Proton was formed in year 1983 and is known as the first automobile manufacturing company and they have been operating their investment outside Malaysia too. Lotus, the well renowned car is under Malaysian based company Proton. Their idea of making cars totally depends on consumer preferences and demand. They operate in different markets like Australia, Middle East, South East, Western Europe and UK. The input driver of proton is the strong partnership and regular learning of technology and development. Other objectives include creating outstanding and fast cars in coming future with holds on passion of consumers.
Organizational Structure:
Proton is a Malaysian based automobile company serving Malaysian citizen for lots of years. This proton has made RM 5.6 billion compared to last year's financial status which was RM 4.9 billion. Their excessive success has lead to remarkable profits all over Malaysia. However, the main success started by launching the new product which the cars are provided by proton in recent years which is persona and saga. Proton's commitment to its customers on research and development in last few years and continuous research has and will lead the firm to improve their gross profits.
Introduction of the Investment:
Proton is now planning to invest in Indonesia. The objective of increasing their profits only comes up with the idea of good marketing skills. Proton has been making a lot of money all over Malaysia. This research mainly concentrates on what are the advantages and disadvantages in respect of investing in Indonesia with some other brand name. However, it will also cover the idea of creating and distributing their cars in some other country with a different concept. It also helps the Globalization of trading in and out among countries. This research will give a detail idea of how the investment will be made keeping in respect the financial stability of both countries which includes liquidity, profitability and efficiency of the firm.
Purpose of Report:
The purpose of this report is to calculate and make a proper assumption on weather the investment made in Indonesia will be profitable or not. However, it is not easy for them to create the accurate figures. There are lots of political, economical, social analyses which are to be considered while working on this investment. However, the strength weakness, opportunity analysis is equally important in respect with the country the firm is expecting to invest.
Selection of the Country:
The selected country for this investment is Indonesia. This country is selected due to other practical reasons like economy crisis and political affairs. Malaysia has always been a peaceful country with no political affairs with foreign party and hence, Proton is investing in Indonesia an expecting their net profits to get higher as time passes by which will be no longer than 5 years and their motive is to get maintain their profits for at least 60% every year. However, investing in Indonesia seems to be less risk than investing in other countries like Thailand, Hong Kong, China. The targeted market of this country is way better than the targeted market of other countries. The economy is not stable and investing in Western countries might turn out to be a complete loss.
COUNTRY ANALYSIS:
Political Analysis:
Indonesia's political effectiveness is very strong compared to other countries and thus, the investment is a good idea. For instance, when the tsunami hit Indonesia the Government called other international countries for help in respect with financial, social and moral help. Malaysia participated in helping them. However, the political relationship between these two Government of Malaysia and Indonesia has always co operated. The trade between two countries on the permission of the Government has always run smoothly starting from the skilled engineers, IT savvy, businessmen, labors, consumers etc. The three main laws are the General Legal System which is followed since Dutch Legal System, Secondly; the Muslim system applies on all Muslim and lastly, the customary law which applies for local disputes.
Economic Analysis:
The interest rates provided by the Bank of Indonesia since 2005 has not really changed and it has remained the same for years. Indonesia has not been increasing their discount rate even where they have economical crisis. The idea of not changing the System for quite long has made them maintain profits yet there is not much in competition when it comes to banking system of Malaysia. Bank Negara of Malaysia change their interest rate and discount rate as per the economical analysis made by the management or the board of directors. However, changing it twice in one year is not a big deal.
Social Analysis:
SI and DAI Environmental Service programs have been working together on different kind of projects involved. However, the main project they work on so that the no gender bias or problems can be created in recent time is that they supply water on regular basis. With the investment of Proton in Indonesia might turn out to be the less risk and more profits because the social assumption of issues in Indonesia in coming years seems to be less compared to the other countries. Societal wise the technical support of the projects foreign investors like to play in Indonesia is less risky and very profitable especially when it comes to social factors.
Technological Analysis:
Technological factors provide information of the technology and the telecom development, technological policies and outcomes, gaps in policies, patents and opportunity sector in Indonesia. However, the motive of Proton of research and development in recent years can be continued with a new start in Indonesia. The expenses on development with technological factors is slight lesser than the one in Malaysia. However, the regular research and the passion of Proton of developing at least one car sports car which can go really fast can be conducted with the same motive between two countries. Hence, Globalization stays on its own credibility. In coming future, Proton is expecting to revise and customize Indonesia's technology in their own company by hiring the technicians and engineers in their country.
ENTRY MODE:
When it comes to international business every firm needs entry mode so that they are secured and legal in the eyes of Government and the law provided by those countries. Although, the percentage of international business in Indonesia is slightly lesser than compared to other countries but the direct investment made in this research will turn to be totally profitable because there will be no competitors in this field. At the same time firms representing themselves in foreign country normally have a trouble when it comes to Entry Mode of the country they are planning to invest. Hence, this kind of investment is known as foreign direct investment (FDI).
