The importance of automobile industry

CHAPTER 1: INTRODUCTION

Introduction

In the civilization of 21st century, human beings are not only focused on the basic needs but also pursuit the higher quality life. From the emergence of competitive business world, automobile manufacturers and assemblers needed to be active in order to ensure that consumers have high intention to purchase their products. We can clearly knowing that the people are toward the goal of comfortable and enjoyable life compared those residents in the olden days.

Background information of country

Malaysia

The national car project, PROTON has been initiated with the originally conceived the idea and direct support of the then Prime Minister of Malaysia, Tun Dr. Mahathir Mohamed was incorporate on May 7th, 1983 (http://www.proton.com). The first Proton car, Proton Saga was launched on July 9th, 1985. The present model car includes Gen2, Iswara, Wira, Waja, Savvy, Persona and Perdana. With the support by government, Malaysia has a fairly strong automobile industry. Beside Proton’s cars, the famous and well known cars also been assembled in Malaysia such as BMW, Honda, Hyundai, Mercedes Benz, Nissan, Toyota, Volvo and etc.

The importance of the automobile industry is also evident from its substantial contribution to the government bursary on direct and indirect taxes. It is estimated a total of RM 13.14 billion. A 54% of the total is for the government annual duty excise revenue which approximately RM 7.0956 billion, 33% of sales tax which approximately RM 4.3362 billion, 8% of import duty approximately RM 1.0512 billion and a 5% of corporate tax estimated to be RM 0.657 billion (http://www.proton.com). It the sense, it surely will be the government’s interest to see automobile industry in Malaysia to grow further.

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Malaysia is largest automobile market in ASEAN’S with 90% of that manufactured or assembled domestically and more than 500,000 vehicles sold annually (Cheng, 2006). It shows that the major market for Malaysia is passenger automobile market. The new vehicle sales for passengers automobile in year 2006 is 90.1% compared with year 1999 is 83.1% (Malaysian Automobile Association, 2009). From year 1999 to year 2006, the highest automobile sales in Malaysia on year 2005 which is 416,692 automobiles. Table 1.1 shows the new vehicle sales in Malaysia from year 1999 – 2006.

In year 1999 to 2006, we can see that Proton market share had decreased from 64.98% to 31.50% in the year 2006. This means that, the well known marques companies had started to penetrate in Malaysia automobile market. Throughout the 8 years, the highest increased in new vehicle sales is Toyota 84.53% follow by Honda 81.82%, third is Mercedes Benz 64.62%, BMW 61.47% and Nissan 59.50%. We can know that marques like BMW, Honda, Mercedes Benz, Nissan and Toyota automobiles sales have been increased from year to year. Beside Proton vehicle, Perodua is also one of the national car projects in Malaysia. They had also been increased in their vehicle sales from year 1999 – 2006 which is 56.46%.

Automobile industry is the key success factor on the economy growth by creating various kinds of jobs in different industry. Due to its growth and backward relation with almost every segment of the economy, the automobile market has a strong and positive multiplier effect and thus propels progress of a nation (http://business.gov.in). Since Malaysia government had invested in national car project to elevate the technologies and to spur the set up of a huge network industry and services to put Malaysia among the few developing countries that are capable of producing a wide range of vehicles.

According to Y.B. Dato Mustapa Mohamed Minister of Prime Minister’s Department (2004), to compete internationally in automobile industry, we needed to invest in research and development, upgrade the workforce productivity and production efficiency to be competitively priced, be customer focused and provide satisfactory after sale services and to be aggressively promoting their brands to strengthen their market share positions. Beside that, the automobile industry in Malaysia needed to improve on innovations and practicality of designs, better safety features, improving performance, and fuel efficiency and be environment-friendly (Mustapa,Dato, 2004). Consumer are now also considered comfort and the colors are now for standards of driving in all of the world (Mustapa,Dato, 2004).

Malaysia government had introduced the ASEAN Free Trade Area (AFTA) in automobile industry to revise the sales forecast in order to be more competitively. It is also a way to be greater integration in ASEAN automotive industry; Malaysia will cut down the ASEAN CEPT import duty to 5% for qualifying vehicles (Cheng, 2006). It has been forecast that Proton might facing hard time to competing against tariff-free imports from other ASEANcountries under the agreement (Dilip Singh Mutum, 2003). The famous marques in the world such as Honda, Toyota, BMW and Ford have been put up their manufacturing plant in Thailand for the Malaysia automobile market. The car that have local content at least 40% produced by foreign country may enjoy a preferential import duty (Dilip Singh Mutum, 2003).

