National carmaker Proton needs a strategic partner to be competitive and penetrate global markets, the government's investment arm, Khazanah, said today.

Proton last year held alliance talks with auto giants Volkswagen and General Motors but discussions fell through, triggering a tumble in its share price.

Khazanah's managing director Azman Mokhtar said although Proton's domestic operations had improved with the introduction of new models, an alliance with a major company would help expand its sales in other countries.

"In terms of the operations and the cyclical nature of Proton, it has made improvement without doubt. However the more pertinent question is on the strategic and structural side," Azman told reporters.

"Proton needs to basically integrate more into the global supply chain in the global market. Our exports have not reached the export penetration that we wanted," he said.

For the full year to March 2008, the national carmaker swung to a net profit of RM202.9 million compared to a loss of RM589.5 million in the previous financial year.

Khazanah owns a 42.74 controlling stake in the carmaker.

Five-year target

Azman said the strategic alliance idea should be revisited and that it was a "no brainer" that Proton had to integrate into the global system to produce economies of scale that would enable it to be competitive.

"The question is how and under what conditions," he said, without ruling out that a future deal "may include equity ownership and partnership."

He said any partnership with the national automaker would need to be done in a way that would preserve its brand and distribution networks.

"In this industry, size matters, scale matters. We need to be part of a bigger family in a way that works for us."

Azman said he hoped an alliance would be formed within the next five years.

Proton, which has been burdened with a reputation for poor quality and unimaginative models, has struggled in recent years to cope with increasing competition in a deregulated market.

Prime Minister Abdullah Ahmad Badawi has said the government would gradually reduce protection measures for Proton and urged it to improve standards and become more competitive.

-AFP