SWOT ANALYSIS:
Strength:
The strength of Proton is that they are able to sell cars on a very low price compared to other cars in other cars. As we all know that the efforts made by proton to sell in foreign countries like middle east, Australia and many more yet the price remains the same. However, Proton is the only one company which is fully protected by the Government and the Government has its own interest in it such as tax, road tax etc. Other advantage of having this kind of back up from the Government is that if one day proton gets in trouble due to any technical reason then the Government can help them in any means. These are the strength which was included when Proton was invented in 1983 and it changes as the economy gets better and they enjoy more offers and the trust in the Government and the consumers. When invested in foreign country like Indonesia they would expect the same return of exchange they had with Malaysian Government. However, assuming anything more than that might not turn that profitable for the firm.
Weakness:
Proton has the cheapest cars and the consumers can afford to buy one of them. Hence, the over demand of Proton cars is weakness of Proton which eventually is getting lower as they are making their profits and efficient supply every month. The idea of convincing the customer to buy a product and satisfying doesn't work for every sector. However, proton has been working hard to satisfy the demand but they could never satisfy their customers by creating effective, dedicated and efficient product. In recent years the research on developing their cars, customizing them according to the customers taste has been the main priority of proton. This weakness might slow down the business when they invest in Indonesia and the only way to over come it is to hire new and trained employees and keep the quality and quantity demanded equally important.
Opportunity:
Upcoming competitor like other brands in automobile industry have caused lot of problems in respect with the price and the competition has increased so high that the affording cars for consumers have become easy. However, when the petrol increase Proton creates its own strategies by creating cars which good consumption of petrol. As the young youth comes in emerging new brands, modified cars have become the new fashion. Especially, for those teenagers and hence, this can be most attractive and most effective marketing strategy. When invested in Indonesia the company will come with the idea of targeting the market according to the consumer preferences and the demand. Initially they will have cars on a very low price but once proton is stable in this business in Indonesia they will increase the price and target market as meanwhile they will have idea if the targeted market of Malaysia is the same as the targeted market of Indonesia.
Threats:
As competition increases we have realized that the ability of existing to come with new products increases too. For instance, if the motor cyclist in Malaysia is high then they have brought Myvi in this field so that they can decrease the rate of motor cycle and increase the number of cars. Either way Proton does have a disadvantage. The only way to over come this idea is to maintain the productivity of proton or to increase the demand. The least expected from the consumers will be to fulfill their demands so that they can buy Proton. However, proton has been launching their new product in last few years like persona and saga and this have lead them to increase their profits. While investing in Indonesia, proton has to make sure that the competition is less. If it is not then they would want to come with new products and come with different proposals.
INDUSTRY ANALYSIS:
The automobile industry of Malaysia and Indonesia has not as good as compared to European Countries. Foreign Countries most likely invest in China and that's the only one Asian country which has lots of International Business all over the world. Industry Analysis normally consists of research trend. The growth of automobile industry in Indonesia is growing steadily. Factors which include such kind of things is that low interest rate, credibility and many more. As the whole industry will gear up in automobile industry Indonesia is going to face stiff competition in this world. Other factors include infrastructure, low tax, incentives are blamed for foreign direct investment if it doesn't turn to profits. However, at such point Proton might have some disappointment when it comes to investing in Indonesia. But then again the creating jobs over 300,000 and getting profits of more $ 7 billion is always the peak heights of Indonesia as the economy rose to 5.1% in 2005.
FINANCE
Company Performance:
The stock data shows that the current price in RM 4.91. The financial year of Proton ends in year 2009 December and the sales turnover is 6,486, 570,000. At the same time the fiscal year ends in March 2010. Employees working in this co operation are roughly 9525 in which majority are Malaysians unless hired by Proton HR Management from foreign countries. The outstanding shares of this cooperation are roughly 549, 213,000 at the beginning of the year. Whereas, the closed held shares are 322, 037, 693. One week Stock performance of Proton is 4.2%, in one month it is 22.8%, in 13 weeks it is 8.9% and in year one year it is 146.7%.
Above is the diagram of Proton price, earning and dividends. This statistics shows us that the highest dividend to all share holders was only provided in year 2005. However, this started decreasing gradually. The earning on 2005 is not as good in year 2009 or 2010. Economical crisis in year 2007 has made lots of organization in bankruptcy hence; Proton has come down with -10 in year 2007. The prices in year 2005 were high but as per the SWOT Analysis and the PESTAL analysis the decision of decreasing price yet maintaining the profit was a good decision made by proton.
With the above information of continuous fall of proton in their dividends, price and earning we can conclude that investing in Indonesia in respect with the economy there and the less risk is not a bad idea. However, proton makes profits with outsourcing and other strong marketing strategies has lead the company to main to bring their profits from 4.9 billion to 5.7 billion which is a good start in economical crisis.
