Auto sector stands out among all manufacturing sectors of Pakistan and it has developed a world class vendor base capable of making precision car and engineering components at globally competitive rates.
LAHORE: Auto sector stands out among all manufacturing sectors of Pakistan and it has developed a world class vendor base capable of making precision car and engineering components at globally competitive rates.
We do not see such versatile and comprehensive vendor base in textiles, where we still import components that could be easily produced in Pakistan. Cement sector is an exclusive club of 24 large manufacturers with each factory worth several billion rupees, but it is dependent on components and spare parts from abroad.
Same is the case with other major industries having sizable presence in Pakistan but no reliable vending base.
The auto vendors are saving millions of dollars in foreign exchange and need government support. These vendors need stable government policies in auto sector to attract new entrants. Few new entrants have entered the Pakistani market last year and are expected to roll out their variants this year. The government should ensure that these new entrants do not confine themselves to assembling vehicles from imported components. They should reach the localisation level of the existing car manufacturers within three years. Auto vendors are small entities some of whom have developed to medium level after years of struggle and handholding by the existing car manufacturers in Pakistan.
Developing an auto-part of global standard and up to the requirement of foreign car manufacturers is not an easy job. It required millions of investment in tooling. Since volume of cars produced in Pakistan is still low the cost of tools is recovered over several years.
The assemblers provide the design and share some cost of tooling either through grants or by buying the component at a little higher than the agreed price to cover the tooling cost. The new entrants will have to do the same as only through localisation they would be able to compete with existing players.
The vendors are currently contributing to over 60 percent localisation in domestically manufactured vehicles. Most existing car manufacturers now realise that localisation is beneficial for the auto industry, consumers, and the government as well since the impact of devaluation and global crisis is minimised through indigenous engineering base.
Through research and quality conformation by these companies, the import of parts was substituted that eventually helped original equipment manufacturers in getting quality parts locally to save shipping time, foreign exchange for the country, and to create huge employment base. Currently, 400 vendors from all over Pakistan are providing parts worth more than Rs90 billion every year and this reflects the level of localisation achieved in the last 29 years of its journey.
Transfer of technology from Japan to local vendors has enabled the country to produce not only precision parts but many high-tech engineering components also. Pakistani vendors have entered into 45 different technical assistance agreements with Japanese companies that have helped in moving forward with localisation without compromising on the quality. The market in Pakistan has not grown to its potential due to various reasons but the auto vending base has somehow survived the ups and downs in the economy.
Initially the car manufacturers placed orders for a single component to two or three vendors. This inhibited the vendors to attain economies of scale as no variant in Pakistan sells more than 60,000 units a year. Now that vendors have established their reliability, some car manufacturers are placing all the orders for a single component with a single vendor that has helped them to scale up. Some vendors have ventured into exports in the aftermarket. They still do not have capacities to fulfill a single component demand of main plants of any of the three Japanese brands operating in Pakistan.
However with exports they are developing capacities. Export of auto components now exceeds the local sales of many vendors. Auto industry is rightly called the mother of all industries as its vendor base also covers other industries owing to the fact that they produce high-tech precise components for all machines. Pakistani vendors are gradually replacing some high-tech parts as well. The local variants are now using locally-made glass for windows, while some are also using indigenously produced wind screens that are approved by their foreign principals.
Some vendors have scaled up to such an extent that they have established a state-of-art skill training school as a part of ‘corporate social responsibility’ activities. It provides free training to 650 students in six months through different courses. Infinity school of engineering is providing training to youth to enhance skills as skill-based training is essential to maintain the high-tech computer numerical control machines in automotive industry.