Threats Of New Entry

Published Date: 02 Nov 2017

INTRODUCTION 2

MAIN BODY

TASK 1 3 – 8

TASK 2 8 - 15

TASK 3 15 - 16

CONCLUSION 17

BIBLIOGRAPHY 18

VIPER REPORT 19

INTRODUCTION

Perusahaan Otomobil Nasional Berhad which is known for the brand name of ‘Proton’ was incorporated on May 7, 1983 to manufacture, assemble and sell motor vehicle related products, including accessories, spare parts and other components.

Proton is committed to manufacture quality cars, and knock down spare parts that satisfy customer requirements and meet the required safety and environmental standards of the market. To achieve this commitment, Proton set an objective to ensures quality as the number one work ethics, establish effective and efficient system, provide adequate skills and knowledge to all levels of personnel through systematic and structured training program and provide a conducive, safe and wealthy working environment. It’s first manufacturing plant in Shah Alam Selangor by the Malaysian prime minister Dato’ Seri. Dr. Mahathir Muhammad. ( Histomobile n.d PM project 1985)

At first, all of the components of the car were entirely manufactured by Mitsubishi but the local part has been able to be used, as technologies were transferred and skill was gained. (histomobile January 1986).

MAIN BODY

The strategy statement for this marketing plan is to introduce and position Proton Exora 2 with new enhancement features as the premier MPV car in Malaysia and international market by early of year 2011 by developing marketing strategies and plan. The marketing strategy approach will seek to create customer awareness on Proton Exora 2 offered and then develop the customer base. Hence, Proton will communicate the new concept car via its promotion activities such as Proton’s websites and advertisements placed in numerous industry magazines.

1. From external environment proton competitors are those organizations which provide similar goods or services to the same setoff customers or that vie for the same resources needed by the organization. Most organizations have at least one competitor (usually more than one) and must consider all potential competitors. (Miller Frederic P, 2009).

  After 10 years of Proton establishment its new local rival entered the market with good fuel efficient cars. That was a big threat to Proton. It provided multipurpose vehicles to fulfill the different needs of Malaysian customers. It also had an engineering legacy from Daihatsu which is a Japanese car manufacturer.

Market research proved that Produa was a little ahead in quality in upholstery, engine efficiency and reliability of electronics compared to Proton. Other than local rival Toyota is its global competitor who is the only one in automotive industry which is having LEAN manufacturing. Now it becomes very much important to formulate some strategy for Proton so that it can survive in the market.

1.2 The porter five are been applied for more clearly because the competitive environment not only about the competitor. That is threat of new entry, buyer power, supplier power, threats of substitution, competitive revelry. It can be about the economic recession, natural disaster and etc. According to the model of Porter’s five forces it is worthwhile entering web design industry. Most of the forces are weak and even the strong ones are not impossible hurdles.

1.2.1 Competitive revelry

In Malaysia, there is not too much competitor around affordable car. The low cost car as I mentioned above (cheap maintenance) is not have a lot of competitor in generally. The affordable car in Malaysia also, gets more potential to sell compared to luxury car. The luxury car is only certain people used. As we see the environment in Malaysia, 1 family will have more than 1 car. For sure, the first car they will choose the cheaper car and affordable car. (Mr. Joshua sales man in proton branch 2013)

1.2.2 Threats of new entry

The economic recession will be a big threat for Proton. As we know, all big company will facing over budget or does not achieve the sale for that year. The government will lose a lot of money cause of policy and shareholders. By the way, economic down turn actually comes suddenly without notice.

1.2.3 Threats of substitution

Substitutes also will be a big threat for Proton. Malaysia has to national car. The First automobile is Proton and secondly Perodua. The substitutes will high in term of car model some of car model looks similar, and car spare part.

1.2.4 Supplier power

The suppliers’ performance has a greater impact on the productivity, quality and competitiveness of Proton. The company has offered and performed various functions and activities to develop the component parts manufacturers further than they could conceivably achieve on their own. Proton’s management supports the philosophy of sourcing from outside suppliers. Proton’s supplier development programs starts with the identification of parts to be localized and potential local suppliers to undertake the manufacturing of these parts locally. Normally the decision is governed by the perception of the supplier’s ability to meet satisfactory quality, quantity, delivery, price, and service. (Watts and Hahn, 1993).

1.2.5 Buyer power

The bargaining power of the customers in this industry is somewhat high due to the homogenous or almost the same products, which divide the number of sales from huge number of competitors. But it can be maintained due to the huge number of buyers, primarily in developed countries, aside from the fact that the buyers are fragmented. Above all, the importance of quality of the products and services are important factors which affect the power of the buyer.

