Like many young Malaysian executives, Hew Yuen-Leong aspired to own a Honda. When he was promoted to manager this year, he went to the Honda showroom. But with the recession fast becoming a memory, it again was a seller's market. Salespeople were simply taking orders, rather than doing any selling.
Hew's interest in trying out the car first was not just ignored but earned a sarcastic response. 'The salesman had the nerve to tell me that no one gets a test drive! When I insisted, he said that other customers were not as demanding and didn't make a fuss,' Hew recalled.
Furious, Hew called up the local Toyota distributor's toll-free number and asked about a Camry. The response was different - not only was he treated courteously but also was asked if he would like a car sent to his home the same day for a test drive.
'I was totally disgusted with the Honda salesman,' he said. 'Toyota's enthusiasm to sell me a car was greatly appreciated, and I bought a Camry instead. I would never consider a Honda again.'
Honda's loss, Toyota's gain.
Such situations worry manufacturers, who realize that goodwill can be wiped out quickly by poor representation at the retail level. In the case of Honda in Malaysia, the brand and its products have been tops among the non-national makes since the 1980s. But the local distributor's marketing strategies have caused dissatisfaction among customers, Hew's experience being one of many.
Said a Honda executive: 'We have watched with concern for many years and have tried to improve things, but without enough influence on marketing activities, little has changed.'
In earlier years, the personal bond between the two company founders - Datuk Loh Boon Siew of Oriental Holdings, the franchise holder, and Soichiro Honda - meant transgressions were forgiven or ignored. But with the two men gone, the relationship has become more 'business-oriented,' as the Honda executive politely put it. So it came as no surprise when Honda announced in July that it would establish a joint venture with leading Malaysian automobile group DRB-HICOM to build and market Hondas.
Honda would hold a 49 percent equity, while DRB-HICOM would hold 35 percent. Oriental Holdings was given a 15 percent stake, probably out of appreciation for its role as distributor for 33 years and its established retail network. Insiders say that Honda was straightforward in dealing with Oriental, refusing to offer anything more than 15 percent.
Honda's move will give it more control over production facilities in Malaysia at a time when the region could enjoy a sharp growth of sales. Tariffs on vehicles and parts in the region will decline later this decade, under a trade treaty sponsored by the Association of South East Asian Nations. The agreement - called the ASEAN Free Trade Area - will cut tariffs in 10 nations starting in 2005.
Ford's recent increase of equity to 49 percent in its Malaysian joint venture, AMIM Holdings, also was inspired by the trade treaty. But the initial move to become more involved in local operations was because of concern over its declining share. From more than 10 percent of the national market in the early 1990s, it slipped to less than 5 percent in 1995. And that decline came at a time when the overall market was rapidly increasing.
In 1996, Ford sent a fact-finding team to Malaysia. As a result of its startling findings, a Ford executive was quickly appointed to run the operations of the Malaysian distributor. The move seemed to depart from Ford's past practice of leaving things to distributors in each market. But somewhere in the mid-1990s, the company changed plans. 'We basically decided that we were responsible for our own destiny,' said Wayne Booker, Ford vice chairman.
For Malaysia, that meant taking on a greater equity. 'With greater equity, there will be increased transfer of technology from Ford, in particular the latest production techniques, information technology and product development processes,' explained Richard Canny, appointed by Ford to manage the Malaysian operation.
'When our share was small, Malaysian operations did not figure prominently in Detroit, as the contribution to global revenues was tiny,' Canny said. 'But now our activity is more obvious to the decision makers. So there is obviously more incentive to include the Malaysian operations in long-term planning.'
In fact, just a month after Ford raised its equity, Canny's operation was announced as the likely regional supplier for the Escape sport-utility. The Escape is to be assembled in Malaysia next year. If the government sticks to the extended deadline of 2005, Malaysian-assembled Escapes can be exported to other Association of Southeast Asian Nations with no import duties.
Canny's presence and the greater involvement of Ford has made a noticeable difference to Ford's share, which actually increased through the downturn to 10 percent today. In fact, with the strength of Ford behind him, he was willing to spend more advertising dollars during the downturn, when local rivals were slashing expenditures.
Having someone from the manufacturer in a decision-making position also is an advantage in business discussions. A manager at the local Toyota distributor, in which Toyota today has a 49 percent equity, tells of one negotiation with the factory over a steering wheel specification. He said discussions were stalled for many weeks. Finally, the resident Japanese coordinator stepped in and phoned his friend in Japan. After a 45-minute chat, he said that the steering wheel would be changed.
PROTECTING THE BRAND
Increasingly, though, manufacturers see it as their responsibility to protect their brand image. Volvo's sales offices in many countries are established with that as one of the main responsibilities.
'We own the brand and are willing to spend as much as necessary to protect it. It is not an expenditure but more of an investment,' explained Lena Olving, managing director of the year-old Volvo Car Malaysia, which is wholly owned by Volvo. This means advertising and promotion budgets can be much larger than what a local distributor would allocate.
Olving said the decision to set up a sales company in Malaysia was a global strategy for Volvo and was decided even before Ford bought Volvo. 'It was not because they weren't doing a good job, but because we can offer global skills that the distributor is unlikely to have.'
Olving said that some companies apply the 'McDonald's method,' named for McDonald's restaurants, where distributors follow standardized methods globally. But Volvo believes that local conditions vary and need different approaches that are worked out with local partners. 'That would be the basis for a strong long-term relationship that we always desire,' she said.
'Still, at the end of the day, we require a certain standard of quality, of skill and of presentation by the people who represent Volvo. If our local partners cannot achieve that, then we have problems,' emphasized Olving. 'But it is really a non-issue in as far as our Malaysian partner is concerned. We have worked together well for almost 40 years and pragmatism plays an important role.'
As the trade treaty nears, Malaysian distributors view the new era with concern. Some, such as H.P. Tan, deputy managing director of Edaran Tan Chong Motor, the Nissan distributor of more than 40 years, hope that the decision will be performance-driven.
'Fortunately, Nissan is busy getting itself back into shape, so a review of our role is on the back burner,' Tan said. 'But nevertheless, I still feel threatened in some ways because it is easy enough for a principal to change things.' ANI
You can e-mail free-lance writer Chips Yap at [email protected]