Background of the Study

The automobile industry has become more competitive as the fast trend growing automobile industry in Asia has drawn attention. Asia has been acknowledgement as a potential growth area for the automobile industry. A brands new car publication has led to increased competition, substantial price cuts and lower margins in the automobile industry (Silk Road, 2005). These relationships are not confined to the pursuit of short-term economic imperatives cost reduction but embrace innovations in design and technology, creative research and development and quality improvement and after sale services (Morris, Donnelley & Donnelley, 2004).

In the competitive automobile industry, competitors have to ensure their products are attracting to the consumers and high perception. The sales of the automobile will enhance the company’s growth, profitability and market shares. Many consumers make their purchasing decisions is not always on the products pricing, but is on product characteristics, quality and perception, even between with fast moving consumer good (FMCG) (Veloutsou, Gioulistanis & Moutinho, 2004). Some of the producer tends to focus on their own product comparable quality with the international brands, while others give less emphasis on the quality and concentrate on low price products. It is based on their target market. This theory can be converted to products marketed in internationally or locally. The British and German consumers with emphasize to the purchase intention in automobiles, placing particular emphasis on quantifying the relative importance of country-of-origin (Diamantopoulus, Schlegelmilch & Du Preez, 1995). Therefore, the product quality will cause induction on consumer by increased their purchase intention attitude towards the brand and willingness of the product.

In the advanced and competitive automobile market, consumer perception and purchase intention towards international brand on decision making is well set up. The automobile industries have to continue alter to strengthen their product image with a specific characteristic of the car model. The automobile companies can be fiddle by design via the use of visual elements, which consists of design characteristic to identify a brand and design characteristic for specific models to emphasize individuality (Liem, Zainal & Warell, 2009). In automobile industry, under the tremendous pressure of offering a greater product variety at the competitive market pricing, the companies have increasingly employed platform sharing strategy, where different brands and models share the same basic platform (Chen, Kang & Hung, 2007).

Beside the innovation of the automobiles, after sales service also play an important role to initial the purchase of cars. It would substantially higher in sales and profit margin for the company. It creates substantial opportunities for cross-selling, brand-building, and solidifying customer loyalty. Before a store brand increases customer loyalty, many steps in the process have to be completed (Zielke & Dobbelstein, 2007). The customer must know the product, launch some kind of interest, and try the product the first time, become satisfied and then launch a preference which will creates the loyalty of customer (Zielke & Dobbelstein, 2007).

The marques is currently undertaking a social change with its brands seeming less remote, less different, and less exclusive with high quality of life improving (Anurit, Newman & Chansarkar, 1999). With the entire luxury marques brand, it created competitive automobile industry in world wide. The perception of the car image had become the key role in the purchase intention when the quality of the car is continue rising. The premium marques such as Lamborghini, Ferrari, BMW, and Mercedes-Benz must enlarge the attributes and values that reflect changing social values which influence buyers emotionally, in order to maintain their positions in different regions of the global market (Anurit, Newman & Chansarkar, 1999).

The purpose of this study is to examine consumer perception towards international brand in automobile industry and the factors that affecting the purchase intention on automobile industry towards international brand in Malaysia. It is to understand the perception towards the impact of international brand in automobile industry.

Background of Problem Statement

In studying the public’s perception towards their preferred brand(s), it is important to understand the purchase intention and how does it affects the decision making and understand the factors affecting the purchase intention. Beside that, product image are important and lead to the idea in the marketing strategy. The brand name was the most important quality, followed by price retailer reputation (Agawal, Teas, 2002). These findings are valuable to marketers because they clarify whether or not marketing strategies related to market pricing, brand name, and their retailer reputation, can be standardized across cultures and countries (Agawal, Teas, 2002).

