By Tariq Ziad Khan
The automobile sector in Pakistan, although dominated by less than a dozen players across all major categories, continues to be a large employer in the economy. Estimates of people employed by the sector range from 200,000 directly connected to the industry, to nearly two million, when affiliated sectors that feed resources and materiel into the industry are taken into account. The sector has over half a century of history and has grown into a large value chain of assemblers, component manufacturers and service affiliates. Analysts point out that despite some serious setbacks in the course of this half century – ranging from trade sanctions, depreciating currency parity, law and order deterioration and political upheaval – the industry has continued to perform and meet market requirements, which is no mean feat.
On the flip side are the detractors who point out that the automobile industry is an oligopoly and one of the most organised cartels in the country. They accuse the sector of being anti-customer, hyper profit driven and disconnected from market requirements, all while hiding behind protectionist policies that kill competition at the cost of the customers.
The truth lies somewhere in between these two stark polarities. The automobile sector by some estimates accounts for 3.5% to Pakistan’s GDP. It is also a powerful lobbying force through groups such as the Pakistan Automotive Manufacturers Association (PAMA), the All Pakistan Motor Dealers Association (APMDA) and the Pakistan Association of Automotive Parts Accessories Manufacturers (PAAPAM). All these groups have been extremely effective in looking out for the diverse interests of the various players and have managed to help it punch above its weight compared to the other larger interest groups vying for the attention of the government.
According to economy watchers, whatever side of the argument one looks at, it is clear that like much else in Pakistan, the sector is operating well under its potential and that in order to reach the next level it will need to address the following challenges:
Employment and HR development
While there is no denying that the automobile industry continues to be a large scale employer, the focus has been on the manufacture of low yield, low tech spare parts. According to industry analysts, even with long standing players such as Indus Motors (Toyota) and Pak Suzuki, most of the high technology components as well as crucial engine components come in the form of CKDs (Completely Knocked Down kits) with local manufacturers making only low tech components. In their view the industry needs to further invest in human capital, particularly in high value functions, including design and manufacturing. This will not only increase the quality of the product, it will also ensure that the industry is not so overtly dependent on foreign sourced components, making it less prone to global economy led price shocks. This in turn will help it become more globally competitive and increase the chances of export earnings.
Domestic market development
The law and order situation has held back growth in no small measure. Furthermore, the slowing down of the economy in the face of the global recession has led to a massive slide in the value of the Pakistani rupee which has increased prices of industry offerings and depressed growth across the board. Economy watchers, however, believe that the industry can do much more to help the situation by becoming more assertive in market development. Many point out that the absence of a reliable public transportation network coupled with a growing population means that the demand for cars and two wheelers will continue to rise. Auto makers need to work with banks and financial services to ease up credit requirements, particularly for the salaried class. This would ensure not only the productive use of private sector credit, it will also jumpstart secure lending for other sectors, such as mortgages and consumer electronics, thereby giving a shot in the arm to the economy. Many point to the recent upswing in the value of the Pakistani rupee and the weakening of the Japanese yen as an ideal opportunity for manufacturers to pass on pricing incentives to the salaried class and jumpstart such a programme.
Product development and new technology
Auto makers need to work with the government on the deletion programme on a priority basis. Although the Engineering Development Board’s (EDB) deletion programme has had limited success in pressuring assemblers to indigenise the manufacturing of components, it has only focused on the annual percentage that each model needs to be indigenised without any emphasis on the quality or level of technology transfer. This has led to manufacturers locally sourcing only low tech parts, such as seats and windscreens. This has also meant that current assemblers are not keen to introduce new models while new players cannot enter the market because they are required to meet the deletion targets very early in the lifecycle of a new model. The priority is for the industry and the government to develop the deletion programme further and strike a balance between the need for job creation and value addition. The government should ease the deletion requirements for those assemblers who bring in new technologies (like hybrids) and who are committed to indigenise higher technology and value added production processes. However, for this initiative to work, the government and the industry need to work together to safeguard both the public’s and the industry’s interests.
Imports threats and external trade opportunities
The absence of skilled HR, an assertive market and product development has meant that the industry is always at a risk of being overrun by cheap imports and must therefore keep lobbying for government protection. This has led to the stunting of the industry (which still builds legacy models straight out of the 80s) while earning the ire of customers frustrated by a lack of innovation. Added to this, economy watchers lament the fact that the automobile industry, with only a slight re-orientation in focus, would be in great shape to compete in the estimated one trillion dollar global automobile trade. The low cost
of labour and the proximity to large markets such as China and India and undeveloped ones, like Afghanistan, Iran and those in Central Asia, could turn Pakistan into a hub for parts and services supply, provided both the local industry and the government invest in value added manufacturing and HR. There have been numerous comparative studies between India and Pakistan on the cost of manufacturing automotive parts and many analysts are of the opinion that given a level playing field, Pakistan’s auto industry can not only hold its own but thrive in a globally competitive scenario.
Image problem
Despite the fact that the sector is a large scale employer and tax contributor to the economy, it is widely perceived as anti-consumer and elitist. More needs to be done in terms of brand communication and assertive PR directed at customers highlighting the achievements of the industry and the reasons behind unpopular decisions. Furthermore, automobile manufacturers need to work more aggressively on CSR areas, like road safety, traffic management and defensive driving, to build a better public image. If the industry were to work in areas like human capital development and effective brand partnerships with banks for better pricing and accessibility options, this would go a long way in improving its image with customers.
The progression of Pakistan’s automobile industry is not unique and many other successful industries in Asia have come up the same curve, from being protected domestic industries to global players. The onus is on the industry in Pakistan to drive forward its case with various stakeholders to help it takeoff into the global mainstream. n
Tariq Ziad Khan is a US-based marketer and a former member of Aurora’s editorial team.tzk999@yahoo.com.
First published in the September-October 2014 issue.
No comments:
Post a Comment