1.3 PEST Analysis

PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm's control and sometimes present themselves as threats. For this reason, some say that "pest" is an appropriate term for these factors. However, changes in the external environment also create new opportunities and the letters sometimes are rearranged to construct the more optimistic term of STEP analysis.

Political factors entail government policies, regulations and legal issues in the country of operation.  These factors define formal and informal rules which the company must adhere to.  Examples include: Employment laws, taxation policy, monopolies legislation, environmental regulations, government stability and trade restrictions and tariffs.

Economic factors influence the state of the trading economy in the country. They greatly affect the purchasing power of potential customers and the cost of capital of the company. And for example Long-term growth prospects of a country, economic growth, unemployment, business cycles, GNP trends, and energy availability and cost.

Social-cultural factors encompass beliefs, attitudes, language, gender roles and religion. These factors influence customer needs and the size of the potential market. Examples social-cultural factors include: Social mobility, age distribution, health consciousness, career attitudes, consumerism, levels of education and etc.

Technological factors consider the advancement in technology and the potential within the market. These factors have the potential to lower barriers to market entry, reduce efficient production levels, and influence outsourcing decisions. For example, Government spending on research, new discoveries and developments, government and industry focus on technological endeavor, automation, technology incentives and rate of technological change.

1.3.1 Politically the government of Malaysia is trying to restructure their automotive industry market by encouraging the production of a large number of cars to meet growing demand of consumers. Government of Malaysia is also providing a 50% refund on excise tax for domestic automakers. Other than that Malaysia has some political policies in favor of car producers. There are export policy and protectionism policy. Export policy for to protect local car manufacture. And the protectionism policy to protect local car manufacturer from an unhealthy competition from outside the domestic boundary.

1.3.2 Furthermore, by economically, the improvement in performance to date is the result of cumulative initiatives launched over the last four years, particularly in the enhancement of product portfolio, cost management and strengthening of the automotive ecosystem. (Proton Holdings Berhad Chairman Dato’ Mohd. Nadzmi Mohd. Salleh).

Through aggressive marketing and emphasis on operational efficiencies amidst an economically challenging 2009 while being faced with the challenges of a contracting domestic Total Industry Volume (TIV), Proton was able to maintain an increase in revenue, profit before tax, sale of cars and domestic market share for the year to date.

1.3.3 Socially the growing population in the country is one of the factors which can affect the automobile industry. The total population of Malaysia is 28,728,607 (July 2011). This will give a greater number of markets. The ratio of car ownership is high as people consider cars as important thing in their lives. People are expected to put off buying different motor vehicles because of the employment market uncertainty because of the global and local financial crisis. The impact of the image to the loyalty of the customer is also another factor.

1.3.4 Other than, technologically proton intellectual property, because it is considered as a sign of authenticity and uniqueness. Due to the different technologies, primarily the help of computer and the Internet, the potential for innovation and development is increasing. Technologies that help to survive in competition. PEST analysis is the tool to know the current opportunities that can be utilized or the threats that can be overcome. (Proton chairman Datuk Seri Khamil Jamil.) (LO1)

2. Furthermore, by the side of protons internal environment, Malaysia’s auto market is dominated by its national cars, PROTON and Perodua which in year 2000 accounted for market share of roughly 90 percent of the vehicles sold annually. Some 25 other manufacturers compete for the remaining 10 percent. But compare with last 2 years, market share of the national car makers has declined to roughly 63 percent. ( Malaya University)

Once known as the king of the road, has seen proton its fortunes dwindle due to growing competition from local and foreign competitors as Malaysia opens up its auto market. Malaysia is Southeast Asia's largest passenger car market with 497,459 vehicles sold in the year 2008. (Annual Report Proton 2008)

2.1 Chain analysis

From the side of primary activities inbound logistic Proton orders raw materials and certain already made products that are needed to manufacture cars from several suppliers through a system. There will be a quality control check before furthering to the next activity. Purchases are only made if needed and all stocks are kept in Proton’s warehouse located at the manufacturing plant.

All in all, the year under review saw Proton Edar Sdn Bhd mounting a series of aggressive sales and marketing campaigns encompassing trade-in values, financial assistance packages, step-up financing, insurance subsidies, free petrol & service vouchers and consumer contests nationwide during the festive season when traditionally, car sales are at its peak.

An additional in operation stage, Proton starts its assembly line using raw materials and certain made products by producing the car skeleton, engines, and so forth that is needed for cars production. During this operation, man power and robotics are involved. 

