Industrialising Malaysia: Policy, Performance, Prospects

By Jomo K. S. | Go to book overview

10

MADE-IN-MALAYSIA: THE PROTON PROJECT

S. Jayasankaran

In October 1982, Malaysia’s Prime Minister, Dr Mahathir Mohamad, announced Southeast Asia’s most ambitious automotive project, the manufacture of a made-in-Malaysia automobile. Officially, the project began with the incorporation of Perusahaan Otomobil Nasional Sendirian Bhd (the National Automobile Enterprise Co Ltd) or, simply, Proton, in May 1983.

Unofficially, it began a lot earlier, almost as soon as Mahathir became PM in May 1981 (Malaysian Business [MB] cover story, 1 January 1986). Project Proton was conceived as the lynchpin of a broader state-led effort to propel the country into full-fledged industrialisation. Going the heavy industrial route was also seen as a way to strengthen the economic position of the indigenous Bumiputras, better to achieve the targets set by the New Economic Policy (NEP) 1 .

Thus, Proton was set up as a joint venture between HICOM (the Heavy Industries Corporation of Malaysia, a state agency set up in 1978 to implement major industrial projects) and Mitsubishi. HICOM contributed 70 per cent of the total paid-up capital of M$150 million, with Mitsubishi Corporation (MC) and its subsidiary, Mitsubishi Motor Corporation (MMC), each taking up a 15 per cent stake. However, most of the funds required for construction and operation came from Japanese sources - Proton raised a total of some 33 billion yen from Mitsubishi-related banks (Shiode, 1989).

By April 1986, a year ahead of schedule, the first Sagas - as the car was named, after a nationwide contest - were rolling off the assembly line located in Shah Alam, a light industrial area some 15 km from Kuala Lumpur. At the time, the plant was running at 25 per cent of installed capacity, producing 105 cars a day. (It was initially designed for 21.3 units per hour with a volume of 40,000 units per year on a single shift, or 120,000 cars a year over three shifts. )

Proton’s ‘success’ has been a decidedly chequered one. Certainly, its introduction has managed to shake up an industry that was in sore need of rationalisation. Nor is there any doubt about the car’s quality; it is no better and no worse than its competition. The costs, however, have been high (Chee, 1983; Jomo, 1983; Shiode, 1989). The economic burden of the Proton project in the first decade of its existence has been estimated to be at least M$1.6 billion (Chee, 1983). In 1989, the company announced its first profits ever (M$32.5 million), after four years of consecutive losses. However, it still bears some M$136 million in accumulated losses on its books. It has captured almost 70 per cent of the local passenger car market in its engine capacity range, and is likely to retain its market leader status if only because it remains exempt from the 40 per cent import duties that its competition has to bear. On the other hand, it has begun exporting, and successfully at that: in its first year of sales to the United Kingdom, the company managed to sell 10,000 units, setting a record for new entrants in the process (Business Times supplement, 2 December 1989).

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