Monday, August 15, 2005
When A Knowledge-Driven Vision Seems Unclear, Assemble An Inferior Vision?
Tangents
When A Knowledge-Driven Vision Seems Unclear, Assemble An Inferior Vision?
By A M Ubaidah S
A Brief Reason For This Piece
In the wake of the public uproar over AP Abuse and the Tax Under-Declaration of Imported Automobiles into Malaysia, the issue of the feasibility of Proton, the principal Malaysian national car project has again come into question. This also well coincides with the Malaysian Government’s long awaited re-look into the National Automotive Policy (NAP).
Whatever the views of the Malaysian public over the state of Proton the company and the quality and make of its cars, the dismissal of Tengku Tan Sri Mahaleel Tengku Ariff from the post of CEO of Proton, some three months prior to his contract’s official end, has been seen as a move against a vision that he has championed and shared with the founder of Proton, Tun Dr Mahathir (Dr M).
Though some have pointed to the poor relationship between the Proton Board of Directors and Tgk. Mahaleel as the reason for his dismissal, one would hope that such high-level corporate decisions are made for reasons more fundamental to business than just an issue of personal likes and dislikes. There had been some indication that the main issue leading to the dismissal is the difference in views between the board and the Tgk. Mahaleel-led management on the way Proton is managed, from the management decision-making process, through to Proton’s overall vision.
Soon after Tgk. Mahaleel’s dismissal, Wong Sulong of The Star newspaper presented a new spin that Tgk. Mahaleel was dismissed because of just such a fundamental disagreement with the Proton Board. According to Wong’s article, it seems the board wanted Proton to consider amalgamating Proton with all other national car companies and car assemblers in Malaysia into a big consortium to gain ‘economies of scale’. Tgk. Mahaleel believed the idea mooted by the board is not in the best interest of Proton and that Proton can succeed on its own.
Interestingly, Wong Sulong’s article was the first time I, and many, had ever heard of a ‘new vision’ by the government to consolidate the nation’s many auto industries into a single ‘mega-assembler’ so to speak as the reason for the tension with Tgk. Mahaleel; and I for one hope it was not a new excuse someone spun to justify the unjustifiable
Let me start by saying this. In my view, Khazanah’s and the Proton Board’s decision to proceed with the dismissal of Tgk. Mahaleel is flawed especially if it is to advance this so called ‘new vision’ for Proton. This is because this so called new vision for Proton, as part of a mega-assembler instead of a proper car company, is a backward step for Malaysia as a nation.
I have no idea if the Prime Minister, Dato’ Seri Abdullah Ahmad Badawi, or Pak Lah as we all know him, was well briefed and consulted on this decision. This is as astoundingly when Khazanah allowed Proton’s Board to dismiss Tgk. Mahaleel for the sake of this change of vision, they basically went against Pak Lah’s repeatedly stated public policy of transforming Malaysia from an economy that makes and assembles things, to an economy that is based on innovation!
Why do I say the stated ‘new vision’ for Proton is flawed?
There is one thing that differentiates Proton from any other national car project and the myriad assemblers in Malaysia, or even in the region, including the so-called Detroit of Asia, Thailand. Proton has the ability to design cars from the bottom up. Though many point to this being a result of the 1996 Lotus acquisition, much has changed since the acquisition, such that Proton’s design team now has a Malaysian core, with a higher percentage of its newer cars designed locally, the Savvy and Gen2 being the most recent, quite promising results.
Before anyone scoffs at the idea of the Savvy and Gen2 being promising, note that both cars, as well as the Waja, meet one of the most difficult standards that cars face in the world today, the European emissions/environmental standards. Others may also be surprised to know that the suspension and other structural platform features that are applied on the Gen2 is actually ahead of those of some Korean brands - e.g. the Kia platforms tend to under perform versus engine-size compared to Proton cars because the Koreans have been using old technology in this area.
As such, Proton is currently the only company in Malaysia, or even ASEAN, with the capacity to evolve into a full-fledged global player in the automotive sector.
Why is Proton the only ASEAN car company that can evolve into a global player?
This is because unlike other car companies and assemblers in ASEAN, Proton owns its own intellectual property (IP) in car design. This is in turn significant as the business model of the future in all industries, from cars, to furniture to mobile telephony, the ownership and growth of intellectual property is the key to long-term growth and sustainability. This business model is precisely the type of knowledge driven business model that Pak Lah, and Dr M before him, has been urging Malaysians to pursue.
We see the success of such a business model in mobile phones, where Nokia, a company from Finland, with a population and market far smaller than ours, dominates the global market. Interestingly, Nokia does not own much in terms of assets, as much of their capital-intensive activities, including the making of mobile phones, are outsourced. However, Nokia owns its own intellectual property, and continues to build on it, allowing it to earn enormous profits and to sustain its growth into the future.
And Nokia is not a unique example either. The world abounds with examples of global brands coming from countries with small populations that have not just a significant share of but are acknowledged market leaders in their respective global markets through control of IP. Among them are household names such as IKEA (furniture) from Sweden, and Nestle (food) and Novartis (pharmaceuticals), both from Switzerland.
