What is a national car in Malaysia




PARTIAL DOCUMENT:



4. Case study 1: the national automobile project



Until the mid-1980s, only foreign automotive groups were active in Malaysia, which imported components (so-called. completely knocked down/ CKD sets). The national added value and the scope for technological learning processes were extremely small. Proton was founded in 1983 as a joint venture between Mitsubishi and the state holding company HICOM (Heavy Industry Corporation of Malaysia) and two years later started production of the first Malaysian automobile brand. In 1990 the company was converted into a stock corporation in which Mitsubishi now only holds 16 %% of the shares and in which other Malaysian capital groups are involved in addition to HICOM, which has now been privatized. In 1994 a second "national car", the Perodua, went into production, a joint venture with Daihatsu to manufacture small cars.

WiththebothAutomotive projectsMalaysia is pursuing two goals: Firstly, a national auto industry to a high degreenational added value, its own national supplier network and its own R&D competence. Given their manifold coupling effects from the automotive industry a comprehensive industrialization push in knowledge-intensiveven supplier industries expected. Second is supposed tobuilding a national automobileindustry are used, around the Bumiputra- Strengthen entrepreneurship. At Proton, 98% of the workforce is Bumiputra, including almost all of the management. In addition, so far only Bumiputra companies have been set up as suppliers, or foreign investors in supplier industries are obliged to enter into investments with Bumiputras. This means that entrepreneurs of Chinese origin, some of whom had already gained experience in the field of CKD assembly, are deliberately excluded.

In order to facilitate the development of a national automotive industry, very high tariffs (nominally between 150 and 310 %%) are levied on the import of finished automobiles and CKD rates, and import bans are even issued for some parts. In addition, the national auto industry is promoted through tax breaks, subsidized consumer loans, debt relief of liabilities accumulated in the first few years, free training services by state institutions and many other measures.

The results of this policy are encouraging, at least at first glance. At Proton, production rose continuously in the first 12 years and in 1997 it achieved an annual output of 230,000 automobiles and a share of 64% in the domestic market. In 1989 the company went into export and was able to increase its exports to 36,000 units by 1997. Proton has been in the black since 1989 and is now highly profitable. In 1997 Proton made a profit (before taxes) of 953 million ringgits on sales of just under 6 billion ringgits (the value of the ringgit was US $ 0.50 until the fall of 1997, but was reduced to around US $ 0.30 at the end of 1997). $ devalued). The establishment of the domestic supplier industry was also successful. The Local content could be increased from 36 %% initially to 80 %% today. In 1998 the company had 176 local suppliers.

Nonetheless, Proton's economic survival is highly threatened. Success in the domestic market could only be achieved through massive discrimination against competing import models, and it has so far not been possible to significantly reduce protective tariffs and other privileges. The production costs at Proton are well above the world market level due to the small number of units and the high prices of local supplier parts. Theconsumerarein order toforcedgene,aoverpricedproducttoto buyand thus subsidize the industrial policy experiment of a "national car" to build.

Malaysian car brands have no price advantage in unprotected export markets. On the main export market of England, Proton benefits from discounts under the Generalized System of Preferences (GSP). It is also unclear whether the exports are covertly subsidized. So far, Proton has offered automobiles that have an appealing exterior design, but are essentially based on Mitsubishi models that are ten years out of date. These have to compete on the world market with their own technology provider Mitsubishi, whose models are state-of-the-art, which also has economies of scale and more efficient suppliers and does not have the negative image of a "third world manufacturer". A breakthrough in the export market is, however This is absolutely necessary for Proton, since internationally comparable unit costs can only be achieved with an annual production in the order of 300,000. The domestic market is too small for this.

Proton has therefore taken a flight forwards in order to make itself technologically independent from Mitsubishi and to bring independently designed automobiles onto the market that can compete internationally with other newcomers such as Daewoo and Skoda in the low-price segment. With this in mind, a majority stake in Lotus was acquired in 1996, which should enable Proton to start its own design development. In addition, considerable investments have been made in modern development capacities (e.g. a Rapid Prototyping Center, Wind tunnel, test facility for impact simulations).

Malaysia has entered into international agreements under the World Trade Organization and the ASEAN Free Trade Area obliged to largely reduce its import tariffs by 2003. Up to this point in time the national automobile production should be be internationally competitive without subsidies. As it was in the previous13Years of productionNotsucceededis the technological backlog of the “national cars "compared to the world market level noteworthy to and only recently with the establishment of our own R&D comhas started, it is very unlikely thatthatthecar industryintheverremaining five years until liberalismcompetitive be become becomes. TheyoungestEconomic crisiscomesaggravating added. At Proton 1998, this resulted in a drop in sales of 60%% across from last year. A significant revival in demand is in view of drastic losses in purchasing power and higher Interest for(Consumer)Loansinthenot to be expected in the next few years.

The government will presumably negotiate special conditions in order to be able to subsidize its prestigious project beyond 2003. Even if this succeeds, however, the liberalization of automotive policy cannot be avoided in the long term. Given the current wave of takeovers of small brands, this is likely to be the casefen that Proton (keeping the Brand name)ofonetheworldwideleadrend automotive companye taken over and in the Framework of its global strategy (e.g. Switch to uniform platforms) is modernized. A permanent, independent technological development is becoming more and more difficult today, even for established car manufacturers.

In view of the imminent liberalization, Proton has named a new (Chinese!) Purchasing manager who is aiming for radical cost reductions at suppliers. The supply streams are to be bundled with a manageable number of system suppliers, who in turn award subcontracts. Since 1997, when the equity guidelines for the supplier industry were liberalized, foreign investors have been allowed to hold majority stakes. It is therefore not difficult to foresee that the system suppliers almost without exception have branches of or joint ventures with global players (e.g. Bosch and VDO) will be. As in other developing countries that have liberalized their automotive policies (e.g. Mexico), the domestic share of production will decline, and a large number of local suppliers will file for bankruptcy or be taken over. As the head of purchasing himself concedes, this process of adjustment is more difficult to implement in Malaysia than in liberal economies, because the aim is to cut the pensions of politically influential entrepreneurs and politicians. However, the head of purchasing has the personal backing of the prime minister, since the prestige project of a "national car" cannot survive without radical liberalization.

Overall, it is becoming apparent that Malaysia's auto production in a richtung will develop, as it will also in other large developing countries without an aggressive nationalization policy:theCar manufacturingremainsoftheTechTechnology of the world's leading TNC, which will prevail under competitive conditions, that too the supplier industry is internationalized. The desired industrial policy goals, in particular the independence of foreign techtechnology transfersandtheconstructiononenationalnal supplier network of Bumiputra-Untertake with own R&D competence, would thus for the most part remain unmatchedben.ThemassiveTransfers of incomeof the Consumers of Proton and its suppliers would therefore be recorded as unproductive retirement income. A big part This annuity is in the form of corporate profits and royalties to international joint venture-Partner drained. Private Bumiputra investors have also benefited greatly. The most prominent example is Yahaya Ahmad, who was killed in an accident in 1997, majority shareholder in the privatized HICOM holding and school friend of Deputy Prime Minister Anwar Ibrahim. Yahaya Ahmad had built up a corporate empire worth at least US $ 12 billion at the age of 51.


© Friedrich Ebert Foundation | technical support | net edition fes-library | June 1999