The research is on Malaysians perception towards international brand in automobile industry and the affects of purchase intention on automobile in Malaysia. Almost all new car models are structure with brand extensions, capitalizing on current consumer perceptions and positioning the new model within the brand family (Strach & Everett, 2006). Most of the Chinese car buyers are making their first automobile purchase and shows the brand loyalty (Silk Road, 2005). In the automobile market, consumers’ perceptions are more sensitive on the pricing that will affect the purchase intention.

On the other hand, the perception towards the impact of international brand in automobile industry is a brand alliance combines the equity of two or more brand names to create a synergistic effect (Rodrique & Biswas, 2004). In addition, the variables should be positively affected by the brand alliance (Rodrique & Biswas, 2004). The brand names serve as a quality pledge device by wigwag product quality better than the host brand can by itself (Rodrique & Biswas, 2004). Korean consumers perception were more strongly influenced by subjective norms rather than their attitudes, while US consumers purchase intentions were more strongly influenced by their attitudes than by the subjective norms (Chung & Pysarcik, 2000).

Problem Statement

In Malaysia, the automobile industries are very competitive and the quantities of automobiles users are increasing every year. Table 1.2 shows the sales of automobiles in Malaysia in year 1999-2003. From the table, we can see that the non-national cars sales have been increasing throughout the five years. We can know that nowadays the peoples are preferred on international brand compared to the past. In year 2003, KIA motor has become one of the national cars in Malaysia. In year 2002 and 2003 total national cars sales have drop about 17% which is 56,920 units. Compared with the International brand cars sales have been increase about 35.7% which is about 16,663 units.

However, Malaysia’s automobile industries still are facing positive and negative factors and impact which will greatly affect the purchase intention in automobile industry toward international brand. Therefore, I would like to do the research on automobile industry in Malaysia.

In this research, we will focus and analyze the main 3 problem in this field which is:

1. What is the Malaysians perception towards international brand in automobile industry?
2. What are the factors affecting the purchase intention on automobile industry towards international brand in Malaysia?
3. What is the perception towards the impact of international brand in automobile industry?

Research Objective

We define the research objective as:

1. To study the Malaysians perception towards international brand in automobile industry.
2. To study the factors affecting the purchase intention on automobile industry towards international brand in Malaysia.
3. To study the perception towards the impact of international brand in automobile industry.

Scope of the study

This study will focus on all Malaysians especially the students from Multimedia University and working adults / young executives. It will examine the perception towards international brand and the factors affecting the purchase intention and the perception towards the impact of international brand in automobile industry. The study specifically will be focus on the Malaysians perception towards international brand in automobile industry.

Significant of the study

Through consumer behavior perspective in automobile industry, the research of this study prescribes the assembler and manufacturer with importance information about the perception is contributing to the purchase intention. With globalization, companies compete across borders and cultures. It is important for automobile industry to understand and forecast the perception. In addition, the research will provide a useful tool in developing effective marketing plans. It also provides some insight of Malaysians perceptions that arouse positive attitude towards international brand that will influence the consumers purchase intention.

By conducting this research, it will be great to explore the perception towards the impact of international brand in automobile. The research is value added to the theory of purchase intention that it is not only related to locally but also internationally.

Through this study, we are able to understand the factors that affecting to purchase intention on automobile towards international brand in Malaysia. Furthermore, this study can be used as a reference in Malaysia automobile industry for policy makers, automobile manufacturer and assemblers.

Organization of the Research Report

There are five chapters to be organized:

Chapter 1 is the introduction of this research. Background of study and background of information country will be explained. Problem Statement and objective of study will be defined in this chapter.

In Chapter 2, we will present a review of literature related to the perception of Malaysians towards international brand in automobile industry and the factors affecting the purchase intention on automobile industry towards International brand in Malaysia. This chapter also includes the perception towards the impact of international brand in automobile industry.

The Chapter 3, research methodology, which includes the description of research framework used, questionnaire, sampling plan, and data collection method and data analysis. In this chapter, hypothesises will be made.

In Chapter 4, we will analysis on the result of research findings. The beginning of the chapter is the background of the respondents. In the following part, reliability analysis will be tested. In the third part, there is included with mean analysis. The fourth is Pearson Correlation Analysis. The last part of Chapter 4 is multiple regressions.

Chapter 5 is the contribution and conclusion of the study. The next part is suggestion for future research and limitation of study will be determined. Recommendation for the future study is included. Lastly, conclusion for the whole study will be given.

