Motor vehicle industry is one of the most important industry contribute to the economic development of Malaysia. Automotive industry in Malaysia was started in 1960s and Malaysia Automotive Association was established in November 1960, it also known as the Federation of Malaya Motor Traders Association or FMMTA (Association). Government also started to encourage the establishment of the motor vehicle industry in 1963. To further encourage and foster the local motor vehicle industry, government had implement a policy in order to discourage the importations of Completely Built Up (CBU) vehicles by imposing high importation tax. The development of the motor vehicle industry began in 1980s by launching the National Car Project which was Proton. Another National Car Project was Perodua which launched in 1993, before the Peroduo project Proton was Malaysia’s dominant auto manufacturer (Essays, 2015).
Nowadays, Malaysia’s motor vehicle industry present a very potential industry to foster the growth of the country’s economics, Malaysia is currently launched 4 National Projects and 9 assemblers in the motor vehicle sub-sector, with the installed of capacity which approximately 963,300 units each year. In 2016, Malaysia’s production of motor vehicle recorded 545,253 units, this consisted of 41,562 units of commercial vehicles and 503,691 units of passenger vehicles. Furthermore, the sales of motor vehicles amounted to 580,124 units in 2016 consisting of 514,545 units of passenger vehicles and 65,579 units of commercial vehicles (MIDA, 2017). This show that the motor vehicle industry presents an upward trend.
In Malaysia, the motor vehicle industry is an oligopolistic market. Oligopoly referred to the market structure in which a few firm dominate. A market presents high concentrated when an industry only shared by a few firms (Online). Malaysia national motor vehicle industry is dominated by two leading manufacturer in Malaysia which are Proton and Perodua. However Peroduo had successful knocked off Proton as become the top motor vehicle producer in 2006, Perodua becomes the Malaysia’s biggest motor vehicle manufacturer. Perodua remains the most popular make in the passenger vehicle category while third-place Toyota is the most popular foreign car at 12.9% market share. Proton’s market share is 26% and PERODUA is 31.2%. Their combined market share has fallen to 57% today, with more than 30 foreign makers now in Malaysia competing for the remainder.
A kinked demand curve model is the best approach to describe Proton oligopoly characteristics. Proton’s demand curve presents downward but its elasticity depend on changes of its competitors about their price level or quantity outputs. For instance, Proton competitor may not able follow the increase in Proton pricing level because it is difficult to them to maintain a high level of profits and market share. Therefore, demand becomes relatively elastic and a rise in price lead to a fall in the total revenue of Proton. However, the competitors are more likely to follow Proton pricing strategies when it reduce the pricing level, this is because they want to avoid a loss of market share which cause the demand become inelastic leading to a fall in total revenue (Essays, 2015).
Porter 5 Forces Analysis is used to determine the competitiveness of the motor vehicles industry in Malaysia.
In economic theory, a perfect competition occur when there is adequate number suppliers to supply the products and many consumers seek for the product or services. By doing this can avoid the imperfect competition such as oligopoly or monopoly. Lead to high requirement to enter motor vehicles industry which are requirement of high capital and high number of implicit and explicit knowledge, this result in few suppliers are able to operate in Malaysia motor vehicle s industry. Therefore, bargaining power of buyers in Malaysia is low (Ariffina & Sahida, 2017). Proton dealers were giving many great deal to buyers in order to boost the development of the industry. The consumer purchase quantity was a critical factor in determining this force. For instance, buyers only usually purchase one car at a time but they still wield considerable power. Generally, however, it’s safe to say the customers have some buying power, but it depends on the market (Essays, 2015).
Malaysia imposed low bargaining power of suppliers in motor vehicles industry. In the motor vehicles industry, it involves of all the suppliers of parts, tires, components, electronics, and even the assembly line workers. There is a symbiotic relationships between the supplier for automotive components and automotive industry. This is because the increase sales of vehicles will directly increase the demand for parts and components. Based on ASEAN Investment Report 2013-2014 the data presents the increasing number of demand automotive manufacturing activities for parts and components, which in turn induces investment by parts and components companies to expand capacity and to operate close to the manufacturers. Malaysia still lacking of global standard automotive suppliers. Only 350 vendors registered under MACPMA which most of these vendors only supply low technology and low value components. Malaysia still depends largely on the import of automotive components and parts (Ariffina & Sahida, 2017).
