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Home Appliances

Home appliances industry was established in Pakistan in 1980s, on the basis of fiscal incentives offered by the Government of Pakistan. 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. Fortunately, the market size started expanding and industry also restructured itself to stage a comeback with higher economies of scale and reduced costs of production. Amazingly, the industry which was not prepared to talk about exports at the time of Engineering Vision in 2002, took the initiative of exports itself. Though small in number, the industry exported refrigerators and freezers worth US$ 13 million in 2010, washing machines worth US$ 2.7 millions in 2010 and air conditioners worth US$ 4 million in 2010. The success is not without problems the industry faced while making its efforts to enter international market.

    The domestic home appliance engineering industry consists of medium to large size units in organized sector with enough managerial capacity. Product wise analysis of the industry is as follow:-

(i)    Refrigerators:

Refrigerator manufacturing in Pakistan has now matured. All the players in this product are in organized sector, have sufficient managerial and technical capabilities and sufficient financial strength to manage their organic growth. However, there are two shortcomings in this product. Firstly, the compressor and a few other critical components are not manufactured locally and have to be imported, which increases cost of production. Secondly, the industry only manufactures “direct cool” refrigerators and “no frost” refrigerators are not manufactured, which takes a large chunk of international market out of the potential of this industry to export. As far as competition in “direct cool” market segment in international market is concerned, the going is not smooth. Pakistan origin refrigerators have to compete with Chinese origin refrigerators which are cheaper as Chinese Government offers hidden subsidies.

(ii)    Freezers:

 Like refrigerators, the freezer manufacturing in Pakistan has also matured. All the manufacturers are in organized sector and have the same strengths, weaknesses and problems that are characteristic of refrigerator manufacturers.

(iii)    Air conditioners:

Air conditioners industry was established in Pakistan in 1980s through fiscal incentives and high a high tariff wall to protect local industry. It used to produce window type air conditioners. The whole of industry closed down as the consumer preference shifted from window type to split type energy efficient air conditioners. At the same time, Pakistan underwent a fiscal policy restructuring phase wherein through supply side reforms, the import tariffs were liberalized. For some years Pakistan was not manufacturing air conditioners. Around 2006, the activity restored but only to a limited extent. Now, air conditioners are being assembled in Pakistan through CKD/ SKD operation, only to avail the fiscal incentives offered by the Government. 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. In fact, the industry needs to do a lot of inward thinking to integrate backward and add value locally so that they are able to reduce their costs and export at competitive prices.

(iv)    Washing Machines:

 Washing machines industry in Pakistan is clearly divided into tow groups: (i) the organized sector and (ii) the unorganized sector. The organized sector of washing machine industry started in 1980s through fiscal incentives and in its initial phase worked under high tariff walls. The washing machine industry survived the supply side reforms and matured. It produces approximately 150,000 units of single tub washers and 125,000 units of semi-automatic twin tub washing machines. No fully automatic machines are manufactured in Pakistan. In comparison the unorganized sector mainly clustered around Gujranwala and Lahore is stated to be much larger than the organized sector. Though exact figures of manufacture are not available there are varying claims of manufacture from 500,000 units to 750,000 units per year. This sector also claims to have exported small quantities to under developed African markets.

The strengths and weaknesses of this sector were indentified for capitalizing on strengths and overcoming of weaknesses. Strengths and weaknesses are listed in proceeding paras.

Strengths:

(i)    The Home Appliances sector has matured over its history and is ready to take off.

(ii)    Export orientation already exists at limited level.

(iii)    Economies of scale exist. The sector has occupied a large part (over 95%) of domestic market.

(iv)    Large pool of low cost human resource.

(v)    A number of basic technologies have already been acquired.

(vi)    The organized sector has sufficient managerial capacity to handle export business.

(vii)    Industry has freight advantage over Chinese competitors in Middle East and African markets.

 

Weaknesses:

(i)    The products are low tech. Refrigerators and freezers are based on direct cool technology. Fully automatic washing machines are not produced.

(ii)    A large part of washing machine segment is unorganized and does not have managerial capacity to handle export business.

(iii)    Knowledge about potential markets and their dynamics is not available with home appliances industry.

(iv)    The organized sector of home appliances industry needs to expand its production capacity and needs funding availability from financial sector.

(v)    Standards and certification requirements in target markets, need to be addressed.

 

Potential Matrix

Product

Existing Export Market

Potential Export Market

Comments/ Barriers/ Challenges

Refrigerators

1. Afghanistan

2. UAE

3. Sri Lanka

4. Iraq

1. Afghanistan

2. Middle East

3. South Asia

4. Africa

1. Potential of expansion in new markets exists where Pakistan has freight advantage over Chinese competitors.

2. Government support to counter subsidies allowed to Chinese competitors.

3. Designing and product development.

4. Standards and certifications requirements.

5. After sale service network needed.

Freezers

1. Afghanistan

2. UAE

3. Sri Lanka

4. Iraq

1. Afghanistan

2. Middle East

3. Sri Lanka

4. Bangladesh

5. Africa

1. Potential of expansion in new markets exists where Pakistan has freight advantage over Chinese competitors.

2. Government support to counter subsidies allowed to Chinese competitors.

3. Relatively low economies of scale.

4. Designing and product development.

5. Standards and certification requirements.

6. After sale service network.

Washing Machines

1. Afghanistan

2. UAE

3. Sri Lanka

4. Iraq

1. Afghanistan

2. Middle East

3. South Asia

4. Africa

1. Potential of expansion in new markets exists where Pakistan has freight advantage over Chinese competitors.

2. Government support to counter subsidies allowed to Chinese competitors.

3. Large unorganized segment need to be converted into organized sector.

4. Designing and product development.

5. Standards and certification requirements.

           Note: The industry has an export potential of US$ 200 million in 15 years, if a head start can be provided.

Need Assessment:

(i)    Market studies in respect of refrigerators, freezers and washing machines with reference to potential markets to be done for assistance to exporters.

(ii)    Common facility centres for washing machine unorganized sector.

(iii)    Testing labs and assistance in standards and certification.

(iv)    Managerial capacity building in unorganized washing machine sector.

(v)    Technical skill set need to be improved.

(vi)    Targeted “export refinance” and “long term financing facility” for exporters in organized segment.

(vii)    Participation in trade fairs/ exhibitions, and in trade delegations.

(viii)    Assistance in developing after sale network in potential markets.

 

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