Let us call this business model that is applied by Nokia and many others, and pursued by Proton under Tgk. Mahaleel, the “Knowledge-Driven Business Model”. This is as opposed to the new vision that was conveyed by Wong Sulong’s article, which I call the “Assembler-Driven Business Model”.
Hence, Proton, as it builds its IP whilst practicing this Knowledge-Driven Business Model, would be rapidly evolving into a model like Nokia's in mobile phones - it is able to transform into an IP, marketing, finance and distribution organisation, where even the few manufacturing assets it owns are also really for production R&D, with the majority of capital intensive activities like assembly and manufacturing being outsourced. This model is being used by other carmakers globally and Proton is the only car company in ASEAN on the verge of achieving this.
Why do I link Tgk. Mahaleel’s vision for Proton to the Knowledge-Driven Business Model here?
Actually, Tgk. Mahaleel as an individual here is less important than the type of individual that he represents. Individuals like Tgk. Mahaleel interestingly understand the importance of pursuing a “Knowledge-Driven Business Model” for Proton and this is publicly demonstrated, both by his words and by his actions. In terms of action, his tenure in Proton has been clearly defined by the following efforts:
1 - Building Proton’s intellectual property, even in a roundabout way if there is no clear direct way. This he picked up from his mentor, the late Tan Sri Yahaya Ahmad (who interestingly is an individual not unlike Tgk. Mahaleel).
A good example of this was Proton’s acquisition of MV Augusta. MV Augusta was not purchased because Proton wanted to start making motorcycles. It was bought so Proton could gain the expertise of building smaller engines. Augusta’s engines, though for motorcycles, were high-powered engines, with engine sizes near the size of small cars - precisely the engine sizes that Proton lacked expertise in.
Tgk. Mahaleel and his team’s plan was simply to gain the intellectual property from Augusta to able to build engines for the class of cars like Savvy, or even smaller, with the vision of eventually for Proton to produce such smaller cars or maybe even to allow Proton to sell such engines to Perodua and other small car companies in the region.
Analysts were convinced that the MV Augusta purchase did not make sense for Proton - but then again, the same analysts may not be individuals like Tgk. Mahaleel and TS Yahaya Ahmad - and hence are unable to see the point of acquiring a company to gain its IP.
2 - Tgk. Mahaleel had repeatedly stated that any alliance between Proton and foreign manufacturer has to make sense to Proton, but where Dr M was keen to protect Proton’s Malaysian ownership, Tgk. Mahaleel has been consistent in saying that the alliance must grow Proton’s IP. In the case of the VW JV/alliance for instance, the first thing that came to Tgk. Mahaleel’s mind on the benefit of the alliance when asked by Malaysian Business is Proton’s urgent need to learn more about power-trains from VW. Other benefits like cost reduction were mentioned later.
3 - One of the greatest battles that Tgk. Mahaleel won for Proton was the battle with EON, with the main issue being that EON did not want to fund development of new IP at Proton. EON then, as sole distributor and main financier, generated far more cash from the business than Proton, so much more so that EON could build its own bank, whilst leaving Proton carrying the higher cost burden as the manufacturer and without IP development monies.
Tgk. Mahaleel succeeded in wresting the distributorship deal from EON and has been building Proton’s own marketing network and financing business, not just to allow Proton to enjoy more % direct profit, but to allow Proton to have access to its own IP development funding.
Even if Tgk. Mahaleel is clearly a “Knowledge-Driven Business Model” supporter when leading Proton, why do I say that his removal and the declared new vision will result in Proton adopting an “Assembler-Driven Business Model”, not a Knowledge-Driven one?
To put it simply, businesses that succeed need to focus on one business model and pursue it to the best of its abilities. This is because different business models require fundamentally different approaches that may be in conflict in each other. For instance, compare the 2 models in question:
Knowledge-Driven model: Significant amount of money needs to be spent on R&D and IP creation, money that is only recoverable if efforts succeed and adds to cost of production in the short run, with the medium-longer term benefit of higher profits from new IP.
Assembler -Driven model: Cost saving model, where all cost are minimized to maximize profit. Majority of IP adopted is to further reduce assembly cost and is not developed in house, but directly or indirectly bought from outside party.
As Knowledge-Driven needs to spend money to develop IP first to make money later and the Assembly-Driven wants to cut ALL cost, a company can only choose to pursue one model in order to succeed.
When we compare all the car producing and assembling companies in Malaysia, it is clear that Proton is the only Knowledge-Driven one, whilst the others, including its nearest counterpart, Perodua, are Assembler-Driven ones. Perodua for instance still does not have a design house capable of fundamental design changes such as to its car’s engine and structural platform, whereas Proton is actually actively pursuing sales of its structural platform designs.
This signals a fundamental difference between Proton’s focus towards a Knowledge-Driven Business Model and the Assembler-Driven model of the other car companies and assemblers in Malaysia.
Therefore, if the government via Khazanah chooses to pursue the merging of all the car producing and assembling companies in Malaysia, only the one business model, Knowledge-Driven or Assembler-Driven can be pursued, not both together. As the majority of car companies in Malaysia are Assembler-Driven and Proton is relatively new in applying a Knowledge-Driven business model, it is more likely that when the merger occurs, Proton will be downgraded from a promising Knowledge-Driven car company into a plain Assembler-Driven one.
