Wednesday, July 06, 2005

Overhaul AP System?

Overhaul or Abolish AP Posted by Picasa

AP system needs overhaul?

Comment by Sidek Kamiso

THE comment by Proton Holdings Bhd advisor Tun Dr Mahathir Mohamed on how approved permits (APs) are given out should send a strong signal for the Government to review the current system of issuing these permits to car importers and manufacturers.

Dr Mahathir said the AP system did not nurture bumiputra entrepreneurs as it had intended since its introduction in 1970. Although it was reviewed in 1987, the current system benefited only a few companies rather than a large number of bumiputra companies.

According to statistics issued by the International Trade and Industry Ministry, there are 116 companies receiving APs. Of this number, 76 are allowed to import any brand of car from any country while the other 40 are franchise holders who are allowed to import specific brands and makes from their principals.

Dr Mahathir had expressed surprise that of the 67,000 APs issued last year, only 12,600 were given to 82 companies, while 54,000 were given to 20 companies.

“It should benefit a big number of people rather than concentrate on a few,” Mahathir said.

The question now is whether any revision to the AP system will benefit these entrepreneurs, or even Proton.

So, if the system benefited neither one of the two parties it was intended to serve, shouldn’t it be dismantled completely?

Before we can see the end to the system, it is probably worthwhile to look at why it rankles Proton so much. In the case of Korean cars, some models have proved to be so successful that Proton's standing as a top-selling brand was threatened.

Previously, the AP system was used to protect Proton's position. The number of APs issued was limited and no AP was given for cars that directly competed with Proton.

The system worked well until recently when Naza Ria was conferred national car status. Naza subsequently brought in more Kia models, priced much lower than Proton models of similar engine capacity. Although there are many allegations that these Korean cars are being dumped in Malaysia, their prices had been approved by the authorities. The AP system allows for the Government to exert certain control over the pricing of cars.

In light of the Asean Free Trade Area, national carmakers like Proton and Perodua should be gearing up to compete more aggressively in the global arena and not merely looking to protect their home turf. With both companies showing dismal export figures, it is not easy to see who will suffer or benefit most if the ruling under the AP system were enforced diligently. For International Trade and Industry Minister Datuk Seri Rafidah Aziz, the AP controversy could be the biggest test for her. There is much she can do to resolve the issue and she certainly will not want to go down in our history books as the one who killed the dream of having the national car achieve international recognition.


WHAT'S WRONG? Nothing has gone wrong. Don't blame Rafidah Aziz. Don't make her a scapegoat for the system malfunction.

Why? Because it was design to malfunction and the result was within expectation.

Why? You reap what you sow. We plant lallang, we won't get padi.

What do you mean? Erecting Barriers against market forces have always proven to fail historically. As long as your economic system is based on the doctrines of capitalism, liberalization of trade is the only solution to ensure survival.

How is it? Because if you try to protect certain industry, you are actually retarding their philosophical senses and it shall demotivate them from seeking competitive actions and reactions, which would result in competitive advantages; the maxim of corporate survival in the age of globalization.

But then, if we don't protect Proton, it won't survive from the very start?

Yes, that is why countries like Singapore, Thailand, Hongkong and Taiwan, they would not set up a automobile manufacturing plant. Why? Because in automobile industry, even the size and might of Chrysler, Fiat and Nissan can go bust in months. These corporations had to be bailed out once too often ... it is historical information, and we cannot escape the fact that large and financially strong automobile manufacturers which are worth ten or hundreds of times more than Proton had even gone bankrupt or face insolvency.

Then, we should not have set up Proton? Well, it was a dream. At that time, Mahathir has a dream and a strategic plan which he believes it will work and his dream is supported by world reknown Japanese economist; his personal advisor.

Would Mahathir's dream work? Yes! But it must be in an ideal environment.

What does that mean? It means, Proton management must take no more than 5 years to fully transfer the Japanese technology to locals and within the first 10 years, Proton must concurrently built up a strong and competent team of research and development experts and engineering scientists to be able to provide innovative and creative designs capable to compete against the best in the global industry.

In short, proton has to bring in the world expertise in R & D and at the same time built up a core competent team of locals as backup, all within the first 10 years. To do that, the doctrine of meritocracy must persist; which was the system nostalgia.

