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  • PROTON’S BUMPY ROAD INTO CHINA’S AUTO MARKET

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    PROTON‘S half-a-billion-ringgit legal tangle with a former Chinese partner shows that the road for small foreign carmakers to get a decent share of the automotive market in the Land of the Dragon is filled with potholes or worse, manholes.

    The national carmaker may eventually be spared from paying a single sen from the RM520 million lawsuit slapped by Goldstar Heavy Industrial Co Ltd on alleged breach of contract (except maybe for the arbitration payment). But it is acquiring an equally expensive lesson – high entry barriers into the Chinese automotive market as well as issues like red tape and intellectual property rights.

    In recent years, the automotive policy in China had morphed and became more demanding. And this somehow botched Proton’s joint venture with Goldstar originally sealed in early 2002 that would have seen some 30,000 to 50,000 units of Waja sedans assembled in Guangdong every year.

    The revised policy stated that China does not merely want to be an assembler. Hence, it requires foreign investors to set up full-fledged car making facilities. The ruling should translate into a single investment of close to RM1 billion on both a manufacturing facility and a research centre, something Proton would not want to risk spending in a new market.
    Part of the country’s policy changes asked for Goldstar to convert its licence from a component maker to a car producer, a feat it had not been able to do for the past few years.

    Because of reasons known only to Goldstar, the Beijing authorities have not issued a manufacturing licence. This has raised suspicions over Goldstar’s licensing status to manufacture in the Guangdong province since the provincial authorities have no power to issue such a licence in the first place.

    In comparison, Proton’s expansion move to set up a local assembly plant in Iran and Indonesia – both have already kicked off – took less than a year to get the necessary manufacturing licence approved.

    Even if Proton’s current alliance with another Chinese firm, Jinhua Youngman, is blossoming, the venture in China is far from being easy.

    The development of an effective distribution network is one of the most challenging problems facing Proton or other new foreign car firms, as are the twin problems of feeding effective spares and replacement services.

    The Goldstar experience should make Proton more cautious and firm, and more alert when negotiating a future alliance in China, for instance the industry rumoured tie-up talks with Nanjing Automobile to develop a Perdana replacement using a former Rover platform.

    Source: Business Times By Zuraimi Abdullah.

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