But then again, how can you be sure this is the case? Khazanah may still choose for Proton to lead the merger and remain a Knowledge-Driven car company.
Actually, I think this new vision of merging all the Malaysian car-related companies clearly involves absorbing Proton and destroying its Knowledge-Driven drive and establishing a single Malaysian Assembler-Driven car company. This is because all the local business leaders from outside of Proton that are being touted as future successors of Tgk. Mahaleel so far are from Assembler-Driven companies, and so would likely impose an Assembler-Driven business model rather than a Knowledge-Driven business model.
Again, I reiterate that Tgk. Mahaleel the individual here is not as much an issue as the type of person he is. If Khazanah and the Proton board were serious about building Proton as Knowledge-Driven Company, the names being touted would have been different. They would have been people with a reputation in innovation, or senior execs from companies that have a culture of innovation or indeed practice a Knowledge-Driven Business Model.
Now there are even media reports, especially from The Edge, about Khazanah considering the sale of either a majority or a controlling share of Proton to one of two foreign car companies. In both cases, it seems the aspiration of the foreign partner is to turn Proton into some sort of subsidiary to focus on local or regional production or on assembly of their own marques.
This idea of selling Proton to a foreign entity clearly indicates a view that Proton should not simply to be downgraded from being a potential Malaysian Knowledge-Driven global player in the car industry into a large but local run-of-the-mill vehicle assembler, but that it could potentially be sacrificed to becoming a local subsidiary of a foreign car-maker!
If Khazanah was really interested in having Proton continue to grow and fulfil its promise as a global or even regional car company, I would have expected Khazanah and the Proton Board to be protecting the Knowledge-Driven vision for Proton by seeking individuals with attributes very much like that of Tan Sri Yahaya Ahmad and Tgk. Mahaleel to be its next CEO.
With such aspirations, Khazanah should indeed then leave it to Proton to enhance its Knowledge Driven model and as best as possible support further foreign or even local acquisitions and the formation of alliances for the purpose of nurturing and building Proton’s IP pool. Khazanah could then aspire for Proton and its leadership to then be an example, maybe via industry councils, to transform other Khazanah and other Malaysian companies into Knowledge-Driven concerns too!
In supporting a Knowledge Driven Proton, Khazanah should thus certainly not be contemplating the destruction of Proton’s Knowledge-Driven aspirations by entertaining ideas of diluting Proton’s focus through a merger with other local companies and assemblers, and especially not by surrendering control of Proton to a foreign car company. Such actions would not just result in a loss of business potential, but as mentioned, it would also run contrary to the aspirations of the nation, as repeatedly iterated by Pak Lah in many forums.
If I say that the local business leaders being mentioned as potential successors of Tgk. Mahaleel are unsuitable, does this mean Proton has to consider a foreign CEO to guide it into the future?
I don’t think so. The truth is, there is local talent in Malaysia that fits the mould of a TS Yahaya Ahmad and Tgk. Mahaleel, who were themselves of course local talent with a Knowledge-Driven outlook. Potential successors need neither currently be managers of other local car companies or assemblers nor need be a leader in a company even linked to the automotive industry.
Remember that the mindset of the future CEO is the key to his success in pursuing a Knowledge-Driven future for Proton, a mindset that is preferably nurtured by experience in a company or companies that exercise a Knowledge-Driven Culture. Tgk. Mahaleel for instance had the benefit of experience from a Knowledge-Driven oil company and Knowledge-Driven food company, Shell and before that Nestle respectively. Pick up any business book on these 2 companies and you will see that both are Knowledge-Driven.
The other key players in Proton’s evolution, Tgk. Mahaleel’s mentor, the late TS Yahaya Ahmad and Dr M are also similarly Knowledge-Driven leaders. I am sure there are other leaders of this mould waiting to be given the opportunity to advance Proton into a Knowledge-Driven future.
However, a greater concern for me is the capacity of the Proton Board, or rather its potential lack of, to recognize a person with a Knowledge-Driven leader as a potential next CEO of Proton.
Surely Proton’s Board Of Directors Is In The Best Position To Decide The Most Suitable CEO To Fulfil Proton’s Vision
But that is precisely my concern over the board’s choice for the future CEO of Proton. In the first place, if Wong Sulong’s article was accurate, then the board seems bent on turning Proton into an Assembler-Driven company, despite this being against the public aspirations of Pak Lah for the Government Linked Companies (GLCs). If this is so, how is the board able to choose a CEO suited to mould Proton into a Knowledge-Driven company. The board’s fundamental views on this must first be changed.
In addition to that, the board demonstrated in the treatment of its relationship of Tgk. Mahaleel that it wished to control and reign in the maverick drive that tends to be inherent in leaders of the Knowledge-Driven mould. You see, Knowledge-Driven leaders and CEOs tend to be also difficult and maverick individuals that need a lot of leeway and open support from their company board to succeed. Such mavericks are commonplace in the history of the car industry.
For instance, the great car industry leader, Lee Iacocca, was actually forced to resign by the General Motors (GM) board for his maverick tendencies. However, Iacocca then revealed his brilliance when he turned around Chrysler from being an ailing company into a thriving competitor to GM in the 80’s and 90’s prior to its merger with Daimler-Benz.