Consumer purchase decision to buy others brand of car is not only threat to a car manufacturer, nowadays consumer have others alternative modes of transport such as bus, airplane, ships or train to their destination, therefore will become the treat to this force. According to Porter (2008), while analyzing the threat from substitutes, one need to consider the parameters including availability of close substitutes, switching cost and substitute’s price and value. Transport industry in Malaysia is concerned, the public integrated transport system (MRT, LRT, BRT, Intercity bus, feeder bus) is still not fully integrated until the year 2025. Malaysian consumer largely still depends on private owned vehicles. Therefore, the treat of substitute product in Malaysia motor vehicles industry was low.
Malaysia’s motor vehicle industry is an oligopolistic market. Motor vehicle industry in Malaysia was dominated by few big manufacturers and suppliers which are DRB, Sime Darby, DMM, TCIM, UMW and NAZA due to heavily protected policy. The low intensity of rivalry for automotive manufacturer and components in Malaysia will offer more opportunity to investors (Ariffina & Sahida, 2017). Because of the high entry barrier to the motor vehicle industry result in low intensity of rivalry. Company require high number of capital and high number of implicit and explicit knowledge to enter the motor vehicle industry.
In the motor vehicle industry, it is generally a very low threat. Factors to examine this treat of entrant include all barriers to entry such as high capital requirement, company cost a lot to set up car component and parts facility, brand equity also a barrier that prevent new entrant, this is because a new firm may have none of the brand equity. Furthermore, company’s ability to distribute the product also a barrier to avoid new entrant. Therefore, Malaysia imposed low threat of new entrants.
Regional opportunities offered by ASEAN Free Trade Area. Lead to the commitment under AFTA, Malaysia has increase its competitiveness in the automotive industry. For instance, reduction of import duties within 0% to 5% on CKD and CBU vehicles from ASEAN countries respectively. The import duties on CKD vehicle from non-ASEAN countries have been cut down to 0-10% while reduction of import duties on CBU vehicles were to 30%. Trade liberalisation within ASEAN has expand the regional market in order to provide export opportunities for automotive and component manufacturing companies. The elimination of tariffs on motor vehicles by the Malaysian government, it provide a level playing field for all automotive industry participants. The development of Malaysia’s motor vehicle industry has increase the growth of automotive parts and components and this made the country a production centre for major automotive component manufacturers. In present, there are about 800 automotive component manufacturers, producing a wide range of components, such as body panels, brake parts, engine parts, transmission and steering parts, rubber parts and electrical and electronic parts (MIDA, 2017). Committed to the development of the automotive industry, Malaysia offers vast and attractive opportunities for investors. The Malaysian government encourages investment in areas such as: critical components (eg. engines, transmissions and chassis), auto electronic components (eg. engine management system and vehicle intelligence system), fuel efficient engines and alternative fuel engines (MIDA, 2017).
Volatility in the fuel prices also as a threats that affect the motor vehicles industry in Malaysia. Also government regulations relating the use of alternative fuels like CNG. Shell gas is also affecting the inventories. Nowadays most cars use a fuel. But recent fuel price steeply increased (UKEssays, 2015). Lead to lack of fuel efficiency, most motor vehicles company sales have drastically decreased. Because of the increasing of fuel price, many consumer start to choose public transport such as LRT, bus, MRT and etc. to reach their destination rather than to buy a car. This situation will cause the drop of sales of automotive.
Furthermore, sluggish economics such as unemployment rate increase or recession which will troubled the motor vehicle industry for a long period of time (Bhasin, 2018). When unemployment rate increase, the consumer purchase power decrease, consumer will save more money and will tend to buy necessary goods rather than luxury. This will cause drop of sales in motor vehicles industry because to buy a car required amount of money therefore people will think twice before purchase a car.
