barriers for international automobile industry to enter in pakistan
TRANSCRIPT
Barriers for International Automobile Industry to
enter in Pakistan
Author Note:
This research is conducted by Zain Ahmed, Salman Ahmed & Danyal Ahsan on
the behalf of department of management sciences COMSATS Institute of
Information and Technology Lahore.M.A Jinnah road, Lahore 54000
This research was supported by Pakistan Automotive Manufactures Association
(PAMA).
1 Barriers for international automobiles
LETTER OF TRANSMITTAL
Mr. Fahmeed Idrees
Instructor, Research Tools & Techniques
MS Department
COMSATS
Sir:
We herewith present our “Term Research Report” authorized by you as a
requirement for this course. In this research, we have tried to provide data related
to barriers which are faced by international automobile companies to serve in
Pakistan & also provide the data related to the difficulties faced by authorized
dealer to import vehicles from foreign countries.
Group Members:
Zain Ahmed Bajwa
Muhammad Salman Ahmed
Danyal Ahsan
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Table of contents
Executive Summary……………………………………………………….04
Key words…………………………………………………………………04
Problem statement…………………………………………………………05
Purpose of research………………………………………………………..05
Overview of research……………………………………………………...05
Methodology and procedure………………………………………………06
Research tools……………………………………………………………..06
Methodology………………………………………………………………06
Population & Sampling……………………………………………………06
Hypothesis…………………………………………………………………07
Appendix…………………………………………………………………..08
Questionnaire………………………………………………………………08
Interpretation report………………………………………………………..11
Conclusion………………………………………………………………....26
Recommendations………………………………………………………….27
3 Barriers for international automobiles
Executive Summary:
This analysis focuses on the International automotive industry, specifically, large-
scale manufacturers of automobiles .The automotive industry is inherently
interesting: it is massive, it is competitive, and it is expected to undergo major
restructuring in the near future due to globalization.
The economy of Pakistan is the 25th largest economy in the world in terms
of purchasing power, and the 45th largest in absolute dollar terms. In recent
decades most of our transportation is shifted to road from railway. Upper & middle
class usually prefer luxurious travelling and Pakistan automotive industry is just
satisfactory as compared to international industry. Prices of vehicles are too high &
there is less comfort, reliability as compared to vehicles in foreign countries so,
this research is conducted on find out the barriers for international industry to serve
in Pakistan.
KEY WORDS:
Imported Vehicles
Local Vehicles
International Industry
Authorized Dealers
PAMA
Import Restrictions
New Entrants
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Problem Statement:
Barriers for International Automobile Industry to enter in Pakistan
Purpose of Research:
The purpose for which the research is conducted is that some of the pre-existing
automobile companies are playing with the public of Pakistan in oligopoly i.e. the
prices are too high and in return they are not giving high quality products. As there
is little or no competition in market and there is no new entrant in the market. We
are conducting this research to find out the reasons behind them.
Overview of Research:
Transportation is becoming a problematic issue in Pakistan. Everyone demands
high comfort, better performance, durability. According to survey we found that
the main reasons behind all this are barriers for new entrant and some un logical
import polices of Pakistan .As vitz gain a huge market share due to its comfort and
reliability. In an interview Automobile Dealer tell us that people want imported
cars and also want new automotive companies to build their plant in Pakistan so
the prices of vehicles become reasonable. Another main aspect that dealer shared
with us was that the pre existing companies are working as the barrier for new
entrants.
5 Barriers for international automobiles
Methodology and procedures:
Research Tool:
In this project we have used simple Microsoft Excel and calculated the percentage
of every question. The research model as a whole shows the graphics and statistics.
Procedure and Methods:
We have used a survey technique. We have made questionnaires and filled them
up by persons related to the field of automobile industry. We had also taken the
interviews of some authorized dealers of both local and imported cars.
The questionnaire is consisted of 11 questions which give the related idea
about the barriers and difficulties related to automotive industries. All of questions
are closed ended.
Population and sampling Technique:
The sample of population was taken from different areas of Lahore i.e. Jail Road,
Johar Town, Defense Morh. Age of the sample was in between 34-55 years old.98
% of sample was male and remaining 2 % was female.
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Hypothesis of research:
As far as the hypothesis of the research is concerned the initial idea is that the
people in the area are economically not very well off and they are more
conservative and stick to the vehicle they use in the past and are not very
innovative and creative in terms of comfortability, luxuries. So the Null hypothesis
of research is that overall people don’t prefer durability, comfort and luxuries and
they are loyal to the pre existing companies.