Even the founder of the modern car industry, Henry Ford, was once dragged to court, in large part due to his apparent arrogance causing many powerful people to be unhappy with him.
If Proton’s board not only does not have a Knowledge-Driven vision for Proton, but also does not have the patience needed to support typically maverick Knowledge-Driven leaders, how can it be expected to select a Knowledge -Driven CEO? They actually just dismissed a Knowledge-Driven CEO remember? And the CEO they dismissed was actually successful in making Proton profitable and viable for the future!
Ah, but some actually say that Proton has managed to succeed and remain profitable so far, despite the much quoted quality problems of its cars, because it has always been protected by the government through tariffs and high import taxes on foreign cars. Shouldn’t such protection be removed from Proton after 20 years?
Actually, I tend to agree with this statement. Of course Proton has gained from protection over the many years, and there is no denying that this has helped enormously to ensure Proton’s success and profitability as the leading carmaker in the country. Nevertheless, one should not deny that this success would not be possible if Proton was not able to produce cars that are of increasingly good design when competing against foreign imports, knowing how difficult a market Malaysian can be when it comes to cars. And again, the protection allowed for this success too.
I actually also agree that maybe it is time for Proton’s protection to be removed. Sure, most countries continue protecting their local car companies, directly or indirectly, for more than 20 years, with Korea, the US and India being the most blatant over the past few decades. But Proton has grown sufficiently I feel into an increasingly Knowledge-Driven car company that the protection should be removed as a final test of its resilience.
In addition to the removal of such protection being beneficial by relieving the burden that Malaysians had been in most part willingly supporting to develop our national car industry, i.e. Proton, this would also allow Proton to prove to its detractors that it has the wherewithal to survive on its own, without protection, and that Malaysians should be proud of it for its merits as a national champion.
However, as often mentioned by Tgk. Mahaleel and consistently repeated by Dr M as Proton’s adviser, Proton as an entity need not be protected any longer for it to succeed as a Malaysian, regional, or indeed global car company as long as the government:
1 - Address the problem of AP allocation abuse that were being committed to benefit the individuals now known as the AP Kings and their ilk and partners. It is understood that the government is pursuing this after much public outcry.
2 - Address the problem of under-declaration of price of the imported vehicles. This practice has been allowing Korean car marquees, among others, to be dumped in the country to the detriment of our local car industry and costing government millions to billions of Ringgit in tax income. The guilty parties such as owners and manager of the Naza group for instance should be charged in court for their crimes.
3 - Most critically, the government allows Proton to source its parts from non-local sources, the way Perodua does. At the moment, the national automotive policy forces Proton to be the nursemaid to our local vendors of auto-parts, despite their lack of quality even after many years of experience. Indeed, technical audits have proven that most if not all Proton’s quality problems arise from the poor quality parts supplied by some local vendors that Proton is forced by government to support.
But why should Proton be given a chance to continue as a Malaysian owned and controlled Knowledge-Driven Company if it has not been able to address its quality issues during the period of government protection?
Actually, Proton should be given the chance to prove itself first in an unprotected environment before anyone says it cannot survive without protection! No analysts, journalist, critic or even industry leader can claim to be able to predict whether or not Proton will succeed or fail without protection. However, how will we ever know Proton’s worth as a fledgling Knowledge-Driven entity if it is not first allowed to face the challenge of zero local protection?
Certainly Proton has a lower likelihood of success without protection if the government does not first address the 3 matters highlighted above, but if the government addresses the AP abuse and under-declaration issues, as well as allows Proton to source higher quality non-local parts, Proton has every chance of success.
Indeed, based on the history of other car-makers, Proton certainly has a better chance of succeeding long-term as a Knowledge-Driven car-maker of its own right rather than as part of a patched together mega-assembler of cars or even a subsidiary of a foreign car company; the Rover car story being very instructive in this matter.
Certainly, one of these foreign carmakers that are reported to be interested in controlling Proton sees an inherent value of Proton to their business beyond its cash and manufacturing assets. There must certainly be something in Proton’s Knowledge-Driven core, its IP, which has resulted in this carmaker declaring a clear interest in Proton’s design capabilities. If a foreign carmaker sees Proton’s value as a Knowledge-Driven carmaker, we Malaysians certainly should certainly think twice before abandoning Proton to an inferior assembly-driven vision.
But what if Proton then fails?
If it fails, it fails! What is important is that in that journey to be a Knowledge-Driven carmaker, Proton also provides the opportunity for Malaysians to be exposed to the experience and ability to develop IP and technology in a competitive industry. Such an enriching experience is really the basis of why Proton as a Knowledge-Driven entity is such an important legacy of Dr M’s, not just its potential to industrialize Malaysia and prosper the nation.
To be a truly developed nation, Malaysia and Malaysians must have the capacity to nurture Knowledge-Driven entities such as Proton was evolving under TS Yahaya Ahmad and Tgk. Mahaleel. And even if Proton fails, by that time, its journey would have enriched the nation such that there should be other Malaysian Knowledge-Driven corporate champions competing at a global level.
The author has been an employee of a Knowledge-Driven Oil and Gas Super-Major for 8 years. He has worked in Manufacturing, R&D and Supply Chain Optimisation in operational roles and projects across 6 continents. He is currently performing a Downstream Oil Marginal Economics role from the Asia Pacific regional office in Singapore.
