacity to create new innovative products. Simply put, most

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Malaysian firms are considered “adapters” of existing technology rather than “creators”. (Yeap,
C., 05 Dec 2016)
According to an automotive industry expert, who spoke on condition of anonymity to Malaysian
Digest, Proton spends a significant amount on research and development (R&D) from the few
years that he had worked at the company. Proton have the capability to build own original car
platforms, bodies and engine from scratch (with a fully integrated engineering service, capable
of creating new concepts and taking those initial concepts through a fully supported process
of product design, development, prototyping and testing, right up to mass production).
Besides, Proton in recent years also engaged in several one-time collaborations with foreign
OEMs e.g. Mitsubishi, Honda, Suzuki in re-badging their vehicles for the local market.
However, Proton would be able to develop technological advancements faster in a shorter
time, by establishing a joint partnership with a foreign OEM as it will reduce operational costs.
Also, to be more adaptable in catching up with possible disruptive innovations from the
international market in future.
4. Current Purchasing Trend of Local Consumer Market
In earlier January 2017, BMW Malaysia announced that it sold a total of 10,906 units of BMW,
MINI and BMW Motorrad vehicles in 2016 and recorded the group’s best-ever growth in the
country. At the same time, Perodua, the number one national car maker in terms of sales
volume, delivered up to 207,000 of its cars up to November 2016, just over 3,000 fewer than
2015 that was its highest sales volume on record. These performance figures came, despite
the current Malaysian economic slowdown since late 2016.
From a working paper done two years ago by economists Lee Hwok Aun and Muhammed
Abdul Khalid, it was founded that car sales data to be useful “supplementary” indicator of
income inequality. In a recent interview with Lee, he opined that higher sales volume in luxury
cars amid a slowdown in the auto industry — and particularly sluggish sales for the most
affordable cars — could suggest that the financial position of the affluent is not affected by the
overall economic slump, indicating higher concentration of wealth at the top.
Faster growing sales for high end cars alongside slower growth of cheaper mass market
brands and models, will be consistent with, and suggestive of rising social wealth inequality
(though not conclusive). If the 2016 sales growth for Perodua, Proton, Naza, etc. showed a

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slower rate than for BMW and Mercedes, the case that car sales on the whole reflect rising
wealth inequality will be supported.
Secondly, higher ownership of luxury cars could also suggest a growing number of wealthier
households or individuals, while higher sales volume of the cheapest car available meant that
the pool of bottom income earners have grown. The latest sales data from BMW Malaysia and
Perodua, could consequently be partial indication of a serious underlying problem that may
point to a widening gap in income distribution among Malaysians. (Syed Jaymal Zahiid,
21 Jan 2017)
From this, Proton should take note when planning new model production and retail pricing
strategy, for the immediate future. If Proton is able to achieve economies of scale through
foreign strategic partnership venture, then can even re-position pricing of its existing car model
ranges. As for the current situation, Proton should increase marketing and promotion activities
for its highest selling volume model, the budget level Proton Saga especially the recently
launched 2017 revised version with refined driving experience. (Refer APPENDIX 3, for June
2016 Proton sales in Malaysia by model)

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Proton’s TOWS matrix
Strengths (S)
Good recognition in vehicle
safety standards & certification
Greatly improved vehicle
quality and driving experience,
compared to several years ago
New Proton Saga has highest
sales volume and revenue in
2016.
Proton Ertiga well received,
being Malaysia’s most
affordable in the small MPV
vehicle class
Proton's own supply chain
network comprises more than
500 businesses, among which
are component manufacturers,
distributors, dealers and
workshops
Current management being
diligent and active in turning
around Proton’s position
Weaknesses (W)
Long-time ingrained negative
public perception on its vehicle
quality & aftersales services
Hit-and-miss, minor QC
consistency issue in vehicle
quality, of current entry-level to
medium affordable range (e.g.
Saga, Persona)
Below Malaysia’s industry
average level of aftersales
service, although with slight
improvement per JD Power
2016 ratings
Have excess of dealers in sales
network (total 400, as of 2014),
more liabilities for Proton, in
supporting dealers incapable of
financial independence
CAMPRO & VVTI engine-
powered vehicles do not meet
European emission standards
for export, due to less advanced
technology
Opportunities (O)
Emerging popularity of new
vehicle class, the ‘crossover’:
part-SUV, part-hatchback
/sedan-type vehicle
For internationalization, ‘blue
ocean’ potential in overseas
market (e.g. Turkey, East
Europe, Latin America)
By 2018, the tariff on Complete
Built-Up (CBU) vehicles
imported from ASEAN nations,
will be reduced to zero per
cent under the ASEAN Free
Trade Agreement.
SO Strategic options
Increase internationalization
expansion:
- Direct exporting to other
ASEAN member countries
- Set-up joint venture with
foreign sales distributor
/joint venture
manufacturing, for farther
geographical markets
Extend R&D collaborations
with more companies within
supply chain network, to
develop automotive systems
that have greater energy-
efficient capabilities, lower
material production cost with
same /improved quality
WO Strategic Options
Engage strategic alliance with
internationally established OEM,
as any FDI for introducing
energy efficient motor system
technology to Malaysia, entitled
for EEV incentives:
- Pioneer status /investment
tax allowance
- R&D grants
- Infrastructure facilitation
- Lower taxes
Increase internationalization
expansion, prove brand value
and build positive perception
from oversea markets.