Financial Ratios:
BALANCE SHEET AS AT 31 MARCH 2008
Group
Company
2008
RM'000
Restated
2007
RM'000
2008
RM'000
2007
RM'000
NON-CURRENT ASSET
Property, plant and equipment
3,150,446
3,179.4
-
-
Prepaid land lease payments
24,031
-
-
Goodwill
29.008
29.008
-
-
Intangible Assets
275,192
169.075
-
-
Subsidiary companies
-
-
1,708,651
1,708,651
Associated Companies
165,443
169,758
13,600
13,600
Jointly controlled entities
192,747
223,550
-
-
Investments
10,397
10,397
6,475
6,475
Total Non-Current Assets
3,847,264
3,781,227
1,728,726
1,728,726
CURRENT ASSETS
Inventories
1,100,286
1,273.612
-
-
Trade and other receivables
969.344
981,025
14
5
Amount due from subsidiary companies
-
-
66,219
66,219
Amount due from associated companies
10,713
24,314
-
-
Amount due from jointly controlled entities
4,430
10,618
-
-
Tax recoverable
114,479
176,048
273
314
Current investment
20,822
73,448
-
-
Dividends receivable
-
-
14,800
-
Deposits, bank and cash balances
1,226,010
626,475
26,296
10,610
Total Current Assets
3,446,084
3,165,540
107,602
77,148
TOTAL ASSETS
7,293,348
6,946,767
1,836,328
1,805,874
Group
Company
2008
RM'000
Restated
2007
RM'000
2008
RM'000
2007
RM'000
EQUITY AND LIABILITIES
Share capital
549,213
549,213
549.213
549.213
Reserves
4,872,043
4,681,375
1,278,604
1,248,223
Equity attributable to equity holders of the Company
5,421,256
5,230,588
1,827,817
1,797,436
Total Equity
5,421,256
5,230,588
1,827,817
1,797,436
NON-CURRENT LIABILITIES
Long term liabilities
230,473
181,637
-
-
Deferred tax liabilities
2,439
754
-
-
Total Non-current Liabilities
232,912
182,391
-
-
CURRENT LIABILITIES
Trade and other payables
1,235,520
1,046,338
575
790
Provision
186,556
196,067
-
-
Amount due to subsidiary companies
-
-
7,936
7,648
Amount due to associated companies
84,984
99,675
-
-
Amount due to jointly controlled entities
16,958
25,060
-
-
Taxation
1,556
2,222
-
-
Short term borrowings
113,606
164,426
-
-
Total Current Liabilities
1,639,180
1,533,788
8,511
8,438
LIABILITIES
1,872,092
1,716,179
8,511
8,438
TOTAL EQUITY AND LIABILITIES
7,293,348
6,946,767
1,836,328
1,805,874
Net assets per share attributable to equity holders of the Company (RM)
9.87
9.52
Liquidity Ratio:
The formula to calculate liquidity ratio is Current Ratio= Current Asset/ Current Liability. Total Current assets of proton in year 2008 is 3,446,084 and the total current liabilities are 1,639, 180. Now that we have the figures we can easily get the liquidity ratio of proton which is 2.10. This shows us that the liquidity ratio of Proton is not as bad as expected in this economy. Normally every firm maintains liquidity if at least 2 but, maintaining more than that is pretty good. While investing in Indonesia Proton will consider their current assets and current liabilities but it will be just an assumption of how much their turnover will be. Normally, financial wise assets have to be two times more than liabilities so that they can cover their liabilities.
Profitability Ratio:
Profitability ratio is the net profit after tax divided by the sales turnover. This ratio helps firms to analyze their profits after they sell their product. It is one of the most important and the main objective of the firm. Proton profitability ratio is calculated in the following way.
Profits after tax of proton in the year 2008 is RM 202, 869 and the sales turnover of proton in the same year is roughly RM 334, 600 is 0.60%. According to the normal analysis the ratio is not that good because of economical crisis yet they manage to maintain the credibility of the profits in less than year by providing better services and keeping the momentum of demand at the same time. When investing in Indonesia, Proton has to make sure that the services provided to consumers in that country, targeted market, marketing strategies and the suppy-demand inter relation is always equal. However, this can be only assumed but cannot be accurate.
Efficiency Ratio:
Efficiency Ratio can be calculated on the basis of how well the organization can actually assume the assets over their liabilities. Hence, it is known as efficiency ratio because we are calculating the efficiency of the company. The accounts receivable in the year 2008 is RM 14,800, inventories are none and equity is RM 1,827, 817. Equity is the capital amount of money invested in the business. For this research the equity invested in Indonesia depends on the profits maintained by Proton in Malaysia. Since previous year Proton has maintained their profits from RM 4.7 billion to 5.4 billion which is considered a good investment in last few years.