Ho= people do not prefer imported vehicles
H1= people prefer imported vehicles
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Appendix:
Research Questionnaire:
Questionnaire
In which vehicle do u deal?
a).Local b). Imported c) Both
According to your opinion which vehicle is more reliable?
a). Local b). Imported
Which type of car has more sales in Pakistan?
a).Local b). Imported
Are import policies of Pakistan favorable for international
automobiles?
a).Yes b). No
What are the main costs faced by international automobiles in
Pakistan?
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a).Advertisement cost b).Heavy duties
c).Taxes d).All of these
Are existing automobiles companies in Pakistan barrier for
international automobiles?
a).Strongly agree b).Agree
c).Disagree d).Strongly disagree
Are government interruptions barriers for the existence of
international automobiles in Pakistan?
a). Yes b). No
Does political instability work as a barrier for international
automobiles to enter in Pakistan?
a).Yes b). No
Does economic instability work as a barrier for international
automobiles to enter in Pakistan?
a).Yes b). No
Global recession restrict companies to start a new business in
Pakistan?
a).Strongly agree b). Agree
c).Disagree d).Strongly disagree
9 Barriers for international automobiles
Is the customer’s loyalty to existing companies act as a barrier for
international automobiles?
a).Yes b).No
Why customers do not prefer international automobiles?
a).High maintenance cost
b).Unavailability of spare parts
c).Both of these
NAME : _____________________
ADDRESS:_____________________________________________
_____________________________________________
10 Barriers for international automobiles
Interpretation Report:
Local Imported Both0
10
20
30
40
50
60
70
80
90
In which vehicles u deal?
In which vehicles u deal?
vehicles
perc
enta
ge
local 5 percent
Imported 5 percent
both 90 percent
Interpretation:
As you people know that now-a-days the business of car sales and purchases have
increased very much. When our group went to the market for gathering the
information through our questionnaires we tried that we can meet people who deal
11 Barriers for international automobiles
in both imported and local cars so that they can give us better knowledge about the
barriers faced by international automobiles in Pakistan as compared to the local
manufactures. Of all the dealers we met, 90% of them said that they deal in both
types of cars. Only 5% said they only deal in local cars. After meeting the one who
only deal in local we felt that we should also meet some who only deal in imported
cars and we did so and met dealers who only deal in imported cars. So 5% are only
from that sector.
10%
90%
which vehicle is more reliablelocal imported
Local 10 percent
Imported 90 percent
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Interpretation:
Except some cases, everyone said that the imported cars are more reliable than the
local maid cars. Dealers gave the reason that in Pakistan companies which have
manufacturing plants are not using much technology in their production. They said
that these companies are using excellent technology in other countries but in
Pakistan they are not making standard cars because of low competition, and all the
dealers think that government should allow import of cars on easy conditions.
According to dealers if the competition will increase the local manufacturers will
automatically increase their standards to survive in the market. In our survey 90%
people favored imported cars and only 10% people of them who were surveyed
think that local cars are more reliable. Mostly dealers gave us the example that the
comfort level of imported car worth 7 hundred thousand is more than the local car
worth 14 or 15 hundred thousand. They said that local manufacturers are giving
facility of air bags and abs in cars worth 14-18 hundred thousand but in imported
cars the customer can get these facilities in just 6 to 7hundred thousand.
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Local Imported0
20
40
60
80
100
120
which cars has more sales in Pakistan
which cars has more sales in Pakistan
Local 100 percent
Imported 0 percent
Interpretation:
All dealers said that local cars have more sales in Pakistan and they gave the
following reasons;
i. Most of the people are not much aware of these imported cars.
ii. In our country the petrol prices are very high and imported cars are mostly
automatic and in automatic cars mostly CNG creates problem in the gear
box of the car.
iii. The bank leasing system is only available for the local cars.
iv. People mostly prefer cars which have their plants in Pakistan so companies
should have their plants in Pakistan to grab a share in the automobile market.
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advertisment cost5%
heavy duties40%
taxes10%
all of these45%
Major costs faced by intermational auto-mobiles
Advertisement cost 5 percent
Heavy duties 40 percent
Taxes 10 percent
All of these 45 percent
Interpretation:
Mostly dealers think that Pakistan have not a friendly policy regarding the import
of cars. They think that government doesn’t want that the local industry suffer due
to huge imports of other cars. The government wants international companies to
come in Pakistan and make their plants here so that our country can get benefit
from them like employment etc. They said that if government wants international
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companies to come in Pakistan then they should solve all the problems which
create hesitation for the companies to bring their investment in Pakistan. (Further
discussed in our research report).
