| Media Coverage - Monday, 02 April,2007 | ||||||||
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News: CSF’s policy analysis on ‘Competitive Advantage of the Motorcycle Industry’ to help enhance its production The Competitiveness Support Fund (CSF) is a joint initiative of the Ministry of Finance government of Pakistan and the United States Agency for International Development (USAID). The CSF sources said that 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 750000 to 775000 units per annum. 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, they added. They said that the 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. This Report titled "Policy Analysis on the Competitive Advantage of the Motorcycle Industry in Pakistan: Problems and 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 and the implementable solutions and their impact. According to the report, the Motorcycle Industry briefly describes the global motorcycle industry, the local motorcycle industry and the project demand for motorcycles by 2010 -11. In the report, the Original Equipment Manufacturers and Stakeholders (OEMs)have been discussed 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.35,000 - Rs.50,000). The Associations of the OEMs (PAMA and APMA), the Regulatory Bodies (EDB, PSQCA, CBR), have been also discussed. The report has also discussed the problems faced by the OEMs and their recommended solutions. It has also discussed the Parts and Component Suppliers and the issues confronting the Parts & Component Suppliers. The existing tariff and non-tariff protection available to the industry has been briefly discussed in the report along with the vendors Association PAAPAM. Problems faced by the vendors and solutions have also been discussed in the last section of this Chapter. The Export Strategy in the report has also described regional competition from China, India, Thailand, Vietnam etc. and the various tariff and non-tariff measures being used by them to promote exports. The CSF, 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 report has also described the state of the local OEMs an d it has also has also described the next steps, the obstacles, solutions and their impact on employment, foreign exchange earnings and additional revenue collection for the government. The CSF sources added that the 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. 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 moreconcerned with better management of human resources and high levels of productivity at all levels, i.e. OEMs as well as parts and component manufacturers. About global market , the report said that Global motorcycle production increased from 30 million units in 2004 to 40 million units in 2005 with China alone producing 17 million units. Pakistan came at number seven with a production of 751,000 motorcycles or about 2% of the global total. The World market for motorcycles is dominated by the Japanese brands, namely Honda, Suzuki, Yamaha and Kawasaki. Although Japan itself produced only 700,000 motorcycles, its brands with strong presence in the Low Cost Countries (LCC) like China, India, Indonesia, Thailand etc., control 50% of the world market. About Pakistan Industry , the report said that in Pakistan, motorcycle assembly started in 1964 when the local Atlas Group started assembling Honda motorcycles in Karachi. Currently in addition to Honda, the other Japanese brands being manufactured in Pakistan include Yamaha and Suzuki. The most successful design among the Japanese brands has been the Honda 70CC which enjoys tremendous popularity on account of its fuel economy, resale and low maintenance features, the report said. It added that the Pakistan Automotive Manufacturers Association (PAMA) was formed in 1984. Initially three motorcycle OEMs namely Atlas Honda, Dawood Yamaha and Suzuki Motorcycles Pakistan became PAMA members. The other founding members of PAMA were OEMs manufacturing Passenger Cars, Tractors, Light Commercial Vehicles (LCV's), Truck & Bus manufacturers etc. In the 1990's, three more OEMs joined PAMA, these were, Fateh Motors, Pakistan Cycle Industrial Cooperative Society Limited and Siagol Qingqi Motors Ltd (subsequently renamed Qingqi Motors Ltd.). The Non-Japanese OEMs entered the Pakistani market in the late 1990's by introducing clones of the popular Honda 70CC motorcycle using critical parts and components imported from China. For the basic frame and other low tech parts they used the local vendors (part suppliers) whose development had been facilitated by the Government of Pakistan's indigenization / localization programs for the motorcycle industry. Other than the original 3 Non-Japanese OEMs who became PAMA members, the new entrants preferred to form their own trade bodies and as such are referredto in this study as Non-PAMA members. Presently there are 43 OEMs producing various brands of motorcycles. Out of these 6 are PAMA members and the remaining 37 Non-PAMA members. The Engineering Development Board (EDB) issues licenses to the OEMs for undertaking assembly operations. The Pakistan Standards and Quality Control Authority (PSQCA) is responsiblefor monitoring the production of quality products by the OEMs. As such both the EDB and the PSQCA play an important role in the establishment, licensing and monitoring of the technical operations of the motorcycle assemblers. The entry of the Non-PAMA OEM's with a competitive price difference of approximately 25% (Rs.52,000 Vs. Rs.68,000 for the Honda 70CC in 1999) and continuous price reductions (2006 price for average Non-PAMA OEM 70CC clone is Rs.40,000 Vs. Rs.54,000 for a Honda 70CC). This has seen the total motorcycle market increase from 120,627 in 2001-02 to 751,667 in 2005- 06 |
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