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Under National Automotive
Policy 2014, Malaysia to
increase launching of only
energy-efficient vehicles
(EEV). Malaysia Automotive
Institute estimate, able to
achieve a 100% EEV
penetration by year 2025
Adding the ‘crossover’ vehicle
segment into Proton’s vehicle
offerings. Can do a production
collaboration with foreign
OEM, like the well-received
Ertiga (collaborated with
Suzuki)
Use future influx of more
ASEAN-assembled vehicles into
Malaysia, as a motivator to
improve local vehicle quality
workmanship and customer
service standards.
Threats (T)
Perodua is no. 1 in Malaysia’s
vehicle sales volume (35.7%
market share in 2016)
Honda overtaken no. 2 vehicle
sales volume spot (Malaysia)
from Proton in 2016. Currently
its ‘crossover’ vehicles among
top sales performers.
Promising sales by latest
‘crossover’ model BR-V, in the
sub-RM100k seven-seater
market
Japanese brands in 5 ASEAN
markets collectively sold 2.62
million cars in 2016. Hold 84%
market share of 5 ASEAN
markets (Indonesia + Thailand
+ Malaysia + Philippines +
Vietnam)
Manufacturers are engaged in
heavy discounting of cars to
move stock, plus bank
approvals for auto loans is not
helping Proton. As about four
out of 10 loans are approved
by financial institutions.
ST Strategic options
Internationalization expansion,
create more overseas market
demands (especially outside of
ASEAN region) to mitigate
reducing market share in
Malaysia.
From Ertiga’s promising
reception and sales, explore
developing new offerings in
alternative vehicle segments,
outside of the crowded B & C
segment compact car market.
More engaging marketing and
attractive promotion, negotiate
for more attractive and
affordable vehicle loan
financing rates.
WT Strategic Options
To hold Proton’s Malaysia
market position, from further
slipping down:
- Improve pre-sales and
aftersales service
experience, gain back
consumer trust.
- Improve QC consistency
- Develop more efficient dealer
network management &
selection, maintain high
performing & self-sustaining
dealers.

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V (B). Review of Mission and Objectives
Proton Holdings Bhd being currently under ownership of DRB-HICOM Bhd, follows DRB-
HICOM’s vision and mission:
Vision: To be number 1 and continuously excel in all that we do.
Mission: To lead in the growth of the nation in the areas of DRB-HICOM’s core businesses.
However, subsidiary Proton Parts Centre Sdn Bhd maintains their own vison and mission,
which we will based as being most closely aligned to the whole Proton automotive group’s
aspiration and strategic objective.
Vision: A Leading Global Mobility Solution Provider.
Mission: Continuously Create Innovative Processes, Product and Services That Win
People’s Hearts and Minds.
Also as stated in the Proton corporate website (corporate.proton.com: R&D Overview), one
of the main objectives for the creation of Proton, was to propel Malaysia into the 21st
century
as an industrialized nation, where the acquisition of technological knowledge, know-how
and expertise, would help the country achieve both short-term and long-term goals. As a
strategic component of Malaysia's Industrial Master Plan (IMP), Proton's objectives include
the development of indigenous research and development capabilities, world class
manufacturing and production standards, design capabilities as well as a presence in the
global market.
In our opinion, Proton’s current vision, mission and objectives are still relevant and central to
their key strategic factors and addressing on-going issues. For the vision, the word “Global”
being used and in presence since Proton started international exporting activities in the 1990s.
As well as stepping up in acquisition of developed nations’ organizational resources and
expertise, such as the UK Lotus sports car brand; and the year 2003 merger of Proton
Holdings Bhd with Fuji Technica and Miyazu companies, into Proton’s subsidiary Miyazu
Malaysia (manufacturing automotive engineering tools e.g. stamping dies, injection moulds for
vehicle bodies; and providing engineering management services).
The emergence of the Research and Development Division in Proton, is one of the main
factors that the Vision statement has been setup as the “Global Mobility Solutions Provider”.

