BACKGROUND OF THE STUDY
Strategic products are generally obtained from one supplier where the short and long-term supply is not guaranteed and represents high value in the cost price of the end product. The strategy is to strive for a partnership-like relationship with the suppliers in order to obtain significant improvement in quality, cost, delivery, product development and innovation. Before the establishment of PROTON the component parts manufactured locally were few and catered basically for the replacement market. However, with the introduction of specific localization programs for the industry, in the mid of 1980s, by PROTON through its Suppliers Development Program (PVDP), more components were produced to cater to the domestic as well as export markets. Many suppliers were born, and later developed and grew solely as a result of this PVDP. There were only 17 suppliers supplying 52 parts when PROTON commenced operations in 1985, most of which were low-tech traditional local parts like batteries, tires, and the like. Todate there are 182 suppliers supplying more than 4, 000 parts to PROTON (Interview with the President PROTON Suppliers Association, 2006). In 1986, PROTON established the Procurement and Suppliers Development Division (PVD) whereby the objective is to develop its own group of suppliers in order to formulate and implement the local content program for the national car. It was envisaged that with the implementation of this local content program the automotive parts industry would expand. This expansion was much needed not only by PROTON in its endeavours to build a strong industrial base to depend on, but also by the Government as a source of employment absorption and reduction of imports. Local Outsourcing Data from interviews at PROTON show that types of local sources for parts and components can be divided into two categories: (a) From PROTON associate or subsidiary suppliers,
(b) From independent suppliers.
The reason for this is that PROTON has only a few associate suppliers that produce metal-part related items. This is because out of PROTON's 22 active associate companies only six are producing parts and components at domestic level. Of those six, only three are related to metal parts and components.
Determinants of local procurement strategies
In recent years, increasing local content has become a major issue in Malaysian industrial and technology policy. The result of the questionnaire and field survey provides some insights on the likely roles of potential sources of technology for upgrading local suppliers within the framework of technology transfer via buyer- supplier relations. From the buyer's point of view (PROTON) deciding how much to source locally is affected by two groups of variables:
(a) Firm-specific factors, which characterizes the firm itself (either the subsidiary/ affiliate of PROTON or the technological capability of the tier one firms), and (b) Policy related and export market requirements, which define the policy on local procurement ratio and export market requirements (for example, General Standard of Preference (GSP)).
With regard to firm-specific variables, the extent of production experience of the local suppliers is probably positively related to increased buyer sourcing from local firms. In fact, the shift from old to new suppliers, adaptation to the new economic environment, the simulation effect on the local suppliers created by the procurement practice of PROTON, and a number of other related factors, require some time to become significant.
Second, equity ownership affects local sourcing; and the presence of local capital and manpower encourages the use of local parts. The ratio of local procurement should therefore increase in the case of joint ventures with local suppliers or when investment occurs through acquisition of, or capital participation in the equity of local suppliers (for example PROTON-PHN, PROTON-Exedy, PROTON-HICOM-Teck...
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