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Jakarta Post

Quo vadis, '€˜national car'€™?

  • Ade Febransyah

    The Jakarta Post

Jakarta   /   Sat, February 14, 2015   /  07:58 am

Here it comes again, the mobnas (national car)! The old dream of having our own national car has never really vanished. After the national car programs such as Timor, Maleo and Cakra from the time of former president Soeharto were discontinued, the national car program was dormant for quite some time.

The dream was revived when then Surakarta mayor Joko '€œJokowi'€ Widodo introduced a locally made Esemka in 2011 as his official car. Since then various car prototypes have been introduced. Some prototypes of electric cars were initiated and supported by the previous state-owned enterprises minister, Dahlan Iskan, which gave some hope at the beginning. But again, such initiatives went back and forth without realization.

Now we have been awakened by a new initiative to revive the national car program during President Jokowi'€™s weekend visit to Malaysia. This time it comes from a local company, PT Adiperkasa Citra Lestrari (ACL), coincidentally led by former intelligence agency chief AM Hendropriyono, and ACL'€™s foreign partner Malaysia Proton Holdings Berhad (Proton). Even though President Jokowi has affirmed that only the Esemka car fits the category of the national car, such an initiative from ACL and Proton should be welcomed as well.

Will this initiative produce tangible results or end up as initiatives have done before?

The fundamental question has been whether we should make our own national car with its own brand. Isn'€™t Indonesia now trusted as a global production base of some major world car producers? Therefore, whoever initiates the program must prove that producing a national car with its own brand will provide more benefits to Indonesia than becoming a mere carmaker under foreign principals.

Being a production base of foreign principals for years already provides benefits to Indonesia. Employment opportunities and the growth of the component industry are some real benefits. Our designers and engineers are also given ample opportunities to achieve their best. So with a solid network of businesses controlled by foreign principals, can a local carmaker give the same or even greater benefits than the principals?

Becoming a major player in the global automotive industry is ultimately determined by the volume of vehicles produced. In 2013, Toyota production globally exceeded 10 million units; higher than its rival General Motors which produced around 9 million units.

This is a big hurdle for anyone who wants to enter the automotive industry. The barrier is enormous. Economies of scale are to be decisive for becoming competitive in the industry.

With car sales in Indonesia reaching over 1 million units a year, it is a major challenge for local makers to compete head-to-head with market leaders in the domestic market. With so many foreign brands, reaching 10,000 in sales figures alone should be a huge success for newcomers. But even Proton just posted sales less than 1,000 units in Indonesia during 2014.

The early years of operations would be quite tough for local makers. Only targeting sales in the domestic market would make it nearly impossible for local makers to meet the economies of scale. Consequently it would be difficult to become competitive. Furthermore, when the local carmaker was not competitive, the benefits to the Indonesian economy would then be minimal '€” unless local makers have promoted the right product concept that is very distinctive and meaningful for Indonesian users.

The feasibility of any business is simply determined by three factors, as one expert wrote: whether the product is real and a market exists; whether the player has the capability to become competitive; and whether the business could bring financial benefit. The first test for local carmakers is from a real product concept that can grab a sufficient market size. Then, what is the right car concept for Indonesians?

Offering the same product concept as existing ones will not make it easy for local makers to compete. With the small amount of production, it is nearly impossible to be competitive in price. Hence, the cost leadership strategy would not be appropriate to face the giants in the industry.

Even if it manages to offer a product with the same quality and price as market leaders, users will not automatically switch to local cars. People seem to forget nationality when it comes to consuming. They look for affordability, good quality and serviceability when talking about buying cars. And those things have been fulfilled by the market leaders with their strong brands.

Due to the small market size targeted in early years of operations, Adiperkasa and Proton would probably broaden their market, let'€™s say, into the ASEAN market. With Proton'€™s experience, of course, it would be a distinct advantage to enter the regional market. However, Proton'€™s performance has not been encouraging so far. With its local partner itself still in the embryonic stage, the strategic alliance between the companies will face serious tests in the years to come.

This explains the difficulty for any local maker to be competitive in the automotive industry. The supply chain is as strong as its weakest link. Today'€™s competition is no longer between companies but between supply chains. So the competition would be between the supply chain of Adiperkasa and Proton and that of major players. Unless the local maker is able to build a solid supply chain, producing a national car would become an elusive goal.

And lastly, when the car itself is not distinguishable from the crowd, coupled with noncompetitive production costs, it would be difficult to obtain an adequate market share. When this happens, the business is projected to be financially unfeasible. It would be a long, tough road ahead for the local carmaker. Nevertheless, the chance is still out there.

To be able to stay and succeed in an industry dominated by big players, the national carmaker must really come out with a unique concept, with high value based on the social and cultural preferences of Indonesian people. It should be emotional, meaningful and lovable. There should be a nation'€™s pride in it.

Competing in terms of price and sophisticated features would be a suicide strategy. In this case, disruptive innovation would be a good option, as business gurus say '€” to offer something that market leaders would not have bothered about.

It is a long and sweaty process to become a real player in the automotive industry. The successful players are those that successfully orchestrate the interaction of design, engineering, manufacturing and service management. By no means is it an easy journey. It pays '€œto walk on water'€.

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The writer is chairman of the Center for Innovation Opportunities and Development at the Prasetiya Mulya Business School in Jakarta.

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