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With the ability to perform research and development on car engine, car structure safety
features and other related technology for developing new vehicles that meet the current
international safety standards and environmental conservation laws in reducing pollution from
fossil fuel burning. In order to realise the mentioned vision, knowledge transfer and adoption
of new technology being engaged by Proton, resulting in numerous joint venture productions
e.g. with Mitsubishi (the 1st
Proton Saga), Honda (the 2016 Proton Perdana), Suzuki (the 2016
Proton Ertiga, Malaysia’s 1st
compact MPV Energy Efficient Vehicle); as well as the trademark
on-road performance drive handling features in Proton’s main sedan cars e.g. the Gen-2,
Persona, Satria Neo etc, gained from working with Lotus’s engineering expertise.
The “Mobility” word in the vision statement refers to the six main pillars of Proton business
structure, which are: motor vehicles, technology provider, engineering services, manufacturing
services, human capital development and supporting business. These activities have to work
together, by having a holistic human capital development through well cultivated professional
etiquette and values, with the best interests in mind for Proton’s business performance and
sustainability; and supporting business through increase number of production and sales
activities.
Proton has various strategies implemented to ensure all this six pillars working together, by
having a contract assembly, component manufacturing (Proton Parts Centre), sales and
service, financing, insurance etc. for Proton to build and develop a good platform to achieve
the level in aspiring to become “A Leading Global Mobility Solution Provider”. Proton has
experienced adoption of different management philosophies, business operation for sales and
service brands such as Mitsubishi and Honda. This illustrates that the vision is achievable and
logically states Proton’s abilities to be at that particular level in future.
On the mission statement, the word “Continuously Create” refers to Proton’s businesses that
continuously and constantly put effort to deliver more effective and efficient solutions to target
the end consumers. Faster rate of developing new product technology, product quality
improvements and more immediate mitigation measures to address mass manufacturing
inconsistent quality control issues, becomes one of Proton’s central priority. Also, Proton in
particular since 2016 under current management, has been pro-actively rolling out more
personable customer service experience initiatives (e.g. established 121 outlets nationwide
providing premium integrated 4S, 3S, 1S + 2S vehicle servicing; 7-day service centre
operations, 80-minute Quick Service for vehicle maintenance and repairs, pick-up and delivery
services in prime areas etc.).

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The words of “Innovative” give the definition of new or improved solutions that is beneficial to
users or customers and the environment. “Process, Products and Services” refer to the
outcomes from the above mentioned improvement efforts and initiatives by Proton. This is to
ensure the outcomes are in line with the statement of “Win People’s Hearts and Minds” which
means desirable benefits by all stakeholders, especially the customers and business partners.
Proton’s establishment in line with the Malaysian government’s nation-building objective, did
act as a pioneering catalyst in creating Malaysia’s current multi-level automotive industry
ecosystem, as evidenced in the National Automotive Policy’s year 2014 automotive industry
achievement (refer APPENDIX 4). From Proton’s supply chain network, hundreds of home
grown automotive vendors (vehicle components suppliers) are established. Subsequently,
they also supply Perodua, as well as Malaysia’s major foreign original equipment
manufacturers (OEM) e.g. Toyota, Honda etc.
In tandem, there is cultivation of a growing automotive engineering and technical talent pool,
through various talent development vocational programmes initiated by Proton, DRB-HICOM
and other GLCs. Together with more local companies following the implementation of
developed nations’ benchmark production practices (e.g. Japanese Lean Production System),
these efforts collectively contributed to progresses of the nation’s supply chain quality and
efficiency as illustrated in the Malaysia Automotive Institute (MAI) year 2014 statistics (Refer
APPENDIX 5).
Also the national automotive industry, lead to Malaysian government’s spearheading the
creation of ASEAN NCAP, which sets higher benchmarks for private vehicle safety
homologation for the ASEAN region, serving as a base towards meeting benchmarks
practised by Australasian NCAP and Euro NCAP. Proton’s advocacy in producing vehicles
that excels in the ASEAN NCAP testing, cultivated to the increasingly proven safety reputation
of Proton’s current vehicle offerings.
In view of all above mentioned industrial breakthroughs and standard benchmark
achievements, Proton has still a lot of organizational capacity for improvement, especially in
long term sustainability of manufacturing process, product and service quality with
consistency. From the current resources, capabilities and local market share position of
Proton, it is equally vital to attend the local consumers’ best interests of attaining value-for-
money vehicle ownership experience. Besides aspiring towards internationalization of Proton
products and services, Proton should also include “Local” in its vision, to be “A Leading Local
and Global Mobility Solution Provider”; revise its mission to be “Continuously Create and
Sustain Innovative Processes, Product and Services That Win People’s Hearts and Minds”.