When A Knowledge-Driven Vision Seems Unclear, Assemble An Inferior Vision?
By A M Ubaidah S
A Brief Reason For This Piece
In the wake of the public uproar over AP Abuse and the Tax Under-Declaration of Imported Automobiles into Malaysia, the issue of the feasibility of Proton, the principal Malaysian national car project has again come into question. This also well coincides with the Malaysian Government’s long awaited re-look into the National Automotive Policy (NAP).
Whatever the views of the Malaysian public over the state of Proton the company and the quality and make of its cars, the dismissal of Tengku Tan Sri Mahaleel Tengku Ariff from the post of CEO of Proton, some three months prior to his contract’s official end, has been seen as a move against a vision that he has championed and shared with the founder of Proton, Tun Dr Mahathir (Dr M).
Though some have pointed to the poor relationship between the Proton Board of Directors and Tgk. Mahaleel as the reason for his dismissal, one would hope that such high-level corporate decisions are made for reasons more fundamental to business than just an issue of personal likes and dislikes. There had been some indication that the main issue leading to the dismissal is the difference in views between the board and the Tgk. Mahaleel-led management on the way Proton is managed, from the management decision-making process, through to Proton’s overall vision.
Soon after Tgk. Mahaleel’s dismissal, Wong Sulong of The Star newspaper presented a new spin that Tgk. Mahaleel was dismissed because of just such a fundamental disagreement with the Proton Board. According to Wong’s article, it seems the board wanted Proton to consider amalgamating Proton with all other national car companies and car assemblers in Malaysia into a big consortium to gain ‘economies of scale’. Tgk. Mahaleel believed the idea mooted by the board is not in the best interest of Proton and that Proton can succeed on its own.
Interestingly, Wong Sulong’s article was the first time I, and many, had ever heard of a ‘new vision’ by the government to consolidate the nation’s many auto industries into a single ‘mega-assembler’ so to speak as the reason for the tension with Tgk. Mahaleel; and I for one hope it was not a new excuse someone spun to justify the unjustifiable
Let me start by saying this. In my view, Khazanah’s and the Proton Board’s decision to proceed with the dismissal of Tgk. Mahaleel is flawed especially if it is to advance this so called ‘new vision’ for Proton. This is because this so called new vision for Proton, as part of a mega-assembler instead of a proper car company, is a backward step for Malaysia as a nation.
I have no idea if the Prime Minister, Dato’ Seri Abdullah Ahmad Badawi, or Pak Lah as we all know him, was well briefed and consulted on this decision. This is as astoundingly when Khazanah allowed Proton’s Board to dismiss Tgk. Mahaleel for the sake of this change of vision, they basically went against Pak Lah’s repeatedly stated public policy of transforming Malaysia from an economy that makes and assembles things, to an economy that is based on innovation!
Why do I say the stated ‘new vision’ for Proton is flawed?
There is one thing that differentiates Proton from any other national car project and the myriad assemblers in Malaysia, or even in the region, including the so-called Detroit of Asia, Thailand. Proton has the ability to design cars from the bottom up. Though many point to this being a result of the 1996 Lotus acquisition, much has changed since the acquisition, such that Proton’s design team now has a Malaysian core, with a higher percentage of its newer cars designed locally, the Savvy and Gen2 being the most recent, quite promising results.
Before anyone scoffs at the idea of the Savvy and Gen2 being promising, note that both cars, as well as the Waja, meet one of the most difficult standards that cars face in the world today, the European emissions/environmental standards. Others may also be surprised to know that the suspension and other structural platform features that are applied on the Gen2 is actually ahead of those of some Korean brands - e.g. the Kia platforms tend to under perform versus engine-size compared to Proton cars because the Koreans have been using old technology in this area.
As such, Proton is currently the only company in Malaysia, or even ASEAN, with the capacity to evolve into a full-fledged global player in the automotive sector.
Why is Proton the only ASEAN car company that can evolve into a global player?
This is because unlike other car companies and assemblers in ASEAN, Proton owns its own intellectual property (IP) in car design. This is in turn significant as the business model of the future in all industries, from cars, to furniture to mobile telephony, the ownership and growth of intellectual property is the key to long-term growth and sustainability. This business model is precisely the type of knowledge driven business model that Pak Lah, and Dr M before him, has been urging Malaysians to pursue.
We see the success of such a business model in mobile phones, where Nokia, a company from Finland, with a population and market far smaller than ours, dominates the global market. Interestingly, Nokia does not own much in terms of assets, as much of their capital-intensive activities, including the making of mobile phones, are outsourced. However, Nokia owns its own intellectual property, and continues to build on it, allowing it to earn enormous profits and to sustain its growth into the future.
And Nokia is not a unique example either. The world abounds with examples of global brands coming from countries with small populations that have not just a significant share of but are acknowledged market leaders in their respective global markets through control of IP. Among them are household names such as IKEA (furniture) from Sweden, and Nestle (food) and Novartis (pharmaceuticals), both from Switzerland.
Let us call this business model that is applied by Nokia and many others, and pursued by Proton under Tgk. Mahaleel, the “Knowledge-Driven Business Model”. This is as opposed to the new vision that was conveyed by Wong Sulong’s article, which I call the “Assembler-Driven Business Model”.
