Sustainability Analysis on Proton

Introduction

Proton is a Malaysian GLC. It is the manufacturer of what are marketed as “national cars”. Malaysian government-linked companies (better known as GLCs) are companies that are owned (fully or partly) by the Malaysian government through its investment arm Khazanah Nasional Berhad. This is the list of companies being invested in by Khazanah.

The intent of this analysis is to understand what Proton is doing about sustainability, both from environment and local community stand-point and to critically evaluate whether those activities are truly sustainable activities or merely a greenwash. I have done a similar analysis on Petronas some time ago.

The analysis starts with stakeholder analysis to determine where Proton places the two most important stakeholders (environment & local community) along with other stakeholders in their stakeholder mapping. It will end with a few recommendations for Proton to work towards achieving sustainability.

Key Stakeholders

Proton’s key stakeholders are the Environment, the Malaysian government, the Malaysian public, car owners as well as its vendors and suppliers.

The Malaysia Government

The Malaysian government owns 52% of Proton shares through Khazanah, Petronas and ValueCap. ValueCap is a government investment arm. The government also heavily subsidizes the production of proton cars by giving grants and exemptions/tax credits. But despite that, Proton continues to make loses.

The Malaysian public

The public is the indirect shareholder through EPF (Employees Provident Fund), government unit trust funds Amanah Saham Bumiputera, Amanah Saham Malaysia) and Lembaga Tabung Haji. Together these funds hold around 20% of Proton shares. Additionally, it is the public that pays the tax, which then is used to provide grants and tax credits. Proton also involves in sponsorships in the area of education and sports as well as donations to the needy.

Customers / car owners

I can’t find the exact figures of active Protons cars currently being driven all over Malaysia but I would estimate the figure to be around 3 million (assuming no cars have been fully retired). The figure is justified since I can still see many first generation Proton Saga cars on the road.

Environment

There is also externality factor to be considered by having almost 3 million proton cars on our road (most of the cars produced are sold locally in Malaysia !!). Moreover, the earlier generations of Proton are nearing retirement and may need to be sent to scrap yard and contribute to our ever increasing waste disposal problem.

Vendors & Suppliers

More than 80 per cent of Proton components are currently produced or supplied by automotive component manufacturers and suppliers. Proton’s network of 287 vendors and approximately 3,000 sub-vendors currently supply more than 5,000 individual components and parts for its cars.

Impact on Strategy

Based on stakeholder salience model for Proton, the definite stakeholders for Proton is the Malaysian government. It has the power (by law and as a majority shareholder), legitimacy (as majority shareholder) and urgency (as spelled out in its objective - shown below as well as by its continuous support for Proton to ensure its survival).

Additionally to support Malaysian government goal of industrializing the nation, Proton has thus far encouraged the creation and existence of hundreds of components manufacturers (probably seen by Proton as the dependent stakeholder) especially in the automotive industry, directly meeting its first two objectives. According to a Proton’s press release (in 2005), more than 80 per cent of Proton components are currently produced or supplied by a network of 287 vendors and approximately 3,000 sub-vendors. Together they supply more than 5,000 individual components and parts for its cars. Proton went to the extreme of appointing too many vendors to the extent of impacting the quality of cars it produces.

About 60% of defects are blamed to be caused by its vendors. Proton’s press release also highlighted the fact that only about 10% of their vendors (local and foreign) achieved “Grade A” rating according to TUV audit. This would NOT have happened if Proton considered their customers as an important stakeholder. Seems like, Proton has thus far viewed its customers as the discretionary stakeholder (legitimate but no power and urgency). However, it is good to know that Proton have finally realized they have too many vendors and are working to reduce them to 180 in an effort to improve quality. Proton has also revised their strategies to be more market sensitive. Proton’s key strategy moving forward will be based on growth basically by “building the right model for the right market”. This strategy will be implemented by focusing on product planning to ensure it builds cars that meets customers’ requirements.

Based on Proton’s historical actions (or inactions) such as producing low quality cars, being complacent on its vendors (despite only 10% made the grade A of TUV audit) and continuously losing tax payers money, it can be argued that Proton does not care much about the Malaysian public and to a great extend the environment. Proton does give out sponsorships and donations but a bigger and much more expected outcome is good financial returns to its shareholders (read = the Malaysian public). This can only be done if Proton becomes truly profitable without any special assistance from the government. Additionally, the tax money that the Malaysian public pays should be used for other better purposes instead of continuously paying for poor performance. Proton must realize that the Malaysian public is actually the definite stakeholder given the fact the Malaysian public will have the power, legitimacy and urgency to pressure the Malaysian government to reduce and eventually stop “pampering” Proton as well as to further and truly liberalize the automotive industry in Malaysia. TUV’s key objective is “to work to validate the safety of products of all kinds to protect humans and the environment against hazards”. The fact that only about 10% of its vendors made Grade A, shows that the rest of them (about 90%) is continuously contributing to some form of human and environment hazard either in their products or process.

On a positive note, though, Proton has formed a strategic partnership with Detroit Electric to produce pure electric vehicles. This indicates that Proton has started to view the Environment as an important stakeholder. However, it is yet to be seen whether this is merely an attempt to greenwash the public and its potential customers. Additionally Proton has also introduced a discount program for existing proton car owners to switch to a new models. Since, newer models should be less polluting, this effort should be considered as contributing to environmental well being.

Conclusion

From the above discussions, we can conclude that Proton is not a sustainable organization / corporation. It must take comments, feedback & suggestions from the public seriously. Below are my recommendations to Proton.


Recommendations for Proton to achieve Sustaining phase

To start with, Proton must view and treat the Malaysian public including its potential & future cars owners as well as the Environment as its Definitive Stakeholder. Once Proton started to view them as definite stakeholders, everything else will fall into its place. Some of the actions that Proton can take are:-

i. Be independent.

Proton must realize that they cannot continue to expect protection from the government and financial support from tax payers. It must be proactive to plan and implement a program to reduce direct dependence on the government’s assistance and tax payer’s money for continuous existence. This effort will force Proton as a whole to work harder and smarter and get rid of the "why worry, the government will always protect us” mentality. Working harder and smarter is the only sustainable way forward for Proton.


ii. Quality and Safety First.

Dealing only with Grade A vendors. Proton should work closely with existing vendors to upgrade them to achieve Grade A status based on TUV standards. Proton must set a time frame for all of their vendors to achieve the status, failing which Proton should terminate their contract for good. As for new vendors. Proton should only hire Grade A vendors. This will ensure all proton parts are of higher quality and produced in a human and environmental friendly method or in other words, a more sustainable way.

iii. Take leadership to ensure success of pure electric car project.

There will be challenges such having sufficient charging facilities throughout the country,
employing qualified and sufficient mechanics well versed in this new technology at its service
centers and keeping overall costs low for the average Malaysian. Proton must be very sensitive to these challenges and start to work on addressing them. Just selling the electric cars and doing publicity stints won’t do. As the national car maker, Proton must take the leadership in those areas and don’t wait for government’s help. It should work closely with electricity suppliers to generate electricity in an environment friendly way for its cars. Otherwise, what is the point of having electric cars in the first place? It will be merely a greenwash project then !! The current management should be more open minded in hiring foreign talents to fill in whatever gaps that they have now to ensure the success of the electric car project. Proton should not repeat its mistake by taking the everybody especially customers for granted.

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Additional reference: Mitchell, R.K., Agle, B.R., Wood, D.J. (1997). Toward a theory of stakeholder identification and salience: Defining the Principle of Who or What Really Counts. Academy of Management Review, 22(4): 853-886.
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