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Meeting sustainable use of both local and foreign products

Consumption is the process by which goods and services are put together for end user. Consumption is at the end of the line of economic activities that starts with an evaluation of available resources and proceeds through production of goods and services and distribution of goods and services. Pakistani society is becoming a consumer society. The economic development has brought about a revolution in values. The demand for luxury and branded products cannot be fully satisfied by domestic production. Pakistani consumers are facing copious westernization such as the demand for imported cosmetics, toiletries, electronic items which are perceived as luxury products.

The consumption and usage of electronic goods such as home appliances has increased in Pakistan. However, this increase has not been proportional provincially and demographically. Television viewership has steadily increased in Pakistan. In Punjab the estimated number of television sets is more than the combined (estimated) number of televisions in other provinces. This difference is even starker, for obvious reasons, when we compare the rural and urban population. 89% of rural population nation-wide and almost 100% of the rural house-holds in Balochistan are without televisions. The largest concentration of television sets is in the urban areas of Sindh where more than 50% of the households have reported having televisions. Though simply numbers are an adequate measure of the inequality that is exhibited by the distribution of this industry; a more descriptive synthesis that can be seen by analyzing the usage of black and white and colored televisions. Such an analysis also caters to the market dynamics of used or older televisions. The province-wise breakdown of the ownership of colored televisions in the urban and rural areas shows that the ratio of color television sets to black and white sets is highest in the urban areas of Khyber Pakhtunkhwa and lowest in the rural areas of Sindh and Balochistan, where ownership of color television has not been reported by any of the households.

On a nation-wide basis, Philips, National and Hitachi are the most popular television brands. In the urban markets of the country Toshiba is more popular than Hitachi while Philips enjoys the highest market share in rural as well as urban areas of the country. Given the increase in GDP per capita growth can be expected to continue with the growing industry and the increasing competition from other brands.

Another industry that has grown in Pakistan is that of air-conditioning and refrigeration. The demand for air conditioners was estimated to be 63,528 in 1994-95 and was expected to grow at the rate of 4.8% per annum for the next five years. Increasing trend in urbanization, income and change in lifestyle has boosted the demand for air conditioners. In 1994-95, 70% of the total demand was met by local production which increased at the rate of 18.7% for the previous six years. Air conditioners are also smuggled in the country on a large scale. Despite ban on imports of air conditioners through Afghan transit, trade smuggling of air conditioners is expected to continue. Smuggled brands are available at two-third of the prices of local brands. Two leading brands, PEL (local brand) and General (international brand) accounted for75% of the market share in 1995. However there is an increasing trend towards split air conditioners nation-wide.

Refrigeration industry has exhibited tremendous growth in Pakistan. The demand for refrigerators is estimated to be at 300,000 per annum for 1994-95 and is expected to grow at the rate of 10% per annum for the next five years. Increasing trend in urbanization, electrification of villages and the likely replacement of CFC emitting refrigerators with the CFC-free refrigerators were estimated as boosters of demand. Another reason for the increasing trend had been the public opinion that deep freezers are the best alternate of refrigerators when electric load shedding occurs. Increasing trend in urbanization, income and change in life style have boosted the demand for deep freezers. Approximately 40% of the demand for deep freezers was from the commercial sector i.e. shopkeepers, hotels etc, whereas 60% demand is from the domestic sector. Almost 100% of the total demand is met by local production while imports and smuggling of deep freezers is negligible.

Three leading brands dominating 85% of the market share are Waves, Dawlance and Candy. The proportion of authorized dealers in top 31 cities shows that Dawlance enjoys widest network of dealers followed by PEL, Philips, Indesit and Samsung while the purchases data of dealers surveyed in the top eleven cities indicate that Dawlance enjoyed highest market share followed by PEL, Philips and Indesit. The dealers expect that the market for refrigerator would grow at a rate of 11.4% in the coming few years. In 1994 estimated nation-wide numbers of households were 15.10 million, amongst which 9.97 million were electrified households. Households having a new fridge were estimated to be 2.39 million (24% of electrified households) while households that bought a new fridge in the last 3 years was 0.828 million (8.3% of electrified households). These figures show rapid growth in the industry and the trend was estimated to continue as customers were assured of Guarantee and After Sale Support. The government has also encouraged local production through the deletion program and tax-free zones. There was also an increasing tendency towards no frost refrigerators, but the higher price, interruptions in power supply and load shedding restrained its growth.

