Thursday, 28 April 2016

Strategic partnerships offer expansion opportunities


It is easy to foresee based on current trends, that the design and production of future automobiles will generate a paradigm shift in mobility frameworks across the globe.
The conventional modes of mobility may soon be replaced by autonomous vehicles, running on alternative power trains such as electric drivetrains and full cell engines.
The rapid evolution of mobility will require a change in the business models and practices of car manufacturers, in adapting to continuously changing customer demands
The price positioning must be extremely competitive despite increased complexity of automotive components and its respective production processes.
Looking back to the turn of the 20th century, the introduction of compact and fuel efficient models, catering to demands for less fuel dependence, caused a massive disruption to the automotive market.
This forced many car makers to develop strategic partnerships and mergers, as burdens of technology development became difficult to shoulder by only one company.
As a result, numerous success stories of partnerships are evident today, such as the General Motors group, the Hyundai-Kia merger, as well the Renault-Nissan alliance.
If history repeats itself, the consolidation and sharing of technological capabilities among car makers will become even more important as the demand changes mentioned above will cause further disruption to the global automotive market.
Strategic partnerships open up many advantages, in particular the areas of technology development, marketing and operations.
Technology development becomes an immediate benefit. Parties to the partnership open up the possibility of platform sharing, component commonization and process standardization, resulting in lower production costs and increased production volumes for vendors.
The Hyundai-Kia platform sharing program has become a great case study for such benefits, seen through its J and Y platforms that have led to global models such as the Cerato/Elantra and Sorento/Santa Fe.
At the same time, future research and development can be shared among partners. Each partner reduces development costs through a common resource pool of each others’ strengths.
Renault and Nissan formed such an alliance in 1999, committing a total 4 billion Euros into its electric vehicle and battery development programme.
Today, this alliance has become the world’s leading plug-in electric vehicle manufacturer, with the Nissan Leaf emerging as the its top selling vehicle.
Common marketing platforms are also created through partnerships. It is noteworthy that export programs are subject to risks in setting up sales and aftersales networks.
Strategic partnerships therefore allow for the common utilization of dealerships and service centres, making the entire customer experience more efficient, while reducing the risks mentioned above.
Partnerships also allow for the utilization of common production facilities.
The sharing of these production facilities not only removes the need for OEMs to set up new plants, but also allows the shared development of new production technology, as partners integrate their knowledge and experience into a common manufacturing flow.
This shared utilisation becomes more pertinent for Just-in-time (JIT) component suppliers, as they are required to be in close proximity of their principles in order to reduce logistic costs.
For example, the 1,618.7ha Proton City in Tanjung Malim does not host only Proton’s high-tech manufacturing plant, but is also the home of numerous vendors situated minutes from Proton.
Coupled with its direct route to Port Klang, Proton City is an ideal place for a global partner to commence its operations in Malaysia.
However, careful due diligence should be carried out when venturing into partnerships.
It is important that a partnership balances the needs of all parties involved, through the sharing of the same business goals, mindsets, cultures as well as market positioning.
Both parties need to assess the strengths and limitations of their partners, and identify each others’ levels and capabilities to ensure a fruitful and sustainable business model in the long term.
The writer is chief executive officer of Malaysia Automotive Institute