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For objectives, it is recommended for Proton to add-on:
- Developing and maintaining human capital of valuable engineering, technical and
customer relations expertise.
As the human resources is central to pursuing Proton’s R&D, manufacturing capabilities
improvement.
- Nurturing and maintaining, long term customer-base growth and loyalty.
Customers are the basic source of any business corporation’s operating bottom-line, and
source of generating profitability for long term survival.
VI. Strategic Alternatives and Recommended Strategy
VI (A). Strategic Alternatives
In view of our suggested slightly revised objectives for Proton, as mentioned in section V (B),
it is feasible for Proton to attain them, or even improve on their current achievements. Right
now, Proton need to revamp their long time strategy of over-reliance on the Malaysian
consumer market. As Perodua, Honda, Toyota and other foreign automotive manufacturer
level up competition for the Malaysian market, the pie shares are increasingly shrinking.
Proton risks losing further on its market share, when Perodua and the foreign manufacturers
are able to outdo Proton, to provide better value-for-money /premium pricing with benchmark
product and service quality /successfully address specific consumer needs.
Proton need to improve in quality and efficiency of its human capital foremost, then carry
forward to its governance, R&D, production and QC processes, supply chain management,
customer service and its end product offerings. Also, to increase its manufacturing capacity to
achieve economies of scale (automotive manufacturing has high fixed cost), full commitment
to explore and develop markets outside of Malaysia to garner more diversity of sales
generating sources, and steer Proton towards profitability. (Refer APPENDIX 6: MITI Minister
full statement on Proton, for the big picture of Proton’s current situation and areas to improve)
To identify the feasible alternative strategies for Proton, need to consider the depth and scope
of Proton’s business establishment and their level of obligation towards stakeholders. Firstly,
Malaysia’s automotive industry ecosystem that has developed around Proton consists of a

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few hundred dealers and component manufacturers. To choose divestment or even closure
of Proton’s operations, directly affects more than 60,000 employees across the automotive
industry, and will indirectly affect another additional 130,000 industry employees. Then, there
is the subset of business ecosystem created by Proton to consider. Since its operations began,
Proton's own supply chain network comprises more than 500 businesses, among which are
component manufacturers, distributors, dealers and workshops. Proton’s fortunes involve total
of 12,000 Proton employees, and 50,000 workers employed by Proton’s vendors. (Malaysian
Digest, 11 April 2016)
Then, certain industry sources stated that Proton have excess workers at its manufacturing
plant. An entry from an economist’s blogsite, revealed his observations during visits to both
Proton and Tan Chong Motor (TCM)’s assembly plant in Shah Alam and Serendah
respectively:
(i) Proton’s assembly line relies a lot on manual labour whereas TCM has more
assembly section automated.
(ii) Where manual labour is required, Proton seems to be having more personnel per
section, assembling the Complete Knock-down (CKD) parts e.g. seats.
(iii) TCM has QC in every section of the assembly line to detect defects and has
rectifications, before the next part is assembled. Proton’s QC process is not
stringent as TCM’s.
(iv) Nissan technical personnel made frequent visit and checks to ensure TCM’s
assembly process adheres to Nissan worldwide’s standards.
(Hisham H, 06 April 2016)
Besides, as a condition of the government’s RM 1.5 Mil soft loan given to Proton in 2016, a
taskforce led by Pemandu chief executive Datuk Seri Idris Jala comprising officials from the
government and the private sector is expected to be set up to monitor Proton’s transformation.
Proton’s top management has been given an ultimatum to restructure the company and
provide a strategic plan to expand its local and international market - basically a brand new
business model is needed. (Malaysian Digest, 11 April 2016)
With DRB-HICOM’s current ongoing negotiation in selecting a foreign OEM as strategic
partner to Proton, as well as combining previous analysis of Proton’s external and internal
strategic factors; the following pages are several business and functional level strategic
alternatives, which would complement the selected corporate strategy (strategic alliance),
itself being a growth strategy.

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(a) Business Strategies
Cost Leadership Strategy
Competitive advantage: The low-cost leader and operates with
margins greater than competitors
Competitive scope: Broad
Integrated set of actions designed to produce or deliver goods or
services with features that are acceptable to customers at the
lowest cost, relative to competitors
No-frills, standardized or commodity-like product
Must have competitive levels of quality, service, and other
features and lowest overall costs
Continuously reduce the costs / increase the efficiency of value
chain activities
Competitive Risks
Innovations by competitors can quickly
eliminate cost advantage
Too much focus on cost reduction versus
competitive levels of differentiation
Competitors may learn how to successfully
imitate a cost leader’s strategy
Differentiation
Competitive advantage: Differentiation /uniqueness
Competitive scope: Broad
Integrated set of actions designed by a firm to produce or deliver
goods or services at an acceptable cost that customers perceive
as being different /unique in ways that are important to them
Targeted customers perceive product value
Customized products – differentiating on as many features as
possible
Can differentiate in many ways and in many value chain areas
Competitive Risks
Can charge too high of a price premium
Differentiation theme no longer valuable to
customers
Over-differentiating
 Customer experience shows
differentiation not worth the cost
Counterfeiting
Integrated Cost Leadership /Differentiation
(Best Cost Strategy)
Efficiently produce products with differentiated attributes
- Efficiency: Sources of low cost
- Differentiation: Source of unique value
Involves engaging in primary and support activities that allow a
firm to simultaneously pursue low cost and differentiation
Low price with somewhat highly differentiated features
More value for the money
Competitive Risks
Harder to implement than other strategies
Must simultaneously reduce costs while
increasing differentiation
Can get ‘stuck in the middle’ resulting in no
advantages and poor performance

