Barriers for International Automobile Industry to Enter in Pakistan

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


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


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


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.


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.


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


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?


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


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:_____________________________________________

_____________________________________________


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


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


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.


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.


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


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:


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


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.


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.


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


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


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.


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


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


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


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


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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Barriers for International Automobile Industry to Enter in Pakistan