State-Backed Automaker Faces Barriers in Europe : Proton Leaves Its Malaysian Nest 
International Herald Tribune
December 15, 1994
Michael Richardson  

After rising to dominate Malaysia's car market in less than a decade, the state-controlled automaker has set its sights on expanding exports to Europe and throughout Asia.

But the company, Perusahaan Otomobil Nasional Bhd., will probably find the export road much rougher than its home highway.

It can expect to run into protectionist barriers similar to those that foreign auto companies complain of in Malaysia, analysts and company officials say.

Since it started production nine years ago, Perusahaan Otomobil has used preferential tax treatment given by the government to undercut rivals. For example, the company pays only a 13 percent tariff on its imported components while foreign competitors in Malaysia pay 42 percent. The company captured 74 percent of car sales in Malaysia in 1993 with its Proton brand name, up from just 11 percent in 1985.

Perusahaan Otomobil is 40 percent owned by government-controlled entities, after listing on the the Kuala Lumpur stock exchange in 1992, and 17 percent-owned by the Mitsubishi group of Japan.

Now, as it is about to launch sales in France, Belgium and Luxembourg followed by Germany and the Netherlands in the first half of 1995, the company is starting to feel protectionist pressures. The European market remains saturated and local manufacturers are worried about inroads by Asian carmakers.

Perusahaan Otomobil plans to sell just 12,000 Protons in continental Europe in 1995. By contrast, Daewoo Motor Co. of South Korea wants to sell 100,000 cars in its first year. Even so, European carmakers are applying "strong and growing pressure" on the European Union to remove Malaysia's duty-free access, said Norzahid Mohamad Zahudi, deputy manager of Perusahaan Otomobil's business division.

"Europe is a very competitive market," he noted in a recent interview. "Everybody's having a tough time."

Malaysia can import its Protons duty- free under the EU's Generalized System of Tariff Preferences for developing countries. Mr. Norzahid said that European carmakers were seeking a tariff rate of around 4 percent on vehicle imports from Malaysia.

More than 600,000 Protons have been produced. Since 1986, some 92,000 have been exported to at least 20 countries.

Britain is by far the largest export market with cumulative sales of nearly 79,000 to September, followed by Singapore, with nearly 10,000.

Exports to Britain so far this year have been significantly lower than in 1993, when a record 17,440 units were sold, because of tougher competition - especially from cheaper South Korean models.

The Proton, and the skills and technology which its development are intended to bring, is a cornerstone of a government program to make Malaysia a fully industrialized country by 2020.

Evidently seeking to play down Malaysia's auto-export drive, Prime Minister Mahathir bin Mohamad said recently that the Proton was seeking only a small niche in the international car market.

"We have no great ambition, but we would like to be able to export at least half of what we produce," he said.

Around 20 percent of annual Proton production is currently exported. Perusahaan Otomobil hopes to export 30 percent of production by 1995, when it expects output to reach 150,000 units per year.

To achieve that goal, the company will have to export nearly 25,000 additional cars in 1995 on top of the 20,269 sold overseas in 1993.

To gain economies of scale, Proton will have to push for higher sales in both the domestic and export markets, according to an analyst at HG Asia (Malaysia) Sdn. "Given that additional expansion of its domestic market will be difficult, Proton must look to the export market for further growth," he said.

Mr. Norzahid said that Perusahaan Otomobil's strategy "is to really concentrate on Asia while not forgetting the rest of the world."

Despite objections from Japanese companies that dominate the local car industry in the Philippines, President Fidel V. Ramos said last week that he had approved plans for Protons to be assembled in the Philippines for sale locally and overseas starting in 1996.

The car will be produced by Proton Pilipinas Inc. That company will be 70 percent owned by Perusahaan Otomobil and 30 percent owned by Autocorp of the Philippines.

The assembly plant, expected to cost 800 million pesos ($33 million), will be located in Pangasinan, Mr. Ramos' home province, 200 kilometers (124 miles) north of Manila. Production is expected to start at a rate of about 4,000 cars a year.

Mr. Ramos said that Proton Pilipinas had promised to export 10 percent of the cars it assembles in its first year of operation to new markets in Latin America, Papua New Guinea and Indochina. He said that the export share would rise to 50 percent in the fifth year.

Perusahaan Otomobil has formed a joint venture in Vietnam with Mitsubishi and a Vietnamese company to assemble commercial vehicles. Mr. Norzahid said that the Malaysian company hoped that this would lead to local assembly of Protons.

In May, the company signed an agreement with an Indonesian company controlled by Siti Hardiyanti Rukmana, the eldest daughter of President Suharto, for the initial export of 2,500 Protons to Indonesia. Malaysian Officials said that the aim was to assemble the car in Indonesia within five years.

Like many other international carmakers, Perusahaan Otomobil also is looking at China, the world's biggest untapped auto market. Beijing's ban on new foreign entrants into its motor vehicle industry expires at the end of 1995.

Copyright © 2006 The International Herald Tribune