Policy Analysis on the Competitive Advantage of the Motorcycle Industry in Pakistan: Problems and Prospects December 12, 2006 disclaimer
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- Policy Analysis on the Competitive Advantage of the Motorcycle Industry in Pakistan: Problems and Prospects December 12, 2006 DISCLAIMER
- About the Competitiveness Support Fund (CSF)
- This report has been prepared by Samir S. Amir, Consultant, 7/170 B, Block 3, P.E.C.H.S., Karachi 75400, Pakistan. Tel: 455 8000, 453 3831, Cell: 0300 823 3714 - Email
- ACRONYMS ----------------------------------------------------------------------------------- 5
- CHAPTER 1.0 INTRODUCTION ------------------------------------------------------ 8
- CHAPTER 2.0 THE MOTORCYCLE INDUSTRY ------------------------------- 12
- CHAPTER 3.0 ORIGINAL EQUIPMENT MANUFACTURERS AND
- CHAPTER 4.0 PARTS COMPONENT SUPPLIERS (VENDORS) ------- 31
- CHAPTER 5.0 EXPORT STRATEGY------------------------------------------------- 35
- CHAPTER 6.0 CONCLUSIONS NEXT STEPS ---------------------------------- 40
- ANNEXURES: Annexure 1
- Chapter 1: Introduction
- Chapter 3: Original Equipment Manufacturers and Stakeholders
- Chapter 4 Parts Component Suppliers
- Chapter 5: Export Strategy
- Chapter 6: Conclusions Next Steps
- CHAPTER 1 INTRODUCTION 1.1 BACKGROUND
- 1.2 OBJECTIVES AND SCOPE OF THE STUDY
Policy Analysis on the Competitive Advantage of the Motorcycle Industry in Pakistan: Problems and Prospects December 12, 2006 DISCLAIMER The CSF’s experts endeavor, using their best efforts in the time available, to provide high quality services hereunder and have relied on information provided to them by a wide range of other sources. However, they do not make any representations or warranties regarding the completeness or accuracy of the information included this report. The information provided in this is report does not necessarily represent the views or positions of the U.S. Agency for International Development, the Ministry of Finance, Government of Pakistan. About the Competitiveness Support Fund (CSF) The Competitiveness Support Fund (CSF) is a joint initiative of the Ministry of Finance (MoF), Government of Pakistan and the United States Agency for International Development (USAID). The concept of the CSF is based on similar funds established in other economies (i.e., India, Thailand, Turkey, Ireland and Finland) and benchmarked against these funds, structured according to the international best practices and tailored to the current Pakistani economic environment. The CSF has been established to support Pakistan’s goal of a more competitive economy by providing input into policy decisions, working to improve regulatory and administrative frameworks and working to enhance public-private partnerships within the country. The CSF will also provide technical assistance and co-financing for initiatives related to innovation and competitiveness, the private sector with research institutes, universities and business incubators that contribute to creating a knowledge-driven economy. This report has been prepared by Samir S. Amir, Consultant, 7/170 B, Block 3, P.E.C.H.S., Karachi 75400, Pakistan. Tel: 455 8000, 453 3831, Cell: 0300 823 3714 - Email: nameer@cyber.net.pk CONTENTS
ANNEXURES: Annexure 1: List of Motorcycle Assemblers / OEMs in Pakistan Annexure 2: List of OEMs & Vendors met, interviewed and surveyed (in alphabetical order) Annexure 3: Material Reviewed Annexure 4: Global Motorcycle Industry ACRONYMS
EXECUTIVE SUMMARY After showing a compounded growth rate of 58% in the past 5 years, sales of new motorcycles in Pakistan appear to be stagnating at between 750 – 775,000 units per annum. This Report titled “Policy Analysis on the Competitive Advantage of the Motorcycle Industry in Pakistan: Problems & Prospects” aims at identifying: The reasons behind the rapid growth in the past 5 years. Problems being faced by the key stakeholders, namely the Original Equipment Manufacturers, the component and parts industry and the final consumers. Implementable solutions and their impact. Chapter 1: Introduction contains the background, objectives, scope of the Study and research methodology used. Chapter 2: The Motorcycle Industry briefly describes the global motorcycle industry (Detailed overview given in Annexure 4), the local motorcycle industry and then goes on to project demand for motorcycles by 2010 -11. Chapter 3: Original Equipment Manufacturers and Stakeholders (OEMs) discusses the major issues concerning the OEMs such as present tariff structure, incidence of high taxation (which amounts to over Rs.17,000 against a locally produced motorcycle of Rs.35 – 50,000). The Associations of the OEMs (PAMA & APMA), the Regulatory Bodies (EDB, PSQCA, CBR), have been discussed. The last section of the chapter discusses the problems faced by the OEMs and their recommended solutions. Chapter 4 Parts & Component Suppliers discusses the issues confronting the Parts & Component Suppliers. The existing tariff and non-tariff protection available to the industry has been briefly discussed along with the vendors Association PAAPAM. Problems faced by the vendors and solutions thereof are discussed in the last section of