CLUSTER DEVELOPMENT REFORMING AUTO VENDOR INDUSTRY

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
May 19 - 25, 2008

Over the years automotive industry of Pakistan has evolved and developed into an avenue of employment and income generation. On one hand, growing demand of automobiles directly or indirectly has created earning opportunity for existing assembling and manufacturing plants, on the other it has given substantial boost to organized as well as unorganized local vendor industry.

While mainly Japanese companies are involved in assembling of cars and LCVs, coupled with few Chinese assemblers producing two and three wheelers, they highly depend on local vendors and sub contractors for meeting their needs of supplies of major parts of automobile. At the same time, vendors belonging to unorganized sector supply bulk of automotive accessories in the replacement (auto parts) markets.

Aside by growth in production of cars, in recent years, motorcycle sale too registered remarkable average growth rate of 700%. True, this phenomenal demand rise, in its turn, resulted in revenue multiplication for numerous businesspersons associated with the automotive industry.

It is identified that an automobile composes of over thousand accessories and parts. In most of the time, assemblers or Original Equipment Manufacturers focus on to manufacture in house only sophisticated and important parts while they prefer outsourcing rest of the parts from their vendors. This not only saves their work-in-process cost but also gives them intermediary benefits of halving production burden.

Following effective industrial development programmes and knowledge transfer of global industry experts, vendor industry of Pakistan has transformed in to some extent productive and employment generating industry. According to an estimate, there are more than 400 organized units of subcontractors operating across the country. These units are registered suppliers of automotive parts to OEMs, but sometime they alternatively deliver parts in the replacement markets.

Despite sophistication in manufacturing beholds by OEMS, these vendor units too manufacture essential automobile components such as piston, engine valve, connecting rod, gasket, camshaft, shock absorber, strut, steering mechanism, cylinder head, wheel hub, brake drum, etc. Apart from organized sector, it is said, well above 1300 ventures constitute unorganized sector of local automotive industry. Particularly, this sector manufacturing components to cater to the needs of spare parts markets has generated employment of over 0.38 million in contrast to organized sector that undertaking formal induction procedure has employment source of approximately 100,000 persons.

It is noteworthy here that downstream unorganized vendor industry abundantly consists of entrepreneurs. It manufactures low scale complementary accessories, which require less accuracy in production, ranging from gear and brake levers, fibre finished, cushions, nut-bolts to many alike.

Four years ago, small and medium size industry reported that auto vendor industry had generated as much as Rs. 8 billion revenue. Its contribution towards GDP was Rs. 25 billion while it had registered cumulative investment of Rs. 72 billion.

Automobile industry is considered one of the major sections of international trade. Automotive exports account for over 10% in the world's total exports. The progress of auto market is not just limited to Pakistan, but many other SA countries are presently experiencing the similar growth rate in automobile industry due to increasing dependence of their citizens over auto mobility. US has been both a major exporter and importer of auto parts whereas China has emerged as a major exporter of auto parts for Pakistan.

Especially, arrival of Chinese motorcycles has given a boost to organized and unorganized vendor industry. Rather, government supportive trade regime had let number of motorcycle manufacturers and assemblers enter in the market. Recent estimate shows that during July 07-April 08 0.53 million two and three wheelers were freshly plying on roads. Interestingly in the whole fiscal year of 2006-07, this figure did not go beyond 0.47 million.

Notably, spare parts of Chinese companies have made their conspicuous presence in replacement markets all around the country. Offering adequate price tags and having acquired public fame for quality, these spare parts covering a wide range of an automobile from nut-bolt to engine piece do not redress to cartridge solutions for Chinese bikes only, they also have accurate compatibility when befitted in all other brands of scooters. One of such Sino brand is Lifan, an auto part company, which has quickly engulfed motorcycle parts replacement market. Reportedly, this company is also going to launch 1.3L and 1.6L cars in Pakistan with the same brand name.

Vendors industry of Pakistan still relies on traditional ways for product designing and has not attained the demanding precision as efficiently as auto market requires. Besides, the price-quality parity prefixed to indigenized parts is overshadowed easily by foreign brands.

To make local auto vendors industry more competitive, implicative industry support programme should be devised in which vocational and technical training featured product designing techniques according to market dynamics should be emphasized. Without government special interest, education can not bear fruits. However there are adequate numbers of polytechnic institutes offering diplomas in automobile though outmoded and painfully ineffective, but sadly enough higher study in automobile subjects remains neglected.

In reality, position of local auto industry in terms of manufacturing is not so impressive and certainly would be upraised by the innovativeness of practically trained and educated lots. In addition, industrial development calls for networked coordination among stakeholders. The present little improved shape of auto industry is because of the structuring of scattered manufacturing plants on a single plate form. There are mainly two such plate forms (auto clusters) in the country. The largest is in Karachi, followed by Lahore. Cluster development is also very important to leverage strategic movement of an industry. For auto industry, the importance is doubled because of its entrenched engineering sophistication.