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API Automobile Industry

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ANALYSIS OF AUTOMOBILE INDUSTRY OF PAKISTAN

Introduction

In the world trade, Auto Sector is one of the largest segments. It is the major driver of economic growth and business activities The Automobile industry has been an active and growing field in Pakistan for a long time Automotive vehicle assembly operations in Pakistan started in 1953 The Automobile industry has a great influence on the economy of every country, as the total production value of this industry The automobile industry in Pakistan operates under franchise and technical cooperation agreements with leading world manufacturers and can be broadly categorized into various segments The automotive industry contributed over Rs 30 billion to the government exchequer in the form of duties and taxes in FY03

The industry has achieved a phenomenal growth of 50.2 percent Industry operates under franchise and technical cooperation agreement with: Japan,Europe,Korea,China List of some Automobile Producers and Products in Pakistan: Pak Suzuki Motor Comp ltd. Indus Motor company ltd Honda Atlas cars Deewan farooque motors ltd Sigma Motors Hino Pak motors Ghandhara Nissan Sindh Engineering Ghandara Industries ltd

Porters model of 5 forcesBarriers to entry Threat of substitutes Bargaining power of buyers Bargaining power of suppliers Rivalry among the existing players

WHY?

Important tool for analyzing an organizations industry structure in strategic processes. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Competitive strategy should base on an understanding of industry structures and the way they change. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry.

Threat of New EntrantsCost and Performance Advantage for Large Firms Proprietary Differences Customer Switching Costs Capital Requirement Distribution Channels Experience and Learning curve help lower cost Obtaining Resources Proprietary features of Product Licenses, Insurance and Qualifications

Bargaining Power of BuyersLarge Number of Buyers Relative to the Firms in the Industry Switching cost for Customers Need for Additional Information Accepted Product Branding Customers Price Sensitivity Customer Businesses Profitable

Performance and Price Limitation in Substitutes Customer Switching Cost No Real Substitute Customer not Likely to Substitute Threat of Substitutes: LOW

Bargaining Power of Suppliers

Differentiated Inputs Supplier Switching Cost Forward Integration Substitution of Inputs Potential Suppliers Business Important to Suppliers Influence of Cost of Purchase on Overall Cost Bargaining Power of Suppliers : HIGH

Intensity of RivalryIndustry Growth Fixed Costs Relatively Low Portion of Total Cost Significant Product Differences and Brand Identities Specialized Competitors Exit and Entry Not Easy

Intensity of Rivalry: MODERATE

Industry AttractivenessFive Forces1 2 3 4 5 Threat of New Entrants Bargaining Power of Buyers Threat of Substitutes Bargaining Power of Suppliers Intensity of Rivalry Among Competitors

ResultThreat of new entrants is low Bargaining power of buyers is low Threat of substitutes is moderate to low Bargaining power of suppliers is high Intensity of rivalry is moderate

Recommendations

A consistent policy should be declared by the Government every 7-10 years in order to make the local manufacturer more focused and more certain. Market expansion measures should be taken which will definitely benefit the industry, government and general public in terms of employment and price. Financing options such as leasing and car finance scheme in collaboration with banks and financial institutions should be extended on a wider basis so as to increase the purchasing capacity of the buyers.

The car manufacturers should also encourage the use of CNG as an alternative to fuel in order to stimulate the demand of the cars despite the rise in fuel prices. Localization should be increased and investments should be made to increase localization.