Other than that, from outbound logistic Proton passes the responsibilities to Proton Edar, all cars that are completed will be sent to Proton Edar’s warehouses located around Malaysia. Cars that are completed in production will not be kept in the manufacturing plant but being distributed to Proton Edar and the amount depending on the request.

At the marketing and sales side Proton Edar is responsible to market and sell the available car stocks from Proton. Any new models that are out will go through several marketing channels like newspaper, radio, brochures, and also advertisement on television. In addition to that, Proton Edar has its own sales representatives and also allows other appointed sales representatives to promote and sell. Proton has been all the more committed and adamant in our marketing efforts to position the brand and our products ahead of our competitors. Proton's marketing team was able to capitalize on these introductions to attract potential buyers.

Once after sale service, Proton not only manufactures and sells cars but also offer after purchase services. Cars now and then need to be service to prolong its usage. "Proton Service" offers service and maintenance for their customers Proton and they sell genuine spare parts.

More than that, from side of infrastructure Proton’s Financial Services plays a part in controlling Proton’s finance. This people will plan and take legal issues into consideration. In addition, there are also Proton’s Investee & Associates that allows investment and pays attention to its supplier (Associates). Last but not least, Yayasan Proton that provides welfare to the community.

Human resource management side Proton has never neglected its human resource but instead they provide benefits that salute and recognize its human resources. Workers are given all kinds of leave like annual leave, companionate leave and also maternity and loads more benefits to be listed.

An additional R&D it means research and development remains an integral platform for Proton to improve its capabilities of developing products and offering services that meet domestic and global market requirements. Experience is a crucial factor for our R&D team, more so in an operating environment where a short learning curve is imperative. As such, during the year under review, our state of the art R&D facilities were put to productive use both internally to support Proton's initiatives as well as for external clients.

The Government of Malaysia is promoting natural gas as a supplement to petrol, and Proton is taking a lead position in the development of a NGV (Natural Gas Vehicle) aimed at private buyers as well as one aimed at fleet usage, currently the primary users of natural gas as a motor fuel.

National carmaker Proton is set to record a turnover of several billion dollars in the past six years from its joint venture with Chinese car manufacturer, Youngman Automobile Group Ltd. Co. Proton managing director Datuk Syed Zainal Abidin said the agreement to export 30,000 cars assembled Exora.2 to Youngman over the next 20 months will result in royalty revenue of RM937 million and RM102 million. Is more lucrative licensing agreement signed on July 15 on the Campro engine, which will sell 150,000 units of Proton-knocked-down in the last six years, he said. ( Bernama auto news Shah Alam 27 July by Mikhail Raj Abdullah )

2.2.1 SWOT analysis

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition, Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have some measure of control. Also, by definition, Opportunities (O) and Threats (T) are considered to be external factors over which you have essentially no control.

SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position of the business and its environment. Its key purpose is to identify the strategies that will create a firm specific business model that will best align an organization’s resources and capabilities to the requirements of the environment in which the firm operates. (Kotler, P. and Keller, K.L. 2009)

In other words, it is the foundation for evaluating the internal potential and limitations and the probable/likely opportunities and threats from the external environment. It views all positive and negative factors inside and outside the firm that affect the success. A consistent study of the environment in which the firm operates helps in forecasting/predicting the changing trends and also helps in including them in the decision-making process of the organization. (Kotler, P. and Keller, K.L. 2009)

Strengths are the qualities that enable us to accomplish the organization’s mission. These are the basis on which continued success can be made and continued/sustained. Strengths can be either tangible or intangible. Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty. Examples of organizational strengths are huge financial resources, broad product line, no debt, committed employees, etc. (Kotler, P. and Keller, K.L. 2009)

Weaknesses are the qualities hat prevent us from accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet. For example, examples of organizational weaknesses are huge debts, high employee turnover, complex decision making process, narrow product range, large wastage of raw materials, etc. (Kotler, P. and Keller, K.L. 2009)

Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable. Organizations can gain competitive advantage by making use of opportunities. Opportunities may arise from market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue. (Kotler, P. and Keller, K.L. 2009)

Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are - unrest among employees; ever changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc. (Kotler, P. and Keller, K.L. 2009)

Proton Industry SWOT analysis

Straights

Competitively priced products

Extensive nationwide distribution network

Good corporate governance

Influence of patriotism as Proton is national car-maker

Government support

Weakness

Reputation of poor product performance and functionality

High cost to expand their operation by advanced technology

Short history in automotive industry

Vulnerable to increasing material cost (steel, etc)

