Casestudy on Proton
At the October 2000 Association of Southeast Asian Nations (ASEAN) Economic Ministers meeting in Chiang Mai, Thailand, the Malaysian delegation proposed an extension to the ASEAN Free Trade Area (AFTA) tariff reduction scheme in an effort to protect Malaysia's auto industry. Given that the development of Proton and Perodua, the country's national cars, has received extensive government support, protection, and preferential treatment, there was concern whether Malaysia's cars would be competitive with other automakers in the region. Malaysia's request for the extension, however, has been a setback for AFTA, which had hoped that a strong push for further liberalization and Asian globalization would reenergize foreign direct investment in the region, following the devastating Asian financial crisis of 1997-99.
1. The Issue
The case study focuses on the Malaysian automotive industry and the possible disadvantages and advantages that may be caused by the introduction of the Asian Free Trade Area (AFTA). The disadvantages can include loses incurred by the alleviation of protectionist measures, reduction in the overall output, and can have a negative affect on employment. On the other hand, it may open greater opportunities for the automotive industry through the regional cooperation and allow the mentioned industry to penetrate global markets. In order to do this, the goals for automotive industry are as how to improve the quality, become cost competitive, maintain dominance on the domestic market and become competitive in the international market.
Malaysia is a member of the Association of South East Asian Nations (ASEAN) and represents one of the biggest automobile markets in the region. Before the beginning of the economic crisis in 1997, Thailand was the largest automotive market within the ten-nation ASEAN, followed by Indonesia, Malaysia, and then the Philippines. But the