The role of dealers in influencing brand choice of refrigerators cannot be undermined particularly in the first purchase. However, with increasing proportion of replacement demand the manufacturers are approaching customers directly through mass media advertising to reinforce their choice and to induce repeated purchase.

 

Tube light consumption, because of its long term cost-wise advantages compared to bulbs has also grown. The majority of electricians are aware that using tube lights results in savings in the consumption of electricity but they reported that only half of their customers are aware of these benefits. The main factor inhibiting use of tube lights is their high initial cost. Still according to a 1983 estimate, over 80% of electricians observed an increase in tube light sales relative to that of bulbs. Households using tube lights have an average of 2.6 tube lights per home while on an average 1.1 tube lights were purchased by each tube light user. 44% of customers considered then believed bulbs to consume up to 50% more electricity than tube lights while 29% considered bulbs to consume over 50% more electricity. Amongst bulb users 33% believe that bulbs consume more electricity than tube light.

According to electricians the most important factors for the success of a new tube light company are development of a high quality and durable product, competitive pricing, tolerance to voltage fluctuations, and strong promotion. Reasons for brand choice also include durability/long life, company reputation, brighter and less heat emitting light, and the recommendation of the retailer.

In aggregate terms the electric goods market has grown tremendously. With an increasing population as well as GDP growth rate, this industry can easily be estimated to grow more in all arenas. Increasing competition can also be estimated to increase quality of the product.

When the government of Pakistan offered fiscal incentives in year 1980, the home appliances industry started flourishing. Though in the initial phase, the industry worked with low economies of scale but high production costs while remaining protected by high customs duties on import. With start of supply side reforms and reduction in import tariffs in 1990s, the home appliances industry received its first shock as it had to face competition from imported products. When the market size started expanding, the industry also restructured itself to stage a comeback with higher economies of scale and reduced costs of production. The industry started exporting refrigerators and freezers. Alone in 2010 around US$ 13 million worth of home appliances were exported.

The indigenous home appliance industry is consisting of medium to large size units. The refrigerators and deep freezers industry is now mature enough. However, the compressor and a few other critical components are not manufactured locally and have to be imported, which increases cost of production. Until recently, the industry was only manufactures ‘direct cool’ refrigerators and ‘no frost’ refrigerators were not manufactured. Pakistan origin refrigerators have to compete with Chinese origin refrigerators, which are cheaper as Chinese government offers hidden subsidies.

Likewise, the air conditioners industry was established in Pakistan in the same year i.e. initially the industry used to produce window type air conditioners. Slowly and gradually industry died-down as the consumer prefer split air conditioners over window type as the former were more energy efficient air conditioners. The manufacturing restarted in 2006 at a limited scale. To avail the fiscal incentives, now the air conditioners are being assembled in Pakistan through CKD/ SKD operation. In its present state air conditioner manufacturers are not in a position to export and compete Chinese exporters who also supply CKD/ SKD kits to Pakistan. Serious and rationalize efforts are required to integrate backward and add value locally so that the local industry would be able to reduce their costs and export at competitive prices.

On the other hand, washing machines industry in Pakistan started in 1980s through fiscal incentives and in its initial phase worked under high tariff walls. It produces approximately 150,000 units of single tub washers and 125,000 units of semi-automatic twin tub washing machines. Still the local industry is not producing automatic washing machines. The industrial units of Gujranwala and Lahore are producing 500,000 units to 750,000 units per year. These are exported to African countries in small quantities. All these were possible due to large pool of low cost human resource. And now the sector has occupied a large part (over 95%) of domestic market. Now this is the high time to have standardization and international certification; especially in assembling and manufacturing.

The author, Mr. Nazir Ahmed Shaikh is a freelance columnist and an academician by profession. Currently he is associated with SZABIST as Registrar and could be reached at nazir.ahmed@szabist.edu.pk.

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