By Zuraimi Abdullah
Published: 2010/08/16
Such a union boils down to the will of two key stakeholders: the Malaysian government and Toyota, the world's number one carmaker from Japan
Let's just face it: there will be no merger between Proton Holdings Bhd (5304) and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) this year or next. But other forms of alliances are probable.
It is not that such a union is too complex to deal with in terms of business culture or managing people integration. It boils down to the will of two key stakeholders: the Malaysian government and Toyota, the world's number one carmaker from Japan.
Also, Proton needs a global partner more than a local partner at this stage if it does not want to be just a "jaguh kampung" and aims to take itself up another level on the international stage (although a successful merger with Perodua will ultimately mean securing Toyota's help to move towards its international goal).
Proton's management can offer many reasons to support a merger, both for the two national carmakers and the domestic automotive industry. Perodua, on its part, can try to thwart the latest merger attempt by stressing (and it has already stressed) that it is not feasible and compatible.
But the management aren't the owners. Proton managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir and his Perodua counterpart, Aminar Rashid Salleh, do not have the final say on a merger although they do have some powers in forming other kinds of consolidation.
As the parties with majority stakes in Proton and Perodua, the government and Toyota (via Daihatsu owns the controlling stakes in Perodua's two manufacturing arms) hold the push button to reinvent the automotive industry in the country.
Looking at things now, it is very unlikely that they will seriously make the push. For one, Proton and Perodua are government-linked companies, so they carry great political baggage.
Is the government willing to make every effort to ensure a merger will work by exorcising the ghost of the past? We are talking about the politically-linked vendors of Proton and Perodua.
Some quarters said the equity deal with Volkswagen AG talked about not so long ago failed because of, among other reasons, fears that many Proton vendors would go bust if the German carmaker took over. Volkswagen would probably cut down the number of vendors substantially or replace some with more credible ones to streamline and maximise Proton's production.
In the case of Toyota, there are strong push factors why it would want to merge its lucrative and virtually trouble-free Perodua business with Proton's.
Would the government, through Khazanah Nasional Bhd, be willing to offer Toyota a substantial stake in Proton to make the merger work? Would Toyota be happy if the government only gave it control over the manufacturing aspects and not the whole group?
The push from the government and Toyota aside, a Proton-Perodua merger may be good after all. The rhetoric of any merger has largely to do with cost-savings and synergies. This could happen to Proton and Perodua once they merge. But it still may not address Proton's spare capacity problem.
The two companies do not have much to offer each other. Perodua may offer the merged entity its work culture and quality control; and Proton, its more expansive research and development (R&D) and Lotus technical departments for parts and engineering.
The two may be able to save money and time on product R&D and assembly. In the long run, they can complement each other by producing models uniquely theirs. In other words, both can retain their existing identities. They can also keep their production, sales and distribution networks, which will help avert significant job cuts and closing of outlets.
http://www.btimes.com.my/Current_News/BTIMES/articles/mond15/Article/
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