Advertisment cost
Heavy duties Taxes All of these0
5
10
15
20
25
30
35
40
45
50
5
40
10
45
Main cost faced by international auto-mobiles in Pakistan
Main cost faced by international automobiles in Pakistan
Advertisement cost 5 percent
Heavy duties 40 percent
Taxes 10 percent
All of these 45 percent
Interpretation:
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5% dealers said that when any new automobile enter in Pakistan the main
challenge it faces is to make people aware of their cars. Because in many cases the
company failed because people were not aware about their prices and
specifications. 40% dealers said when a company has not a plant in Pakistan and
they are importing cars, then they face a lot of duties which cause in a high price of
car. Sometimes due to duties the prices of the car become double. 15% dealers said
that our taxation system is a big problem for the new entering business. And
companies choose any other country to make their plant because of low taxation.
Most of the dealers (45%) said that all of these costs are big challenge for the
companies either to make their manufacturing plant here or import their cars by
just making their offices
strongly agree agree disagree strongly disagree
0
10
20
30
40
50
60
55
30
105
Are existing automoblie companies in Pak-istan barriers for international automobiles
Are existing automoblie com-panies in Pakistan barriers for international automobiles
Strongly Agree 55 percent
Agree 30 percent
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Disagree 10 percent
Strongly Disagree 5 percent
Interpretation:
Mostly people think that existing companies are also playing important role for the
barrier for international automobiles. An international automobile facilitates their
customers with high quality and more options in their products within limited cost.
If international automobiles start their business in Pakistan than there will be a
situation of competition and more people will attract towards international
automobiles so that existing automobile companies put their efforts to restrict
international automobiles to work in Pakistan. Pakistani government imposes many
conditions on international automobiles to start new business in Pakistan. People
have common thinking that existing automobile companies give bribe to
government to formulate strict conditions on international automobiles to start new
business in Pakistan. Doing this international automobiles cannot survive and
restrict to do business in Pakistan.
18 Barriers for international automobiles
Yes No0
10
20
30
40
50
60
55
45
Government interuptions barrier for interna-tional automobiles in Pakistan
Government interuptions barrier for international au-tomobiles in Pakistan
Yes 55 percent
No 45 percent
Interpretation:
When an international companies took interest to do business in Pakistan they
faced many interruptions made by the government of Pakistan such as taxes and un
logical terms and conditions according to their personal interests. Because of this
these companies prefer to do their businesses in other countries.
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80%
20%
Political instability work as barrier for in-ternational automobiles
YesNo
Yes 80 percent
No 20 percent
Interpretation:
Political instability in country is a barrier for all type of businesses in world. Pakistan
is a country where political instability always exists and it is a barrier for all
international businesses. International automobiles also hesitate to invest and start
their business in Pakistan due to the political instability. They feel high risk because
every new government makes new policies according to their willingness and imposes
heavy taxes on every business. In our survey 80 percent people asked that political
instability is a barrier for international automobiles and 20 percent people think that it
is not a barrier. 20 percent people have a believed that international automobiles
cannot be affected because they have back support by their countries and new
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government rules and regulations can not affect their existence. They asked that new
policies applied on local companies and affect local businesses.
Yes100%
Economic instability work as barrier for international automobiles
Yes 100 percent
No 0 percent
Interpretation:
Economic instability is a barrier for international automobiles as well as other
businesses. When buying power of people becomes low they cannot able to spend
their money easily on luxuries rather than spending on basic needs. In Pakistan
buying power of people is gradually decreasing day by day. People are
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unemployed and unemployment is increasing very fast. Most of people just spend
their income on their basic needs. Government policies to decrease unemployment
rate is also not satisfactory. International automobiles do not take interest in this
condition in start their business because heavy investment and big setup are always
established for long term purpose. For doing long term business economic stability
and economic growth should needed. Pakistan economy is not stable and
international automobile companies face high risk to start business in this situation.
All participants of our survey believe that due to economic instability international
companies cannot invest in Pakistan and it is also the obstacle for them.