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(b) Functional Strategies
MARKETING STRATEGIES
Market Penetration (Stay in current markets with existing products)
Increase rate of purchase /consumption
Attract rival’s customers
Buy-out rivals
Convert non-users into current users
Market Development (Find new markets for current products)
Enter new geographical markets
Find new use for existing products
Find new target market
Product Development (Develop new products for existing markets)
Improve features
Improve quality /reliability /durability
Enhance aesthetics /styling
Add new product models
Diversification (Develop new products for new markets)
SUPPLY CHAIN STRATEGIES
“Efficient” model – Customers take an opportunistic approach to purchasing, in order to ensure
gettting the best price for each order, it results in a demand profile with recurrent peaks.
- Maximize end-to-end efficiency, to achieve lowest cost
- Ensure high rates of asset utilization coupled with high overall equipment efficiency (OEE)
in order to reduce cost.
- Ensure high levels of forecast accuracy to guarantee product availability and consequently,
perfect order fulfilment.
- Extra capacity in outbound logistics, to absorb demand peaks without affecting the ability to
meet customers' expected receiving dates.
- Stock Keeping Unit (SKU) portfolio should be trimmed back to reduce the number of "high
variation, low demand" SKUs, which create complexity in production and service.
- Production cycle should be scheduled in a logical sequence of SKUs, with the aim of
reducing setup time between each pair of adjacent SKUs. The production sequence should
be fixed and maintained for long periods of time. This will help to increase the
manufacturing line's experience with each setup, reducing the amount of time it takes for
changeovers and, consequently, the length of the production cycle.
- When transportation cost is highly relevant to the total cost, a minimum order-size policy of
a full truckload is recommended. An alternative is a fixed order-cycle policy that allows the

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company to consolidate certain customers' orders on the same truck. For example, orders
for customers in a particular region would be consolidated every Tuesday at 5 p.m. and
dispatched the next day.
- When market demand evidences seasonal trends, extra warehousing capacity should be
available in anticipation of the need to store additional product during high-demand
periods.
- Customers whose buying behaviour follows a regular, predictable pattern should be invited
to participate in collaborative programs. These are programs where supplier and customer
share supply and demand forecasts and schedules in order to reduce demand variability.
The purpose is to migrate them to a continuous-replenishment model, and then step-by-
step to convert the supply chain model from efficient to continuous-flow, which is a more
mature model that generates higher levels of customer loyalty.
“Continuous-flow” model – For a very mature supply chain with a customer demand profile
that has little variation. Competitive positioning is based on offering a continuous-replenishment
system to customers in order to assure high service levels and low inventory levels at customers'
facilities, thus achieving optimization of costs associated with inventory.
- Promoting supply chain collaboration, sharing of sales and inventory information to improve
the ability to forecast demand.
- Use a prescheduled order cycle - for example, receiving orders from a group of customers
the same day every week - instead of a lead-time order cycle, in which orders are
dispatched based on a fixed lead time after order entry, independent of when an order is
received. A lead-time order cycle could create demand peaks, and thus break up the
continuous flow.
- High-variance Stock Keeping Units (SKUs) should be buffered with higher levels of
inventory in order to avoid unexpected changes in the production schedule.
- Production cycle should be scheduled in a logical sequence of SKUs, with the aim of
reducing setup time between each pair of adjacent SKUs. The production sequence should
be fixed and maintained for long periods of time; this will help to increase the
manufacturing line's experience with each setup, reducing the amount of time it takes for
changeovers and consequently, the length of the production cycle.
- Collaborative efforts should be oriented toward customers that generate higher continuous
sales and those with high demand variability. For the latter group, if demand variability
continues even after participation in a collaborative program, then it would be advisable to
evaluate whether to shift them out of those programs. This is because they are forcing the
supply chain to increase inventory or to break up a production sequence, both of which
affect supply chain efficiency.