LITERATURE REVIEW

Introduction

The purpose of the literature review is to provide supporting evidence that is related to the research. This chapter discusses the relevant literature dominant to the expansion of the conceptual model. Specifically, this literature review related to the perception and purchase intention.

The Underlying Theory of Perception

Most of the consumers will judge based on the price, store name, and brand name, to incriminate product quality perceptions has been demonstrated (Agrawal & Teas, 2002). Study is an important build for investigative ethics-relevant feature of situational element in decision making and the relationship between quality cues and perceived quality across different cultural groups (Singhapakdi, Rawwas, Marta & Ahmed, 1999; Agrawal & Teas, 2002).

In investigative the problem of perceived value is important because, when contrast with perceived quality, perceived value is immediate linked to consumer willingness-to-buy (Agrawal & Teas, 2002). In additional, values are more complicated concept than the simply quality because it involves a trade-off of give and get components of a business deal. Therefore, the value will influence consumers purchase intention, which conversely is influenced by both quality and monetary sacrifice needed to purchase the product (Agrawal & Teas, 2002).

According to Agrawal and Teas (2002) Figure 2.1 shows the relationship between perceived quality, perceived sacrifice, perceived value and willingness-to-buy due to these four premises. The second premise will affect the first premise, which is consumers’ perception of product value will affect by consumers’ willingness-to-buy. Beside that, the perceived quality and monetary sacrifice is also affect by the consumers’ perception of value Therefore, Extrinsic cues such store name, brand name and price will be affect by consumers’ perception of product quality. Followed by, the price would be affect by consumers’ perception of sacrifice.

Agrawal & Teas (2002) conclude that:

• Consumers’ perceptions of quality and sacrifice will influence by extrinsic cues which is objective price, retailer reputation and brand name;
• The assessments of perceived value will influence by consumers’ perceptions of quality and sacrifice; and
• Consumers’ willingness-to-buy will be influence by the perceptions of value.

According to Agrawal and Teas (2002) most of the consumers’ very frequent short of the in detail information, interest, expertise and time to assess a product’s quality. Pricing is also one of the indicators of cost that causes consumers’ have to give up an opportunity cost in exchange for the other products. The perceived quality and perceived sacrifice intervene the relationship between pricing, retailer reputation and brand name and perceive value. The willingness to buy a product is more directly connected to perceived value than perceived quality.

Beliefs, Attitudes and Behavioral Intentions Model

The purpose of this research is to find out the relationship between consumers’ perceptions and purchase intentions. By using the model of beliefs, attitudes and behavioral intentions it can define the relationship between consumers’ perceptions and purchase intentions (Fishbein & Ajzen, 1975). According to Fishbein & Ajzen (1975), as illustrated in Figure 2.2 it can define the relationships between perceptions and purchase intentions.

As plate in Figure 2.2, the foundation of Fishbein & Ajzen (1975) model is touch down in the difference between beliefs, attitude, intentions and behaviors. Beliefs are the main blocks in the model. Based on the first hand observation receive from outside source, a person emulate of beliefs about an object. Then they joint the object with every attributes.

Therefore, a person’s forges beliefs about oneself, about other people, about institutions, behaviors. The overall of a person’s beliefs serve as the message base that ultimately defines their attitude, intentions and behaviors. Attitude can be characterization as a learned inclination to respond in a constant favorable or unfavorable way with respect to given object. Meanwhile, a behavioral intention indicates to a person’s pectoral probability that they will perform some specific behavior.

According to Fishbein & Ajzen (1975) conceptual framework, a person’s intentions, in the last resolution, are a function of certain beliefs. Some of these beliefs affect the person’s attitude toward the behavior. In detailed, a person manner toward performing a given behavior is linked to their beliefs that performing the behavior will guide to certain outcome and his appraisal of those outcome. The acceptance is that the more favorable a person’s attitude toward an object, the more they will propose to implement positive behaviors and the less they will propose to implement negative behaviors with respect to that object.

