You are on page 1of 15


1.1. History of Automobile Industry In the year 1769, a French engineer by the name of Nicolas J. Cugnot invented the first automobile to run on roads. This automobile, in fact, was a self-powered, three-wheeled, military tractor that made the use of a steam engine. 1 Charles Kettering's invention of the electric starter in 1912 turned the process of starting automobiles faster and easier at the same time, doing away with the hand tools. Jean Joseph tienne Lenoir was the first to invent an internal combustion engine that ran on petroleum and attached it to a three-wheeled carriage, and successfully traversed a distance of fifty miles in 1863. Karl Benz manufactured the first automobile (a three-wheeled car) that was affordable and compatible for travelling over long distances for its internal combustion engine that ran on gas, in 1886. Later in 1887, Gottlieb Daimler was the first to invent the predecessor of the modern automobile with an engine that had a vertical cylinder in addition to a gasoline driven carburetor. First building a two-wheeled automobile (Reitwagen), Daimler was again the first to build a four-wheeled automobile in 1886. The engines manufactured by Daimler were improved upon and these portable and fast engines made automobiles the way we see them today.


The automobile industry in Malaysia can be classified into 2 major sectors which is manufacture or assembly motor vehicles including motorcycle and component and parts manufacture including vehicle body. The helps from government and also it support and high purchasing power of the population has resulted in Malaysia becoming one of the regions largest auto markets and presently, Malaysia holds a dominant position in vehicle sales among ASEAN countries.

Automobile industry in Malaysia is a booming industry because it involve in car manufacturing to dealing automobile business with foreign countries.2 Automobile industry in Malaysia produces and exports the vehicle parts, components and accessories, which are widely, send to most of leading countries of world like Japan, UK, Thailand, Taiwan, Singapore and Indonesia. Leading automobile manufacturing companies like Mercedes, Suzuki, Ford, General Motors, Mazda, Nissan and Mitsubishi are using Malaysian automobile products and accessories because of their high quality and competitive prices. In Malaysia, they are 2 largest and become the national companies which are PROTON and PERODUA. In 2002, these 2 national automobile companies as contributed 91% of the total automobile production and PROTON alone has contributed 62.7% and PERODUA contributed 28.3%.3 Table 1 -: Production of Passenger Vehicles by Makes: 1995-2002

Nor Khomar Ishak: University of Malaya, Adam Dilip Mutum: University Utara Malaysia Cheong Kai Fan: University of Malaya, 2005, An Exploratory Study of CRM Implementation in the Malaysian Automobile Industry

3.1. PROTON Malaysias national car project was carried out as an industrial policy. In 1981, the Malaysian government proposed a joint venture with Mitsubishi, a Japanese automaker, to build a Malaysian car. The cabinet approved the National Car Project in 1982, and Heavy Industries Corporation of Malaysia (HICOM) signed an agreement with Mitsubishi. PROTON, a national car company, was established on May 7, 1983. Its factory was established in the HICOM compound. Its first car, named PROTON Saga, was launched in 1985, and in 1986 began to be exported to Bangladesh. Production reached 50,000 cars in 1987 and 500,000 cars in 19934. The PROTON R&D facility opened in 1993, and in 1996 the PROTON was being exported to 31 countries. The national car project is a so-called industrial policy, or selective government intervention policy to nurture national firms. The policy succeeded in allowing PROTON to export its products. However, PROTON cancelled its agreement with Mitsubishi in 2002. PROTONs share of sales in the Malaysian market reached about 90% at the highest but fell to 24% in 2005. In 2006, PROTON reduced its car prices in Malaysia along with several other car manufacturers as part of a move by the government to lower car prices. The Malaysian government established barriers to investments by foreign firms in order to protect national cars, including PROTON. 3.2. PERODUA PERODUA is a second national car Malaysia. Japanese firms also contributed to the capitalization of PERODUA in the following ratios. The Malaysian government and Japanese firms invested 73% and 27%, respectively, of the total capital, when POBS of PERODUA was establishment in November 2001. Production of PERODUA cars grew steadily to 102 thousand in 2004, recorded 116 thousand in 2005 and was expected to be 134 thousand in 2006. The production of PROTONs was 141 thousand in 2004 and 139 thousand in 2005, but fell to 102 thousand in 2006.

Dr. Mohd Rosli, University of Malaya, 2004, The Automobile Industry and Performance of Malaysian Auto Production , Journal of Economic Cooperation 27, 1 (2006) 89-114.

