Proton International Market

1.0 INTRODUCTION

Proton was established on May 7, 1983 as a private limited company under the name Perusahaan Otomobil Nasional Sdn.Bhd 1983 to manufacture, assemble and sell motor vehicles and related products including accessories, spare parts and other components.

Currently, Proton has almost 11,000 employees who are involved in a spectrum of business ranging from research, design, development, testing, stamping, casting, machining and assembly to marketing, distribution and after sales activities. Strong customer-orientation and competitively-priced products are the foundation of Proton’s business and are essential to the group’s success. PROTON aims to maintain market leadership by continuing to develop innovative products and through satisfying its customers in a better and more profitable way than its competitors.

The objectives of the Malaysian National Car project were to:

• Rationalise the local automotive industry.

• Spearhead the development of a local component industry and to enhance greater use of local components.

• Encourage the upgrading of technology, engineering knowledge and technical skills of the country’s workforce.

• Assist and develop Bumiputera (the indigenous people of Malaysia) participation in the automotive industry.

1.1 Five year strategy Analysis:

In 2001 Proton introduced a new brand, the WAJA which got an overwhelming response by Malaysians. This gave a strong boost to the company’s profitability, future orientation and achieving world class manufacturing standards. It also gave hope and ambition to the company to increase effort in research and development in order to produce high quality and better vehicles. This was a strategy of market penetration and brand equity building.

• Also, the completion of the acquisition of the entire shareholding in Usahasama Proton-DRB Sdn. Bhd. and the subsequent name change of the now wholly-owned distributor to Proton Edar Sdn. Bhd. provided customers with direct and personal access to PROTON. This is a customer service management strategy.

• In the international market, PROTON made a strategic decision to rationalise its operations and focus its resources on markets with better growth potential. This allowed them to reconsolidate their energy and optimise resources to tap new markets in Europe, ASEAN and the Middle East.

• The Company continued to invest strategically in Information Technology during the year to enhance its management and manufacturing processes and was ready to embrace the new economy by venturing into e-commerce at the appropriate time.

• The developments in PROTON during the past year were part of the long term strategy to prepare themselves for the liberalisation of the market in 2005 under the ASEAN Free Trade Area (AFTA) where they would have to compete under new market conditions.

• The direct participation of PETRONAS in PROTON helped to place the Company in a better position to face the challenges ahead. At the same time, the automotive industry in fact shares a lot in common with the oil and gas industry since both industries are global, technology-driven, capital intensive and volatile.

In 2002 the new market conditions that were brought about by AFTA agreement meant that they would have access to a larger market, where they would be able to display their capabilities and technological achievements.

• PROTON’s very own CAMPRO engine was already at the final stages before commercial production, and it promised to deliver an exhilarating and unparalleled driving experience as well as significant cost savings for future models.

In 2003 the formation of joint venture company in China, Goldstar Proton Automobiles Co. Ltd., that commenced initial preparation to expand its factory for the production of PROTON cars, which was targeted for mid 2005. This gave Proton an international market presence and expansion ability.

• PROTON has invested heavily over the years in Research and Development capabilities in order to strengthen its competitiveness as well as spearhead the transfer of technology to Malaysia. Almost two thousand employees are currently engaged in R&D work within the Group. The Group invested a further RM413 million for research in new technology as well as to develop new models compared to RM285 million previously.

• On 27 May 2003, the Board of Directors announced a proposed corporate Reorganisation of the PROTON Group. When completed, the Reorganisation will see shareholders exchanging all their ordinary shares in Perusahaan Otomobil Nasional Berhad for new ordinary shares in a new holding company, PROTON Holdings Bhd. The Board of Directors are of the opinion that the proposed Reorganisation is necessary for the future success of PROTON. PROTON has been preparing itself for this challenge of strong competition after AFTA takes full force by carefully putting together a range of new products to replace the existing range. These products will be attractive in design, features and driving characteristics and will be competitively priced.

• Proton Company had constructed a new technologically advanced plant in Tanjung Malim, which is capable of delivering on quality and cost efficiency, factors necessary to position our products to compete. We will continue to work with our distributors and dealers on programs designed to enhance the sales and service experience for our customers. However, it is likely that profitability may be affected in the year ahead as the Group adapts to a new business environment before it stabilises.

In 2004 Proton launched a number of new model variants in the domestic market in anticipation of weaker demand and a general slowdown in passenger car sales with the impending implementation of AFTA. The Iswara ST, Wira SE and Perdana CC received encouraging response and helped revitalise the products as they approach the end of their lifecycle. As a result, Proton’s market share decline was contained at 45%.

• The Corporate Reorganisation has streamlined the business activities into five core business divisions and created a Group structure that would operate and compete more effectively in an increasingly competitive environment.

• For exports, the adverse economic impact and uncertainty arising from the Iraq War affected sales to the Middle East, our largest