A Ten-Year Effort: the Much Anticipated Marriage between Proton and Geely

Perhaps Seagull, by the great Malaysian poet Tian Si, is the best expression of Geely Holding Group’s spirit as it forges ahead on the Maritime Silk Route: “He is a seagull, whose life is struggle; only the ocean knows the hardship of his life.”

Article Reposted from Caijing Magazine,

Issue 30, 2019

10am. Kuala Lumpur, 23rd June 2017. Zhejiang Geely Holding Group Co. Ltd (“Geely Holding Group”) and Malaysia’s DRB-HICOM group signed a definitive agreement giving Geely Holding Group a 49.9% stake in DRB-HICOM’s Proton Holdings Berhad (“Proton”) and a 51% stake in luxury sports car brand Lotus. Geely Holding Group will thus become Proton’s sole foreign strategic partner.

At the turn of this century, Geely Holding Group had hoped to invest in a joint venture to build a factory in Malaysia, but the deal was eventually shelved due to a host of constraints. Victor Yang, vice president at Geely Holding Group, explained the decision to return for another foray in Malaysia. Currently, the global automobile industry faces huge innovation-related opportunities: it is difficult for any carmaker to succeed by going it alone. Both Geely and Proton need to team up with partners around the world, coordinate, and share their expertise to seize the technological high ground: “The current environment has created an opportunity for Geely and Proton to work together.”

In Malaysia, the automobile industry is seen as one of the most important and strategically relevant industries. Of the ASEAN countries, Malaysia is home to the 3rd-largest automobile market. Proton, which is the national car brand of Malaysia, was founded by “Father of Malaysia’s Car Industry”, Tun Dr. Mahathir Mohamad, later Prime Minister of Malaysia, in 1983, three years before Geely was created.

Beginning in 2010, Proton’s vehicle sales began to decline, harming the brand’s competitiveness. In 2016, Proton held just 12% market share. Consumers associated the brand with poor quality and the company was posting heavy losses. In the face of the four disruptive trends of diverse mobility, autonomous driving, electrification, and connectivity, together with trading up, the Malaysian automobile market was struggling to offer products that met users’ needs.

One member of the Malaysian cabinet believes that while Dr. Mohamad hopes to gain the highest-quality products for the automobile industry at the best price, Geely Holding Group hopes to transform its partnerships by adopting the wisdom of a global mindset. Geely and Proton’s collaboration is more than a simple business deal: it encapsulates the wisdom of two nations.

Frank Fang, Executive Vice President and Head of Commercial Banking at HSBC China, believes that as Geely Holding Group has ventured further into the Malaysian automobile market, a new trend has become increasingly clear: an increasing number of companies in the private sector hailing from a growing range of industries are getting on board with the BRI. They are not only participating for their own development; they are open to creating more opportunities for companies around the globe.

Geely Holding Group’s acquisition of Proton, however, did not come easily. A Proton spokesperson divulged that initially, 23 companies made offers, and the number of potential buyers was whittled down to 5 for a final round, in which Geely prevailed. HSBC, as the sole financial advisor to Geely, was closely involved throughout the acquisition process.

Frank described the collaboration with Geely on the Proton project by noting that Geely is an important client of HSBC. The Bank therefore leveraged its unique global RM system to provide its services and network wherever they are needed. Where a project requires international coordination, HSBC’s local RMs will work with global RMs as part of a coordinated, HQ-to-HQ effort.

In this case, HSBC was able to leverage its deep knowledge of Geely accumulated over many years. The Bank mobilized teams in mainland China, Hong Kong and Malaysia to offer a one-stop financing solution for Geely, from investment banking to commercial banking. “As a financial institution, one of our principles is to bring our clients right to their destination. We want to be the bridge that helps our clients enter the local market,” explains Frank.

Despite skepticism from some corners in Malaysia about the acquisition, and confusion on the part of Geely’s Chinese peers regarding its decision to rescue such a ‘lost cause,’ Geely’s team were confident that under the right conditions, Proton could be raised from the ashes.

Li Shufu, chairman of Geely Group, said that the first order of business after the Proton acquisition was to bring the finances of Proton and Lotus back into the black and provide them with a basis for sustainable development.

Victor Yang explained that in Malaysia, Geely adopted a ‘going in’ development strategy, whereby Geely’s extensive management experience and advanced technology would be integrated at Proton, kick-starting a revamp and upgrade of the Malaysian automobile industrial chain. “Geely’s past experience told us that had we simply opted for some window-dressing and opening a few showrooms, we would not be able to make inroads or develop in the long-term.”

Li Shufu had previously pointed out if Geely is to transform from simply selling cars in a ‘going out’ model, to a ‘coming in’ model that means getting more deeply involved in local industrialization efforts, it must have a global strategy that integrates “localized production, localized supply chains, localized management, and localized sales and service.” Such a strategy focuses on integration of technology, production, talent and culture.

Victor Yang adds that Geely and Proton have endeavored to find synergy in technology R&D, smart manufacturing, and global procurement, in order to better share Geely Holding Group’s resources. Proton has therefore benefitted from the signature Geely focus on user-centered service.

Furthermore, Geely Holding Group has recently rolled out a “Northern Star” strategy at Proton, focusing on talent, channels, cost, quality, value chain, plant retrofitting and new product R&D. The strategy seeks to revitalize Proton and improve innovation, component systems development and professional skills training for employees, in order to accelerate the revamp and internationalization of the Proton brand. The end-goal is maximum resources synergy and scale production.

A year after the Proton acquisition, Geely and Proton’s first co-developed model, the X70, hit the Malaysian market. The X70’s onboard Global Key User Interface (GKUI) is tailor-made for Malaysian drivers; the interface is designed for Malaysian driving habits and users can choose to hear the interface in Malaysian-accented English.

Tun Dr. Mahathir Mohamad is a particular fan of “the talking car” and was present at the launch. For Dr. Mohamad, “Proton’s good luck began with the collaboration with Geely.”

On 26th April this year, Proton and Al-Haj Automotives signed an agreement to build an assembly plant in Karachi which is expected to reinvigorate Proton’s overseas market expansion.

Perhaps Seagull, by the great Malaysian poet Tian Si, is the best expression of Geely Holding Group’s spirit as it forges ahead on the Maritime Silk Route: “He is a seagull, whose life is struggle; only the ocean knows the hardship of his life.”

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