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- When demand variability moves in irregular patterns and /or customers are moving toward
an opportunistic approach - that is, they are looking for the best price without regard for
other benefits, such as lower working capital - it is wise to consider migration to an efficient
supply chain.
(Perez, H.D., 2013)
HUMAN RESOURCE STRATEGIES
Efficient utilization of human resources
Cross training and flexibility in assigning work (‘job fit’)
Upskilling
Using work teams, simulate conducive communications
Operating on non-union basis /negotiate and collaborate with employee union
Selection of employees
Reliability and validity (predictive, concurrent and content validity)
Job analysis
Interviews and behavioral interviews
Interview tests
Dealing with employee shortages
Strategic recruitment (inter-department shuffles /add manpower only for high priority areas)
Hire from beyond retirement-age group, through flexible contract-based employment
Managing vendors of outsourced functions
Dealing with employee surpluses
Redeployment and retraining
Early retirement
Retreat from employment security policy
Downsizing and layoffs
Termination strategies
(M S Ramaiah Institute of Management, 09 Oct 2013)

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VI (B). Recommended Strategy
Corporate Level Strategy: Strategic Alliance (Growth Strategy)
To make cars that meet the needs of today’s open consumer market requires substantial R&D
(reason for the high fixed cost nature of automotive manufacturing). R&D requires extensive
financial investment, derived from achieving more profit margin per car, and that is achieved
with better economies of scale which reduces cost of making each car unit. Economies of
scale requires more sales, which is one of the major reasons why a strategic partnership with
an internationally established OEM is necessary, as the partner’s manufacturing capability
and quality standards which will accelerate Proton’s economies of scale.
Another reason for the need to have economies of scale, per RHB Research analyst
Alexander Chia, a typical car manufacturer would have an average product life cycle of about
six years. But Proton’s products typically have an extended life cycle, due to a lack of
economies of scale where it takes a longer time to sell the requisite number of units to
adequately amortise development costs. Towards the latter part of this extended life cycle,
Proton’s products will have become increasingly uncompetitive as they get left behind by
newer competing products, which offer updated features /improved quality.
Manufacturing scale need to be increased, to enable offering of innovative products with
shorter life cycles, in order to remain competitive in the automotive market. For Proton to break
even, Mr Chia stated that Proton needs to produce and sell at least 100,000 - 120,000 cars
per year. Another analyst says that the development cost for a new model such as Proton Iriz,
cost about RM 500 mil, and that it needs to sell at least 200,000 units within five years with
the development cost per unit at around RM 3,000. (Intan Farhana Zainul, 11 Feb 2017)
Business Level Strategy: Integrated Cost Leadership /Differentiation (Best Cost
Strategy)
We recommend that the above strategy, can be universally implemented to the six main pillars
of Proton business structure, which are: motor vehicles, technology provider, engineering
services, manufacturing services, human capital development and supporting business.
Because Proton's company group businesses are supporting the core product which is
automobiles, and that Proton-made automobiles’ value proposition can no longer just rely on
seeking lower cost than other competitors. In fact, a view on current Proton-made automobiles’

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product features and retail price range, would suggests of offering mainly entry-level and
affordable pricing together with worthy safety, comfort and driving experience values, that are
comparable to other automobile brands. The objective is towards providing better value-for-
money than competitors.
Per below, most of Proton’s automobile models’ price range are between mid RM 30,000 to
above RM 80,000. Including basic to premium options per model. From the mid RM 30,000 to
around RM 50,000 range, only Perodua and certain Korean car brands have entries. (Except
the new Perdana pricing above RM 100,000)
Proton vehicle line-up as of 2017
When nearing the RM 60,000 and above price range, Proton’s offerings face more competition
not only from Perodua, but also Malaysia’s top performing foreign brands in Honda and
Toyota. Proton’s current line-up includes B-segment and C-segment compact cars, the
affordable sports-performance sedan (Suprima S), the MPV Exora, the mini MPV Ertiga, and
the premium car Perdana.
At the moment, Proton seems to be in ‘stuck in the middle’ market positioning. Proton neither
has a significant leading lower-range value-for-money advantage, as Perodua’s entry-level
range (the Axia pricing starts from below RM 30,000, it being a subcompact hatchback also
offers fuel economy and convenient city-driving experience value advantages).
Also, neither Proton has a significant leading middle-range value-for-money advantage, as
Perodua’s all-time best seller Myvi, Honda and Toyota entry level compact cars e.g. Honda
City or Toyota Vios (they offer more consistent quality control, better pre-sales and aftersales
service experience, with equivalent pricing as Proton).
Lastly, Proton’s premium Perdana car being actually a Honda Accord rebadge, does not offer
significant value-for-money advantages as of the original Honda Accord (due to the