Hence, Proton, as it builds its IP whilst practicing this Knowledge-Driven Business Model, would be rapidly evolving into a model like Nokia's in mobile phones - it is able to transform into an IP, marketing, finance and distribution organisation, where even the few manufacturing assets it owns are also really for production R&D, with the majority of capital intensive activities like assembly and manufacturing being outsourced. This model is being used by other carmakers globally and Proton is the only car company in ASEAN on the verge of achieving this.
Why do I link Tgk. Mahaleel’s vision for Proton to the Knowledge-Driven Business Model here?
Actually, Tgk. Mahaleel as an individual here is less important than the type of individual that he represents. Individuals like Tgk. Mahaleel interestingly understand the importance of pursuing a “Knowledge-Driven Business Model” for Proton and this is publicly demonstrated, both by his words and by his actions. In terms of action, his tenure in Proton has been clearly defined by the following efforts:
1 - Building Proton’s intellectual property, even in a roundabout way if there is no clear direct way. This he picked up from his mentor, the late Tan Sri Yahaya Ahmad (who interestingly is an individual not unlike Tgk. Mahaleel).
A good example of this was Proton’s acquisition of MV Augusta. MV Augusta was not purchased because Proton wanted to start making motorcycles. It was bought so Proton could gain the expertise of building smaller engines. Augusta’s engines, though for motorcycles, were high-powered engines, with engine sizes near the size of small cars - precisely the engine sizes that Proton lacked expertise in.
Tgk. Mahaleel and his team’s plan was simply to gain the intellectual property from Augusta to able to build engines for the class of cars like Savvy, or even smaller, with the vision of eventually for Proton to produce such smaller cars or maybe even to allow Proton to sell such engines to Perodua and other small car companies in the region.
Analysts were convinced that the MV Augusta purchase did not make sense for Proton - but then again, the same analysts may not be individuals like Tgk. Mahaleel and TS Yahaya Ahmad - and hence are unable to see the point of acquiring a company to gain its IP.
2 - Tgk. Mahaleel had repeatedly stated that any alliance between Proton and foreign manufacturer has to make sense to Proton, but where Dr M was keen to protect Proton’s Malaysian ownership, Tgk. Mahaleel has been consistent in saying that the alliance must grow Proton’s IP. In the case of the VW JV/alliance for instance, the first thing that came to Tgk. Mahaleel’s mind on the benefit of the alliance when asked by Malaysian Business is Proton’s urgent need to learn more about power-trains from VW. Other benefits like cost reduction were mentioned later.
3 - One of the greatest battles that Tgk. Mahaleel won for Proton was the battle with EON, with the main issue being that EON did not want to fund development of new IP at Proton. EON then, as sole distributor and main financier, generated far more cash from the business than Proton, so much more so that EON could build its own bank, whilst leaving Proton carrying the higher cost burden as the manufacturer and without IP development monies.
Tgk. Mahaleel succeeded in wresting the distributorship deal from EON and has been building Proton’s own marketing network and financing business, not just to allow Proton to enjoy more % direct profit, but to allow Proton to have access to its own IP development funding.
Even if Tgk. Mahaleel is clearly a “Knowledge-Driven Business Model” supporter when leading Proton, why do I say that his removal and the declared new vision will result in Proton adopting an “Assembler-Driven Business Model”, not a Knowledge-Driven one?
To put it simply, businesses that succeed need to focus on one business model and pursue it to the best of its abilities. This is because different business models require fundamentally different approaches that may be in conflict in each other. For instance, compare the 2 models in question:
Knowledge-Driven model: Significant amount of money needs to be spent on R&D and IP creation, money that is only recoverable if efforts succeed and adds to cost of production in the short run, with the medium-longer term benefit of higher profits from new IP.
Assembler -Driven model: Cost saving model, where all cost are minimized to maximize profit. Majority of IP adopted is to further reduce assembly cost and is not developed in house, but directly or indirectly bought from outside party.
As Knowledge-Driven needs to spend money to develop IP first to make money later and the Assembly-Driven wants to cut ALL cost, a company can only choose to pursue one model in order to succeed.
When we compare all the car producing and assembling companies in Malaysia, it is clear that Proton is the only Knowledge-Driven one, whilst the others, including its nearest counterpart, Perodua, are Assembler-Driven ones. Perodua for instance still does not have a design house capable of fundamental design changes such as to its car’s engine and structural platform, whereas Proton is actually actively pursuing sales of its structural platform designs.
This signals a fundamental difference between Proton’s focus towards a Knowledge-Driven Business Model and the Assembler-Driven model of the other car companies and assemblers in Malaysia.
Therefore, if the government via Khazanah chooses to pursue the merging of all the car producing and assembling companies in Malaysia, only the one business model, Knowledge-Driven or Assembler-Driven can be pursued, not both together. As the majority of car companies in Malaysia are Assembler-Driven and Proton is relatively new in applying a Knowledge-Driven business model, it is more likely that when the merger occurs, Proton will be downgraded from a promising Knowledge-Driven car company into a plain Assembler-Driven one.
But then again, how can you be sure this is the case? Khazanah may still choose for Proton to lead the merger and remain a Knowledge-Driven car company.