The standard variable in Fishbein & Ajzen (1975) model is the individual’s behavioral intention. Fishbein & Ajzen (1975) stated that behavioral intentions minister as a person’s attitude toward an intervening variable and clear behavior. Fishbein & Ajzen (1975) confident that the best forecast of a given behavior should be the person’s intention to deal in that behavior. In order to forecast a concrete behavior (purchase intention), it is essential to measure the person’s attitude and intentions toward performing that behavior (Fishbein & Ajzen (1975). Therefore, if there can forecast on the behavioral intentions, in the other way it also can forecast the real behavior (Newberry, Klemz & Boshoff, 2003).

Product Cues

Consumer assess products is based on the two attributes. Product linked attributes and non-product attributes are the two attributes. Design, serviceability and workmanship are the examples of product linked attributes (Gutman & Alden, 1985). Inherent cues are the attributes that should not be transformed without transforming the physical features of the product itself (Gutman & Alden, 1985). Consumers’ find it hard, if not impractical to assess the intrinsic cues precisely (Gutman & Alden, 1985).

The second element is extrinsic cues which are non-product linked attributes. Extrinsic cue is one which forms element of the worth of the product which is not innate characteristic of the substantial product (Gutman & Alden, 1985). When inherent cues are apparent as being unpredictable, incomparable or unavailable, the extrinsic cues are relied upon seriously in the circumstances of risks (Gutman & Alden, 1985). Research have revealed that consumers depend on extrinsic cues such as brand name (Agrawal & Teas, 2002), price (Agrawal & Teas, 2002), seller reputation (Agrawal & Teas, 2002), advertising (Gutman & Alden, 1985) and country-of-origin (Gutman & Alden, 1985), in evaluating the value of products and brands preceding to purchase. Brand is used particularly as inherent cues (e.g. taste, performance and design) are not obtainable (Gutman & Alden, 1985). This research aims to focus on an imperative gap by investigative product cue usage among consumers in Malaysia as both inherent and extrinsic cues are predictable to influence consumers purchase intention.

Inherent cues on Purchase Intention

Consumers will form their possess perceptions on product cues, irrespective of their correctness as product cues are main advertising variables that pressure purchase decisions of potential customers (Singhapakdi, Rawwas, Marta & Ahmed, 1999). The components of cultural pressure and group conventionality have a weaker influence on attitudes than product assessment, and they are major predictors for domestic products but not for imported products (Chung & Pysarchik, 2000).

According to Singhapakdi, Rawwas, Marta & Ahmed (1999) Malaysian and United State consumers will also be compared in condition of their personality ethical philosophies. Furthermore, the two groups of consumers will be compared about their attitudes toward business, in most cases, and toward salespeople (Singhapakdi, Rawwas, Marta & Ahmed, 1999). There were several primary differences between United State and Malaysia is chosen for the assessment among these two countries (Singhapakdi, Rawwas, Marta & Ahmed, 1999). For example, the civilizing typology, the two cultures are different in definite significant values (Singhapakdi, Rawwas, Marta & Ahmed, 1999). It has constantly found real differences in moral perceptions in United State compared to Malaysia (Singhapakdi, Rawwas, Marta & Ahmed, 1999).

Beside that, a study by Chung & Pysarchik (2000) on cross-cultural differences within the apply of inherent and extrinsic product cues on consumers’ assessment and purchase intention for an attire product in China and Korea has reported that there were several differences in Chinese and Korean in assessing quality, worthy and purchase intentions. Findings have exposed that design was a stronger forecaster of purchase intention among Korean consumer (Chung & Pysarchik, 2000). In brief, Korean consumers become visible to decide value of an attire product by comparing physical quality and design to price suitability, whereas Chinese consumers perception of value appear to be mainly reliant on their price perceptions (Chung & Pysarchik, 2000).

In addition, the research by Diamantopoulos, Schlegelmilch & Preez (1995) the possibility of standardizing European advertising has been questioned on the basis of trade and industry, cultural, and behavioral differences among European consumers. Particularly, it compares British and German consumers through observe to automobile purchases, insertion exacting importance on quantifying the relation importance of country-of-origin and environmental cues in a multi-cue context (Diamantopoulos, Schlegelmilch & Preez, 1995).