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disadvantaged aftersales experience and spare-part warranty guarantees, compared to
Honda). In addition, Proton’s supply chain and R&D capabilities don’t have the required
sophistication and finesse to pursue a pure differentiation strategy.
However, Proton has recorded highest car sales volume in the Saga model (the most
affordable entry level sedan, with improved safety, comfort and driving experience values).
Also, the recently launched Ertiga model (a rebadged Suzuki Swift) received promising
consumer reviews, and fulfilled demand for the underserved compact MPV segment in
Malaysia. If Proton can continue improvement in QC consistency, pre-sales and aftersales
experience, then Proton can master the best cost strategy proposition.
Functional Level Strategies: all as mentioned in section VI (A): b
For the functional level, we recommend to apply all of the strategies as mentioned per the title.
To support the strategic alliance at corporate level, and the best cost strategy at business
level, we feel that improving the functional areas of marketing, supply chain and human
resource, would be most suitable to address Proton’s priority: the short and medium term
objective for achieving operations survival and reach break-even to recover back R&D,
operations, supply chain capital investment.
As it would be challenging to turn-around Proton’s position in the Malaysian market (due to
economic downturn trends and lower consumer purchases, estimate to continue for at least
the next 2 years), Proton need to implement full scale market expansion strategy the soonest,
to open up demand from new markets overseas (find potential ‘blue ocean’ markets), in order
to make sales of more vehicles with the increase of production capacity. If planning export to
Europe, can implement the strategic partner’s more advanced engine technology that
conforms to stringent fossil fuel emission levels.
Upon setting a foothold in the overseas markets and achieving substantial sales volume,
Proton can utilise economies of scale to re-position its product pricing, as a retaliation move
on its competitors /response to consumer’s purchase pattern changes in product choices. The
more profits generated from increased sales, can be channelled into new R&D activities to
create new product features.
Next, we recommend to develop well-defined strategy for supply chain management, linking
up with supplier, manufacturer, and customer; to set the process of planning, implementing,

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and controlling of supply chain operations. The activities involved in the supply chain: product
development, procurement, manufacturing, physical distribution, outsourcing, customer
service, performance measurement (cost, customer service, productivity, and quality).
Supply chains encompass the end-to-end flow of information, products, and money. For that
reason, the way they are managed strongly affects an organization's competitiveness in such
areas as product cost optimization, working capital requirements, product’s speed to market,
product workmanship quality and service experience perception, among others. In this
context, the proper alignment of the supply chain with corporate and business strategy is
essential to ensure a high level of business performance.
As described in section VI (A): b, Proton can use both types of supply chain strategies, on
different groups of component and partial assemble units suppliers, depending on Proton’s
ordering frequency (the ‘customer’ in this context, refers to the Proton assembly plants, or the
retail frontline: Proton-owned dealerships /authorized 3rd
party dealers /service centres). Such
approach, when thoroughly implemented will greatly improve Proton’s product quality and
service experience perception problem.
Lastly, as from section V (A) analysis, illustrated the importance of using corporate
governance monitoring and human resource management to cultivate transparency, positive
work and professional culture at Proton. We recommend implementing strategic approach to
human resources management, to effectively manage manpower distribution within Proton’s
functional divisions, to enable more efficient utilization of talents in giving their best possible
work contributions, and to select employees who have values of performance excellence.
In addition, when employees are given fair treatment, provided conducive work environment
and good incentives (can be improved on, when Proton achieves more revenue and profits,
with the proceeds channelling into employee welfare), will spur more cause for employee
dedication and aspiration for performance excellence. From here, Proton would be able to
improve their organizational performance, throughout all their functional divisions, and take a
pro-active collaborative initiative to their supply chain partners and associates. Crucially,
Proton would be able to better serve their customer’s needs, hence improving the Proton
brand value proposition.

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APPENDIX 1
In 2005, the CEO in charge at Proton who was then widely regarded as Dr Mahathir’s
appointee, made a decision to acquire MV Agusta, an Italian sports motorcycle manufacturer
for RM 370 million in order to use MV Agusta’s technology. Proton spent approximately RM
500 million to start the project, before deciding a year later to sell MV Agusta for RM 4.48 (1
Euro) to Italy’s Gevi SpA on the grounds that MV Agusta was on the verge of declaring
bankruptcy which would expose Proton to a debt of RM 256 million.
The Board of Directors stated that they were unaware that MV Agusta was in debt when they
purchased it, or that a cash advance was made without controlling rights although Proton
owned more than 50% shares in MV Agusta. They also claimed that they were misled into
believing that the cash advance was working capital meant to be used to manufacture
motorcycles although it was used to settle MV Agusta’s debts. Former Proton chairman Dr
Mahathir argued that the main shareholder of Proton at that time, Khazanah Nasional had
agreed to MV Agusta’s purchase and it had been discussed by the Board. However one of the
former Board members, stated that the acquisition decision was sent by the former CEO direct
to the government, without going through discussion and getting consensus with the Board.