Thursday, 21 April 2016

Sound market positioning helps expand global reach


For 2015, the world's automotive production is estimated at 72.9million cars. This is a huge market with numerous segments for different types of customers.
Toyota, the world's largest manufacturer by volume, is only able to capture around 11 per cent of this market.
Lexus, Toyota's luxury vehicle division, is not even listed in the top producers list of the world, yet holds high respect among consumers for its premium value.
The same goes for brands such as BMW and Mercedes: Despite producing only 1.7 million to 2.1 million cars a year, they are marques that many of us dream to own.
Despite our aspirations to be a global carmaker, it is important to ponder - is there such a thing as a "global customer"? The paragraphs above point to a definite "No".
A car, just like any product, must first fulfill legal requirements of a specific country. The global markets refer to the three major standards, the United States Federal Motor Vehicle Safety Standard (FMVSS), Europe's UNECE Regulations and the Australia Design Rules (ADR).
Malaysia is a currently a signatory to the UNECE World Forum for Harmonization of Vehicle Regulations (WP.29).
Our national models have conformed to these safety standards for some time now.
This is proven through the numerous high ratings awarded through the ASEAN and Australasian New Car Assessment Program (NCAP).
As examples, the Perodua Axia received 4 stars from the ASEAN NCAP, while the Proton Preve received 5 stars by the Australasian ANCAP.
The burning question remains – why aren’t our cars selling outside of Malaysia?
To even begin answering this complex question, we must first shed the idea that cars are created homogeneously.
For each model, global car manufacturers have specific target markets in mind, which is a matrix of price classification (low, mid-range, premium) and utility (family, offroad, sports, etc).
The positioning of brands is also an important factor, as car makers aim to develop an “image” of their brands – further affecting how their pricing is determined.
This makes it important to change how we look at production volume. As we have established - premium models such as BMW, Mercedes and Lexus, do not compete with Toyota or Volkswagen for their share of sales volume.
This is because premium models have a higher profit margin per car to make the same as mass producers.
However, premium customers naturally have higher expectations of quality, not just at the point of sales, but far into their dealings with the service centres.
These brands, therefore, place high importance on their customers’ entire purchase experience, from their first step into the showroom to the many years of visits to the service centre.
Inversely, the lower-end customer is looking for an affordable and reliable machine to get from point to point. They would love the added features, but ultimately have fundamental needs when they buy a car.
Therefore, the market positioning of these models leaves little profit margin, and more cars have to be sold to be profitable.
Consumers in the various markets also have diverse and unique preferences in the cars they buy. This makes homogeneous marketing strategies futile when attempting to expand their customer bases to the various export markets.
It would be more strategic to identify the uniqueness of their products and positioning, and aim for markets where there is a similar demand for their products.
Market analysis, as well as sound market positioning, enables car makers to redirect their business strategies to ensure sustainability of their business models.
In order for our national brands to succeed in the global market, it is important to look back at branding, market positioning and customer experience strategies – and work towards more defined business goals.
“Don’t make what you want to sell, make what people want to buy”.

Thursday, 14 April 2016

Let our cars be Malaysia's ambassadors to the world


The biggest car producers by volume - Toyota, General Motors, Volkswagen and Hyundai - are world renowned brands. Together with prominent manufacturers such as Ford, Nissan, Honda, BMW and Daimler, they are from the biggest car-producing countries in the world - Japan, the United States, Germany and South Korea.
Interestingly, despite each brand being associated to a particular country, many car manufacturers have international ownership, and also source their parts from around the world.
Volkswagen, for example, lists Qatar Holdings LLC, and other foreign institutional investors as more than 30per cent of its shareholders. Toyota, lists 31per cent of its shareholdings as “Foreign corporate entities”.
MINI, which has for years been associated as a British brand, is owned by the BMW group of Germany. Similarly, Chevrolet is an American brand, with of its models being designed and manufactured in South Korea.
However, despite the internationalisation of many car makers, many consumers still associate a brand with its home origin. The MINI is still romanticised in films as a British made car, Chevrolet is still considered an American brand.
Toyota, despite sourcing its US$32 billion worth of components from around the world, is still considered a Japanese carmaker.
When a consumer enters the showroom, he or she is introduced to the models available from the marque. Despite a model’s performance, safety features, interior equipment etc, many consumers would also like to know where the car came from. It is also very common to see the salesman citing the origin of the brand as part of the sales pitch.
This says one thing – a model’s branding is associated with the people and culture of the country of its origin.
While it may be true that purchasing decisions are not based on nationalistic sentiment, one may argue that a nation’s technology capabilities and the culture of technology awareness resonates among the people that made that particular brand.
As a result, there is an inherent perception of products from these countries.
A car made in Japan exemplifies reliability, technology is associated with German cars, value for money is represented through Korean models, and Swedish models are built for safety.
Malaysian built cars have come a long way since we started assembly operations in the 1970s, to the numerous models we see today that were designed by our own engineers.
Our cars have received high safety ratings both in the ASEAN and Australasian New Car Assessment Program (NCAP).
Long gone are the days where faulty power windows were a problem. Our cars have excellent ride and handling for its class.
Yet today, we are still seeking the formula to successfully export our cars to the global markets and receiving mixed reviews from our local consumers.
Our automotive history has been steeped in nationalistic ideals, however, those same ideals have not led us to where we need to be on the global map.
A brand does not just symbolise a product, but also represents its culture, quality and passion. Perhaps, we have to look at our national brand from that perspective. Customers want quality, reliability and value for money – and these values make them proud to own that car.
If our national car is a product of international cooperation, it does not mean that it is not a Malaysian car. It just means we have taken the necessary steps to ensure we produce a marque that the world is proud to own.
Let the customers remember where the brand originated from.
At the end of the day, the brand becomes Malaysia’s ambassador to the world.