Inherent cues are conceptualized as the attributes that should not be distorted or manipulated without changing the physical characteristics of the product itself (Gutman & Alden, 1985). In inherent cues it might be hypothesized that inherent cues with slight consequence to consumers when evaluating an automobile. Singhapakdi, Rawwas, Marta & Ahmed (1999) study have shaped an opposing consequence. Their findings have exposed that inherent cues are possible to have a better collision on product assessments than extrinsic cues (Singhapakdi, Rawwas, Marta & Ahmed, 1999). Automobile purchase is a high contribution product and it’s difficult for consumers who do not have any technical background (Singhapakdi, Rawwas, Marta & Ahmed, 1999). Since automobile is a physical product, consumers more often assess product by using inherent cues such as color, design and specifications of the automobile (Gutman & Alden, 1985) and extrinsic cues which is brand name, retailer reputation and price (Agrawal & Teas, 2002). Since it is luxurious, it is bought once in a while. It is apparent to be dangerous and is extremely self expressive (Singhapakdi, Rawwas, Marta & Ahmed, 1999).

Country of Origin on Purchase Intention

In given that to determining the work of country of origin has develop into one of the extensively research concepts in promotion and consumers’ behavior (Peterson & Jolibert, 1995). It is one of the majority extensively deliberate phenomena in all the international business, promotion, and consumers’ behavior joint (Peterson & Jolibert, 1995). It is unambiguous that a product’s country of origin can pressure consumers’ evaluative judgments of the product (Diamantopoulos, Schlegelmilch & Preez, 1995).

These researches have established that consumers from miscellaneous countries have different perception about products produce in different countries (Diamantopoulos, Schlegelmilch & Preez, 1995). Also, it is acknowledged that there is a better requirement to determine consumer’s attitude towards both domestic and foreign products (Ozsomer & Cavusgil, 1991). Several researches in this area have alert on what is called the country of origin consequence, investigating how consumers recognize products sourced from a exacting country (Peterson & Jolibert, 1995).

Country of origin is distinct as the country of produce or assembly (Ozsomer & Cavusgil, 1991). This refers to the final point of produce which can be the same as the headquarters of the organization doing the marketing of the product or the brand name (Diamantopoulos, Schlegelmilch & Preez, 1995).

Precedent country-of-origin research is mainly leaning towards consumer evaluations of product quality (Diamantopoulos, Schlegelmilch & Preez, 1995). Results on American buyers perception on product made in Eastern Europe have shown that industrial buyer usually felt that the quality of goods manufactured in West European countries was higher than the quality of products manufactured in the Eastern (Huddleston, Good & Stoel, 2001). While country-of-origin belongings have been deliberate for over twenty five years, most of the research is restricted to uni-national products connecting a single country-of origin (Ozsomer & Cavusgil, 1991).

In recent times, the minority researchers have ongoing to observe the country-of-origin possessions in the circumstance of multi-country surroundings, making a dissimilarity among country of construct or assembly and the country of the company’s headquarters (Huddleston, Good & Stoel, 2001). For example, Anurit, Newman & Chansarkar (1999) found that with the intention of designed for bi-national products; country of manufacture has superior possessions on top of consumer evaluations of product quality than does the brand name. In addition, Ozsomer & Cavusgil (1991) found that there is no benefit in by means of a country with apparent greater design ability to improve product quality perception if the country assembly location is already apparent to produce poor quality products. Country of origin might be less important than has usually been supposed and they might happen mainly in relation to assessment of detailed attributes rather than overall evaluations (Huddleston, Good & Stoel, 2001). Consequently, there is no inquiry that country of origin consequence does exist and made-in typecast can be modify at least in the long-standing.

Analyzing information throughout the use of structural modeling, Diamantopoulos, Schlegelmilch & Preez (1995) found rejection direct association of country of origin on purchase intentions and this confirms Peterson & Jolibert (1995) doubts that country of origin evaluations has modest or rejection direct pressure on purchase intentions. This led researchers to conclude that the pressure of country of origin is more possible to function throughout supplementary variables rather than straight on purchase intentions (Diamantopoulos, Schlegelmilch & Preez, 1995).

According to Diamantopoulos, Schlegelmilch & Preez (1995) the connection between country-of-origin possessions and branding has newly attracted rehabilitated concentration. For car manufacturers, country-of-origin possessions are of exacting significance (Diamantopoulos, Schlegelmilch & Preez, 1995). Alternatively, they have achieved an extremely worldwide organization of manufacture processes which makes it ever more complicated for common consu