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APPENDIX 2

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APPENDIX 3
Source: www.slideshare.net , Auto Book 2016
APPENDIX 4
Source: Malaysia Automotive Institute (MAI), CEO Madani Sahari's talk on Malaysia's National
Automotive Policy (NAP) 2014 & the automotive industry at the Asian Automotive World Class
Manufacturing Summit 2015, Jakarta

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APPENDIX 5
Source: Malaysia Automotive Institute (MAI), CEO Madani Sahari's talk on Malaysia's National
Automotive Policy (NAP) 2014 & the automotive industry at the Asian Automotive World Class
Manufacturing Summit 2015, Jakarta

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APPENDIX 6
(Full text) MITI statement on Proton
The following is the full statement by International Trade and Industry Minister Datuk Seri
Mustapa Mohamed on the current state of Proton:
1. The decision made by the Government to go into heavy industries, including the automotive
sector, in the mid-1980s was a bold and courageous one. However, the Government cannot
continuously protect these industries.
2. Other countries such as Japan and South Korea have protected their automotive industry, but
these measures were short and medium term in nature and were eventually abolished.
3. Proton, which is our national car project, needs to graduate from this protection.
4. Since I became the MITI Minister in 2009, I have been briefed by the Senior Management of
Proton of the issues and challenges faced by the company on a regular basis. I have met with
both the previous and current management teams and shareholders of the Company.
5. In 2009, the Company presented to me its restructuring plan which aimed to improve the
quality of its cars, to boost exports and to make Malaysia a hub for the automotive industry in
the region.
6. In 2012, following the takeover of Proton by DRB Hicom, the new owners came to see me and
they presented another restructuring plan to make Proton more competitive. They also
highlighted a number of ambitious plans to boost exports.
7. The National Automotive Policy in 2009 clearly stated the need for Proton to team up with
strategic foreign partners. In this extremely competitive line of business, there is a need to set
aside high capital resources for Research & Development (R&D). Economies of scale is also
crucial. Proton currently has neither of them.
8. The problems faced by Proton are very challenging. The company's share of the domestic
automotive market hit a peak of 74% in 1993, but currently hovers at 15%.
9. Since its establishment in 1983, the Government has provided grants, various forms of
assistance as well as taxes forgone to Proton to the tune of about RM13.9 billion in total.
There has been intense discussion between MITI and the Senior Management of Proton on
the future of this company in the past six months. Proton's Management has also made a
number of presentations to the Economic Council chaired by YAB Prime Minister.

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10. Our observations on the current state of Proton are as follows:
i.) The company is a relatively small player in the global context and thus not able to compete
with other foreign companies unless it can substantially increase its exports.
ii.) Proton is suffering a problem of underutilization – about 35% of the available capacity in
each of its two production plants (Shah Alam & Tanjung Malim) is being utilised. The decision
to have two plants is probably one of the mistakes made in the past by Proton.
iii.) About three years ago, Proton almost struck a deal with a renowned foreign player but at
the last minute decided not to proceed with the proposal. Had this collaboration been
realized, we may have seen an improved performance by Proton in the subsequent years.
11. Malaysia currently has two national car projects namely Proton and Perodua. The latter turns
out to be a more sustainable model. Perodua Manufacturing, which is 49% owned by
Malaysian shareholders including PNB, has a joint-venture with Daihatsu and Toyota, and is
a profitable company.
12. Last year, a number of Proton vendors came to see me on a few occasions and shared their
problems. Following that, MITI injected RM100 million to provide soft loans to alleviate their
burden. Even then, it has come to my attention that some of the vendors may face serious
challenges if Proton continues to operate at the current level of production and sales. A few
of them might be out of business in the next three to four months.
13. In view of the very serious nature of the problem, the Government believes that the current
business model adopted by Proton is not sustainable. The Government has been seriously
deliberating Proton’s request for assistance for grants and soft loans. It is a major request and
the Government needs to be thorough with its evaluation as a lot of public money is involved.
We need to be particularly prudent in allocation of resources at this time when our national
revenues have been seriously impacted by falling oil and commodity prices.
14. Having said that, I would like to assure Proton employees, vendors and the Proton ecosystem
that their interests will be taken into consideration before we make any decision on its request
for assistance.
15. If the Government decides to assist Proton, this would be made subject to several conditions
including:
i.) Proton needs to immediately identify a strategic foreign partner
ii.) The Company must be professionally managed

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iii.) There must not be any interference in its business (e.g. external political influence)
iv.) Some tough but necessary measures must be put in place for the long-term sustainability
of Proton.
16. I have been informed that there were instances when Proton appeared to be unprofessional
in its decision-making process. In order for the Government to consider providing financial
assistance to Proton, it is important that a competent leadership team be appointed in the
company.
17. We note the decision made by Tun Mahathir to relinquish his position as the Chairman of
Proton. While we recognise the contributions made by Tun Mahathir throughout his
Chairmanship of Proton, we must not turn a blind eye to challenges faced by Proton and its
inability to establish a solid financial footing.
18. In this regard, we hope that the new Chairman and Senior Management of Proton will help
towards enhancing the true potential of Proton and pave the way towards a better future for
the company.
19. The Government remains committed to ensure the continuous growth and development of the
domestic automotive industry which would include the transformation of Proton and its
ecosystem.
Dato’ Sri Mustapa Mohamed
1 April 2016
Source: New Straits Times
http://www.nst.com.my/news/2016/04/136663/full-text-miti-statement-proton

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