Actually, I think this new vision of merging all the Malaysian car-related companies clearly involves absorbing Proton and destroying its Knowledge-Driven drive and establishing a single Malaysian Assembler-Driven car company. This is because all the local business leaders from outside of Proton that are being touted as future successors of Tgk. Mahaleel so far are from Assembler-Driven companies, and so would likely impose an Assembler-Driven business model rather than a Knowledge-Driven business model.
Again, I reiterate that Tgk. Mahaleel the individual here is not as much an issue as the type of person he is. If Khazanah and the Proton board were serious about building Proton as Knowledge-Driven Company, the names being touted would have been different. They would have been people with a reputation in innovation, or senior execs from companies that have a culture of innovation or indeed practice a Knowledge-Driven Business Model.
Now there are even media reports, especially from The Edge, about Khazanah considering the sale of either a majority or a controlling share of Proton to one of two foreign car companies. In both cases, it seems the aspiration of the foreign partner is to turn Proton into some sort of subsidiary to focus on local or regional production or on assembly of their own marques.
This idea of selling Proton to a foreign entity clearly indicates a view that Proton should not simply to be downgraded from being a potential Malaysian Knowledge-Driven global player in the car industry into a large but local run-of-the-mill vehicle assembler, but that it could potentially be sacrificed to becoming a local subsidiary of a foreign car-maker!
If Khazanah was really interested in having Proton continue to grow and fulfil its promise as a global or even regional car company, I would have expected Khazanah and the Proton Board to be protecting the Knowledge-Driven vision for Proton by seeking individuals with attributes very much like that of Tan Sri Yahaya Ahmad and Tgk. Mahaleel to be its next CEO.
With such aspirations, Khazanah should indeed then leave it to Proton to enhance its Knowledge Driven model and as best as possible support further foreign or even local acquisitions and the formation of alliances for the purpose of nurturing and building Proton’s IP pool. Khazanah could then aspire for Proton and its leadership to then be an example, maybe via industry councils, to transform other Khazanah and other Malaysian companies into Knowledge-Driven concerns too!
In supporting a Knowledge Driven Proton, Khazanah should thus certainly not be contemplating the destruction of Proton’s Knowledge-Driven aspirations by entertaining ideas of diluting Proton’s focus through a merger with other local companies and assemblers, and especially not by surrendering control of Proton to a foreign car company. Such actions would not just result in a loss of business potential, but as mentioned, it would also run contrary to the aspirations of the nation, as repeatedly iterated by Pak Lah in many forums.
If I say that the local business leaders being mentioned as potential successors of Tgk. Mahaleel are unsuitable, does this mean Proton has to consider a foreign CEO to guide it into the future?
I don’t think so. The truth is, there is local talent in Malaysia that fits the mould of a TS Yahaya Ahmad and Tgk. Mahaleel, who were themselves of course local talent with a Knowledge-Driven outlook. Potential successors need neither currently be managers of other local car companies or assemblers nor need be a leader in a company even linked to the automotive industry.
Remember that the mindset of the future CEO is the key to his success in pursuing a Knowledge-Driven future for Proton, a mindset that is preferably nurtured by experience in a company or companies that exercise a Knowledge-Driven Culture. Tgk. Mahaleel for instance had the benefit of experience from a Knowledge-Driven oil company and Knowledge-Driven food company, Shell and before that Nestle respectively. Pick up any business book on these 2 companies and you will see that both are Knowledge-Driven.
The other key players in Proton’s evolution, Tgk. Mahaleel’s mentor, the late TS Yahaya Ahmad and Dr M are also similarly Knowledge-Driven leaders. I am sure there are other leaders of this mould waiting to be given the opportunity to advance Proton into a Knowledge-Driven future.
However, a greater concern for me is the capacity of the Proton Board, or rather its potential lack of, to recognize a person with a Knowledge-Driven leader as a potential next CEO of Proton.
Surely Proton’s Board Of Directors Is In The Best Position To Decide The Most Suitable CEO To Fulfil Proton’s Vision
But that is precisely my concern over the board’s choice for the future CEO of Proton. In the first place, if Wong Sulong’s article was accurate, then the board seems bent on turning Proton into an Assembler-Driven company, despite this being against the public aspirations of Pak Lah for the Government Linked Companies (GLCs). If this is so, how is the board able to choose a CEO suited to mould Proton into a Knowledge-Driven company. The board’s fundamental views on this must first be changed.
In addition to that, the board demonstrated in the treatment of its relationship of Tgk. Mahaleel that it wished to control and reign in the maverick drive that tends to be inherent in leaders of the Knowledge-Driven mould. You see, Knowledge-Driven leaders and CEOs tend to be also difficult and maverick individuals that need a lot of leeway and open support from their company board to succeed. Such mavericks are commonplace in the history of the car industry.
For instance, the great car industry leader, Lee Iacocca, was actually forced to resign by the General Motors (GM) board for his maverick tendencies. However, Iacocca then revealed his brilliance when he turned around Chrysler from being an ailing company into a thriving competitor to GM in the 80’s and 90’s prior to its merger with Daimler-Benz.
Even the founder of the modern car industry, Henry Ford, was once dragged to court, in large part due to his apparent arrogance causing many powerful people to be unhappy with him.