UMW Holding Berhad is founded by Chia Yee Soh in 1917 as an automobile repair shop and it is a leading industrial enterprise with multiple and global interests in the equipment, automotive, manufacturing and engineering industries. UMW Group overlook as one of the public-listed companies in Bursa Malaysia which foremost or progression among Malaysia. UMW Group also continuously enhancing and building the strength on their core businesses to thrive opportunities in the international platform. The UMW Group has now reached expand their businesses to some Asia-Pacific region such as Myanmar, Papua New Guinea, Vietnam, Indonesia, China, India and Singapore. There are more than 11,000 of employees worldwide under UMW Group which has a same and common objective of going beyond boundaries. UMW has strongly pushed the common goal and instil in the mind of the employees to play a dominant role in shaping the future of their industries. UMW inspire vibrant ideas, foster potential, frontier partnerships and deliver excellence in everything, the rewards of which contribute to the progress and well-being of all our stakeholders. (UMW Holdings Berhad, 2017) Strategic alliances of UMW Group have helped position the UMW Group as a leader in its core businesses. UMW has 5 strategic partners which are UMW Corporation Sdn Bhd, UMW Oil and Gas Berhad, UMW Petro pipe(L) Ltd., UMW Australia Ventures(L) Ltd., and UMW Malaysian Ventures Sdn Bhd.
The UMW Group mainly focus on three strategic business units which are automotive, equipment, manufacturing and engineering. Under automotive, UMW assembles, markets and distributes some of Malaysia’s famous marques of passenger cars and commercial vehicles. UMW collaboration is with Toyota Motor Corporation of Japan over 35 years and they are the exclusive distributor of Toyota and Lexus models in Malaysia. (UMW Holdings Berhad, 2017) The companies that under UMW Group are the UMW Equipment Sdn Bhd, UMW Engineering Services Limited, Myanmar and so on. Heavy equipment of UMW imports, distributes, repairs and maintains and services heavy equipment and related spares in Asia-Pacific region. Moreover, UMW also manufacture tubular products from seamless pipes to large diameter welded pipes for the oil and gas industry.
UMW Toyota has the market share of 12% add up with Perodua’s market share of 35% totalled up to 47% as of 31st December 2017. (The Edge Communication Sdn Bhd, 2018) Investors who wish to enjoy a larger Perodua earnings base choose and believe that UMW will hold the largest market share in Malaysia automotive industry. The management team of UMW has a management approach to sustainability. The management team of UMW has a same objective and goal from the beginning and thrive to achieved the goal together. There are four pronged strategies which brings sustainability of UMW which are innovative and high performance culture, environmental stewardship, dynamic workforce and nurturing the community and society. UMW constantly and keep seeking for the better and enhance on product offerings by advance the value chain. Other than that, UMW also aim to create shareholder value maintain relevance of the EES impact of the business. They also remain committed to new innovations and tend to be a responsible corporate citizen by defending the environment and cultivating the communities.
The latest awards and recognitions that won by UMW Corporation Sdn Bhd in year 2017 is the “Asia’s Best Employer Brand Awards” which provide by Employer Branding Institute (EBI). Other than that, UMW Toyota Sdn Bhd also get the “Best MPV of the year TOYOTA SIENTA” in 2017. In 2016, UMW Corporation Sdn Bhd recognize as a “Best Companies to Work for in Asia” which provide by HR Asia. UMW also proudly recognize as a largest distributor of Toyota Industrial Equipment in the world after Japan and USA. There are many awards and recognition that won by UMW which are the evidence to show the commitment of UMW to quality and excellence as they keep improving and continuously strive to reach greater achievement.
The strength of UMW is that UMW Toyota keeps the largest market share among the foreign cars in Malaysia. It also holds the third biggest market share after the two local car manufacturers which are Perodua and Proton. UMW build a strong image of Toyota both globally and locally. UMW Toyota is also the industry leader which efficient in manufacturing and production in terms of just-in-time (JIT) manufacturing and total quality management (TQM). UMW is developing towards with latest R&D and technology in particularly to hybrid cars in order to reduce waste.