The market share of PERODUA grew from 25% in 2004 to 30% in 2006, while that of PROTON, which was more than 80% at one point, gradually reduced to about 20% in 2006. The local contents ratio of Kancil and Myvi, both produced by PERODUA is about 80%, while that of PERODUAs Rusa and Kembara models are about 50%. Market survey conducted by Business times, reveals that during 2007, sales of Malaysian vehicle reached 4,648 units with an overall growth of 13.8% and is expected to increase in coming years. During period of slowdown, government of Malaysia surmounted other competing economies by controlling inflation and eventually kept costs down. In year 2000, Malaysia auto industry exported US$274.2 million worth of automobile parts5.

Globalization describes a process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade. The term is sometimes used to refer specifically to economic globalization6. In my own understanding, the term globalization is usually recognized as being driven by a combination of economic, technological, socio-cultural, political, and biological factors, in term of changes of ideas, languages, or popular culture through out the world. Globalization phenomenon is very important for the economy throughout the world. It has become the mechanism for the developed countries to be disciplined and also contains rules for a wide range of issues. Trade agreements have become the most important vehicles for disseminating and implementing economic and social policies across the world. The main vehicles exist as the legal national organization is WTO, which organization that organizes and enforces global economic governance. The other organizations are NAFTA APEC, EU, AFTA ASEAN and many more.

Globalization has gives great impacts to the world like to its economic, cultural, sociocultural, population, employment education and many more. Here, I have highlight some of the changes bring out by Globalization generally to the world of automobile industry. Globalization is having a variety of effects on the quantity and quality of jobs. The quantity of jobs in developed countries has remained more or less constant during the past ten years. In the United States the automobile sector actually added 103,000 workers between 1993 and 1996. At the same time, there has been an erosion of job quality, especially in the United States, as work has shifted from automakers to suppliers, where pay is usually lower7. Globalization is creating new challenges and opportunities for corporate strategy. Globalization strategies vary depending on the starting point of individual firms, but there seems to be a large measure of convergence toward it like, building vehicles where they are sold, designing vehicles with common global under-body platforms while retaining the ability to adapt bodies, trim levels, and ride characteristics to a wide range of local conditions, and leveraging the move to global platforms by creating assembly capacity that is more generic and less model-specific. On the other hand, there is less convergence on the strategies of increased outsourcing and making vehicle assembly more modular. Globalization is changing the economic geography of the automobile industry. There has been a wave of new assembly and supplier plant construction in places such as China, India, Thailand, Vietnam, Brazil, Mexico, and East Europe. These new investments are being driven by increased competition and market saturation at home, the opening of vast new investment spaces since the end of the Cold War, host country requirements for local production, and an effort by automakers to cut costs within the context of regional trade arrangements such as NAFTA and the European Union. Even so, the automobile industry remains overwhelmingly concentrated in the developed economies of Japan, Europe, and the United States.

Timothy J. Sturgeon and Richard Florida, Globalization and Jobs in the Automobile Industry , Industrial Performance Center, Massachusetts Institute of Technology, Working Paper Series MIT-IPC-00-012,, November 2000

5.1. Good impacts of Globalization in the Malaysia Automobile Industry 5.1.1. Globalization increases access to natural resources and helps promotes Malaysia current technology to outsiders. From the news release from BERNAMA on 8 June, 20108, it stated that our country, Malaysian firm has signs MoU to enter Brazil's oil & gas industry Malaysian engineering and oil and gas group Scomi Group Berhad has entered into a memorandum of understanding (MoU) with SC Parcerias S.A. of Brazil to explore opportunities in drilling fluids and drilling waste management for the oil and gas sector in Brazil. The plans is in order to generate investment for the state which lies in southern Brazil, through equity, by entering into contracts, arrangements or public-private partnerships to grant public services. Scomi Group Berhad, a provider of oilfield services to the oil and gas industry, was dedicated to supporting the continued development of oil and gas resources in Brazil and was capable of delivering innovative solutions to meet the growing energy needs of Brazil and the region. This joint venture would also enable to build up expertise and offerings in integrated drilling fluids and drilling waste management solutions, with the potential to deploy next generation technologies. Scomi Group Berhad is highly recognized worldwide in developing environmentally friendly drilling fluids and drilling waste management systems which is in line with the objective of Sapiens Park to introduce cutting edge solutions in Brazil. Sapiens Park is focused on the development of new technologies and the projected investment over the next 15 years is estimated at 1.3 billion USD. From this news release we can se that our country has moved out globally in order to promote our technology to some countries that have limited resources.

This has given positive impacts to our industry and for sure will help to increase income for Malaysia.