If Proton’s board not only does not have a Knowledge-Driven vision for Proton, but also does not have the patience needed to support typically maverick Knowledge-Driven leaders, how can it be expected to select a Knowledge -Driven CEO? They actually just dismissed a Knowledge-Driven CEO remember? And the CEO they dismissed was actually successful in making Proton profitable and viable for the future!
Ah, but some actually say that Proton has managed to succeed and remain profitable so far, despite the much quoted quality problems of its cars, because it has always been protected by the government through tariffs and high import taxes on foreign cars. Shouldn’t such protection be removed from Proton after 20 years?
Actually, I tend to agree with this statement. Of course Proton has gained from protection over the many years, and there is no denying that this has helped enormously to ensure Proton’s success and profitability as the leading carmaker in the country. Nevertheless, one should not deny that this success would not be possible if Proton was not able to produce cars that are of increasingly good design when competing against foreign imports, knowing how difficult a market Malaysian can be when it comes to cars. And again, the protection allowed for this success too.
I actually also agree that maybe it is time for Proton’s protection to be removed. Sure, most countries continue protecting their local car companies, directly or indirectly, for more than 20 years, with Korea, the US and India being the most blatant over the past few decades. But Proton has grown sufficiently I feel into an increasingly Knowledge-Driven car company that the protection should be removed as a final test of its resilience.
In addition to the removal of such protection being beneficial by relieving the burden that Malaysians had been in most part willingly supporting to develop our national car industry, i.e. Proton, this would also allow Proton to prove to its detractors that it has the wherewithal to survive on its own, without protection, and that Malaysians should be proud of it for its merits as a national champion.
However, as often mentioned by Tgk. Mahaleel and consistently repeated by Dr M as Proton’s adviser, Proton as an entity need not be protected any longer for it to succeed as a Malaysian, regional, or indeed global car company as long as the government:
1 - Address the problem of AP allocation abuse that were being committed to benefit the individuals now known as the AP Kings and their ilk and partners. It is understood that the government is pursuing this after much public outcry.
2 - Address the problem of under-declaration of price of the imported vehicles. This practice has been allowing Korean car marquees, among others, to be dumped in the country to the detriment of our local car industry and costing government millions to billions of Ringgit in tax income. The guilty parties such as owners and manager of the Naza group for instance should be charged in court for their crimes.
3 - Most critically, the government allows Proton to source its parts from non-local sources, the way Perodua does. At the moment, the national automotive policy forces Proton to be the nursemaid to our local vendors of auto-parts, despite their lack of quality even after many years of experience. Indeed, technical audits have proven that most if not all Proton’s quality problems arise from the poor quality parts supplied by some local vendors that Proton is forced by government to support.
But why should Proton be given a chance to continue as a Malaysian owned and controlled Knowledge-Driven Company if it has not been able to address its quality issues during the period of government protection?
Actually, Proton should be given the chance to prove itself first in an unprotected environment before anyone says it cannot survive without protection! No analysts, journalist, critic or even industry leader can claim to be able to predict whether or not Proton will succeed or fail without protection. However, how will we ever know Proton’s worth as a fledgling Knowledge-Driven entity if it is not first allowed to face the challenge of zero local protection?
Certainly Proton has a lower likelihood of success without protection if the government does not first address the 3 matters highlighted above, but if the government addresses the AP abuse and under-declaration issues, as well as allows Proton to source higher quality non-local parts, Proton has every chance of success.
Indeed, based on the history of other car-makers, Proton certainly has a better chance of succeeding long-term as a Knowledge-Driven car-maker of its own right rather than as part of a patched together mega-assembler of cars or even a subsidiary of a foreign car company; the Rover car story being very instructive in this matter.
Certainly, one of these foreign carmakers that are reported to be interested in controlling Proton sees an inherent value of Proton to their business beyond its cash and manufacturing assets. There must certainly be something in Proton’s Knowledge-Driven core, its IP, which has resulted in this carmaker declaring a clear interest in Proton’s design capabilities. If a foreign carmaker sees Proton’s value as a Knowledge-Driven carmaker, we Malaysians certainly should certainly think twice before abandoning Proton to an inferior assembly-driven vision.
But what if Proton then fails?
If it fails, it fails! What is important is that in that journey to be a Knowledge-Driven carmaker, Proton also provides the opportunity for Malaysians to be exposed to the experience and ability to develop IP and technology in a competitive industry. Such an enriching experience is really the basis of why Proton as a Knowledge-Driven entity is such an important legacy of Dr M’s, not just its potential to industrialize Malaysia and prosper the nation.
To be a truly developed nation, Malaysia and Malaysians must have the capacity to nurture Knowledge-Driven entities such as Proton was evolving under TS Yahaya Ahmad and Tgk. Mahaleel. And even if Proton fails, by that time, its journey would have enriched the nation such that there should be other Malaysian Knowledge-Driven corporate champions competing at a global level.
The author has been an employee of a Knowledge-Driven Oil and Gas Super-Major for 8 years. He has worked in Manufacturing, R&D and Supply Chain Optimisation in operational roles and projects across 6 continents. He is currently performing a Downstream Oil Marginal Economics role from the Asia Pacific regional office in Singapore.