If we can't do that and still wants a automobile plant, what should we have done? Oh, that's what we should have done - adopt Naza's Philosophy - Assembly Plant System!!!

Explain? In the age of Globalization and Liberalization, outsourcing is the most competitive tool. Example: Boeing company do not manufacture all the parts for the airplane in USA. Components are may be designed France and Germany (design expertise), manufactured in China (cheap labor), part-assembled in India or Malaysia, final assembly in the purchaser's country. This is Globalization - tapping the core competence globally, abundant cheap labor and raw material availability (cost competitiveness), logistic & distribution advantage, and neo-political networking.

Do you mean to say Proton should have done what Naza had done? Yes, absolutely! What Naza did was not their invention or an original idea. It was what the global corporations were doing. Look at GE, Motorolla, Western Digital, Aji-na-moto, Honda, Toshiba, Mitsubishi, etc, etc .. They set up manufacturing plant at locations which gave them cost effectiveness in terms of cheap labor and raw materials, particularly centered on cheap labor source, financial, marketing & capitalization benefit, tax havens & benefits of duty free zone, political patronage, geographical and logistical advantages.

What should Proton do now? It is late, but not doomsday. They had to seek strategic global partners who have the muscles to get the product marketed to Europe and America and China. These are the continents that have large consumption capacity and there is also the problem of trade barriers and economic cartels. Proton has to have a strategic partner who has the muscles to shake govt economic decisions. Economic decision-making is tied closely to political patronage and alliances. Example: If you get a British partner, then you may not get French approval. if you get Iranian partner, you will not get Bush's approval.

Will proton do it? NO! Why? Because they have an EGO as large as Bush and although Proton and Malaysia may not like what Bush did, but they copy and paste his ego and adopt the Bush's doctrine per se.

What is the probable future of Proton? the future have two possibilities - first, Proton may be assemblers only; second, Malaysian govt will have to be a minority owner of Proton if Proton is to continue to exist as a manufacturer (i.e. strategic partnership with foreign gaints with them having control).

What about the APs? Whatever the noble reason, it was wrong in the first place to introduce the system. It was from the beginning, a step in the wrong direction. It was known that this system would benefit a selected few and the results as enunciated by Mahathir has proven Murphy was right: Whatever you think can happen will happen.

So, why is Proton making so much noise? Because Naza is the bigger beneficiary now; Ptoton has suck the Malaysians for 20 years (the govt has taxed foreign cars to the extent that we have to buy proton which is then the cheapest car in the marketplace), and now it is Naza who is giving Malaysians the option to obtain a cheaper car and that affects Proton's competitiveness.

Whatever said, we must appreciate that Naza has given Malaysians the opportunity to buy cheaper cars and probably better cars. Proton may not be absolutely lousy, but is quite lousy...except that Mahaleel and Mahathir do not agree with most Malaysians' perspective.

We must look at the scenario and as a commoner, what is happening does benefit the commoners; of course at the presumed expense of Proton. Naza may have Rafidah courtship; but we should just look at the commoners' perspective; their relationship does not affect us...

If Proton gets what they want, Malaysians will not have economically and competitively priced cars because with the govt's protection & barrier of entry, Proton will then be able to continue to price their cars at skyhigh price ...and that sucks.

Naza may be enriched by the AP; so what? Malaysians are benefitting as a whole...I got a Kia Spectra for $67,000 full spec; compare it with Proton Waja ... Proton Perdana was $110,ooo at one time, and the price was reduced subsequently to $95,000 in order to compete with Kia and Hyundai... and now, cherry, and other china-made cars. Even Toyota and Honda are today competitively price.

Proton continually blame their high cost was due to the fact that they have 80% local component content. What it means is that their local vendors are not competitive (and their quality sucks too). Proton has Lotus branding but not Lotus brain; and Lotus are never the comparable market leader in terms of technology and economical product management. Lotus could not survive over the last 30 years and that's why Proton had the chance to buy them. But did we buy Lotus technology or Brand? We actually bought the shell of Lotus and the remnants.

With Naza providing the competitive environment in the local automobile market, isn't this good for consumers?

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