5.1.2. Malaysia automobile institute to be central point in developing industry Refer to the news release from BERNAMA on 11 June 20109, it stated that the Malaysia Automobile Institute (MAI) will become the central point for local developing countries. It would be a coordination centre for all matters related to automobile industry, including formulating national automobile policy, managing manpower development programmed, formulating and coordinating automobile related research and development for the local countries like Indonesia, Thailand, Brunei, and Vietnam and so on. From this news, we can see that Globalization really has help to promotes Malaysia to the outside world. The globalization will commence the communication between several countries in order to share knowledge, disseminating and implementing economic and social policies through the local countries. This transmission will definitely helps the local countries to improve the automobile technologies like the western countries by sharing the same technology and knowledge and at the same time will prepared Malaysia to stand for the next higher level in becoming one of the develop countries.

5.1.3. An economic beneficial among country and company Globalization changes the economy of the people such that an influx of goods and services is more readily available. In Malaysia, based on automobile industry it is bringing so much benefit to the economic growth. Industry expansion can be beneficial to the countrys economy. Positive approach towards globalization in automobile industry enable in making life better for the people of the given country. It leads to new opportunities for the companies and people to become wealthier. In order to reduce the emission and pollution, governments must take an action based on environmentally conscious people and others are looking for a way out of total devastation. Such an action can be solve is by using technological advances in vehicle and engine design, together with cleaner, higher-quality fuels, have reduced emissions so much. Thus by using hybrid and bio-diesel vehicles are being targeted to environmentally conscious drivers who are seeking a way to lessen the emissions and to cut down of CO2 emissions. Other than that is by creating the program such as cutting down on driving and offering programs that help industries lower emissions and pollutions only temporarily limits the problem. Thus, programs in place to give money or benefits to people who recycle or cut down on pollution.

5.1.4. Automobile industry to expand globally. From the news release from BERNAMA on 25 July 201010, according to the PROTON Vendors Association (PVA) the two automobile companies that are PROTON and PERODUA will merge into a single entity. PROTONs president said because of the industry will face great challenges in future, its time for both national cars to merge and help the automobile industry to expand globally.


He said that, they must look at positive side first in this merging plan. Late three years before, PROTON already made improvement from 28% to 31% in the domestic market based on the total industry volume. Because of PROTON has spare capacity and this can be utilized by PERODUA without looking for further investment, it will lead to improve production efficiency. He also said that, this merging will bringing down the cost such as combining the creativity and services from this two national car. He also added, in order to expanding this industry, Malaysia cannot depended on the domestic product only, we have to be global and get into overseas market. Based on this news, PROTON and PERODUA have to look forward about the merging. It is the time for our industry to make a first step to improve our automobile sector in Malaysia and bring it to another level.

5.1.5. Increased in Competition Results in Malaysias Quality Control One of the most positive effects toward globalization is the improvement in quality of products due to global competition. Customer service and the 'customer is the king' concept approached to increase productions that have led to improved quality of products and services. As the domestic companies they have to fight out with the foreign competition, they are forced to raise their standards and customer satisfaction levels in order to survive in the market. Besides, when a global brand enters a new country, it comes to get rid of some goodwill, which it has to live up to. This creates competition in the market and a 'survival of the fittest' situation. For example, due to the globalization of automobile from Japan, Korean and others, our local production of National automobile has improved they qualitys products in order to compete with the competitors.

5.1.6. Introduction to the National Automotive Policy The interference of the outside country through our economy has encouraged the government to come out with a new policy regarding the Automobile Industry, The National Automobile Policy11 Our Government has introduced as the framework of the policy which is: a. To promote a competitive and viable automotive sector, in particular national car manufacturers b. To become a regional hub for manufacturing, assembly and distribution for automotive vehicles c. To enhance value added and local capabilities in the automotive sector d. To promote export-oriented Malaysian manufacturers as well as component and parts vendors e. To promote competitive and broad-based Bumiputera participation in vehicle manufacturing, distribution and importation as well as in component and parts manufacturing The National Automotive Policy Framework sets out the broad objectives and measures for the automotive sector, where it is intended to provide guidance and direction to all industry participants on the future development path of the automotive sector. Moving forward, this National Automotive Policy Framework will be complemented by a comprehensive National Automotive Policy that will be unveiled upon completion of a full-scale review currently being undertaken. This full-scale review is important as the Government recognizes the need for further recalibration of the objectives and measures set out in this National Automotive Policy Framework, given the varying objectives and needs of the industry participants in this sector. It is intended that the National Automotive Policy will be an optimal yet flexible solution that will align all the various objectives and measures, for the benefit of the automotive sector in particular and the Malaysian economy in general.


