Case Study: Proton

Case Study: Proton

Syllabus elements: 2.3, 2.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11

Proton is an abbreviation of the Malay for “National Automobile Enterprise”. The company was formed in 1983 under the direction of Malaysia’s Prime Minister as a manufacturer of cars, largely from Mitsubishi designs. At first the cars were simply assembled from parts imported from Japan, but within a few years, as the Malaysian manufacturing infrastructure improved, the components could be sourced locally in increasing quantities until finally the company could manufacture virtually the entire car within Malaysia. By the early 21st century, Proton was designing its own cars from scratch.

At first things went extremely well for Proton. Within 20 years the company had a 60% share of its domestic market, but then there was a downturn in the company’s fortunes – by 2005, its share had dropped to only 30%. Partly this was due to a relaxation of tariff barriers, allowing much stronger competition from foreign carmakers, and partly it was due to strong internal competition from Perodua, which is now the country’s largest manufacturer of cars. The problem for Proton was that it had been protected from the start by high tariff barriers on imports, but with the introduction of the Asian Free Trade Area at the beginning of the century, tariffs had to be reduced dramatically. Despite the Malaysian government’s success in negotiating special terms for Proton, pressure grew for the barriers to be dropped to only 5%, and this was finally implemented in 2008. To counteract the removal of the tariff barriers (which would effectively have bankrupted Proton) the Malaysian government have continued to subsidise the company, in breach of its treaty obligations. Proton is too big an employer, and too big an exporter, to be allowed to go under.

Proton has had a number of setbacks in the international arena as well. Poor sales forced the company to withdraw from Ireland and from China, and also...