Opportunities

High demand on the products

Opportunity to grow their business globally

R&D Development

Government support

After-sales services

Collaborations within automotive industry

Threats

Competitors - local & international brands

A lot of substitute products in market

Fast changing and advanced engineering technology

Economic downturn – decrease of car sales

( Malaya University Teh Chye Beng M.B.A 2010) Figure 1.1

2.2.2 Strength

Proton’s strength lies in its competitively priced product. Its extensive nationwide distribution network helps the industry to move forward with the support from Malaysian government. The company also has good corporate governance, and highly regarded by many Malaysians out of patriotism they feel for this country as proton is the national car maker.

2.2.3 Weaknesses

Inexperience, apparently due to short history in car making certainly could not be an excuse for proton to come out with low quality products. This could cost proton very high as over time, it might jeopardize proton’s reputation. Poor product performance and functionality is something that cannot be allowed to happen and quality always needs to be monitored and assured to the customers. Other than that, operational cost and other expenses is always a challenge to any industry and for the case of proton, it is more vulnerable to increasing raw material cost such as steel particularly.

2.2.4 Opportunities

The demand for cars in any segment is always there, except for more trying times like during economic crisis. There are always opportunities for proton to be a global player. Nobody ever say that cars should only be manufactured by Japan, Germany and other western countries though of course these countries have the reputation of making good cars long before proton and Malaysia comes into the picture. Collaborations within industry players could enable proton to do many things. Through research and development more innovative products could be invented, and ensure that proton as a brand name remains in the industry. ( Malaya University )

2.2.5 Threats

Malaysian 2nd national car maker, set up after PROTON started to challenge PROTON’s market share in Malaysia. Perodua actually did better in recent years and outperformed proton via their most well selling model so far, MyVi and grab more than 30% of overall market share. (Annual Report Proton 2011 & Teh Chye Beng M.B.A 2010 ) (LO2)

3. There are three options that are represented in triangle which are considered at the starting point on the dialogue for the development of a strong vision. ( Hax and wild 11 2003)

Due to the current condition of the company regarding their competitive advantage which pertains on the quality of their products, it will be important to focus on the best product positioning. This is because of the fact that the best way to attract, satisfy and retain customers is through the inherent characteristics of the product itself. The position is rather inward and narrow based upon, the prevailing product economics. Thus the magic strategic driving forces are the development of an efficient supply chain that will guarantee low cost infrastructure a proven internal capability for new product development. (Proton Holdings Sdn.Bhd)

At the same time, it will help the proper renewal of the existing product line that will help to secure the distribution channels that will help to transfer the products to the targeted market segmentation. ( Hax and Wild 11 2003).

This will focus on the research and development and innovation process of the company. In order to maintain the process of engineering and designing passenger car which will suit the taste and preference of the customers this is affected by different demographics, economics, and social factors. Due to the growing problem of global economic crisis, it will be important focus on low cost or differentiation of the products. ( Hax and Wild 11,2003)

And I want to propose a better strategy to increase their value and their income or profit growth. Proton can develop a strong management team because a business plan is only as good as the people responsible for making the business succeed. Identify who will run the business, their achievements and ability to make the business a success. Get commitments from qualified personnel for operations, financial management, development, marketing and sales. If not yet identified, make note of those key positions for which must identify and recruit the appropriate individual who retains the necessary education and experience.

An additional, it’s better Be Flexible with Investors on Issues of Control. Because don’t focus on retaining control of your company. Focus on what makes the proton company profitable. Investors need to see that they are willing to assume some level of risk and are not intent on hoarding stock. Great businesses have been built by entrepreneurs that understood their limitations and hired executives who knew more than they did. Focusing on profits creates capital opportunities. Focusing on control creates potential barriers to investors.

Finally Proton as the first Malaysian car manufacturer has established a very strong identification in the Malaysia automotive market. However, the consumers perceived that it has not delivered what is promised and expected. As a result, Proton is unable to create positive response in the head and heart of its consumers. Proton still has tremendous potential and capacity to perform better in offering its customers products and services of premier quality.

The new concept of Proton MPV Exora 2, is hope that the enhanced and new brand images and recommendations will be able to help Proton establish a positive response in the consumers’ memory which will lead the company to achieve its vision of becoming a Life Companion for its consumer. This will eventually enhanced and strengthen it sources of brand equity in order to compete ahead.

Based on its recent performance, Proton has indeed working very hard to live up its working philosophy of producing the right car at the right time, for the right market, at the right price.