10%
35%
25%
30%
Global recession restricts companies to start new business in Pakistan
Stronglyagree AgreeDisagreeStrongly disagree
Strongly agree 10 percent22 Barriers for international automobiles
Agree 35 percent
Disagree 25 percent
Strongly Disagree 30 percent
Interpretation:
Whole world economy is facing recession. In recession economy decline
unemployment increases and GDP also decline. All businesses affected by this
because people spend their money on basic necessities. It restricts to expand
businesses. Pakistan and India are not affected much by this recession than other
countries like America, Canada and other European countries. Global recession
also create a barrier for start new business. Our 55 percent participants disagree (30
percent are strongly disagree and 25 percent disagree) and asked that Pakistan is
not much affected by this recession so it should not consider as barrier for
international automobiles. While 45 percent agree (10 percent strongly agree and
35 percent agree) and argue that most of international automobile companies are
from developed countries and they are in recession and how can they start new
business in other countries.
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Yes45%
No55%
Customer loyality to existing companies are barroer for international automobiles
Yes 45 percent
No 55 percent
Interpretation:
Customer’s loyalty always exists in every business. Loyal customers can not
switch towards other brands. Automobile companies in Pakistan are providing low
quality and fewer facilities to their customers. If international automobiles start
their business in Pakistan than more people attract towards that vehicle because
their cars are more reliable, more comfortable and have low price than local
assembled cars. In our survey 45 percent participants believe that customer’s
loyalty is a barrier for international automobiles. Customers from small cities have
more customers’ loyalty because they do not want to try new vehicles. While 55
percent people asked that this is not a barrier for international automobiles. They
asked that existing companies are not providing best quality and facilities in their
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cars. If international companies start their business here than people can easily be
transferred towards new vehicles because those vehicles will more durable, having
more facilities and low price.
5%
25%
70%
Why customers do not prefer international automobiles
High maintenance cost Unavalibility of spare parts Both of these
High maintenance cost 5 percent
Unavailability of spare
parts
25 percent
Both of these 70 percent
25 Barriers for international automobiles
Interpretation:
Preference from the people to start new business of international automobile
companies should also be noticed. If international automobile companies want to
start their business than they should understand what problems people generally
face to avoid purchasing their vehicles. Existing automobile companies are
working in Pakistan from long period and their spare parts are easily available
throughout the Pakistan and their spare parts have low prices. Spare parts of
Suzuki, Toyota, Honda are also manufacture in Pakistan which reduces costs and
easily available. Now take example of Vitz. It is more comfortable, more reliable
but its maintenance cost and spare parts prices are high. Therefore people prefer
alternatives. 5% people asked that high maintenance cost is a barrier and 25%
people asked that unavailability of spare parts is playing important role to restrict
people to buy imported vehicles. While 70% participants considered that both of
these factors are barriers for international automobile companies.
Conclusion:
Basic purpose of this research was the identification of barriers faced by
international automobiles in Pakistan. In this research we had conducted survey
through questionnaire in different places in Lahore to find out those barriers i.e.
Government import polices, heavy duties, taxes, economic conditions, political
instability, global recession, existing companies, high maintenance cost, un
availability of spare parts. And finally we have concluded that the barriers which
are present in Pakistan for imported cars and international automobile companies
are not such barriers which are difficult to resolve. By the sincerity of government
26 Barriers for international automobiles
theses barriers can be resolved. In short, we accept the null hypothesis i.e. there are
barriers present in Pakistan for international automobiles to enter in the industry.
Recommendations:
Pakistan is under developing country. It does not have much capital and
technology to produce its own vehicles that will economical and durable. So it
relies on other countries in automotive sector. Buying power of Pakistani
population is decreasing day by day. Most of people are not able to purchase high
priced vehicle. In Pakistan there is a situation of oligopoly by Suzuki, Honda &
Toyota. Their product’s prices are much higher than its quality, durability &
specification. If new International automobiles will introduce than those companies
create competition among them and prices will decrease. International automobile
companies faced many barriers in Pakistan which are briefly explained above.
Government of Pakistan should formulate those policies which support
international automobiles to start new business in Pakistan. Import policies
should be soft to attract foreign companies. Import duties and taxes should lower
for newly foreign investor. If import duties and taxes will low than companies will
less hesitate to come here for doing business. Economic conditions cannot be
stable very fast but government should take those steps which can help to stable
economy of country. Political stability should be present in Pakistan because in
Pakistan every new government imposes new taxes and formulate new rules and
regulations by which foreign companies hesitate to do business.
If political stability will create than we can remove this obstacle. High
maintenance cost will also be managed if government allow and give subsidies to
build new plants to manufacture spare parts. If we remove these barriers than we
27 Barriers for international automobiles
people can buy reliable and durable cars within low prices. So at the end we want
to say that competition should come to Pakistan to ensure proper standards.
Pakistan should invite representatives of foreign countries and contract with
them to start new businesses.
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28 Barriers for international automobiles