Jabatan Perdana Menteri (Prime Minister s Department), 19 October 2005


5.1.7. Reduces in unemployment rate in Malaysia Because of the globalization that has increased the competition between Malaysias automobile industry with the foreign-based automobile industry, it as leads the tendency of Malaysia to improve its quality and competes with the foreign market. The action that is going to be made by our government is introduced the Designating Production Centres for the Automotive Sector12. Several areas have been selected to be the manufacturing area. The following areas that will be designated as automotive manufacturing or production centres are as follows:

Gurun, Kedah Rawang, Selangor


Shah Alam, Selangor

Seberang Prai, Pulau Pinang

Tanjung Malim, Perak

Pekan, Pahang

-Areas Covered as Automobile Manufacturing or Production Centres-


Jabatan Perdana Menteri


Companies will be encouraged to locate in these centres through incentives and other assistance schemes. The concentration of automotive related participants in such designated centres will encourage the sharing of infrastructure development costs and other common facilities, as well as enable efficient just-intime manufacturing. From the areas stated, we can see that the opens up of the manufacturing automobile industry will surely give positive impacts to the local people that live nearby. Their opportunities in getting job and reduce the unemployment rate is higher and they will be able to improve their per capita income. Most of the areas that being selected is basically dont have any natural sources or any agriculture activities. So, previously, the people that live there are facing difficulties in increase their standard status of living or searching a better job. The indication from the government has resulted in creating opportunities for those people to improve their standard of living.

5.2. Bad impacts of Globalization in the Malaysia Automobile Industry 5.2.1. Pollution and Emissions Developing countries such as Malaysia, will bring negative effects on the country due to expansion of industry brings about more pollution into the atmosphere. An automobile industry such, as cars, airplanes, and other means of transportation let off emissions during every using. The Companies waste products, large increases in automobile usage and other related factors, cause emissions and pollution. Thus, by produce cars are a main contributing factor to pollution across the globe. Therefore, Malaysia with weak environmental regulations may emerge as havens for pollution- intensive industries due to new foreign investment involve by using dirty technologies. Harmful GHG and CO2 emissions are eating away at the ozone layer and polluting the atmosphere. Large amounts of greenhouse gases

and carbon dioxide have destroyed parts of the ozone layer. Even thought the government has encourage the citizen to use public transport, however it seems that the mind setting from the people itself is different. Most of the people are seeking for high status and title and the property for example like cars has represented it. Even the students from college and Universities are also using the own transportation and unwilling to used the public transportation. To overcome this problem, it is important for the people itself to realize the effects of pollution from the vehicles that they used and put a good morale value towards others. 5.2.2. Competition from foreign trade One of the bad impacts from the globalization is the competition from the foreign trade, which easily gets into the local economy. It will give the negative impact, which the local products need to compete with the foreign products that offer better in quality as well the cheaper price than the local industry had offered. For example, in the automobile industry, foreign car is cheaper than the National car. Customer will take an advantage from the competition. Based on the table below, we can see that there are 24 Automobile companies listed in Klang Valley on 1 JAN 2004. 22 are foreign-based company but only 2 consist of our local company. This will give a negative impact on our automobile industry because the public will have greater choices and we have to compete within foreign automobile industry. Thus, the foreign automobile companies have provided more quality and efficient products compare to Malaysia products, which is lower in technology and quality.


Table 2: List of Automobile Marketing Companies in the Klang Valley Region as on 01.01.200413

Nor Khomar Ishak: University of Malaya, Adam Dilip Mutum: University Utara Malaysia Cheong Kai Fan: University of Malaya, 2005, An Exploratory Study of CRM Implementation in the Malaysian Automobile Industry



The automobile sector is a key industry in the Malaysian economy. The economic contribution of this sector is huge, with significant linkages to the manufacturing and services sectors. The automobile sector began with importation of vehicles which then progressed to assembly operations and the establishment of a wide network of automobile components and parts manufacturers. The establishment of PROTON in 1985 and consequently PERODUA in 1993 acted as generator to the development of the automobile industry in Malaysia. The automobile components and parts industry also grew in harmony. This signaled a new phase for the Malaysian automobile sector whereby indigenous technology and local capabilities were developed in line with the Industrial Master Plans of the Government. The Government interference is important in provides support and incentives to enhance the participation and competitiveness of Bumiputera companies in the automobile sector. This includes Bumiputera equity shareholding levels, ensuring progressive Bumiputera human resource development and fostering Bumiputera entrepreneurship in the relevant areas. Moreover, the Government will also need to give support and incentives to enhance the competitiveness of automobile manufacturers in the country, in particular national car manufacturers PROTON and PERODUA, as well as provide the necessary support for existing assemblers to continue to be viable in Malaysia. The Government will ensure that sound policies are in place to enhance the long term competitiveness of the automobile components and parts manufacturers, given their contribution towards the competitiveness of vehicle manufacturers and assemblers. So, it is important for the Government continue providing direction and assistance for industry participants to establish or expand their penetration in the export markets, particularly through export promotion incentives. The Government interference is important in maintaining a good stabilization in Malaysia Automobile Industry.