this Chapter. Chapter 5: Export Strategy describes regional competition from China, India, Thailand, Vietnam etc. and the various tariff and non-tariff measures being used by them to promote exports. Keeping in mind the above and the present status of local OEMs, export strategy has been suggested, which involves refund of US $ 85 of custom duty paid on import of raw materials plus freight subsidy of US $ 30 per unit. This will enable the local OEMs to export competitively. The last section of this chapter describes the state of the local OEMs. Chapter 6: Conclusions & Next Steps, describes the obstacles, solutions and their impact on employment, foreign exchange earnings and additional revenue collection for the government. Recommended measures will enable motorcycles production to increase from the present level of 750,000 units to over 1.7 million units including exports of 100,000 units by 2010 -11. This can be achieved by making financing available through banks. The proposed measures will result in the creation of an additional 500,000 new jobs, cumulative increase in Sales Tax collection of Rs.20.25 billion, Custom Duty of Rs.13.60 billion and new registration charges of Rs.5.4 billion (Thereby giving a total cumulative marginal revenue of Rs.39.25 billion to the Government) The cost of production of local components and parts is high and these need to be brought down by establishment of Raw Material Coops, Motorcycle Parks in Lahore and Karachi with self generation of electricity, and provision of financial assistance to vendors for acquiring technology from abroad. CHAPTER 1 INTRODUCTION 1.1 BACKGROUND The auto industry of which the motorcycle industry is a part has got deep backward (metals such as steel, aluminum. Copper, rubber, chrome, nickel, plastic, paint, glass, textiles, electrical, capital equipment, trucking, warehousing) and forward (dealerships, retailers, banking, credit and financing, insurance, logistics, advertising, repair and maintenance, petroleum products, services, parts) linkages as such any major shifts in demand are felt in a variety of other industries. The industry Worldwide has seen a tremendous growth in the past two years. Production in 2005 has been estimated at 40.0 million units with China producing 17.0 million units. This global surge in demand has also been felt in Pakistan where the industry in the financial year ending June 2006 manufactured more than 750,000 units. There are currently 43 Original Equipment Manufacturers (OEMs) in the Industry. These include 6 OEMs who are members of the Pakistan Automotive manufacturers Association (PAMA) and 37 OEMs who are not PAMA members. These OEMs are supported by nearly 2,000 parts and component manufacturing units employing close to 50,000 persons. The industry is volume driven and needs a critical mass before costs and hence prices can start coming down. This critical mass has been reached and the prices in Pakistan have on the average come down by 30% in the past 5 years. The development of China as the major player in the global motorcycle industry has been achieved by linking its strong domestic demand to the abundance of low technology dependent manufacturing or cloning. Pakistan faces a similar situation with its current suppressed demand. As compared to other industries in which competitiveness can only be achieved with high levels of human capital, the motorcycle industry is more concerned with better management of human resources and high levels of productivity at all levels, i.e. OEMs as well as parts and component manufacturers. 1.2 OBJECTIVES AND SCOPE OF THE STUDY The primary objective of the Study is to carryout a Policy Analysis on the competitive advantage of the local motorcycle industry along with identification of the problems being faced by the sector and recommending solutions for the same both at Policy and Program level. Scope of work included carrying out a Survey of the OEMs, component manufacturers, government agencies and other stakeholders like banks, etc. In addition to the collection of primary data, detailed analysis of the secondary data and its linkage with the primary data. 1.3 RESEARCH METHODLOGY Research methodology adopted for this Study is shown in Figure 1. The various steps followed in the completion of this Study include: Step 1: Orientation session with the CEO of CSF to develop a better understanding of the requirements of the study. Step 2: Secondary Data Collection and review, list of literature reviewed is attached as Annexure 3 Step 3: Primary Data Collection mostly related to focusing on the problems being faced by the OEMs, parts and component manufacturers. This involved conducting surveys of OEMs and vendors as well as having discussions with industry experts and officials of EDB, PSQCA, CBR and banks. List of persons met and organizations visited is attached as Annexure 2. Step 4: Analysis of the Secondary and Primary data to develop the following 3 modules Module 1: Review of the global market and its linkage with Pakistan. Detailed analysis is given as Annexure 4 and briefly discussed in Chapter 2. FIGURE -1 R  
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otorcycle Industry in Pakistan: Problems &