Nadzmi: Nature gives a very good lesson in business

  • Business
  • Thursday, 02 Feb 2012

JUGGLING between his own businesses and being the president of the Badminton Association of Malaysia, Datuk Seri Nadzmi Mohd Salleh seems to have his hands full nowadays. But he still has a driving passion for Proton despite losing his bid to DRB-HICOM.

Here are excerpts from his interview with StarBiz recently.

QUESTION: When you first shared the plans that you had for Proton after bidding for it, analysts and observers alike questioned your intentions and asked why you couldn't do the things you intended while you were still the current chairman. Your comments?

Nadzmi: To my critics, three years in a car company is nothing. We can't do things like how a trading company works; every move we make needs time. The gestation period in the automotive industry is slow due to the long gestation period. When I was appointed to the board as Khazanah's nominee, we reviewed Proton and Lotus's position at that point of time, and the way to go forward is to go global as the domestic market is just too small and seemingly saturated. You must understand the economics of the business and the industry.

Once we have that right, it is the matter of strategising our business plans into short, medium and long-term plans. Most of the plans we are doing today will come into fruition within 24 months, starting with the new model P3-21A in March.

In order for these plans to succeed, we must have a long-term strategic product plan to execute on, and it must also take into account the economics of the industry. The key thing is volume.

We cannot be domestic centric as the local market has already been saturated with many brands and another national car which has split the market share further and this will not give the kind of volume we are looking for.

These are the realities we have to face, and the key is to produce in large quantities because the name of the game is volume. If we don't have the domestic market, we have no choice but to export. However, the export market is very competitive and we need to have a strategy to look at opportunities overseas.

In the past, we did export and had a presence in some countries but the potential upside in these countries was just not there. Proton needs to re-strategise its export strategy and look at huge markets like China, India, Iran and closer to home, Asean.

For the record, under the stewardship of Tan Sri Yahaya Ahmad in the 1990s, I was the only dissenting voice against the acquisition of Lotus back then.

Now, we are only left with two choices on whether to sell or turn around Lotus. Every business plan always has a risk, and the new shareholders should look into the books of Proton and decide on what they should do with Lotus.

How do you think Proton can move forward from its current position?

From the way I see it, the only way for Proton is to set up ventures with strategic partners on multiple kinds and levels of collaborations. I would like to liken this to the ecosystem of nature.

In the African savannah, a big predator hunts alone. But if you're a small African dog, you hunt in packs to bring down your prey. I think nature gives you a very good lesson in business. Proton has to behave like African dogs to survive, and the pack it wants to be in will be with multi-level collaborations with other strategic partners.

Besides that, plans to utilise the excess capacity at the Tanjung Malim plant by collaborating with strategic partners must be there and not just collaborating with a single large original equipment manufacturer.

There would be no more capital investments and, as we utilise the excess capacity, overheads will be greatly reduced on per-unit basis and that will have a few hundred millions coming back into the system. Not to mention also the profit margins that Proton will be getting by manufacturing vehicles for other strategic partners.

These plans were already in place even before I bid for Proton, and that was why I dared to bid for Proton. The whole idea of collaborations is to reduce the cost, and you don't need additional large investments but still can embark on the same kind of collaborations. That is what we are looking for, but we have to make sure that there is no conflict of interest. If we don't protect our partners, nobody would want to do business with us.

For now I think it is up to DRB-Hicom to figure out a way so that the present management can help to assist and bring forward the company. If it has any plans, we can together re-evaluate the plans to move the national carmaker forward. At the end of the day, we can only advise.

Is this the turning point for Proton?

I think it's a turning point, but it depends. For the long term, it is positive. However, there may be teething issues in the near future, but it would not be much of a problem as Proton is not a loss-making company that you need to revamp. DRB-Hicom just needs a plan to make it better and bring it to greater heights.

We have cleaned up the company. A lot of models the previous management developed that cannot meet the amortisation and business volume had been impaired. That is why Proton's profit over the last two years had been so low. If we didn't impair, we could have registered a higher profit, but the new incoming shareholder will have more problems moving forward.

A lot of kitchen sinking has been done, and now the objective is to bring Proton to greater heights so that one day Proton can export in a big way and not incur a cost penalty. Even when the market is liberalised, Proton can effectively compete with others.

Proton used to make RM1bil annually, and we can go back to that. It is not a turnaround as it has not been losing money. While Lotus is a turnaround plan, it has not made money since its acquisition and the five-year plan could potentially make it bigger than Proton.

The upcoming car code-named P3-21A would be the best car Proton has ever produced, in terms of design, body rigidity, accessories, and ride and handling. This will be a complete change to Proton's DNA.

There are also plans to develop a global small car to provide an efficient urban commute for the market.

Do you see any synergies between Proton and DRB-Hicom?

Synergies or conflicts might be up to one's perception, given that DRB-Hicom is a Tier 1 component manufacturer for Proton. The important thing is that it must not be clouded by the presumed synergies in place.

If you look at the history of the automotive industry around the world, the US automotive industry buys and consume what its subsidiaries produces. In the end, the component industry becomes non-competitive and the quality and pricing of components do not match the economies of scale.

Whereas the Japanese have a different arrangement and policy whereby they have a system of third party suppliers. And if the parts are not competitive in pricing or quality, they would not buy it.

The Japanese business model would likely give a better system towards the local automotive industry. And if that happens, the local component industry can become competitive with better quality at lower cost. Eventually they would become stronger over time and even venture out of the country.

With Proton under the wings of DRB-Hicom, the components business and Proton might have synergies and also conflicts of interest. It has to be very careful and not to favour certain companies because they belong to it. Critical components can be manufactured within the group but the rest can be sourced from third parties and bought on a competitive basis.

Even though a certain business division is under it, it must treat it at arm's length and let the companies act independently.

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