INCREASING MOTORCYCLE EXPORTS THROUGH VENDORS' UPLIFT

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Jan 25 - 31, 20
10

While the government has announced incentives for the export of motorcycle from the country, there is a doubt whether local assemblers and manufacturers are in a position to meet the demand in the region.

Government has announced $50 per unit Competitive Support Fund for exporter of motorcycle. Motorcycle demand in the country has increased astronomically and within five or six years, 94 different brands of motorcycles came on the surface in the market, though numbers of original equipment manufacturers are no more than sixty seven including local and international assemblers.

There are many reasons, which form the bases of scepticism that motorcycle exports reach the target of 100,000 units by 2011-12, envisaged in the auto industrial development program.

First is the tug of war on the discretion to authorize competitive support fund between the associations representing auto assemblers and vendors. The fund is important for local manufacturers to infuse price competitiveness in the exportable units in the midst of low-priced motorcycles of India and China. Government transfers the authority of scrutiny of the candidature of exporter for the fund to the association for which another association has apprehension. According to an auto vendor, the authorized association would be unable to disburse funds to deserving exporters of motorbikes appropriately since it represents only a small number of bike makers. Pakistan Automotive Manufacturers Association has no more than seven members that are in assembling and manufacturing of two and three wheelers, said Pervez Ismail, chief financial officer of Pirani group of companies. The group is a maker of two and three wheelers, and auto parts and components such as sheet metal and aluminium parts, supplying them also to other automotive manufacturers. Other contending All Pakistan Motorcycles Assemblers claim to have highest numbers of motorcycle makers.

Secondly, though the auto vending industry has increased its production and supply of parts to OEMs, it still has not achieved the technological capability and production expertise to meet large orders. It is said that above seventy percent of components of two and three wheelers are manufactured locally. Nevertheless, local vendors that are lifeblood of auto industrial production have not gained expertise of manufacturing precision parts. They supply parts to manufacturers but have not broken the market share of precision parts in replacement markets, which are dominated by importers. Certainly, this does not mean that vendors would fail to handle large outsourcing orders emanating out of export surge. However, there is a need of developing vending sector for making it capable of quality management that includes tooling and evaluation techniques.

Some spare parts manufacturers are unable to meet even local demand due to lack of production facilities, said Pervez. Most of the vendors could not achieve the scales due to deficiency of mass of production. The parts manufactured by them mainly includes sheet metal parts, wire-harnessing, rubber and plastic parts, batteries, tyres, decoration items, and lighting accessories.

A large number of auto vendors fall in the category of unorganized sector. Auto industry development programme was appreciated for its approach to enhance competitiveness of local industry through mass production and giving a policy framework to develop human resource and expertise of the industry. However, it has not been implemented in letter and spirits, argued Pevez. The motorcycle industry would have neared the export target of AIDP had the programme been implemented properly, he said. 'The incentives recommended in the roadmap have not been dispensed.'

Undoubtedly, the massive growth in sale and production of motorcycle has not only benefited local auto vendors whose numbers increased manifold but also replacement markets, which witnessed a sharp rise in auto parts sales following unabated spike in motorcycle demands. Sales of new motorcycles showed compounded growth rate of 58 percent for five years to 2007. The sale of motorcycles in the country reached one million units in 2007 from mere 100,000 in 2001.

At present, Pakistan can earn over one million-dollar revenue per month by exporting motorbikes to Afghanistan and Bangladesh-two markets, which have great demand of Pakistan's bikes. We can increase exports to Afghanistan as a priority area, says an official of leading original equipment manufacturer. Local motorcycle industry achieved the exports figure of 4000 to 5000 motorbikes per month. Unfortunately, the industry faced stiff price competition from India and China which are able to sell motorbike at price lower than one offered by their Pakistani counterparts. There is a difference of $100 to $150 in prices of Indian, Chinese, and Pakistani motorbikes. Pervez said Pakistan's 70cc bike had a price tag of $550. Competitive support fund was introduced to give financial support to exporters so that they could offset high cost disadvantage. This fund also has become a conflict of interest between the two associations.

Overall exports of auto spare parts are in range of $14 to 15 million. Government envisaged increasing exports of motorcycles to 100,000 units by 2011-12.

Global motorcycle production crossed 40 million units with China alone holding the major share in total production. In spite of this, Japan has penetrated in the low cost countries such as China, India, and Indonesia controlling 50 percent of the world market, according to an estimate. Pakistan's share in global motorcycle trade is no more than two percent.

After the introduction of tariff based system, the motorcycle sale started to come down, said a local manufacturer. It is 6.5 to 7.5 lac per annum. The system waived the condition of source of content, thereby allowing manufacturers to buy raw materials from anywhere. TBS replaced the deletion programs for the automotive sector in July 2006.

Pakistan's auto industry has not attained a complete indigenization. Capacity building of vendors can enhance the exports from the auto sector.