The market for motorised bikes has never been bigger in Pakistan. The industry produced its first motorcycle in 1964, and has grown steadily over the years. Only a few years ago, hovering around 100,000 units that were produced every year, mainly by Japanese brands, this has now blazed its way to over 1.5 million units manufactured in 2011, essentially triggered by the opening up of markets to Chinese brands from the Pervez Musharraf era.
Driven by industry dynamics at the time, the government sensed a growing market for more two-wheelers amidst the fact that public transport was grossly inadequate and Japanese wheelers were considered expensive. In 2012, all indications appear to be that both the consumer as well as the assembler have largely benefited from the arrival of these low cost bikes. For the last six years, the industry has maintained a healthy growth rate of 15% year over year, with around 60 Chinese assemblers taking nearly 55% of market share.
However, is it all really rosy? Pakistan’s poor policy infrastructure, cynics say, is mostly constructed to benefit vested interests, is planned sans any feasibility assessment and generally ends up creating hurdles to progress rather than removing them.
The beginning was rather ‘disconnected’. Local investors with liquid cash reserves leaped at the opportunity of unbridled free market entry and surging market demand and hurried to sign joint ventures with Chinese manufacturers to assemble these motorcycles locally.
Apart from lesser capital outlay, local investors were attracted by an aggressive Chinese export policy (an installed capacity of over 20 million units a year in China, whereas only 11 million units are sold) that does not burden the Pakistani partner with transfer of technology fees or royalties over their product sales. And at this time, Chinese investment in Pakistan’s two-wheeler and three-wheeler industry is reflected in partnerships with some 60 assemblers competing with Honda, Suzuki and Yamaha for an increasingly saturated market, with only a few fighting it out with some degree of success; many Chinese bike makers appear to be languishing in the market with insignificant sales numbers punctuated by inadequate marketing skills, low product quality and non-existent after-sales service.
####Mazhar M. Chinoy reports on the impact of Chinese motorcycles and three-wheelers on the larger industry.
Regardless of the cheaper prices and aggressive marketing by the Chinese assemblers, Japan’s Honda has seemed to hold on to its own and remains the preferred supplier in the market. Their CD70 maintains its supremacy in spite of a much higher price tag, mainly due to its larger than life reputation and excellent resale value. (The ‘CD’ in the branding has been spelled out as ‘cash deposit’ in a clever marketing manoeuvre, implying the ready cash resale advantage.) This has also meant that the motorcycle is a choice quarry for bike snatchers in the cities (in Karachi, the trend is to cloak ID-bearing fuel tanks of Honda and Suzuki brands to thwart preying eyes), which in turn has affected sales of this premium brand in urban sales territories to about 10% of market share. Japanese brands seem to be doing much better in rural areas, in spite of a price difference of Rs 25,000-35,000 with the Chinese. Good return from crop sales and a trend in Punjab to change the bike every year are major reasons, and the rural buyer is also well aware of the rigidity of a Japanese suspension system over Chinese as far as bumpy village roads go. Inflation and the devalued rupee have meant that affordability of even Chinese products is now becoming elusive. The momentum in sales is mainly derived from buyers in the rural areas after good crops and with fuel prices rising and the option of public transport volatile, industry focus has moved to introducing a three-wheeler category. This includes CNG rickshaws as well as petrol-driven motorcycle rickshaws. Essentially aimed at providing a cheaper option of compact public transport, the move is also geared to expand margins for the assemblers.
Qingqi was the first such motorcycle rickshaw brand introduced into the market over 10 years ago, primarily in Punjab. Over the years, Qingqi’s success has enabled its spread across the country including in Karachi where they putter around with an estimated 10,000 other public transport vehicles, appearing to increase traffic congestion even further. The users of this transport do not mind the statistic – cheaper fare, less waiting time and an assured seat are no less than a boon for the stressed out passenger.
However, there are pitfalls too. By most laws of physics, three-wheeled motorcycle rickshaws are relatively unstable in road grip and as most are driven by young, untrained drivers where a sudden rush of blood is not uncommon, the risk to commuters is compounded when one Qingqi tries to outrace the other to get to the passengers first.
The ‘open market’ position taken by the government for these motorcycle rickshaws is a point of debate for industry watchers. Most agree that free market policies only work when there is a defined thought process behind them and have to be considered within tthetheboundaries of road congestion and commuter safety, in a framework where intelligent routing and fair, user-friendly certification of vehicle fitness are glaringly omitted. Moreover, government revenues are severely impacted, given that motorcycle rickshaws are out of the tax net; no firm law exists for their registration or route permit fees. At an estimate, over 20 assemblers are manufacturing some 250,000-300,000 motorcycle rickshaws every year to meet the rising demand of transport.
The motorcycle industry has been prone to allegations of malpractices and tax evasion by both Japanese and Chinese bike makers in cahoots with the administration. The Chinese accuse the Japanese of booby-trapping their progress by influencing government officials while the Japanese bike makers hold them responsible for evading taxes and duties. This is bad news for the consumer who has to eventually suffer when corruption is unearthed and a factory has to close, resulting in value erosion of his bike.
####Chinese investment in Pakistan’s two-wheeler and three-wheeler industry is reflected in partnerships with some 60 assemblers competing with Honda, Suzuki and Yamaha for an increasingly saturated market, with only a few fighting it out with some degree of success.
Reported localisation of parts from some players stands at 90-92% but is openly contested by other industry players. With a large number of parts in the sub-assembly, and other components and sub-components imported under the input output ratio certificate (IORC), many are sceptical about such a high stated percentage of local manufacture. Although there are detractors, localisation has had its apparent benefits, leading to creation of jobs and local expertise, with help from industry leaders like Honda who have invested heavily in technology transfer agreements for cost-effective local manufacture of specialised parts such as ACG flywheel, brake shoe, drum gear shift, fuel cock and ignition coil to name a few.
The arrival of Chinese assemblers in a Japanese dominated market has also sparked off a game of wits over who pays the most taxes. The Chinese say they pay a cumulative 47% in taxes and provide cheaper vehicles whereas the Japanese appear to be importing parts via the IORC and get away with paying only five to 10% import duty. This is also seen to invite critique over alleged fraud in declaring parts under the IORC and benefiting from lesser duties, with a tacit, suspicious nod from the regulators.
The government has encouraged the Chinese to invest more in the motorcycle industry and although industry leaders have welcomed the move in the spirit of competition and optimal product evolution, they also caution the government to ‘tie up the camel’. Quality and reliability of the product, after-sales service and a viable transfer of technology plan needs to be weaved together with a sound policy structure and a transparent process to make things happen. The time for indiscriminate, shotgun approaches for the industry, they say, is over.
Mazhar M. Chinoy has led the marketing services function at a leading multinational automobile company and is currently a director at LUMS.