In opposite, UMW has a weakness that UMW Toyota has moved from niche segments and making cars based on the specific needs of the small group of customers while this has given a competitive weakness considering of limited product differentiation such as the Toyota Vios is promoted as a car which suitable for all ages. Although UMW perform well in Malaysian and global markets but it has a limited production capacity because the main production centres are located in Japan and US. Thus, it has a high cost on the manufacturing plant.
Tan Chong Motor Holdings Berhad (TCMH) was founded by Tan Chong and his two sons. It was incorporated in Malaysia in 1972 and the headquarter is located in Kuala Lumpur, Malaysia. TCMH is a distributor of small motor vehicles at the beginning and now TCMH Group has grown into a largest national conglomerates involved variety of business activities which from the assembly and marketing of motor vehicles and auto parts manufacturing to property development as well as trading in different heavy machineries, industrial equipment and consumer products. TCMH conducted the businesses activities both locally and oversea. The TCMH Group holds the franchise rights for UD Trucks, Renault and Foton Motor in Malaysia and also Nissan Vehicles in Asia-Pacific region such as Vietnam, Cambodia, Laos and Myanmar. TCMH was a company which listed on the Kuala Lumpur Stock Exchange. The different business interests of TCMH oversea were also partition and subsequently listed in The Stock Exchange of Hong Kong Limited under the Tan Chong International Limited flagship.
The group structure of TCMH and it operates its business through the following segments which are after-sales service, sales and distribution, property holdings, financial services, assembly and manufacturing. Based on TCMH strong track record, TCMH is currently part of Nissan Motor Company Ltd’s Association of Southeast Asian Nations Strategy and together with Nissan Indonesia and Thailand. This provide the motive force for TCMH Group to reach its sales targets at both the domestic and foreign markets.
TCMH has two assembly plants which located in Segambut, Kuala Lumpur and Serendah, Selangor. Both of these assembly plants have very close capacity and both plants together can deliver 100,000 units a year with additional shift and reasonable overtime. The market share of the Group’s vehicles sales may enjoyed at 15.2% for non-national cars and 7.4% for the industry-wide market. (Tan Chong Motor Holdings Berhad, 2009-2018) There are also few mutual funds that own TCMH such as DFA Dimensional Emerging Markets Value Fund which the shares held 4,108,800 and share outs of 0.61%. Moreover, the DFA Emerging Markets Small Cap Series shares held 1,625,200 and shares out of 0.24%. (Dow Jones & Company, 2018) Other than that, the average growth rates of TCMH for the past five years ending 12/31/2017(Fiscal Year) has a -3.30% of revenue with net income -27.06% and the -27.06% for the earning per share. It’s shows that there is a decrease mainly due to lower sales from its assembly, manufacturing, distribution and aftersales service division.
TCMH was assigned with a Special Mention Award as Malaysia’s most ASEAN Integrated Automotive Company at the NST-Maybank Car of the year 2015 Awards held in Subang. The Nissan Serena S-Hybrid CKD beat the petrol-powered variant winner which is the Citroen Grand C4 Picasso and get the award of “MPV of the Year” in year 2015. (Tan Chong Holdings Berhad, 2009-2018)
The strength of TCMH is that the company has outstanding staff to manage the company sales. While the company has established target sales for every month so that the staffs of TCMH have strong knowledge about current products. The employees of TCMH all are well trained and imparted with sufficient and valuable knowledge in order to attract potential customers. TCMH has built a strong relationship with customers which help the company to have a good reputation. Thus, the existing customers would recommend for others potential customer and attract more customers in future to generate more sales.
In contrast, the weakness of TCMH is that TCMH’s policy is not highly attract the Gen Y and the company has no choice to recruit Gen X which are not highly generative based on the standard requirement. This has cause the company to recruit more employee just to perform simple tasks which is possible to be done by Gen Y. Therefore, the company’s expenses spend in non-profit incomes by conducting the recruitment advertisement.
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