Thursday, 7 April 2016

Weigh Proton issues based on comprehensive analysis


International Trade and Industry Minister Datuk Seri Mustapa Mohamed recent statement on Proton's performance received diverse reactions from the public. Within 48 hours, the statement generated close to 150 spin-off articles and more than 1,500 comments through the printed, electronics and social media.
Malaysia Automotive Institute's analysis on the comment's found that 38 per cent reacted to the minister's statement positively, while another 50 per cent would like to see the issues be discussed deeper and solution be identified.
In 2001, Proton controlled 53 per cent of the domestic market share, with around 240,000 units sold locally. Proton's domination declined year after year, posting a 14 per cent market share and 103,000 units sold last year.
Throughout the years, numerous polemics have been seen on the proton issues, on social media, online news portal and other sources. This issue needs to be confronted objectively based on a comprehensive analysis on the impact of Proton's sustainability.
The first issues of importance is the aspect of employment, should Proton's problems persist. More than 60,000 employees will be directly affected and 130,000 more indirectly affected. This issue is exacerbated by the current economic climate which makes re-employment a huge challenge.
At the same time, Proton has generated an industrial ecosystem that provides Malaysians with the opportunities to explore jobs and business of high technology. This is a leap from the agricultural and mining activities that Malaysia was involved in previously.
The second issues is the business ecosystem created by Proton. Since its operations began, Proton's supply chain comprises more than 500 businesses, distributors, dealers and workshops.
Last year alone, the automotive industry contributed around RM30 billion gross domestic product (GDP).
The third issues is the true added value of the automotive sector - research and development (R&D) covering design, engineering and testing. The automotive sector also places Malaysians in the main scientific roles covering materials, electic and electronics, mechanical engineering as well as chemistry.
The outcomes of these value-added activities will produce many positive spin-offs, especially in the transport industry. The advances in R&D can create news modes of mobility which are more dynamic, environmentally friendly, comfortable and are built with better safety features.
Realising the importance of the automotive industry, many governments around the world have assisted their domestic industries, especially during difficult times.
A prime example of assistance was the General Motors (GM) bailout by the government of the United States.
In 2009, GM went through a sales decline of 45 per cent from the previous year, with debts amounting to US$93billions (RM365.7billions).
The company requested assistance from Obama administration as its cash flow could only sustain six to nine months of operations. At the time, 1.2 million workers would have been directly or indirectly affected by GM's collapse.
The US government injected a total of US$50 billion into GM, on condition that the company declared bankruptcy and surrender a majority equity to the government.
The restructuring of GM began with the closure of several production facilities, reduction of dealership outlets and manpower rationalisation. The restructuring resulted in a debt reduction of US$17 billion in three months.
Malaysia National Automotive Policy 2014 (NAP2014) was developed to ensure that the entire automotive ecosystem is strengthened by 2020.
Proton needs to restructure its business model in line with the NAP2014 to contributed to a bigger imperative of the Malaysian economy and enable more Malaysians to be part of this high technology industry.